Much longer piece coming on Matt Taibbi’s Rolling Stone article about the mess we’re in, but I had to share this as soon as I read it:
As complex as all the finances are, the politics aren’t hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.
Dead on.
Amit
agree. whether it is the tax code or regulations, those who benefit by them being more complex are the rich who can afford the fancy accountants. that is why so many big companies push for these new laws because it increases the barrier to entry for small to medium businesses that are more effective than they are.
tx2vadem
Stripping away even CDOs and CDSs, finance is complex. But the same is true of any field that requires professionals. Most things that people buy are the result of fairly complex processes in order to get that to them. Do people need to understand how crude oil is refined and delivered to their gas station in order to make good decisions? I don’t think so, that is what you pay all these other people to do.
I don’t think financial literacy is the problem here. Or that the financial industry’s desire to create novel solutions is either. CDSs and CDOs are not inherently evil and they did not, in my mind, cause this problem. The failure, I put on three things: Credit Rating Agencies (a consistent player in major accounting scandals and now this), the Federal Reserve Board of Governors (specifically Alan Greenspan) and the large, complex (but not comprehensive) financial regulatory system.
Credit Rating Agencies are supposed to serve a key purpose in finance: reducing asymmetric information. But they have consistently failed to perform a sufficient level of due diligence to call BS on the likes of Enron and now these bundled mortgages.
The Fed because they have done nothing but pump more money into the economy. Yes, they raised interests rates a little. But for the longest period they kept money so cheap it facilitated these kinds of bubbles: first the tech bubble, then the asset bubble. And all Greenspan could do was talk about it instead of using the power he had as Fed Chair. Wow! If someone should be in jail, it should be him. And for good measure, his wife too. That’s right, you too Andrea Mitchell!
And then Congress and state governments for never fixing the regulatory system. Holes in the system, plus overlap, plus people shopping jurisdictions just makes a mess and makes the system less effective. I don’t think it is the people’s job to have such intimate knowledge of finance and financial market regulation to demand their congressperson change that. We have division of labor for a good reason.
Geithner’s plan sucks though. At this point, I have love for only one of the following: either the established process of bankruptcy, or FDIC-like (fix-it, then sell-it) government receivership. But another many billion foray into he world of private equity and debt markets seems like a colossal waste to me.
MB
Stepping out, but I’d really like to get your take on the Taibbi article, TX (beyond the fact that he’s obviously spent too much time with his subject – too much dickswinging).
tx2vadem
I only take issue with the conclusion. It doesn’t have to do with finance experts rolling their eyes and the general populous being out of the loop. It’s like he points out earlier. There were a lot of folks (management, auditors, and regulators) making some big mistakes (in retrospect).
I don’t know that this a coup for the financial industry though. Obama and Congress have promised different regulation of financial markets. So, whether this is really a coup will depend on what they deliver. What they propose will be evaluated by the press, the industry, and others. They’ll (or should) let the people know whether this a crock or not.