I read an interesting piece on Spiked decrying 'financialization' as a source of our economic problems: In this view the decline in the underlying economy's productivity has caused and been hidden by more and more financial activity - what Remington Razor chairman Victor Kiam contemptuously called "Selling life insurance to each other". And there is some truth to the accusation that governments have favored the financial sector. But I think that financialization per se isn't the problem. Trying to blame our troubles on a specific economic process like increasing financial sophistication sounds more like William Jennings Bryan than Milton Friedman "we will not be crucified on a cross of....financialization". Except that WJB was representing debtors wanting loose money battling the hard money, gold standard bigots of Wall Street. The real question is why have the City and Wall Street shifted from hard money fundamentalism to the Fed Chair put (the notion that rather than let the financial markets suffer a serious decline, the Fed will provide liquidity at low or no real interest rates thus securing a pricing floor or in the argot of futures a 'put' on their investment positions)?
The question answers itself: when the lender of last resort became no one lending no one's money in an institution owned by nobody having no practical liquidity limits then the chaps who formerly would have had to risk their precious sterling and dollars and institutions and reputations to stop a crash (JP Morgan call your office, please) no longer cared whether things got out of hand.
It's the drunk Uncle Sam at the bar syndrome: we'll drink ourselves blind or until Sam and John Bull's magic credit cards stop working. And once again we are back to Williams Jennings Bryan, this time as the prohibitionist decrying demon "financialization" when anyone still sober knows if Bull and Sam would just stop standing everybody rounds the chaos would go away. But Sam and John are stuck in the middle of a drunken mob whose first act upon being cut off would be a very sloppy and painful lynching. And tragically, while most if us won't get in on the bender all of us will be driving the porcelain bus of economic pain once the collapse comes.
Incidentally, this emergence of magic money machines whose goal is to safeguard the finance industry's profits means that Wall Street and the City are now privileged, state subsidized markets where the wealth accruing therein is allocated based upon connections and credentials rather than performance. Goldman Sachs was built by working class Jews who started as mail boys and worked their way up, now Goldies gets its talent from Harvard, Yale, Princeton and the key attribute to get a golden ticket is the modern right 'stuff', what the WASPS used to call 'sand'. Because you see, access to the inner circle of too big to fail is carefully rationed by the state and it's only given to those with impeccable credentials. New ideas, new competitors, innovations are not welcome in the cosy financial oligopolies sponsored by our central banks.
The members like fools like Uncle Sam or John Bull but they want the experience to be exclusive, controlled, benefiting them and their friends. They'll take some of the extra bottles, cases and kegs that Sam buys them and resell them at a massive profit to the outsiders who will never be welcome in the club. This way the 'right' people get richer and keep the wealth among 'their kind'. But eventually the clubmen get greedy and do too much 'bootlegging' and Sam and Bull's cards stop working resulting in a horrific riot that burns down the club and most of the neighborhood as well.
So as the night wears on, the clever clubman keeps close to an exit and fingers his revolver nervously.
Incidentally, this emergence of magic money machines whose goal is to safeguard the finance industry's profits means that Wall Street and the City are now privileged, state subsidized markets where the wealth accruing therein is allocated based upon connections and credentials rather than performance. Goldman Sachs was built by working class Jews who started as mail boys and worked their way up, now Goldies gets its talent from Harvard, Yale, Princeton and the key attribute to get a golden ticket is the modern right 'stuff', what the WASPS used to call 'sand'. Because you see, access to the inner circle of too big to fail is carefully rationed by the state and it's only given to those with impeccable credentials. New ideas, new competitors, innovations are not welcome in the cosy financial oligopolies sponsored by our central banks.
The members like fools like Uncle Sam or John Bull but they want the experience to be exclusive, controlled, benefiting them and their friends. They'll take some of the extra bottles, cases and kegs that Sam buys them and resell them at a massive profit to the outsiders who will never be welcome in the club. This way the 'right' people get richer and keep the wealth among 'their kind'. But eventually the clubmen get greedy and do too much 'bootlegging' and Sam and Bull's cards stop working resulting in a horrific riot that burns down the club and most of the neighborhood as well.
So as the night wears on, the clever clubman keeps close to an exit and fingers his revolver nervously.
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