Satyajit Das: Pleasant & Unpleasant “Truths”

Yves here. If nothing else, be sure to read the section on the Money Honey book.

By Satyajit Das, a risk consultant and author of Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives – Revised Edition (2010, FT-Prentice Hall).

Michael Hirsh (2010) Capital Offense: How Washington’s Wise Men Turned America’s Future Over to Wall Street; John Wiley

Mark T. Williams (2010) Uncontrolled Risk: The Lessons of Lehman Brothers and How Systemic Risk Can Still Bring Down the World Financial System; McGraw-Hill

David Harvey (2010) The Enigma of Capital and the Crisis of Capitalism; Oxford University Press

Gary B. Gorton (2010) Slapped by the Invisible Hand: The Panic of 2007; Oxford University Press

Kevin Dowd and Martin Hutchinson (2010) Alchemists of Loss: How Modern Finance and Government Intervention Crashed the Financial System; John Wiley

William Isaac (2010) Senseless Panic: How Washington Failed America; John Wiley

Maria Bartiromo with Catherine Whitney (2010) The Weekend that Changed Wall Street: An Eyewitness Account; Portfolio/ Penguin

Randall Lane (2010) The Zeroes: My Misadventures in the Decade Wall Street went Insane; Scribe Publications

In Japanese Director Akira Kurosawa’s film Rashomon, the rape of a woman and the murder of her Samurai husband is seen through the accounts of four witnesses. The bandit/rapist, the wife, the dead man (speaking through a medium) and narrator outline different accounts of events. Unfolding in a series of flashbacks, the descriptions are shared by the characters with a commoner waiting out a fierce thunderstorm in a decrepit gatehouse only identified by a sign as Rashōmon.

Only the final account from the only witness (although he did not admit this at the trial) appears objective, unbiased and unmotivated by other factors. In so far as the viewer accepts the “truth” of the final version, it allows each different version to be examined in terms of its motivations.

The bandit/ rapist accepts responsibility but claims it was a duel, imbuing the event with honour and heroism. The wife casts herself as a victim, although she may have incited the duel, allowing her to appear modest and innocent. Given that all parties were present at the incident and know the factual sequence of events, it is the motivations behind the various versions that remain intriguing.

A Rashomon like character now imbues books on the global financial crisis. Multiple versions of the events are emerging. As the old saying goes there is “my truth, your truth and the truth.”

One approach is the “chronology”. In “Capital Offense”, veteran journalist (formerly at Newsweek and now at the National Journal) Michael Hirsh provides a history of “the Age of Capital”.

Mr. Hirsh’s thesis is that the foundations for the global financial crisis can be traced to an extended period of history where political ideology rather than sound economics and policy dominated. A supercilious belief that “free markets” would lead to prosperity did not quite tally with a succession of economic crises: the Asian crisis, LTCM, the collapse of the Internet bubble and finally the sub-prime mortgage debacle that morphed into a global credit crunch.

The author’s critique is not really of “free markets” but of the “financial-government complex” and “crony capitalism” – the later term being coined ironically by Larry Summers to chastise the business-government links in Asia that he argued needed reformation! “Capital Offense” provides an insightful history of the failure of successive US Administrations and regulatory regimes to understand the Frankenstein monster they were creating. The portraits of the “wise men” is particularly unflattering.

Well written, Mr. Hirsh’s status as a Washington insider enables him to give a vivid portrait of the history of the deregulation of the financial system and the implementation of rules to assist financiers with ultimately disastrous consequences. Just as Andrew Ross Sorkin’s book “Too Big Too Fail” provided a portrait about the process and players attempting to salvage a failing financial system in September 2008, “Capital Offense” provides a equally interesting view of how over 30+ years a sequence of decisions created the conditions for the crisis.

“Uncontrolled Risk” attempts a similar but more focused chronology of the failure of Lehman Brothers. Mark William, an academic and former risk management professional, provides a solid history of the rise and collapse of the firm.

Factually correct, the text draws heavily on a plethora of works covering Lehman’s history (Greed and Glory and Wall Street” and “Last of the Imperious Rich”) and the events leading up to the Chapter 11 filing (“Colossal Failure of Common Sense” and “Too Big to Fail” and “In Fed We Trust”). In this sense, “Uncontrolled Risk” is a “meta” book (a book about other books), providing a summary for the reader unwilling to read the primary sources. One reviewer on found this feature of the book particularly compelling. Short on time and needing to prepare a final term paper, the reviewer found Mr. William’s book ideal as the title of the review states: “Great book, especially when under a deadline.”

The narrative suffers from the fact that it appears to have been written prior to the release of the exquisitely detailed Valukas Report, which provides a fuller picture of the rise and fall of Lehmans especially of some of the firm’s practices. The evidence from the Report, at times, is at odd with the more conventional narrative of “Uncontrolled Risk”.

The Epilogue offers ten suggestions for avoiding future problems, including a call to adopt policies in place in Canada, where banks avoided the worst of problems. The author appears to have confused good fortune and path dependency with competence.

The suggestions are similar to that already being debated including “motherhood” and “apple pie” proposals for higher capital, reduction of moral hazard and greater accountability. The faith in politicians, regulators and policymakers is touching but at odds with their repeated failures over the last 30 years. As Scottish philosopher David Hume observed: “All plans of government, which suppose great reformation in the manners of mankind, are plainly imaginary.”

An alternative to the “chronology” is the “analytical study”. This generally means the author’s prejudices can be given full scope.

David Harvey, an academic, provides a Marxist perspective on the crisis. “The Enigma of Capital” views the current problems as merely the latest manifestation of capitalism’s recurrent crises. The author also sees this crisis as different, signalling limits to growth have been reached. In Professor Harvey’s view, the credibility of the financial growth model has been undermined. At the same time, the continuance of US global dominance has been weakened because of the rise of India and China.

Professor Harvey accepts that its resilience and inventiveness means that capitalism is capable of reinventing itself. But the author believes the cost that must be paid by the weak and poor is simply too great to allow a return to the status quo.

“The Enigma of Capital” is at its most lucid in the early chapters where Professor Harvey describes how capital moves and shapes the world, always creating the conditions for the next crisis. In later Chapters, the author’s attempts to fit the present crisis into neat frameworks consistent with the work of Marx and Engels seem formulaic and forced.

The argument at the core of “The Enigma of Capital” is unconvincing at several levels. The labour movements throughout the world have not moved beyond a desire to improve the existing “system” for most of a century. Declining union membership and diminished bargaining power means any response is fragmented. In fairness, Professor Harvey recognises these problems in his thesis. He also accepts that, at least in the US, being labelled a “communist” is hardly the recipe for success.

Marx, himself, wrote that capitalism would not perish before all its options and strategies for renewal were exhausted. There is still some way to go before that occurs, if ever. There is also little sign, at least as yet, that the population is willing to abandon capitalism. After all as John Kenneth Galbraith observed: “Under capitalism, man exploits man. Under communism, it’s just the opposite.”

“Slapped by the Invisible Hand” is an extended version of Yale Professor Gary Gorton’s academic papers, including those presented at the Fed’s Jackson Hole Conference in August 2008 and at a further conference in May 2009.

Professor Gorton writes for his admiring academic clan, known to include Fed Chairman Ben Bernanke. This is reflected in a certain loquacious if circumlocutory exposition style: “This agent cares about the intertemporal marginal rate of substitution, so the pricing kernel weights the expected returns on the demand deposits in determining the currency-deposit ratio.” As Steely Dan’s Donald Fagen once sang: “What passes for knowledge, I can’t understand.”

Professor Gorton’s analysis of the causes and development of the crisis is entirely conventional. The inclusion of curious cartoons, illustrations and a photo of e. coli bacterium (undoubtedly a form of academic “daring” treated in academic seminars with gasps!) is not. The book focuses on the Panic of 2007, finding that it wasn’t significantly different in general terms from the Panics of 1893 or 1907. In fact, “Slapped by the Invisible Hand” portrays much of what went wrong as obvious, although the author appears to be surprised by events as they played out.

For example, on the topic of the shadow banking system, Professor Gorton reaches the “startling” conclusion that the network of hedge funds, structured investment vehicles and securitisation operated like an alternative banking system. This resulted in a “wholesale bank run” when funding for these vehicles dried up. There is limited discussion of the factors, including bank capital rules and accounting standards, which encouraged the development of these factors.

Professor Gorton displays considerable naiveté in describing valuation models and the collateralisation of derivative transactions. As an adviser and consultant to AIG, Professor Gorton could reasonably be expected to have a deeper understanding of the issues.

In August 2008, AIG estimated CDS losses at $8.5 billion but the firm remained confident that no actual loss would eventuate as its risk models showed that there was a 99.85% chance that there would be no actual losses. But as required under derivative contracts, collateral calls began to flow in. Counterparty’s models showed larger losses than AIG’s internal models. There was suspicion that AIG’s trading partners were manipulating prices to increase losses and the collateral demanded. Commenting on the battles over collateral, Gary Gorton observes only that: “It is difficult to convey, the ferocity of the fights over collateral.”

AIG proprietary risk models used historical data on defaults to estimate the likelihood of losses on the insured portfolios of corporate debt and mortgages. The chance of losses on the super senior tranches that FP insured, based on the modelling, was assessed as remote. It wasn’t a one-in-ten-thousand year event, it was a one-in-a-million year event. The risk was priced on the assumption that no losses would ever occur. The models do not appear to have taken into account the risk of mark-to-market losses and also the need to potentially post collateral. Both failures proved fatal. AIG seems to have ignored German historian Ernst Junger’s warning: “a half witted mathematician could cause more damage in a second than Frederick the Great in three Silesian campaigns.”

In “Alchemists of Loss”, Kevin Dowd, a former academic and author of financial risk management books, and Martin Hutchinson, a former banker and now a journalist, take aim at the financial and economic theories which lie at the heart of the global financial crisis.

The alchemists of the title are several Nobel Prize winners, investment bankers, the political class, economists, and regulators. “Alchemists of Loss” argues that the financial economy has become one massive rent extraction machine where gains are privatised and the losses are socialised. The authors conclude that bails outs funded by deficit spending will not “solve” the problem leading instead to problems of government debt, which in turn will require monetisation by inflation or default.

Entertainingly written and well argued, “Alchemists of Loss” is sharpest in its criticism of poorly conceived and even more poorly enforced financial regulation and flawed risk models. The book is less successful in some of its prescriptions. Puzzlingly, the book embraces “extreme value theory” as a superior although imperfect risk management methodology.

The reader may not be convinced that hydrologists, practised at predicting the likelihood of catastrophic floods, will prove superior to physicists in modelling financial risk. As Richard Feynman observed about the Challenger disaster: “If some guy tells me that the probability of failure is 1 in 105, I know he’s full of crap.”

In the absence of everything else, there is always the “personal” perspective. This allows pervasive “name dropping”, extensive use of gossip and avoids, sometime entirely, the need for detailed research or the horrors of accurate referencing.

In “Senseless Panic” William Isaac, a former Chairman of the Federal Deposit Insurance Corporation (“FDIC”), outlines a selective history of the author’s tenure during the banking and S&L crises of the 1980s. The connection to the present is somewhat tenuous, seeking undoubtedly to cash in on the current interest in the current global financial crisis.

Short and concise, “Senseless Panic” is at its most interesting when it explores the savings and loans problem when the FDIC closed 534 banks in 1989. Mr. Isaac provides insights into the problems of the “too big too fail”, pointing to his refusal to allow the failure of Continental Illinios, then the country’s seventh-largest bank. The author argues that maintaining public confidence is more important than reducing market discipline or creating moral hazard. Mr. Isaac, naturally, believes that Lehman Brothers should have been rescued and argues for a more interventionist regulator who forces banks to increase capital and reserves in good times to cover losses through bad times.

Mr. Isaac seems to be unaware of the observation of English Philosopher Herbert Spencer that: “”the ultimate result of shielding men from the effects of folly is to fill the world with fools.”

In “The Weekend that Changed Wall Street” CNBC “star” Maria Bartiromo aka “Money Honey” provides a “celebrity” take on the crisis. Some readers may be reminded of Groucho Marx’s famous comment: “From the moment I picked your book up until I laid it down, I convulsed with laughter. Someday I intend on reading it.”

There was a time, long past, when reporters merely reported on the facts and only occasionally passed opinions. Ms Bartiromo seems to have cast herself as a central and sometime the sole character in the drama. “Weekend” self consciously on each page focuses on the “I”.

The author seeks to share what happened “in a way that ordinary people can understand”. In order to do this, “Weekend” takes us into the author’s boudoir – “my world – behind the curtain of capitalism” (a hitherto unknown financial metaphor) to provide ” an intimate look at the personal stories of those involved…from the richest and most powerful to the average workers.” From the airbrushed “come hither” look on the dusk jacket to highly derivative and, at times, corny text, “Weekend” exceeds the sum of your worst fears. Certainly, as Faulkner noted about Hemingway, there will be no need for the reader to rush for a dictionary in perusing this offering.

There are problems of “time space” as the weekend seems to stretch out for a number of years, emerging through a wormhole into the European debt crisis (imaginatively entitled “A Greek Tragedy”) and the Goldman Sachs indictment over a CDO transaction. There are problems of judgement – Ken Lewis is “a quiet man who masked his masterful business sense…” (page 85) and Goldman Sachs’ “reputation was solid”. (page 183) There are problems of classification – Nassim Taleb’s “Black Swan” is apparently “a critical view of the deception inherent in financial instruments” (Page 177).

There is “in depth” analysis – “Greece was in over its head and didn’t show it.” (Page 179). There is poetry – “Each afternoon, when I alight from my car on Broad Street in front of the New York Stock Exchange, I pause for a moment to look up. I have been doing this for sixteen years; it’s an automatic response. There is majesty to the edifice, and its architectural grace is breathtaking.” (page 208) There is hope, although some readers by this stage may be in despair – “…we must restore fundamental principles. We must, once again, allow integrity to guide and protect us.” (Page 208)

The real insight provided by “Weekend” is unintended. The surreal power of the vapid medium of financial TV and its frequently shallow coverage of events is striking. The “names” that curry favour with the networks for coverage and airtime is astonishing. What they say is perhaps even more astonishing, as is the author’s readiness to share “off air” and presumably private remarks. The book also reveals some interesting things about modern publishing, especially its focus on celebrity rather than content, argument or writing skill.

If the future of democracy and capitalism requires a free, knowledgeable and fearless press then this book does not augur well.

In December 1998, the Economist, reviewed Soros’ The Crisis of Global Capitalism (a fellow “celebrity”, albeit with considerably more market savvy and a habit of making money) as follows: “Because of who he is there will always be buyers for his books, publishers for his books and cash-strapped academics to say flattering things about his books. None of this alters the fact that his books are no good… A remarkable thing happens to money when it passes through Mr. Soros; it emerges multiplied, but otherwise unchanged. With other inputs the results are more disappointing – to be blunt, more in line with biology. Mr. Soros gorged on chopped philosophy, mashed economics and fact and figures swimming in grease. It was too much. Before he knew what was happening out rushed this book.” It is not known whether The Economist plans to review “Weekend”.

In the “Zeroes”, Randall Lane, a journalist and founder of a number of ill-fated publications like including Trader Monthly, Dealmaker, and Private Air, provides undoubtedly one of the most entertaining and ultimately the most insightful views of the crisis.

Mr. Lane sought to capitalise on the “conspicuous consumption” of the trading and banking classes. His magazines were targeted at this demographic with features like the Trader’s Monthly roll call of salaries/ bonuses. The game was to attract advertising dollars from luxury goods manufacturers who wanted to sell their over-priced and over-hyped products to people with a lot of money and not a lot of taste.

As the title suggests, the book traces the author’s adventures in this world. Descriptions of previously well-documented excesses of traders and bankers are enlivened by the author’s own dealings with traders and private equity investors who bankroll his empire. The book paints a realistic picture of the culture and milieus of the trading classes that were at the heart of the crisis. It accurately renders the attitudes, especially the ignorance and avaricious self-interest of bankers.

Entirely autobiographical, beautifully written with a lively, self deprecating humour, Lane observes from the peripheries, setting down a highly readable record of the times. The account is deeply personal as Mr. Lane has “skin in the game” losing his own, his family and friend’s money in the ultimate failure of the business.

In the same way as “Liar’s Poker” and “Wall Street” came to represent the financial world of the 1980s, “Zeroes” tales of trading fortunes made and lost and excessive life styles provides an entertaining record of the period.

In Rashomon, Akira Kurosawa presents a meditation on the subjectivity of truth and the uncertainty of factual accuracy. Like the film, the growing literature on the financial crisis is increasingly a meditation on the nature of financial reality. The truth remains unknowable and illusive but the purveyors of the different versions of the facts reveal a lot about their own motivations and agendas.

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  1. Progressive Ed

    Yves, thanks very much for this new type of post (book reviews). I trust that the subsequent discussion will bring out the very best of your most sophisticated and intelligent commentators.

    1. attempter

      I was wondering that, too, if it’s the same Junger I’m familiar with (author of Storm of Steel).

      I don’t know the quote or its context, but I guess it’s something he could have said. Being an amateur botanist and entomologist, he was interested in scientific precision.

  2. Judy Yeo

    All that literature and not a solution in sight… wonder what Shakespeare would have made of it?

  3. jbmoore

    Tis better to be impaled on the cold steel of a sword then skewered by the sharp tongue of a woman or Satyajit Das!

  4. Foppe

    Not much substance to his mention (review?) of Harvey’s The Enigma of Capital, and what’s there doesn’t do justice to the book. Shame.

  5. leroguetradeur

    Thanks, quite a few titles I had not come across, and enough about them to give one an idea what will be worth reading. The Money Honey, yes, very funny. Ah Groucho, where are you now we really need you?

  6. leroguetradeur

    The question that keeps coming up in left wing accounts of the episode (if that is what it will turn out to have been) is whether this is ‘THE crisis of capitalism’. Is there something specifically capitalist about the recurrence of such crises, and will there be one great crashing crisis one of these days that will end the whole thing? It was a question which was debated sharply during the thirties. Every few years there is a crash or a bubble, and friends start muttering about this supposed coming crisis, THE one, not just A one, THE one that will apocalyptically bring about the end of capitalism. They don’t usually say what this end will look like or what life will be like after it.

    I can’t see the evidence for it. And reading this review of accounts of the latest, still cannot see it now. You had generically similar though rarer and more restrained episodes under the Soviet regime in Eastern Europe, the basic underlying mechanism of a credit bubble or Ponzi, or a mass popular mania, is not specific to the form of economic organization. Whether such things would happen cyclically under socialism is hard to assess, because no socialist regime has ever lasted long enough to be a fair test. Manias tend to be more asset and finance focused in the West, have since very early days, and they are connected to freedom of trading.

    I tend to think its the freedom that does it, not so much the form of economic organization. This was what prevented this particular form of mania happening as much or on as large a scale in the Soviet system. Of course, they did have their different manias, the production of huge numbers of unusable tractors, for instance. This is just as much dysfunction, but we are so focussed on market dysfunctions that we do not see that.

    In the same way, religious freedom does lead to a proliferation of cults, and when religion is the main concern of a society you can get some very odd and desperate manias indeed, given freedom. In the same way perhaps when a social or political revolution takes the lid off the pressure cooker, as in the French and Russian revolutions, all kinds of terrible and crazy things come bubbling out.

    So my own answer would be, there is no inexorable movement towards the mythical Crisis of Capitalism. The dysfunctions of Western market economies are real, but the dysfunctions of the Eastern Bloc ones were different but no less acute. Which does not mean that particular capitalist societies, and maybe more than one at once, will not encounter very serious problems from time to time. It is just that Marx’ writing gives neither the aetiology nor the prognosis accurately enough to be helpful.

    1. Foppe

      Nice combination of red herrings and straw men from which to draw the conclusions that ‘there will be no Crisis of capitalism’, and that ‘marx’s writing’ (where did that come from?) does not give the ‘etiology nor the prognosis accurately enough to be helpful’? I have yet to see you accurately summarize ‘marx’s contributions to the debate’, for one. You speak in generalities, then conclude things that are uninteresting in the extreme (by saying there will be no ultimate crisis you are, among other things, implicitly suggesting that every other (how do you compare them?) crisis isn’t bad enough to warrant attention), even though this one has caused enormous amounts of suffering already.
      So if you really want to meaningfully criticize Marx, you should at the very least be willing to understand what he has to offer, rather than just spouting the above inanities about ‘the failure of the left’; and to do that, you might consider reading Harvey’s Enigma of Capital.

      1. Foppe

        (Ugh, it’s late)
        Nice combination of red herrings and straw men from which to draw the conclusions that ‘there will be no Crisis of capitalism’, and that ‘marx’s writing’ (where did that come from?) does not give the ‘etiology nor the prognosis accurately enough to be helpful’. How is it that you go from a vague general ‘discussion’ of ‘theories that circulate on the left’ to that, very specific conclusion? I have yet to see you accurately summarize ‘marx’s contributions to the debate’, anyway.
        You speak in generalities, then conclude things that are uninteresting in the extreme, namely that “there will be no ultimate crisis”: how much worse does this one have to get for you to even acknowledge it as a consequence of the capitalist system? (By saying there will be no ultimate crisis you are, among other things, implicitly suggesting that every other (how do you compare them?) crisis isn’t bad enough to warrant attention, even though this one has caused enormous amounts of suffering already.)
        If you really want to meaningfully criticize Marx, you should at the very least understand what he has to offer, rather than just spouting the above inanities about ‘the failure of the left’. (And if, indeed, you want to try, consider reading Harvey’s Enigma of Capital.)

        RogueTrader: “Is there something specifically capitalist about the recurrence of such crises?”
        Yes, there is; that is, if you understand capitalism to be the mode of organization that tries to put a monetary value to everything that happens in a society, and which heavily penalizes anyone who does not opt in to the system of contributing to GDP. For instance, the whole idea with having an ‘inflation target’ strongly “incentivizes” everyone to seek returns on their savings, as they will otherwise lose money because of that government choice. This means that everyone is continuously looking to (re)invest every cent they have, and this causes more and more problems the more money there is in the system, which is when you get ponzi schemes and asset/housing bubbles galore. This, then, redistributes money up, at which time it becomes even harder for those people to invest in such a way that they’ll get “good returns”. For instance, the push towards investing in low wage countries is something that only benefits the capitalized classes, who don’t care whether jobs are lost from the local economy, as they can just invest in the factories elsewhere. Yet this behavior causes enormous harm to the rest of society. (So what moral reason would these people have not to lynch the capitalists for destroying society’s fabric? The rule appears to be to only care about the well-being of those in your peer group, and damn the consequences for anyone else.) Similarly, allowing usurious interest rates on loans: while “loan sharking” is illegal, when banks do the same thing it is ‘good’, as it “generates profit”.
        That is, the entirety of society is now to be measured in how much profits the rich make, rather than in a way that looks at median affluence, or social stability. How is that not ‘capitalist’ thinking? There was at least once the idea that a society should be ruled by politicians who should have (moral) values — yet now it is considered weird, or ‘suboptimal’ for them to do so. (Of course there were always robber barons, but there were also countervailing forces, and they are gone now, excepting a few.) You simply cannot base a democracy on that, as it will fall apart unless you excise the cancers (your banks, hedge fund managers who buy companies to hang full with debt and that way destroy their long-term viability, etc).

    2. attempter

      Another one who thinks space aliens are going to tow us another planet filled with oil.

      Peak Oil is a characteristic crisis of capitalism. If the fossil fuel heritage had been rationally and morally apportioned, there was enough for all people to live in decent comfort for thousands of years. Instead it’s been around 150 years for oil, and we’ve already used up all the good stuff (leaving only the lower-quality, more-expensive-to-extract stuff) in a luxury binge for a relative handful. And that binge continues, ever more obscenely, for ever fewer thieves.

      Yes, things have turned out pretty much as Marx forecast, just not in exactly the way he did. He didn’t foresee how imperialism and fossil fuels would generate enough of a surplus that the elites would temporarily have the luxury of allowing enough to trickle down for a mass middle class to arise in the West (this was done only for reasons of political convenience, of course; it was under Cold War duress). He only vaguely foresaw financialization and how neoliberal ideology would perform a masterful campaign of misdirection as that middle class was gradually subverted and its liquidation commenced.

      But today we’re in the full open liquidation stage. Combine that with how every sector has already congealed into oligopoly or is rapidly so congealing, and by that roundabout way we’ve reached the Marx-envisioned final stage of capitalism.

  7. Richard Kline

    Das: “If the future of democracy and capitalism requires a free, knowledgeable and fearless press then this book does not augur well.” We have not had a press in the Anglo-American sphere which satisfies those conditions since c. 1991, and counting. What that augurs is what we’ve got now: theft, ruin, and stasis. _Why_ we lost a functional mass media will be a subject of interest for historians to dissect. I would start from two theses, well enough evidenced I think I’d call them more than hypotheses. 1) The partial crash of the financial system in the US scared the power elite into ‘lie all the time’ mode. 2) The removal of a pair of cold, war guns to the world’s head left room for second-tier states to expand economically and in terms of other influence, and this raised the spector of the Anglo-American Hegemony losing a presumptive veto on policy developments in much of the world, hence a need, since grown into an addiction, for instructive interventions to keep ‘those people’ in line.

    Regarding the texts of Gorton, an academic limpet close to the current ring running the Fed, and Isaac, a former chair of the FDIC and hence a well-informed insider, their titles alone, to say nothing of their substance, confirms my sense of the perspective of the powers that be on This Financial Thing we’ve been experiencing for three years and more now. Said actions have not seemed to make sense, on the surface; do not engage with the facts of the problem. This is something Yves has often discussed in detail, and other commentators too if with less broad of a scope re: wtf on the inability to engage. From the winter of 08-09, that is Bust TARP to Obama FLOP, I came to the view, expressed here, that the powers that be don’t believe we had a Crash, they believe we had a Panic. And here we have exactly that view from insiders, that they’ve fought a Panic to a draw, and would have gotten a win but for ‘unexpected developments.’ I suspect if we got Bo Prez away from his handlers and put a few drinks in him, he’d say exactly that, that he inherited a Panic and has done a damn good job keeping things from blowing up. Don’t laugh . . . oh alright, go ahead and guffaw: faced with self-serving folly a good laugh is the first anodyne needed.

    A Crash and a Panic are two quite different things you see. Without going through a checklist (by all means make your own), a salient difference is that in a Crash distorted values and corrosive practices collapse to a more stable state whereas in a Panic actual values and largely functional practices are impaired due to, well _panic_ and consequent systemic freeze-ups. In a Crash, one clears the wreckage, does structural reinforcement (or moves), and gets on with things. In a Panic, baling wire is applied while systemic freeze-ups are thawed out, all the while “No cause to be alarmed” being bruited about by all in authority. And the behaviors of those in authority make sense from the standpoint of coherence if we accept that they are fighting a panic. . . . . The problem being of course that in reality we have had a Crash, so that the Panic set of responses are quite dysfunctional. More could be said there, but in fact has been said at great length here over the last two years by Yves, and by posters and commenters diverse, so I’ll spare pixels on further chat there.

    Regarding Harvey’s text, “one of these things is not alike.” Specifically, his work is the only one there which actually calls a crash a Crash. I do think he has a lot more to say on the subject then was mentioned, though this work has also been the subject of discussion in comments here in the past as well. I would encourage you though, Foppe, to give five hundred words on what you think does justice to Harvey’s wide-ranging analysis.

    There is a point in Harvey, touched on by Das in his remarks, which I find worth probing. Though I’m only going to raise it, not even attempt doing it justice, and we’ll get no firm conclusions here any way. That is the issue of ‘capitalism being adaptive.’ ‘Capitalism’ isn’t really a thing, or even a state. I know that Harvey knows this, both in depth and detail, having been through some of his other texts. ‘Capitalism, developed nation, 21st century’ is a set of convergent practices, some of which are mutually reinforcing but few of which _by themselves_ are indispensable. Said differently, there really isn’t anything called capitalism, there are only practices which co-occur. It’s not like, say electoral democracy or subsistence agriculture where there are some sine qua nons. Marx himself, the coiner of the ‘adaptive capitalism’ concept quoted was very much aware of this since he documented a particular kind of capitalist process; had to be aware of this protean state since he described how this comparatively new deployment of ‘capital’ was distinct from preceding commercial economic practice. Of course in turn of the 21st century commentary, such distinctions have been less lost than deliberately redacted where there substantive analytic content hasn’t been discarded altogether. A critique of ‘capitalism’ now is seldom made without discussion of unionized labor, but there is nothing inherent in this. Organization against the distortions of capital is implied, but trade unionism isn’t an inherent response, for example. My point of observation here really is that ‘turn of the 21st century, developed nation capitalism’ has so saturated the perspective of the commentariat that we can’t even get a legitimate discussion of ‘capitalistic’ behaviors going because few have the grounding even to broach the subject. That is an indication that capitalism is less a system of practices than an ideology of beliefs predicated upon unquestioned material conditions. We end rather in a position of trying do discuss Christianity in 15th century CE Europe when only a small fraction of the world’s population were of that confession, and there were many alternatives (including None of the Above) which could not be conceptualized by 15th century Europeans even when they had reason to do so. Hmmm , , , ,*sigh* If we had an actual intelligentsia, we could have a real crack at this one, hey?

    On final note, Das’ use of the narrative of the film _Rashomon_, offers something much more to a closer reading. This narrative is frequently discussed, as here, as an instance in the subjectivity of perspective. To me, that is a very interesting point, but _not_ one really pursued in this film: the reading is an oft repeated misconception of what was actually shown, as I had on my mind when I watched _Rashomon_ again this year. A more accurate reading of the film’s perspective is this: everybody lies. Noble, wife, thief; each has a subjective reading yes, but the details matter. Each one _omits_ critical details which the others relate. Furthermore, the details omitted invariably reflect _badly_ upon each particular narrator. The perspectives are not merely subjective, then, but they are _selective_. But it doesn’t stop there, because the actual ending of the film, which never makes it into the canonical reading is the capper which drives home the point. A set of commoners have come together by chance in a ruined and half-burned temple in a downpour and they indeed relate the individual narratives (one of them came upon the scene of the incident which is how the authorities became involved). At the end, it’s revealed that even the commoner who is principally recounting these narratives lied: he stole a critical piece of evidence (the wife’s dagger) to sell it, and lied to the investigators, and without this piece of evidence it is impossible for those investigators to reach any accurate conclusion, regardless of their efforts, and regardless of the distortions of the three narrators. And the commoner knew this but still participated in an investigation which could only have a misleading end. The actual subtext of the film, to me, is that Kurosawa chose to highlight the pervasiveness of self-serving lying of the Japanese to each other in the ruin of the Great Pacific War, the half-burned temple where everyone is cold, hungry, miserable, and out for themselves. Everyone wanted to both blame someone else for the disaster and conceal their own culpability in the outcome—to which they had all contributed, large and small.

    The point of _Rashomon_ to me, only goes more deeply to where Das is headed in using the film as a metaphorical templet then, or at least I see it that way. In these events, everybody lies; everybody lies to be better perceived; everybody lies to conceal the actual facts. One could call the narrators Paulson, Bernanke, and Summers; or pick you set. —But remember to include yourself, you and I, the narrators of events who have our own crumb of self-interest to hoard and make off with. The clearest subtext of _Rashomon_ isn’t the subjectivity of an unrealizeable ‘truth’ but how the preferability of a mendacity to culpability leads to reality spinning into entirely avoidable catastrophe. In this film, it would only have taken _one honest person_ stepping forward at any point in events to resolve than at lesser cost or entirely. But no one did. There’s a theme for our times.

    1. Foppe

      I would be willing to try, but (as can be seen above) as I have some trouble getting my thoughts onto paper in coherent sentences and paragrahps, it might take a week or two (also, I’m still thinking about the book and its contents). :) How and where would you suggest I post it, though?
      There is definitely a good discussion in his book (I mostly read the ‘The Crisis’ talk as ‘a crisis’, and just look at the actual analysis, which is quite insightful and has a lot of stuff that would have to be worked through in order to see the implications) about the different ‘hurdles’ that are to be overcome for growth (capital accumulation) to continue, and the ideology (which I have tried to point towards in my reply to myself) definitely plays a large role in making it easier to just go for bigger numbers, rather than anything sustainable, or anything that is actually good for the largest number of people (this is what the belief in Neoliberalism has done). However, because of the inherent problem in any money system that the value depends on the (future) supply and demand for the currency, I’m not really sure that you can have eternal accumulation/growth. It seems to me that you will either get disparities in wealth that are too large for different SES groups to coexist in the same currency (leading to an unaffordable cost of living for the underside) or they don’t — but it seems to me that this would ultimately result in the equivalent of running in place, as inflation will cancel out actual “growth” (whatever the use of that is), so that we ultimately chase the rainbow/horizon. (Note: this is not discussed by harvey, but are just my — unpolished — ramblings)

    2. Anonymous Jones

      “A more accurate reading of the film’s perspective is this: everybody lies.”

      This is 100% accurate and just kills me every time I hear the film referenced. Sometimes, I feel like I’m being ‘gaslighted’ when people starting talking about “perspectives.” What film were they watching, I want to know…

  8. attempter

    “Weekend” takes us into the author’s boudoir – “my world – behind the curtain of capitalism” (a hitherto unknown financial metaphor)

    I’d expect Bartiromo’s boudoir to be a place of uncurtained capitalism.

    Summers coined the term “crony capitalism”? He’s certainly a master practitioner of it, so he oughta know.

    (Summers is also one of the ultimate examples of wingnut welfare, as he’s failed in every significant post he ever had yet keeps getting new ones.

    He was a disaster as Treasury secretary and president of Harvard, and it’ll soon be clear how disastrous his Obama tenure was. But so long as the kleptocracy exists, he’ll never suffer the same consequnces of such a record of failure as a non-rich person with a comparable record would.)

    I think between Peak Oil and the Bailout running up against its own economic and political E=mc2 type limits, finance capitalism and top-heavy centralized structures are in fact out of options, other than brutal open force. We can certainly assume that they won’t give up short of open fascism. But that will fail as well, since the structure is unsustainable.

    The same is true of any orthodox interpretation and application of Marx and Engels, whose communism is also a political philosophy of the Oil Age.

    The age may, on the other hand, finally be the great historical opportunity for anarchism.

    This will be a time of deconsumption, deconcentration, and decentralization, all being forced by energy descent, the collapse of the “growth” economy, and hopefully by organized political resistance as well. Anarchism is the only mindset and plan which is practically, rationally, and morally attuned to the needs of humanity going forward. We know that ALL other forms of government/society, including most recently representative pseudo-democracy, are complete practical and moral failures.

    One thing’s for sure – the only two options going forward are some form of decentralized participatory democracy, or the full restoration of de jure feudalism.

  9. leroguetradeur

    I am sure that peak oil is coming, maybe actually here. But I do not see that running out of non-renewable resources is something that is peculiar to capitalism. It will happen to any economy or society that uses them up, and any may. The unsustainable despoliation of the environment that occurred in the non-capitalist Soviet Bloc was unbelievable. As was the accident rate and total lack of ordinary safety measures. I knew someone who was sent in after they took over an East German chemical plant, and he could not believe what he was seeing.

    “Said differently, there really isn’t anything called capitalism, there are only practices which co-occur. It’s not like, say electoral democracy or subsistence agriculture where there are some sine qua nons.”

    Yes, this is very true, and it is one reason why I do not think that whatever my left wing friends are trying to refer to when they talk about The Crisis of Capitalism is going to happen in any sense that this phrase is a reasonable description of. There will be lots of crises in particular practices and particular regimes, this is just history. Their view seems to be the classic Hegelian one, that there will be some sort of total crisis out of which a new form of society will emerge — mostly they think it will be socialism, whatever they mean by that. I don’t find that at all plausible or evidenced.

    Attempter says “One thing’s for sure – the only two options going forward are some form of decentralized participatory democracy, or the full restoration of de jure feudalism.”

    Again, I don’t see the evidence. There are lots and lots of muddle through bits and pieces of different ways of doing things, and I can’t see any evidence this is going to stop or get more consistent or to polarize into just two alternatives.

    I do agree that there are elements not so much of feudalism in any historical sense in our present situation, but there are strong elements of the noblesse de robe in the ancien regime in France, in the role of the finance and legal sectors.

    Its definitely not feudalism though. This power base was one that emerged as feudalism gave way to absolute monarchy, and there is nothing feudal about the present situation. Remember the essence of european feudalism: it was an hereditary military caste, drawing its power from local rule and inherited territory, owing allegiance to the monarch by way of service in war and administration in peace. It was quite inconsistent with the rise of the noblesse de robe, and the merchant and industrial classes, and that is what finished it in the end.

    1. kevin de bruxelles

      I do see some analogies to feudalism and the current situation in the US.

      But first, since feudalism is an elusive word that is often difficult to define, let me start by telling you what I think feudalism is. To do this we need two conception tools, one a linear scale from centralization on the one hand to fragmentation on the other. The other tool is the triangle of power that plots the relative strengths of the One (State) the Few (aristocracy) and the Many (the people).

      Feudalism is a move towards fragmentation of the political structures of society brought about by a corresponding increase of power for the Few at the expense of the One and the Many.

      Classic feudalism developed around the military innovation of mounting soldiers on horses. Horsemen are much more expensive to maintain and so another crucial element of feudalism is an undeveloped (or weakening) central state or ruler. The third element is terrain advantageous for cavalry, open plains, steppes, large, less densely populated areas where a mounted elite could more easily reduce a dispersed peasantry into subservience. On the other hand horsemen were close to useless in rugged mountainous areas and against fortified cities so feudalism proper never developed in these types of areas..

      Since the central state was too weak or underdeveloped to support this elite cavalry by traditional means of taxation, the central rulers instead granted fiefs to the mounted elite, basically sovereignty over an area of land, in return for oaths of loyalty. In the classic cases of feudalism, the mounted elite used these fiefs to accumulate even more power; making the central powers even more dependant on them, until eventually the central powers were reduced to nothing more than convenient figureheads.

      With the rise of trade (in luxury goods for the elite to start with) some of the Many eventually regrouped into city states and developed masses piked infantry which later defeated the forces of aristocracy, for example in the Battle of Morat. And because the increasing trade allowed them more chances to claim taxes, the One also regrouped as and started to develop towards powerful States with standing armies, bureaucracies, and better developed tax systems. These trends eventually returned the One, Few, and Many to a more sustainable balance of power of which we see the results up until recently.

      So as for the connections to the situation today, in the US at least, I do think there is an analogy to be made between on the one hand the rapid rise of nodes of financial power, and on the other hand the rise of the horseman in medieval times. There is no question that today the power of the Few is increasing at exponential rate at the expense of both the State and the Many. The financial sector is able to take an ever-increasing large flow of funds away from the center. We see in so many ways the hollowing out of the power of the state due to their reliance on funding for election campaigns among other reasons. The coming climbdown in the Fauxclosure scandal will only further demonstrate who takes orders from whom. The people of the US are for many reasons dispersed and disunited and Wall Street has begun the process of reducing in detail into servitude. And as the power of the center continues to be reduced, we will see a further fragmentation of political power in the US in the coming decade as the Few further mold the One into a force that only serves their interests.

    2. attempter

      Yes, it is feudalism. The term refers to a system based on rentier tyranny, where the people are indentured to the land/job by debt and “law”, and only indirectly by force. (That’s the distinction between a serf and a de jure slave.)

      We already see the outlines of how the combination of totalitarian privatization and insurmountable debt, the sharecropping system universalized to all of pseudo-society, is intended to serve as the vehicle for the new tyranny.

      I wrote about it at greater length, especially here:

      As for a closer parallel to medieval Europe, in the post-fossil fuel age we’ll be reverting to normal agricultural methods, which will again be as labor-intensive and require the same mass labor force.

      While we certainly can work the land on a cooperative freedom basis, the elites will try to restore a serf peasantry.

      And if the current trends toward wealth aristocracy continue, including the outlines of a recrudescence of hereditary aristocracy (so far de facto), I’m sure that eventually they’ll get around to restoring the old forms and ornamental trappings of “nobility” and even monarchy.

      Yeah, it’s feudalism, all right.

  10. Ellen Anderson

    Wonderful writing and discussion. This blog is at the top of my list.

    Exponential growth in: 1) energy use, 2) debt and 3) population must finally put an end to an industrial system of production – true? Traditional capitalism and socialism are two sides of the same fatal way of producing and distributing a surplus for humanity? “Capitalism” lasted longer than socialism. That would not have surprised Marx who believed that socialism would have to be a world-wide phenomenon if it were to succeed.

    When the industrial economy collapses then neither socialism or capitalism are likely to be winners. What will emerge out of the ashes is pure speculation – though interesting and fun in a scary sort of way.

    Looked at in this way, all of those books could be seen as literary variations on the same theme – namely descriptions of the way in which the inevitable collapse is perceived by those at the top of the heap? That is what makes the Rashomon analogy so perfect!

  11. K.J. Bemies

    Nice writing on Bartiromo. Can’t believe anybody cares what she writes or says after her attack on Congressman Weiner (NY) about signing up for Medicare.

  12. Francois T

    The real insight provided by “Weekend” is unintended. The surreal power of the vapid medium of financial TV and its frequently shallow coverage of events is striking. The “names” that curry favour with the networks for coverage and airtime is astonishing. What they say is perhaps even more astonishing, as is the author’s readiness to share “off air” and presumably private remarks. The book also reveals some interesting things about modern publishing, especially its focus on celebrity rather than content, argument or writing skill.

    If the future of democracy and capitalism requires a free, knowledgeable and fearless press then this book does not augur well.

    It should have been obvious to Das, who is an astute observer of things and persons, that this book simply tells us the augur has already spoken.

    There is a very good reason why a majority of people feel that the country is heading in the wrong direction. It is because it is going down.

    Note that I’m not talking about finance here, (although this is important) but something much more fundamental than that; survival.

    In 1950, the United States was fifth among the leading industrialized nations with respect to female life expectancy at birth, surpassed only by Sweden, Norway, Australia, and the Netherlands. The last available measure of female life expectancy had the United States ranked at forty-sixth in the world. As of September 23, 2010, the United States ranked forty-ninth for both male and female life expectancy combined.

    By the way, “Female life expectancy at birth” is how we measure if nations that called themselves “advanced” really are.

    But even the above does not provide the true rate of decay of the country. The HALE index is the Healthy Life Expectancy. The US was 24th on the HALE ranking in 1999. ( We are now 49th in 2010.
    As for how well we do with our children, it all depends of the good or bad fortune they’ll have at birth. We are currently 30th overall ( but, the cases of failure to thrive are rising fast in the US.

    Needless to say these cases are very heavily concentrated in low income areas.

    People can read some more about all this cheery stuff here:

    And yes! Das was right: no knowledgeable, fearless free press means that we don’t get informed of the real problems like the ones just mentioned. Not surprising since the pundits today are paid for NOT talking about the real problems.

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