Assorted thoughts on the financial crisis

  1. I don’t understand the crisis. You don’t understand the crisis. 90% of the people writing about the crisis don’t understand the crisis (most guilty: Matthew Yglesias). You need a PhD and lifetime of work in finance / economics to understand the crisis and if this isn’t you then you don’t have the answers.
  2. My work mates were discussing whether this signals the beginning of the end for US hegemony.  Startlingly, the consensus was “yes” and no one challenged it. Laura volunteered “can we turn it back or is it too late?” Opinions were mixed. To me the other important question is “as a global society, do we want to turn it back?”
  3. Disruption always creates some chaos. Often it is followed by innovation. Call me optimistic, but I see this spurring a wave of innovation in the financial sector.  Katie sent me a quote: “Every financial system tests every regulatory system to destruction.” The idea that the financial system grows to put pressure on the bounds of the regularity system, requiring a new regulatory system seems very healthy to me. One step back, two steps forward. I hope.
  4. The executive compensation discussion is a red herring
  5. Related to 1) — given that our elected officials (who really have no more of a financial /economic background than you or I) are voting on this, I hope they have some smart advisers. Who is actually crafting these plans? Sure as hell isn’t the Senators themselves.
  6. $700 billion is a cartoonish and meaningless amount of money. Per taxpayer it is a few thousand dollars. We are not going to be sent a bill from the US government though. It will be debt financed like the Iraq War and pretty much everything else. If there was feedback between government apppropriations and tax bills, there might be more appetite for fiscal restraint. As it stands, this has more in common with personal credit card debt or a home equity line.  It feels like free money. If our tax bill went up in accordance to government expenditure (or if the future tax incidence was indicated on our tax form), this would all be more real.
  7. If enterprises are not, occasionally, failing are we being too risk-averse as a society and curtailing our potential economic growth? Occasional failure is probably healthy. Widespread failure certainly isn’t.
  8. Better safe than sorry: I am going to start building an Ark. Anyone selling 15,000 cubits of gopher wood?

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4 Responses to “Assorted thoughts on the financial crisis”

  1. Molly Says:

    “As a global society, do we want to turn it back?”

    Sounds awfully Mia Farrow-ish, Phil! I’d say we’re a globalized society, with America’s economy, security and culture closely intertwined with the rest of the worlds’, but not a global society. My question is – is US hegemony best for Americans / my generation / me?

  2. doc mac Says:

    perhaps this is due to #1….but i don’t understand where are you going on #6?. even if debt “feels” free in the immediate–it constrains future choices, no? i don’t think this bailout is going to feel free–we’re going to pay for it when the government can’t afford healthcare, education etc…or taxes more. or both.

  3. phil Says:

    Exactly doc mac. Debt feels free, but it isn’t. That was the point (clumsily made).

    What if government debt felt less free? Would it restrain spending?

    Good way of putting it Molly. I like the Americans / my generation / me breakdown. What about non-Americans? Clearly there are going to be winners and losers. Suspect the well-educated win, the poor win and global elite win. Not sure about everyone else.

  4. USA Says:

    The root cause for the necessary emergency bailout seem very interesting. Here is a very informative video:–o

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