October 5th, 2008

fortuna

Liar's Poker

When Austrian-school theorists have examined the dynamics of market exchange, they have stressed the importance not only of the larger political context within which such exchanges take place, but also the ways in which politics influences and molds the shape and character of those exchanges. Indeed, with regard to financial institutions in particular, they have placed the state at the center of their economic theories on money and credit.
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The current state and the current banking sector require one another; neither can exist without the other. They are so reciprocally intertwined that each is an extension of the other.
Remember this point the next time somebody tells you that "free market madmen" caused the current financial crisis that is threatening to undermine the economy. There is no free market. There is no "laissez-faire capitalism." The government has been deeply involved in setting the parameters for market relations for eons; in fact, genuine "laissez-faire capitalism" has never existed. Yes, trade may have been less regulated in the nineteenth century, but not even the so-called "Gilded Age" featured "unfettered" markets.
One of the reasons I have come to dislike using the term "capitalism" is that it has never, historically, manifested fully its so-called "unknown ideals." Real, actual, historically specific "capitalism" has always entailed the intervention of the state. And that intervention has always had a class character; that is, the actions of the state have always, and must always, benefit some groups differentially at the expense of others.
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So one of the major consequences of inflation (especially in a monetary system stripped of a gold standard) is a shift of wealth and income toward banks and their beneficiaries.
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It is not simply that intervention breeds corruption; it's that corruption is inherent in the process itself.
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Of course, there is a lot more that needs to be done to correct this economy structurally, but have no fear: Such structural change will not come to this economy without fundamental intellectual and cultural change. That, my friends, is not on the menu. ...
See A Crisis of Political Economy for more.

The financial bailout isn't as bad as Main Street thinks. It's worse.
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Two decades ago, Michael Lewis wrote a profile of the Wall Street gunslingers who traded mortgage-backed securities. He call his book Liar's Poker.
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Our economic ship does find itself in troubled waters. One iceberg is the high price of oil. Another iceberg is the large decline in household wealth due to lower home prices. On the horizon, according to many economists, lies another iceberg, represented by a potential decline in our terms of trade. We have been enjoying cheap foreign goods for years. At some point, we could face a dramatic increase in the hours that an American has to work in order to afford a bottle of French wine, a pair of Italian shoes, or a television manufactured in China.
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Why do the bailout plans focus on the riskiest, least effective approach for avoiding a credit crunch? Because Wall Street firms like Goldman Sachs get huge fees and trading profits from Liar's Poker, and they make very large campaign contributions to key Congressmen and Senators.
See
The Lamps Are Going Out for more details

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