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But in a good way. Financier Jeffrey Leeds talks with Liaquat Ahamed, author of the acclaimed Lords of Finance, about why the bear market is actually a good thing—and how much longer it will last.
Your book is in large part about the importance of the individuals who managed—or mismanaged—the global economic crisis that arose after 1914 and that led to the Great Depression. How did the managers of our economy err this time around?
The central theme of my book is that a group of people had ideological blinkers. The question is did they, this time around, have a different set of ideological blinkers that prevented them from seeing what was happening. Secondly, more importantly this time than last time, is the element of hubris. They were so successful weathering storm after storm, including the storm after the dot-com crash. So, I do think the people who ran economic policy, Alan Greenspan, people who had been in the Clinton administration, people who have come afterward, really thought they knew how to keep the car on the road. And they didn’t.
The economy responded to things as predicted. For example, let's take the Asian crisis. They went in and came up with a policy, they threw a lot of money at the problem, a lot of people told them it would be a disaster, and lo and behold a year later Asia was recovering. They sort of patted themselves on the back. Then, the same story with the dot-com bubble.
“Profits will probably fall by half and I would be surprised if the bear market lasted more than two or three years. And we’re 16, 17 months into it.”
Tell me about that.
Alan Greenspan has become associated with the view that it's too hard to prick a bubble, but you can know what to do when the bubble bursts. And lo and behold they did what they said they would do, which was to cut interest rates very quickly and within two years the economy was back on track. There were some bankruptcies, and people lost money, but the whole system didn't fall apart.
So, it had the stability of a bicycle. They occasionally hit a bump, but they knew how to keep the thing going. But when they hit a really big bump, they collapsed.
What is striking is what a house of cards they were dealing with. Last year, even the most pessimistic forecasters did not imagine that the whole Western system would fall in on itself.
Lords of Finance. By Liaquat Ahamed. 576 pages. Penguin. $32.95.
Were the mistakes in your view, a function of denial that itself was a product of the fact that everybody seemed to be doing so well, and economic incentives embedded in the system? How much do you think was a function of the fact that the world had become so increasingly complex so quickly that it was impossible to know what was really happening?
That's an interesting question. Certainly there was an opaqueness about things, in part fostered by policy. That people were allowed to have all these off-balance sheets was like having a second set of books. Why they allowed that, I don't know. So obviously no one quite had a picture of the system. If you asked them to draw a map of the system and tell what the amounts were, I don't think anyone could have. The opaqueness was one element.
On the other hand, there were people who were saying this can't go on. But they were all fuddy-duddies. They started saying "it all can't go on" ten years too early.
And who were the fuddy-duddies?
People like Paul Volcker and Henry Kaufman. All the old dinosaurs, who were astounded by the numbers involved. It was basically old Wall Street hands who were saying this is ridiculous, this is crazy.
How Rich People Smoke Pot
Paul Schrodt is a writer living in New York City. He has contributed to New York magazine, Radar, and Esquire.com.
Justice Clinton?
As vice chairman of Public Strategies and president of Maverick Media, Mark McKinnon has helped meet strategic challenges for candidates, corporations and causes, including George W. Bush, John McCain, Governor Ann Richards, Charlie Wilson, Lance Armstrong, and Bono. McKinnon is co-chair of Arts & Labs, a collaboration between technology and creative communities that have embraced today's rich Internet environment to deliver innovative and creative digital products to consumers.
magicman
This article doesn't propose a single Reform or Idea, structural or otherwise, which frames either the reasons for the demise of our Banks or what might be done to cure whatever problems may be inherent in the design of Banks that causes them to fail periodically; except to say Bear Markets happen, and that they are good, and they last only so many months, on average. Can you bury your head any deeper in the sand? This is the argument for the great 'uncaused cause', which as we know, simply doesn't exist. Either things are caused, or the Legal System is completely wrong in assuming that causes do in fact exist.
Here's something to smoke in that Pipe you are wafting upon. ALL of our Banks are 'frontrunning' their Customers. Hence, no new customers, in fact the reverse, fewer customers. Existing customers are leaving. Why? Because the Banks are stealing from them, that's why.
Here's the scam. The Purpose and Motive is to obtain Bank Fees. Here's how they are doing it. Your deposits do not count. Only your debits count. It is 'make pretend' accounting. By 'pretending' your depositis do not count UNTIL AFTER all of your debits are deducted from your Bank Balance, ALL of the U.S. Banks are taking Insufficient Fund Fees, usually $25 dollars, right out of your Bank Account.
By 'frontrunning' debits BEFORE credits, by ignoring the 'real time' nature of transactions, Banks ensure themselves a greater number of Bank Fees, in the aggregate, for ALL the Banks. This is Predatory Banking Practice. It is in fact Illegal, and NOTHING is being done to correct the Problem. Instead, customers are harrassed by a bureaucracy that is trained to understand only that your Bank Balances are whatever 'they wish to declare them to be' at any given moment. This is pure, unadulterated FRAUD and is widespread throughout the Banking System.
If the Obama Administration is serious about encouraging Bank's to Lend money to stimulate the economy, they must first wean the Banks off of their Thumb Sucking Bank Fee Addicition BEFORE any meaningful rapport will ever be established with even a single customer. It is illegal, I suppose, for an individual to walk into a candy store and take $25 dollars from the till, declaring that 'they say' a debt is owed. This would only be common sense. But if a Bank were to do the same thing in calculating your Bank Balance, then the whole thing is just one big misunderstanding. Or is it a deliberate misunderstanding? It is Fraud plain and simple.
Now, I do understand the Government's need NOT to enforce Law, in any instance, or in any case; and I do understand the Bank's demand to steal our money. I also understand the Bank's opinion that we all OWE THEM A LIVING. I do hope that I am being at least polite in pointing out to you that you are full of sh*t, in return.
Please do not steal money from Bank Depositors, and do not expect a Bear Market to end of itself. It is Reform itself which rights the ship. Nothing happens uncaused. Your arguments are not only anti-intellect, they are complete nonsense and an affront to any reasonable man. But this is what causes mistrust, the Foundation of all Bear Markets. I do wish you luck in resurrecting a Financial System on the premise that the Bank has a right to steal from it's customers. I doubt that it will work at all, but you are welcome to try and be proven wrong again.
The Reforms necessary are the reimposition of Glass-Steagall, the elimination of Leverage in securitizing Bank Products, and the elimination of 'phony bank balances' for the imposition of Fees. Otherwise, we will remain forever in the Dark Ages of Theft and Greed created by our Banks in the first instance.
joymars
Do you know what money is? Chances are if you're a normal human being you've never even asked the question.
A great 40 minute animated film on the subject, "Money as Debt" -- a must see:
http://www.silverbearcafe.com/private/moneyasdebt.html
Mbuna1
"The central theme of my book is that a group of people had ideological blinkers" This was enough for me to read, I didn't need to read the rest of this interview (even though I did) once I read that sentence because the whole blinkers theme is a minor detail to what actually happened. In fact I think it would be more accurate to say that the ideological blinkers caused a collective decision to be made to not regulate the financial markets. So political power was actually ceded (maybe even gifted is a better word) to the corporate financial sector who have taken the ball and run with it ever since. The current result of this fiasco is in plain sight with Wall St using its political power to extort trillions of dollars from the taxpayers. Wall St. has successfully infiltrated not only the last administration but the current one as well and the end result of this will be anything but good. Greed is still in charge and the only ending I can see from the current trend is a bankrupt country. Wall St only knows unfettered greed and one only has to look at the editorials from the financial newspapers to see this in spades.
Most of the ideological political and financial ideas that you see in print are utter BS. Ideology is just a means to achieve and end. Just take a look at the "conservative" politicians in power these last 8 years. They are a perfect example. They just wanted power, had no interest in actual governing and abandoned their ideology as soon as it was inconvenient. Just so, all those "free market capitalists" are nothing more than free market hypocrites who have abandoned their ideology as soon as it becomes inconvenient or something more lucrative comes along. So while all this talk of ideology can be interesting, it is completely beside the point. Money and power is the name of the game.
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