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"I can imagine the company representatives on the Titanic II design committee repeatedly pointing out that the Titanic I tragedy was a black swan event: utterly unpredictable and completely, emphatically, not caused by any failures of the ship’s construction, of the company’s policy, or of the captain’s competence. "No one could have seen this coming," would have been their constant refrain. Their response would have been to spend their time pushing for more and improved lifeboats. In itself this is a good idea, and that is the trap: by working to mitigate the pain of the next catastrophe, we allow ourselves to downplay the real causes of the disaster and thereby invite another one. And so it is today with our efforts to redesign the financial system in order to reduce the number and severity of future crises.
After a crisis, if you don’t want to waste time on palliatives, you must begin with an open and frank admission of failure. The Titanic, for example, was just too big and therefore too complicated for the affordable technology of its day. Given White Star Line’s unwillingness to spend, she was under-designed. The ship also suffered from agency problems: the passengers bore the risk of unnecessary speed and overconfidence in "too big to sink!" while the captain stood to be rewarded for breaking the speed record. No captain is ever rewarded for merely delivering his passengers alive. Greenspan, nearly 100 years later in his short-lived "irrational exuberance" phase, did not enjoy being metaphysically slapped by the Senate Subcommittee for threatening the then speedy progress of the economy. What is needed in this typical type of agency problem is for the agent on those rare occasions when it really matters, whether a ship’s captain or a Fed boss, to stop boot licking and say, "No, this is wrong. It is just too risky. I won’t go along."
We have a once-in-a-lifetime opportunity to effect genuine change given that the general public is disgusted with the financial system and none too pleased with Congress. I have no idea why the current administration, which came in on a promise of change, for heaven’s sake, is so determined to protect the status quo of the financial system at the expense of already weary taxpayers who are promised only somewhat better lifeboats.
It is obvious to most that there was a more or less complete failure of our private financial system and its public overseers. The regulatory leaders in particular were all far too captured and cozy in their dealings with reckless and greedy financial enterprises. Congress also failed in its role. For example, it did not rise to the occasion to limit the recklessness of Fannie and Freddie. Nor did it encourage the regulation of new financial instruments. Quite the reverse, as exemplified by the sorry tale of CFTC Chairman Brooksley Born’s fight to regulate credit default swaps.
But, at least now, Congress seems to realize the problem: the current financial system is too large and complicated for the ordinary people attempting to control it. Even Barney Frank, were he on his death bed, might admit this; and most members of Congress know that they hardly understand the financial system at all. Many of the banks individually are both too big and so complicated that none of their own bosses clearly understand their own complexity and risk taking. The recent boom and the ensuing crisis are a wonderfully scientific experiment with definitive results that we are all trying to ignore. And, except for bankers, who have Congress in an iron grip, we all want and need a profound change. We all want smaller, simpler banks that are not too big to fail. And we can and should arrange it! "
Please read the entire article "Just Desserts and Markets Being Silly Again" here. And then take- or continue- actions to remedy the situation.
6 Comments
The lesson is You can’t expect the people who broke it to fix it.
You can’t expect the people using the system to want it fixed.
Those being paid by the people who use it won’t do anything to stop the golden goose shiting in their hands.
The Congress write the laws, enforces them, and is responsible for eveything they do, or don’t do.
Does this give You a hint, of what the real problem is?
“Does this give You a hint, of what the real problem is?” ; I don’;t need no stinkin’ hint; it’s as Walt Kelly wrote long ago, “we have met the enemy aznd it is us”.
Oh, it gets worse.
HuffPo is reporting that the WH is in cahoots with the House to keep ‘derivatives’ OUT of regulatory oversight.
Unbelievable.
MSNBC’s “Morning Meeting” had a good segment on today related to this topic, with William Black as a guest. Be ready to do some push-ups after you watch it, just to bring your blood pressure down again.
Basically, the ‘tea leaves’ that I’ve seen today in my newsCruise are looking as if TooBig2Fail is being legislatively ‘sanctified’.
If a few in the Senate (Dorgan, Durbin, Cantwell, DiFi, Levin) manage to explain to the American public how the commodities market and leverage came to completely overshadow and subvert the old Wall Street investment firms, and why that basically sends money off to tax havens and damages national security, THEN we might get some action.
Barney’s huffing and puffing does not appear to be much more than a feel-good magick trick.
Not tough enough.
Not thorough enough.
The House is putting lipstick on a pig.
Some of the Senate minds seem to be more nimble on this topic.
In my dreams, Jim Jones helps Obama wake up and on simple terms of ‘national security’ the Pres boots Summers and Geithner out of D.C. into exile and calls in Robert Reich, who appears to be one of the few people who actually understand that all the funny money on Wall Street harms our chances for creating actual j-o-b-s.
“If a few in the Senate (Dorgan, Durbin, Cantwell, DiFi, Levin) manage to explain to the American public” ; you gotta be dreaming if you think there is ANY majority in congress or the Obama Admin that REALLY gives a shit about the ‘working joe’(and maybe his family) or the ‘working josephine’(and maybe her family), you really are dreaming.
Way over a year has past. They could have renewed Glass Segal with a few AEY’s and NEY’s, in less then a hour not a year.
Does this give you a hint that they don’t want to do anything.
There is at any given time a finite amount of currency in our world. Now, it appears that a mere 1% garners 98% of that money. The real problem is the “C” word. Capitalism and the fact that we live in a corrupt society is really the issue at hand. Capitalism has at its base the component of greed. That greed is fueld by a corrupt desire to get “something” for “nothing”. If you have ever met a person who is involved in the never ending quest to acquire money you will have noticed one thing. Although they spend a lot of time in their endeavors, they really don’t do much work at all. I believe that we need to embrace the basic concepts of living in peace and harmony and sharing the wealth. Whether you like it or not, we need to devise an equitable plan to redistibute wealth and care for the less fortunate in our society who believe that they do not have to contribute to society because there is no hope left. Whenever I espouse such a thing, all I ever hear is that I am some pie in the sky left over hippie that doesn’t have a clue to the real world. If people do not embrace that concept of sharing and caring for others, we will have that inevitable consequence of anarchy which will be painfull and nasty. The military is an outdated institution in an enlightened society and we need to turn the tanks into tractors. We need to learn how to share and we need to end this nasty greedy form of Capitalism that we now have. So there is my two cents which you won’t see matialize because I gave it to the guy begging money in front of my house.