High Finance Run Amok

June 24, 2002 12:47 PM

High Finance Run Amok [latimes free reg req] is a Kevin Phillips editorial on the "financialization" of the US economy. "As the financial sector, in short, became too important to fail, the Fed and the Treasury abandoned market economics to embrace socialization of credit risk. No other sector of the U.S. economy, save possibly defense, received such governmental assistance."
posted by electro (13 comments total)

user/pass: metafilter/metafilter
posted by electro at 12:50 PM on June 24, 2002

Hmmmm....

The heart of capitalism is founded on socialist ideals.
Yup! Sounds about right!
posted by nofundy at 1:31 PM on June 24, 2002

Over the past 20 years, the U.S. economy has been reoriented from making, growing, building and transporting things to moving, massaging and manipulating money and securities.

"It's all a giant fraud! All those Wall Street tycoons are just playing with numbers!"

Give me a break. He has some legitimate gripes ("price-earning ratios, overall, remain at boom-period highs" -- eek) but "financialization" is a convenient umbrella term for a loose collection of problems. Executive compensation is related to efforts to stabilize Asian currencies how?
posted by lbergstr at 1:35 PM on June 24, 2002

The heart of capitalism is founded on socialist ideals.
Yup! Sounds about right!

By that do you mean that the ideal of capitalism is founded on socialist ideals, or do you mean that the current economy of the U.S., controlled by the Federal Reserve, is a result of socialist ideals?
posted by insomnyuk at 2:10 PM on June 24, 2002

Some Philips' ideas were also recently discussed here (FYI).
posted by homunculus at 2:12 PM on June 24, 2002

"It's all a giant fraud! All those Wall Street tycoons are just playing with numbers!"
posted by Ty Webb at 2:14 PM on June 24, 2002

Privatize profits, socialize costs (and bad investments too !). In other words, private guy must get the profits, if any, while the morons called taxpayers should pay the troubles.

That is already working. See Wall Street, investing in companies that use creative accounting (that wasn't discovered in 2001, creative accounting is old news) , letting people invest more then a safe amount of money on high risk markets, because after all they're free to play (read waste)with their money aren't they ?

Now wouldn't it be nice if taxpayers paid for Wall Street screwups ? Let's blame < something totally unrelated to reality>>.


I can already hear the crybabies saying "it's not a problem of the system, it's that ruined it by < doing something evil>> or < some uncontrollable event>> is upsetting the market" Bullshit, the financial system was made to make profit out of loans , not out of products so even if there isn't any REAL product, as long as it pays it's ok.

Apparently.

At the end financial system wants somebody to have less money then they had before : wonder who's going to pay the bill ? You, because you don't have any financial influence unless you manage hundred of millions of dollars.
It's just like poker, but you're not the owner of the casino
and you aren't a good poker player too !


posted by elpapacito at 2:24 PM on June 24, 2002

You have a point, Ty. There are systematic problems with the way companies are run nowadays. But to suggest that the financial sector is the main driver for the economy (the passage I quoted above) -- I'll need to see more evidence before I believe that. Again: financialization? What?
posted by lbergstr at 2:59 PM on June 24, 2002

Privatize profits, socialize costs (and bad investments too !). In other words, private guy must get the profits, if any, while the morons called taxpayers should pay the troubles.

Interesting observation. Anyone remember the S&L fiasco?
posted by rushmc at 3:08 PM on June 24, 2002

to suggest that the financial sector is the main driver for the economy (the passage I quoted above) -- I'll need to see more evidence before I believe that.

I didn't see that as the point of the essay, rather i think Phillips is highlighting the socialization of risks and costs and privatization of profits that has taken place, usually under the guise of deregulation.

from the article:
Beginning in the early 1980s, the Federal Reserve Board, the U.S. Treasury and allies like the International Monetary Fund embarked on a two-decade march of bailing out failing or shaky portions of the U.S. and international financial sectors. Among those rescued: Latin American bond issuers; the stock market after the 1987 crash; S&L creditors and depositors; the Mexican peso and its U.S. bondholders; Asian currencies; the hedge fund Long-Term Capital Management; and banks menaced by the Y2K scare.

As the financial sector, in short, became too important to fail, the Fed and the Treasury abandoned market economics to embrace socialization of credit risk. No other sector of the U.S. economy, save possibly defense, received such governmental assistance. In the early 1980s, some in Washington had urged a government industrial policy to rescue manufacturing. What we got instead--there was no official announcement--was a "financial policy."
posted by Ty Webb at 3:26 PM on June 24, 2002

But to suggest that the financial sector is the main driver for the economy (the passage I quoted above) -- I'll need to see more evidence before I believe that.


Phillips wrote a whole book about it.

He's not saying that the financial sector is the main driver of the economy. He's saying that the economy is moving in that direction, and he draw historical parallels with previous economic empires.
posted by electro at 8:35 PM on June 24, 2002

Between 1919 and 1929, the volume of stocks traded increased eightfold... Between 1980 and 2000, by contrast, the volume of stocks traded on the major exchanges increased by roughly 50 times...

What kind of stupid yard stick is this? Why is he comparing a 10 year period to a 20 year one?
posted by VeGiTo at 10:52 PM on June 24, 2002

VeGiTo: Especially since two successive eight-fold increases of ten years each is the equivalent of a sixty-four-fold increase. So what he's saying is that the more recent period was a less dramatic increase overall.

Brad DeLong examines a similar premise recently, with a little more open-mindedness as to the outcome and the conclusions to be drawn. (In any case, the comments section is of superb quality. Read it all, and you can't help but learn something.)
posted by dhartung at 11:45 PM on June 24, 2002