Page 1 of 2 Prejudice, blame and the US way
By Julian Delasantellis
When first I stood up in front of a classroom of thirsty young minds to teach
the subject of economics, I was not really sure what kind of professor I was
going to be, or even what kind I wanted to be, but I sure did know what kind I
didn’t want to be. The prospect of being an economics lecturer like the one
portrayed by real-life economist Ben Stein, in John Hughes’ 1986 classic Ferris
Bueller’s Day Off, filled me with revulsion.
Presented almost as an unchallengeable justification as to why young Ferris
(Matthew Broderick) should skip school that day so as to have loads of fun in
Chicago, Stein addresses a group of
absolutely zonked, bored out of their skulls high school students, all of them
totally uninvolved in the subject matter, many looking as if that morning they
were belaboring either under a crushing shortage of caffeine or an equally
mind-numbing surplus of their particular school clique’s controlled medication
of choice.
"In 1930, the Republican controlled House of Representatives, in an effort to
alleviate the effects of the, anyone, anyone, the Great Depression, passed the,
anyone, anyone, tariff bill, the Hawley-Smoot tariff act, which, anyone, raised
or lowered-raised tariffs in an effort to collect more revenue for the Federal
Government. Did it work, anyone, anyone, know the effect?" (So deathly crushing
their teacher-generated catatonia, no students even attempt to answer.)
"It did not work, and the United States sank deeper into the Great Depression.
Today, we have a similar debate over this; anyone know what this is, class?
Anyone? Anyone? Anyone seen this before? The Laffer Curve - anyone know what
this says? … Does anyone know what Vice President Bush called this in 1980?
Anyone? Something -doo economics, Voodoo Economics."
Lately, a lot of traders and financial professionals are looking at Mr Stein’s
most recent utterances with the same quizzical, disbelieving look.
In the brutally polemicized polarized combat that is public debate in America,
no quarter is given, no neutrality is recognized. Thus, on any issue or
contention in the public square, be it the extent of the country’s
over-reliance on foreign oil or the extent of Britney Spears’ under-reliance on
her undergarments, sides are chosen, partisans mobilized; most importantly,
blame is assigned. It’s always Right vs Left, the 60’s vs the 80’s, the ethos
of Clinton vs. that of Reagan.
Thus, it should not come as that much of a surprise that the current state of
the US economy has become yet another public issue in which the debate
regularly produces much more heat than light.
On the left hand side of the trenches are those such as Clinton-era Secretary
of Labor and current University of California at Berkeley Professor Robert
Reich, and Jared Bernstein of the Economic Policy Institute.
Since it undoubtedly pays better to be perceived as a friend of finance capital
than its foe, more numerous are those on the other side of the trenches, the
rightists, the conservatives, those tasked with defending the increasingly
tenuous ideological redoubt that, thanks to the tax cuts of Ronald Reagan and
George W Bush, everything is essentially all right with the US economy.
These include the aforementioned Arthur Laffer, a man who, now three decades
after becoming known as the Godfather of supply side economics, gives every
indication by his appearance on TV that Oscar Wilde’s The Picture of Dorian Grey
was an eerie premonition about him. Others are Larry Kudlow of CNBC and the
National Review, Amity Shales of the Council on Foreign Relations, Jerry Bowyer
- the man I previously described as the person on Fox News who equated
universal healthcare coverage with terrorism (The
terror of state health care Asia Times Online, July 24,
2007) - various sundry and readily interchangeable editorial page writers from
the Wall Street Journal, and now, after a lifetime of 60-second or less B-movie
roles, low-rated and thus subsequently cancelled cable game shows and
television commercials, Ben Stein.
If you happen to miss the debates that flare regularly on US afternoon cable TV
(like, if you have a job or something), I will now summarize what they sounds
like.
RIGHTIST: "The economy is great." LEFTIST: "No, it stinks."
For the longest time, Mr Stein’s contributions to this debate have followed
upon these standard lines. During the fall he relished in endless repetitions
of the talking point factoid that total subprime losses will "only" be in the
neighborhood of US$100 billion (a number now getting rapidly ratcheted up),
ignoring the fact that the real losses to the economy from subprime mortgages
are going to come from the banks who leveraged up the subprime paper as
collateral for other borrowing and lending.
Recently, his thinking has veered off towards some very interesting directions.
Late last November, Goldman Sachs chief US economist Jan Hatzius raised
eyebrows by putting the odds of an economic recession in the US in 2008 at
roughly 50-50 a prediction that, less than three months later, would now
probably be counted as one of the more optimistic economic prognostications
should it be repeated today.
Stein saw this differently. Equating Wall Street’s premiere investment house
with something along the lines of telemarketers at a dingy bucket shop
brokerage peddling NASDAQ pink sheet penny stocks from black rotary telephones
on wobbly rented card tables, Stein claimed that Hatzius’s motives were far
less alabaster than the driven snow.
In a December 2 opinion piece in the New York Times, Stein postulated that,
considering that, alone among Wall Street’s brokerages, Goldman Sachs was
continuing to report stellar profits due to its big short positions in the ABX
subprime index:
Is it possible that Dr Hatzius’s paper was a device to help along the
goal of success at bearish trades in this sector [housing] and in the market
generally? His firm says his paper, like all of its economists’ work, was not
written to support any larger short-trading strategy. But economists, like
accountants, are artists. They have a tendency to paint what their patrons, who
pay them, want to see.
Stein is right that Goldman is not the
Vatican, and it should not automatically be assumed that it shares Rome’s
assumed moral unassailability. (There’s more than a few victims of clerical
sexual abuse in Boston that might have a problem with that one.) Goldman’s
there to make money. But lately, the market strategy that Goldman is making the
most money off of is not from shorting the ABX, it’s from luxuriating in the
glow of its reputation, its marketing "brand", as the most influential
investment house in the capitalist world.
In every finance ministry and central bank on earth, the calls from Goldman
never get put on hold, perhaps due to the fact that, increasingly, lots of the
officials picking up the phone in those ministries and national central banks
are Goldman alumni. To suggest that Goldman would risk its reputation, its
moneymaking brand identity, for the sake of the temporary profits available
from a single trade is like thinking that Rolls Royce is going to respond to a
sales slump by replacing its leather seats with Naugahyde.
And, now, of course, looking at the two weakest employment reports since the
recession of 2001-02, we know that Hatzius was absolutely right.
Then, on January 27, as the world’s equity markets rocked and rolled through
their most volatile week this decade, Stein penned another opinion piece for
the New York Times, blaming the turbulence not on market uncertainty arising
from out of the SocGen trading scandal, but on a nefarious conspiracy by the
reds, specifically, the worldwide cabal of red-suspendered equity market
traders.
This is what traders do all day long - and especially what they’ve been
doing since the subprime mess burst upon the scene. They have seized upon a
fairly bad situation: a stunning number of defaults and foreclosures in the
subprime arena, although just a small part of the total financial picture of
the United States. They have then tried - with the collaboration of their
advance guards in the press - to make it seem like a total catastrophe so they
could make money on their short sales. They sense an opportunity to trick other
traders and poor retail slobs like you and me, and they generate data and rumor
to support their positions, and to make money. More than that, they trade to
support the way they want the market to go. This somewhat surprising spin for
someone on conservative side political economic spectrum. If you worship Adam
Smith’s hand as living, breathing deity governing fortunes of human race, makes
world’s essentially invisible hand’s fingers. The world, the capitalist ethic,
demands all things name be given a price, and it is traders who set, who, in
econospeak, ?discover? what that price is.
Stein continues:
I know this because I know traders. They’ve told me that they love to
sell into fear because fear is bottomless - you can make money selling all day,
while buying eventually slows because enthusiasm has limits. The amount of
money available to large professional traders is so large that they can
overwhelm the market, at least for a while, anytime they want … traders move
the market any way they want, any way they think they can make money, and then
they whisper a reason to journalists later in the day. Then the journalists
print it or say it on television, and the amateurs believe it. And the traders
snicker. These traders, not economists or securities analysts, can turn the
world upside down, make governments tremble, give central bankers colitis and
ruin the lives of ordinary men and women saving for their children’s college
education or their own retirement. In America today, it is the traders, not the
politicians or the generals or the corporate bosses, who have the power. This
is what has become of the America of Thomas Jefferson.
On one
level, it would be easy to dismiss this as just right wing sour
grapes-defensiveness over George W Bush’s sterling economic record going down
the tubes. After all, besides the economy, has this President actually
accomplished much of anything positive these past eight years? But instead of
looking towards the real culprits, the loosening of regulatory oversight of the
banking and mortgage finance industry early in Bush’s first term, Stein
nominates a new group as the usual subjects to be rounded up, the mysterious,
multinational, obviously amoral (my God, they don’t even have any respect for
Thomas Jefferson!) world trader junta.
How does Stein know that it’s all the traders’ fault? Here, Stein posits what
he feels is his killer argument.
Traders are sending stocks down by a fantastically larger amount than
is warranted by a recession or the losses in subprime.
For
someone who is respected as one of the American media’s most prominent
popularizers of
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