Fen:
If left to right itself a year ago ,the sub prime problem would have swallowed most financial institutions in the US. Lehmans!!stu:
You talk about the peculiar belief that we could build something infallible, but in the next paragraph you imply that if we intervened we could stop these bad things from happening.
Of the two scenarios (intervention/non-intervention), intervention seems to me to be a much clearer example of us believing we can make something infallible.
I find the image of the Titanic a useful one. But for different reasons. If the titanic had been save by an intervention... say, a chance passing ship, perhaps another 20 titanics would have been built. Maybe... and this is not a nice thing to think of, the tragedy of the failure saved us. Unsafe ships sink, people re look at the model and build something that works. That is where I think Capitalism is at its best.
Perhaps the lesson here is that we shouldn't be building titanics.
As for the systemic risk of the Financial system, I can't comment. Despite 8 years of studying Finance and Economics, I can't claim to understand how the financial system works. Banks are opaque beasts at best.
This ogre of systemic risk I feel is perhaps an excuse used to justify intervention. Intervention that keeps the Titanic afloat.
Long enough for more titanics to be built and more people to die?
I don't think this crisis is an example of failed Capitalism. I do think it is an example that there isn't any obvious answer as to how to intervene when periods of destruction happen.
4 comments:
I'm not a fan of the whole titanic metaphor. Partly because I don't think it's clear that the titanic was a bad ship.
"As for the systemic risk of the Financial system, I can't comment. Despite 8 years of studying Finance and Economics, I can't claim to understand how the financial system works. Banks are opaque beasts at best"
I was just talking about stuff that is just beyond our tiny little brains to comprehend, and I think this is probably an example.
If there was one thing I'd want people to take out of the current situation is that nothing is risk free! people need to groww up and accept that there's a big bad world out there. You can loss money jobs and your life, you gotta be careful and you gotta take responsibility.
Can't say I am a Titanic expert. But to the lay person, I would imagine it is understood that it was a case of poor engineering/bad safety planning.
I think there is a fundamental problem, as you imply here, with us getting caught in some pseudo capitalist situation where people expect high returns but then expect someone to save them when they take risks and things go wrong. High Returns, Guaranteed.
I agree, absolutely nothing is risk free.
And we do need to do some growing up.
The dilemma is that as you said elsewhere, this is not dinner table conversation. How do you tell someone who has just lost half/all the life savings...
'Nothing is risk free... sorry. Here is a soup voucher.'
People don't mind people learning tough lessons... but ones that end the game for them seem excessive.
But... they made their bed...
or did someone they trust advise them how to make their bed?
... and is that really an excuse.
I don't know...
MY understanding is that they just drove it badly.
I've sorta blogged about this before, but one thing i think has been MASSIVELY missing from the reporting of the crisis is that even those people who lost their savings (in rich western countries like america) are still fantastically rich, safe and secure by historical standards.
Of course it sucks, but when other systems fail you often have to hope that your on the right team otherwise Much Worse things will happen to you.
Our current freaking out is a direct function of how good we've got it.
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