The unraveling of the financial economy shocked many who predicted endless prosperous times for unregulated capitalism in its zenith. Alan Greenspan and Robert Rubin scratched their heads with airs of befuddlement. However others weren't surprised. Some Chinese now recall how they compared derivatives to mirror images of mirror images of mirror images of a book as far back as 1999 (and how they perhaps amassed U.S. treasuries in anticipation.)
I'm sure you've heard that the word "crisis" in Mandarin combines word for "danger" plus "opportunity"? It's actually no more than a myth about the Chinese language that persists, famously forwarded by presidents like JFK in 1959. We can safely say that ancient Eastern philosophy didn't predict today's New Age affirmations. But yet people from all sides of the political spectrum insist that crisis brings opportunity and brings change.
In August, the Financial Times wrote an article titled "Fannie and Freddie crisis is Paulson's big moment". According to the FT, the US Treasury Secretary would "make use of the virtually unlimited powers he was given by Congress" to avert further disaster. Paulson et al. eventually architected a solution and after some finagling all the banks got cash infusions, but all of their efforts failed to jumpstart or even stabilize the economy. Last week Paulson talked to FT about his lack of power, and what turned out to be his not-so-big-moment. The FT headlines tell his spin on the protracted tale:
- On December 30th:"Paulson rues shortage of firepower as battle raged".
- December 31st: "US lacked the tools to tackle crisis, says Paulson".
- January 1st and 2nd FT: "Paulson says crisis sown by imbalance" (version I), and version II: "Paulson says excess led to crisis". 1
Often what looks like the gold ring from a distance turns out to be tarnished nickel once you gallop into close range on your plastic merry-go-round horse. The first bailout round of $700 billion got grabbed up quickly, but still, banks aren't lending, job losses accumulate and the economy sputters. Whose opportunity was this crisis? Who spews forth these dubious ditties?
Not to say there isn't opportunity for some cash-rich people who are traipsing around the suburbs cash in hand looking good deals, including Chinese tourists on house hunting tours in Los Angeles. A few of the most cash rich institutions like: Warren Buffett's Berkshire Hathaway, the Bank of China, ICBC, and China Construction Bank may realize tremendous opportunity. But as time goes on, more and more people people lose confidence in capitalism, monetary policy, even macroeconomics.
Paulson's plan didn't do the trick and there was no great "defining moment" for him, rather an ongoing crisis. Barack Obama warned yesterday that the financial crisis demands on more government cash, which will further deepen the country's debt, accruing years and years of trillion dollar deficits.
Change In Crisis
But if opportunities look sparse don't crises still present openings for change? So they say. For some, like George Soros it's the end of a certain fundamentalist capitalism. For others, like the Cato Institute, it's a time to pursue greater deregulation. Cato blames government intervention for the crisis, saying government precipitated ruin by pursuing a bastardized version of laissez-faire economics.
Even scientists see an opening with the financial crisis. For Bruce Alberts, the Editor-In-Chief of Science Magazine, the "financial meltdown", brings hope for recognition of the "centrality of science and engineering for successful modern societies", and promise of a "new sense of reality". Everyone hopes for change.
Same, Same?
We're skeptical. Not of change necessarily. After the Asian Tsunami they built a warning system. After denying global warming for decades, the world woke up. After eight years of the Bush administration the world's a different place. Change happens.
But some thirty percent of the population approved of the job Bush did. And people who forecast or promise change are often plain wrong. After 9-11 we heard about "the end of the age of irony". After the Berlin Wall fell we listened to the folks at the US Department of State and scholars like Samuel Huntington (RIP) predict a "new" era, when tribal and religious strife would threaten the relevancy of states and a "clash of civilizations" would dominate politics.
We can't predict precisely what might change, or whether the future government and it's financial policies it will benefit more people than current policies, or less. But we should be alert to our own fatal collective tendency for hopeful thinking. Now is the time to speak up for change, about science, about laissez-faire, and most of all, about the evolving new government.
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1 And is he engaged in a little what psychologists interviewed by the NYT called "ego protecting?"
