Monday, November 03, 2008

Greed and Fear

I have avoided the political so far, but on this day of participation, let me jump in. A nice place to start the forthcoming diatribe is the unwinding of LEH. This ugly and destructive process has revealed another rotting part of the modern capitalist structure: the prime brokerage system. This system is the lifeblood of hedge funds, as it hold their securities for their various trading accounts. It also re-lends these securities; when the music stops, you end up with multiple claims on these securities and a long work out period. Is this just another institution of capitalism that doesn't really work?

This of course leads us to the ultimate question that the republican right needs to answer: do we really need a government? I believe in the cabal of anti-government republicans who have supported the loose spending/low tax ways of the Bush administration. They really do want the government budget soaked up by interest payments to choke off the social spending programs and ultimately the bureaucracy itself.

We have so lost our way. We look at government as the enemy and as a result, send only the infirm and self-infatuated to govern. We deserve Sarah Palin. Follow me: we need a government to at least deliver the services of defense and the orderly operation of society. Otherwise, we're on our way to the ugly South American model of walled enclaves, m60's, favaela's and a Chinese Hawaii (Chawaii or Hawainese; dim sum with pineapple?).

The national economy generates income for the government to provide these services, a civic structure, society's glue. In fact the economy doesn't operate without these services. To preserve the functioning of the economy, and therefore society, the government needs to regulate and provide oversight for the institutions that pump the lifeblood of the capitalist system. The last eight years should prove the case.

We have seen the very foundations of a capitalist system without regulation and oversight end in bankruptcy and failure - banks, Ibanks, ratings agency, bond insurers, insurance companies. The institutions lost credibility or were bought by the government. As has been widely said, we capitalized the profits and socialized the losses. The individual players made billions and the taxpayers will cover the institutional loses.

Even Greenspan admitted, in what will be the height of stupidity/naivety on his part: I thought the banks would self regulate in the spirit of self preservation. Yea, that's right: he thought the coke sniffing, whore chasing St. Barts crowd would act - not with scruples, but simply for survival. With not a little joy, we can all at least celebrate the return of finance to 7% of GDP, along with the resulting 700,000 job losses and $100b in wage cuts that will bring. After that moment of schadenfrued, let us wake up and accept that some government is needed, and let's support it and participate in it. From a desert island in the South Pacific...


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