Sorry to be posting so much in such a small space of time, rest assured this will not be kept up and normal lack of service will soon be resumed (not being on holiday will no doubt help). However this evening I actually remembered to watch some TV I’d seen trailers for, this is a bit of a calender event but the trailer had annoyed me which is a great motivation. If you didn’t watch it do make time to watch Channel 4’s “the flaw” it’s really rather good, even if not entirely convincing. The highlight of course being Alan Greenspan admitting he was wrong, but to look at a slight hint of the incoherence from the blurb:
“He’d placed too much faith in the self-correcting power of free markets. In a system based on the unsustainable lending necessary to fuel continued spending, the world found to its cost what happens when that credit bubble bursts.
Drawing on interviews with leading world economists, The Flaw attempts to explain – in unprecedented depth – the underlying causes of the global financial crisis.
Unless the root causes of the problem are addressed, the system may collapse again, and next time it may not be possible for governments to rescue it.”
As I’m going to mutter about most of that I’d just ask if anyone’s noticed the governments actually managing to rescue the system this time round?
But anyway onto my notes, this may not be entirely coherent as I’ll address things as they came up in the program. Apparently there’s been a total failure of markets, which seems odd as the idea of the markets I thought included the capacity for anything to fail so that prices can be corrected – that the various markets haven’t been allowed to collapse would seem to me tend to suggest that market forces haven’t actually been in play. The efficiency of markets only operating when prices are allowed to move downwards as well as up, which is something governments aren’t terribly keen on. Amusingly for me markets were described as the wisdom of the crowd reaching a consensus on prices, which seems a lot like the consensus wisdom of the crowds decision making the anti market occupy/anonymous groups use. So you’ve one consensus model saying a very similar consensus model has been proven to have failed.
Also on the amusement front was a New York Times economist, so one of the experts that’s telling us all how to fix it and what’s wrong, took out a mortgage based purely on his having a job with no regards for his income and is now hugely in debt and at risk of losing the house he couldn’t afford. He did at least admit he should have known better and that he was taking out a dodgy mortgage – one does have to wonder if he can screw that up so well why should we listen to anything else he has to say. He may of course be atypical of economic experts – I’ll enjoy the schadenfreude regardless. It does however highlight that whilst we all busy blaming the greed and short termism of the banks we’ve been behaving in exactly the same way (I am of course painting with a broad brush here). The lesson of the program for me was that a lot of the people that invested in the idea that property prices would keep rising ignoring the age old adage of:
“Don’t invest what you can’t afford to lose”
In that regards one thing I’d never considered was the difference between “goods” and “assets” – something I hadn’t to be fair given any thought to. “Goods” are apparently things we buy to use, “assets” we buy to sell on, people buying “goods” to treat them as “assets” screws up the market. So the popular trend of buying houses not to live in but as things to sell to make money, stops the usual supply and demand price correction. Of course once we were all buying to get rich Governments weren’t going to let the market operate and cause us all to expereince the fact that “prices can go down as well as up”.
Now onto to the fun bit of Greenspan saying he was wrong, this was obviously quite enjoyable – except he said he believed that markets were self correcting but then said he didn’t let the market self correct and this proved his model was wrong. The governments during his tenure of being wrong acting to prevent asset markets slowing down thus proving that markets didn’t self correct? Which as I may have mentioned does kind of make me think we’ve not seen free markets actually in action. A side effect of asset prices being supported by the Government is that the rich get richer as by and large the richer you are the more assets you own (after all you only need so many ipods, cars etc.). Which would seem again to suggest to me that the income inequality we hear so much about is less due to the deliberate evilness of the rich so much as the Government acting to make the rich richer whilst borrowing more from the rich to do so. Why the Government would do this is an interesting question, almost as interesting as why we let them.
The current inequality in incomes was last matched by the 1920’s, when there was the same debt based inflation of the value of “assets” (unless I misunderstood what was said). Then I got confused again as apparently until recently house prices have been quite static as have wages (both adjusted for inflation), at least until we all started borrowing to buy houses as investment. The idea of wages and house prices being fairly stable doesn’t seem a terrible thing to me – until we all decided we need to borrow money we can’t afford to lose to invest in property we’re complaining is too expensive. Once we were all borrowing to invest it became a lot more profitable to lend us the money than put it into factories, and banks and the “evil” rich being sensible sorts lent us the money so they could make more of it. Quite what would have happened if we hadn’t all wanted investment properties and easy credit is another good question, but once enough of us were demanding it there was no way our Governments would deny us our bread and circuses and so the bubbles had to keep inflating and the printing presses had to start running. Quite why stock holders followed the civil servant and governmental lead of paying bonuses for failure, is a mystery the program didn’t touch on.
The last take away message of the program, which is the bit which annoyed me in the first place, was that over the last 30 years living standards have decreased for all but the very top. A quick poll on the walk the other day suggests either we were all at the very top or that this is abject nonsense. Anna Raccoons recent article also seems to suggest it may not be quite true (Claiming benefits? There’s an app for that).
I’m sure I’ve made many foolish mistakes in the above, if someone could be so kind as to explain it to me.
