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the perpetual fear meme .....
Every few years, the world seems to face a new testing time. After Sept. 11, leaders had to figure out how to respond to Islamic extremism. Now we face another test. Today, leaders around the world have to figure out how to stabilize economies amid volatile global capital flows.
This test is rooted in a global shift in economic power. The rise of China, the vast wealth of the petro-powers and easy monetary policies created an ocean of excess savings that had no obvious place to go.
This money was entrusted to a few thousand traders who sloshed it around the world in search of the highest returns. These traders live in a high-tech version of Plato’s cave. They do not see reality directly. Instead they see the shadow of reality as it dances around in numbers on their computer screens. They form perceptions about other people’s perceptions of where the smart money is going next, so they’re three or four psychological levels removed from normal economic activity.
These traders are driven to take big risks because the glory goes to the biggest stars. And because they are human, they assuage their ensuing uncertainty with self-deceptions. They develop an excessive faith in “value at risk” computer models, which seem to calculate their exposure in soothingly rigorous terms. They adopt accounting techniques that tell them they’re on firm footing. They go in for complicated financial instruments that promise “riskless risk” by dispersing risk into a million small pieces and casting them into the ether.
The economists talk about “mispriced risk” and “illiquidity” in the system. But many economists are trained to downplay emotion, social psychology and moral norms, and so produce bloodless and incomplete descriptions of what’s going on. The truth is, decision-making is an inherently emotional process, and the traders in charge of these trillions become bipolar as a result of their uncertainty.- By Gus Leonisky at 8 Oct 2008 - 10:12pm
- Gus Leonisky's blog
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people mocked him for it...
US President George W Bush says the American Government will move aggressively to address the financial markets crisis, but he acknowledges that anxiety is feeding on itself which is sending stocks plummeting.
Wall Street shares have fallen sharply on the opening of volatile trading, as fears grow of a widespread economic slowdown.
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Gus: please, you're allowed to panic. When people build a pyramid, one needs a solid base. What is the base in the capitalist system: The ordinary folks like you and me, including those who lost their homes to foreclosure because they were undermined by greedy borers: the subprime contracts with the banks.
And what does the US government?: shower the banks with money while allowing the subprime to bore more and more into the base support posts.
Like fixing the foundations of a house by placing a bulldozer on the roof : it's going to collapse.
Thus there is no need to explain that should the US government for a change had helped the little guy at the bottom of the pile repay mortgages and plug the usurious loopholes in the subprime contracts, they would have avoided at least 80 per cent of the problem. Cost? A tenth of the roof "rescue" package and no panic on Whore Street. Then the next stage was to implement gradual firm regulations on hedge funds, and slow credit lending a step at a time.
Instead of loosening the interest rates, interest rates should have been tightened slowly but surely. Remember Keating and the "recession we had to have"? People mocked him for it, but at the moment in an effort to avoid "a recession" the US has demolished the entire house, from top to bottom. At least, under Keating "recession we had to have", interest rate hike designed to slow an over-running economic engine, savings still made moneys, regulation made sure of some stability in the system and the shonks who had over extended, trying to gobble too much of the loot, bit the dust. Remember the "corporate raiders"?
Why was Australia less prone to the problem than other countries so far in this slosh???... Because of Keating's foundations. But now the flood of moneys — a tidal wave — from all the Central Banks is going to distort the roof so much, the whole world economy including that of Australia is likely to collapse like the World Trade Centre towers — from the top down.
So whenever Bush rambles on, what do you think the US government is doing? Protect the shonks and bury the little guy in the rubbles... Not a good look. It's not going to work.
Place Keating in charge of solving the world economic woes... It may be painful for a little while but he might be our only chance to do it properly...