Monday, April 11, 2011

Wall Street Leviathan

Here is a decent look at what the Financial Commission's report on the 2008 Financial Crisis found (
). Though it fails to address the deeper issue of the actual systemic way in which we construct or create money. I think what is so striking is that even though we had financial regulation that was supposed to limit the instability of the financial system from roughly 1933 to 1999 we had a series of ongoing financial crises that led to in part the Lost Decade in South America, the S&L debacle, the need to end the dollar/gold standard, a massive increase in debt, and more. And, it only took 9 years from the time that the Glass-Steagal Act was repealed to have an almost catastrophic global financial collapse, this despite this long history of supposed stability! 

What has actually been going on throughout most of modern financial history, and including supposedly the stable years under the Glass-Steagal Act is a series of mini crises that have been viewed by the elites (regulators, politicians and bankers) as having been dealt with. The solutions have generally been focused on shifts in the regulatory environment. All of this has been presented as increasing the stability of the system. Then, the argument goes that in 1999 we ended the stable era by repealing the Glass-Steagal Act and before we knew it we had a full blown global financial crisis. The question is what is the more important data point to follow? Was it the ending of the Glass-Steagal era or is it the much bigger pattern of data seen through the lens of multiple mini-crises throughout the US financial system (and really globally). What is being argued often is that those earlier crises are not related to the current crisis. The current crisis is related to a shift in the regulations of 1999 and the solution is new regulations that will return us to the pre-1999 era of stability. 

Allow me to draw an analogy with the revolutions of Tunisia and Egypt. We can see them as one off events that "suddenly" emerged driven by say a prolifieration of social media technologies that due to a shift in technology (regulation) we have a break from the old pattern and the result is a revolution (financial crisis). Or, we can see them as the result of a series of efforts, strikes and demonstrations (mini financial crises), that had finally culminated and created enough momentum to realise a revolution (2008 Financial Crisis). The analogy I am making here is that for many of the elites in Egypt and Tunisian socieites those earlier demonstrations and strikes had been viewed as mere annoyance and requiring small shifts in regulation (and of course violent oppression) - but the sense was that they had been successfuly squished and represented no systemic problem. However, they were blatanly wrong - each little permutation was helping to build energy towards a bigger shift - a revolution - despite the best efforts of the elites (or regulators or authorities or politicians; call them what you want). 

This same thing is, I believe, going on in the financial system. We view all those earlier events as mere business cycle permutations that occurred under a given regime - a regime that was put into place in the 1930's and presented as stabilizing and unifying. The truth is far from that, instead we have had decades of financial crises slowly spreading and linking up around the world. And, despite all the efforts over the decades of squishing their bigger impact it culminated in the 2008 crisis. For the elites of this system they view the important data point as the shift in regulation they do not see a systemic risk, they do not see a major shift in their operating terrain and they do not see all of this history of events linking together and building momentum and energy. So, the question is does the 2008 crisis truly represent a culmination - a revolution? - or does it represent just a bigger permutation still to be followed by a bigger revolution/crash in the financial system? 

I think the fact that the answer from the elites has been to change regulations points to the fact that 2008 is not the revolutionary moment but rather another, though much bigger, permutation in our financial system. The last time our financial system experienced such a grand permutation was during the Great Depression which at first led to a series of regulatory responses, but ultimately led to one of the biggest shifts in global society and the horrors of World War II - though it took almost 6 years before America was fully impacted by that global revolution driven by WWII. 

We sit in 2008 and debate our regulatory shifts and solutions, our new presidents and banking brands. We view it as a one off event driven by a shift in the regulatory environment. Yet, my sense is there is something deeper here and that the forest is being missed, while we focus on a couple big trees. I have a strong sense that in the not to distant future we may witness another major financial crises and at some point it is going to truly culminate in a revolution - one that will require a major reconstruction of one of the most fundamental human concepts - money!

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