I'm basically just fed up with the entire academic community knowing how to fix this, while being drowned out in the din of political stupidity. Sticking it to the rich is just not a coherent strategy and shouldn't really be the goal in the first place (improving their end of the societal bargain should be, and not all ways of sticking it to the rich do that).
Number one leads to number two. The rich bitterly fight to prevent the bettering of the lower end of the social bargain until they feel threatened enough.
Cycloptichorn
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Cycloptichorn
1
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Tue 11 Oct, 2011 09:34 pm
@dlowan,
Quote:
Ought not people in banking be way more aware than I of such things?
Yes they were, which is why RG's assertion that this was 'unintentional' on the part of the banks and investment houses and mortgage brokage industry is such a foolish thing to believe.
They knew, they just didn't give a ****, because they were making a huge amount of money and would have plenty to fall back on even if things fell apart.
If they knew (explicit conspiracy) or didn't (implicit incompetence) is something we may never know. We need neither to move forward in creating ways for this not to happen again. We will most likely never have our emotionally satisfying Frost-Nixon or Fog of War interview with AIG, BoA, etc. What we can do, is change the system and watch them kick and scream with the same indifference they showed the public that bailed them out. That's the closest we will get, and that's no small thing.
But it takes will and it takes work.
A
R
T
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Thomas
3
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Tue 11 Oct, 2011 09:45 pm
@Robert Gentel,
Robert Gentel wrote:
I disagree that it is "certainly" unethical to unknowingly take actions that harm others.
If I run you over with my car, it is more unethical if I do it on purpose than if I act out of negligence. The legal system honors the difference by making the former a crime and the latter a tort. But in both cases, it's certainly unethical, and certainly against the law. The same logic applies to bankers maximizing their profits while dumping systemic risk onto others.
I'm sure there was some negligence, but the degree of absolutism you have about it surprises me because I know you know how poorly economic theory had prepared the financial industry for these events.
Negligence requires that the risk be predictable to degree that they should have known better, and I'm not sure you are being entirely fair about that. Back in the day, if I had asked you if their actions were unethical you may have responded differently than you do now. Because back then pretty much everyone (sure, there are some who always scream that the sky is falling and now look like geniuses on YouTube but it was not the academic consensus) accepted that their actions were within acceptable parameters of risk. You are playing arm-chair quarterback now but know as well as I do that in the academic community of economists this blindsided the state of the science of the time and that it shifted some fundamentally held views about macro-economic stability in general.
Even if they knew that they were going to screw their companies over, which they didn't but let's pretend they should have at least known that, they really had no reasonable way to know that the problem had become so big that they would put the entire world's economy on tilt. Pretending like they should have known all along that each individual decision was adding up to a problem that was putting society at risk is to pretend that we were all smarter than we were all along too.
If the brightest minds of economics at the time were largely surprised at the systemic risk that had built up, why do you expect mere cogs in that wheel to have known it? I think you need to apply Hanlon's Razor a bit more than you do and stupidity/ignorance isn't on the same ethical ground as negligence.
It's easy as hell to say they should have known now, but let's not forget that virtually nobody thought they were playing with the type of firecrackers that could do this back when it started, and that in many cases the individual decisions were only minor risks on their own. So I think you are reducing and anthropomorphizing a complex economic machine's failure into simple character flaws.
Any time something bad happens there will be people who have predicted it, serendipitously or not, but it was hardly the prevailing consensus among either the academic economic minds, nor the pundits, nor the financial industry during the build up to this bubble. At some point people can recognize it's a bubble, but that is the kind of thing that tends to deflate them, and tends to come at the end, long after the systemic risk had built up. And you really also need to understand that the problem wasn't just that there was a bubble, those cycles are supposed to exist. The problem was that the corrective economic action was so much more violent and prolonged than anyone expected (and they are still finding it unexpectedly deep, Obama is pushing for a new jobs bill because it looks like there may be even more systemic risk than we thought). Bubbles we will always have with us, it's not always unethical or negligence, it's a fundamental cycle that will always be in a free market and only be mitigated by regulation and mitigation of contagion.
I'm no economist either, but I do what I can to follow the state of the science (with a tip of the hat to Thomas, who inspired me to start a decade ago). And I had it as wrong as I could, and made public predictions here on a2k when this crisis started unfolding that were completely wrong because the degree of macro-economic risk that economists believed existed was largely wrong. I thought there was a bubble and didn't want into the real-estate market in the US at all but this wasn't an ordinary bubble (we'd not be talking about one of those now).
Yes they were, which is why RG's assertion that this was 'unintentional' on the part of the banks and investment houses and mortgage brokage industry is such a foolish thing to believe.
If you find this ignorant, why then don't you disabuse me of my ignorance with reason and evidence then? Repetition of your ipse dixit does little to reinforce its validity and having seen no such evidence to support your conclusion I would feel foolish accepting it credulously.
I'm sure there was some negligence, but the degree of absolutism you have about it surprises me because I know you know how poorly economic theory had prepared the financial industry for these events.
The economic theory of bank runs was well-enough developed in 1940 to devise an international banking system that didn't have them. The problem had been gone for almost 50 years, just after the Reagan deregulation. So the problem wasn't insufficient theory.The problem was that the banks didn't want the politicians who regulated them to pay attention to this body of economic theory.
Abstract: The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in economics. We trace the deeper roots of this failure to the profession’s insistence on constructing models that, by design, disregard the key elements driving outcomes in real-world markets. The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public. This state of affairs makes clear the need for a major reorientation of focus in the research economists undertake, as well as for the establishment of an ethical code that would ask economists to understand and communicate the limitations and potential misuses of their models.
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Cycloptichorn
2
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Tue 11 Oct, 2011 10:42 pm
@Robert Gentel,
Robert Gentel wrote:
Cycloptichorn wrote:
Yes they were, which is why RG's assertion that this was 'unintentional' on the part of the banks and investment houses and mortgage brokage industry is such a foolish thing to believe.
If you find this ignorant, why then don't you disabuse me of my ignorance with reason and evidence then? Repetition of your ipse dixit does little to reinforce its validity and having seen no such evidence to support your conclusion I would feel foolish accepting it credulously.
What's different between my claiming that financial professionals would be aware of the gigantic risks they were taking - consistently - and the harm that a market collapse could do to their company and shareholders, and your consistent claims that they were unaware? That everything sorta just happened? Your account and explanation of the matter is farcical. It beggars belief to think that tremendous numbers of individual actors in this industry did not engage in unethical and likely illegal behavior.
You make big mistake focusing on macroeconomic theory. We're not talking about that. We're talking about the executives that bought billions (and trillions. Seriously!) of dollars of credit default swaps from AIG and other companies,knowing damn well that they would never be able to pay up if the market tanked. Managers who pushed their employees to 'review' and sign hundreds of mortgages a day. Traders who misled their clients about the contents of securities, betting against the very thing they were telling people would be great buy. Mortgage brokers who manipulated their clients into houses and rates they couldn't afford, because it made them more money (and their bank didn't give a ****). None of these actors had to be aware that the entire market would seize up and crash, to individually know that what they were doing was wrong. And practically none of them have been punished.
You ask where the proof is, but where are the investigations? They don't exist b/c Obama papered over the problem instead of fixing it. But it would take a pure misunderstanding of the basics of human nature, to imagine that people didn't know what they were doing was wrong. The system that had been created - without any plan by anyone - was one which was destined to collapse, and no, it wasn't a surprise to a lot of us, no matter what you write about 'macroeconomic theory.' You didn't have to be a genius to look at a schedule of resetting ARM's in 2005 and 2006 and realize that millions of people were going to be screwed in a few years; and quite a few of us did that right here on A2K.
I do agree with you about the solutions, though unlike you, I feel that financial crimes are every bit as serious as murders. More so. Financial crimes wreck the lives of more people than murderers ever could. They deserve to be aggressively investigated and those who work in the industry to expect that to happen. Instead, they use their money to prevent it from happening except in the rarest of instances, and when it does happen, the executives involved rarely pay a personal price. Just ask Rick Scott in FL about that.
I agree with Suze Orman's piece that was linked earlier - people have finally, finally stopped just putting up with the bullshit. They don't know what's going to happen, but the status quo - pretending nothing is wrong with our financial industry and that major reforms aren't needed - is no longer acceptable.
Do you consider economics to be an actual science, by the way?
Sure, I think. Not ever being able to completely understand it adds ambiguity to it that can sometimes seem "unscientific" but science is just as much about what is wrong as what is right.
But I'm not sure if you have a more academic question than the one I am answering, as I know there is significant debate about what economics is (sometimes I'm looking at what I'd call statistical analysis, sometimes it's almost psychology, like behavioral economics and it does seem a bit fluid recently) in that setting and significant evolution of what is being included in it and I'm not quite sure how I'd define a science to be honest (kinda like how I haven't ever come up with a good definition for "art"). I haven't given it enough thought but it meets my own colloquial definitions of science, I guess.
I do agree with you about the solutions, though unlike you, I feel that financial crimes are every bit as serious as murders. More so.
All-righty-then.
It's a lot easier to brush someone off than to actually respond to their argument, ain't it? Not convincing tho. Neither are blithe assurances that everyone just sorta, yeah, made mistakes, yaknow, nobody did anything wrong on purpose, certainly not to make giant profits, that was a pure coincidence, so, hey, what's with the anger and populism? Right.
I just think that it perfectly illustrates how far apart we are and how unlikely we are to find common ground. I'll be the first to admit that I'm copping out of an argument that I don't foresee as being edifying to anyone. And that's because I think that is an absurd statement on it's face but I don't want to convince you otherwise because I think it's one of those things where you just have to agree to disagree.
I do not share enough fundamental attitudes about life and its value with you to have a meaningful discussion about this economic crisis if you seriously think that over-leveraging capital is worse than murder. That is patently absurd to me and just one of those things where giving it all the attention it is due is to do what I did (especially since it didn't really provide any evidence for your claim and just a lot of other cans of worms I want a rain-check on).
I know people and families who have had their lives destroyed by financial crimes and fraud, mostly revolving around Enron. A lot of people in Houston were screwed by that, completely wiped out, lose their job and house all in the same month. In some cases it ended in suicide. So, yeah. It destroys lives as badly as other crimes do. It deserves to be taken just as seriously. And those who engage in individual acts of unethical or illegal behaviors, as a part of a system which ends up leading to pain for our entire nation (and world), deserve to be held to account for their part in things.
It doesn't meet mine so far...criteria for science...which hinge on falsifiability as the utter crux.
As far as I can (ignorantly, I agree) see it behaves more like a religion...ie it doesn't seem to matter what evidence comes in that would seem to falsify an economic theory, its adherents seem to cling to it ever more fervently (eg the belief in the ultimate rightness of a totally untramelled market, or communist economics, come to that).
I think that my wambly little outpost of semi-science is actually slowly beginning to act more like a real science than economics does.
I think that you might be confusing a lot of the politics and punditry with the science though, and possibly ignoring some fields of economics (for example, I really do think that behavior economics is pretty much what behavior psychology with an emphasis on economic choices would be).
Their science is on a subject that is a bit too complex to calculate all the way through. It's like weather science, where the models have limited utility because no matter what they are they will be reductionism of input.
In any case, in that paper I linked to many economists are owning up to a systemic failure in their science itself and if that is interesting to you it's worth a read. Here is the first sentence of it (emphasis theirs):
Quote:
The global financial crisis has revealed the need to rethink fundamentally how financial systems are regulated. It has also made clear a systemic failure of the economics profession.
This is all written very accessibly so I recommend all of it, but to summarize they own up to primarily researching with models that fundamentally assumed more systemic stability. Here is an excerpt about that:
Quote:
The implicit view behind standard models is that markets and economies are inherently stable and that they only temporarily get off track. The majority of economists thus failed to warn policy makers about the threatening system crisis and ignored the work of those who did. Ironically, as the crisis has unfolded, economists have had no choice but to abandon their standard models and to produce hand-waving common-sense remedies. Common-sense advice, although useful, is a poor substitute for an underlying model that can provide much-needed guidance for developing policy and regulation. It is not enough to put the existing model to one side, observing that one needs, “exceptional measures for exceptional times”. What we need are models capable of envisaging such “exceptional times”.
I don't think I can clearly explain why, but those models aren't going to be easy to come up with. To my layperson's understanding it looks like a degree of magnitude harder than the science they had been working on. To use a crude analogy I think it's like expecting weather models to predict things much further out (like hurricanes next year) and things that are edge cases that by definition they have less data about.
Because of that, even when people have a conclusion right (shitstorm coming folks!) the science isn't as simple to peer-review. So while there were folks warning of doom, at the same time there always will be and back then the prevailing models in this academic community were a bit archaic and flawed. I haven't really heard of any of the doomsdayers with actual model-type science for their claims though, most of them were largely just pundits who had a lot of strength of conviction that something bad was happening, and while they were right they did not present the scientific evidence that would convince others. It was mostly stuff like this, when the recession was a fait accompli and though the ridicule he's heaped with makes him look all the more prescient he really didn't have strong science and at the time he was saying this all the main mistakes had been made, he merely was warning of greater danger from them a little bit earlier than most figured it out:
I agree that financial crimes can hurt many people, but if your moral compass makes that worse than murder we probably have irreconcilable differences about our underlying criteria upon which our moral codes rest.
And I don't really want to wade into that is because it has nothing at all to do with what I had asked you to substantiate.
You raged about the bankers were malicious and knew this happened, and when asked to substantiate this claim you offered nothing more but more rhetoric about topping it off with the view that their "crimes" (which, by the way, I happened to have be asking for evidence for) are worse than murder.
Robert: it's not negligence if you don't know it's going to happen.
Cyclo: They knew it was going to happen and did it anyway. You are foolish to believe otherwise.
Robert: I believe otherwise because I have seen no evidence to support that conclusion and I'm a skeptic in such situations. Can you present evidence for this claim?
Cyclo: They should have known it was going to happen, and financial crimes are worse than murder!
