Author Archive | Gord Gilmour

Economist, blogger and former IMF head economist Simon Johnson makes a compelling case here (originally from the NY Times) that what we have  is a failure to regulate, moderate or in any way impose meaningful rules. Let me ask… do  any of the following key points, borrowed more-or-less directly from Johnson’s post, sound even vaguely familiar when talking about truly mammoth companies?

     ● In many cases big firms did well because they used unfair tactics to crush their competition

     ● Even well-run businesses became immensely powerful politically as they grew.

     ● There was a blatant attempt to use the political power of big banks to shape the financial playing field in ways that would help them

And by now I’m sure that the most common reaction might be something along the lines of “No kiddin’ Pollyanna. Welcome to 2010. There’s no getting anything past you, is there?”

Well, the neat little trick here is that Johnson’s talking about the last Gilded Age, about a century ago, rather than the current Gilded Age that’s just wrapping up… oh… right about now…

So I’m curious – what do you suppose the likelihood is that we might be able to find a reformer willing to take on this sort of concentrated power? A modern-day Teddy Roosevelt, as it were? Because make no mistake – if our experiment with a free market economy is going to continue, perhaps the biggest single requirement is a more-or-less open and fair market – and a champion to lead the charge for one.

The great shame, of course, is that we might have already had just such an individual warming up in the wings.

Except, of course, he appears to have fallen victim to his inability to keep it in his pants – possibly combined with a truly excellent frame job.

The always-entertaining Matt Taibbi lays into Wall Street again in his latest missive for Rolling Stone magazine.

Taibbi has been relentless in his criticism of the banking community and his comparisons to the grifters, schemers and con artists are, largely, valid ones.

I’d also like to take the opportunity to respond to reader TS, and TS’s comment on the first TDOC post last week. Thanks for taking the time to read and comment. I’m sure it will come as no surprise that I don’t exactly agree with you, but I’d love to explore this a bit further. A portion of TS’s criticism:

“In the mean time, it’s a gross over generalization to say capitalism failed. I would argue in fact, we have really just realize its faults.”

TS goes on to say that if better regulation were possible, capitalism would do a better job of accounting for external costs, and therefore capitalism would work, since the true value of a tree left standing, for example, would be known.

It’s true that there have been some halting moves towards this – most notably WalMart’s sustainability index, for example.

But where TS and I differ, I expect, is in our varying levels of confidence that such transformative changes in the way we do business are possible. I suspect that any meaningful reform will be blocked before it truly has a chance to affect the needed changes, and that therefore we are in fact seeing the early stages of the death of capitalism.

To understand how that works, we need to understand a bit about the process of sausage-making in a democracy. These days that’s almost entirely left up to well-connected and well-funded lobbyists, even more so directly south of us. These folks are well paid, each and every day, to monitor political activity, lobby the ‘right’ people and generally have their way with the democratic process.

And this is where the issue of better and ‘smarter’ regulation goes off the rails each and every time. Let’s return again to the issue of Wall Street bankers, since it’s the most instructive example in recent years.

These guys screwed up royally. All the major US investment banks should be broke. They only survive because they were able to engineer a bailout of AIG who was a ‘counterparty’ in a bunch of credit default swaps, and that organization was then able to pay off the policies it wrote – policies covering the most egregious excesses of the US housing bubble.

But rather than face their medicine, these folks then turned around and began actively lobbying against regulations of these sorts of black arts financial instruments and instead tried to pin the blame on the US’s CMHC-like bodies like Fannie Mae and Freddie Mac. Now there’s no arguing these quasi-public institutions caused their own problems – but in this case they were following Wall Street’s lead and were responsible for less than one per cent of the bad mortgages.

But of course the real villans will never be held accountable because of the great sway they hold in the corridors of power.

Without this accountability they’re about to suffer from a powerful case of moral hazard — they now know with absolute certainty that if they make these outrageous bets again and win, they pocket a huge bonus. But if they lose? Well, then the taxpayer is on the hook.