We have seen the Future
We have seen the Future

Matt “Vampire Squid” Taibbi gets it in concluding:

Why Isn’t Wall Street in Jail?

They’re attacking the very definition of property — which, after all, depends in part on a legal system that defends everyone’s claims of ownership equally. When that definition becomes tenuous or conditional — when the state simply gives up on the notion of justice — this whole American Dream thing recedes even further from reality.

Not just the American dream, but that of any Western society that expects things to get better” over time. As they have across the Western world since the advent of “capitalism” a couple of hundred years ago. If you have any doubt about the government/regulatory failure contribution to the financial crisis then read some of Matt’s other work:

The Great American Bubble Machine

The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who’s Who of Goldman Sachs graduates.

Governments enabled the creation of the bubble. Government also allowed the financial markets to change. Our financial markets changed from being a component of a system that enriches the masses to the benefit of the many to one which impoverishes them to the benefit of the few. In other words they have turned capitalism on its head, making it somewhat akin to pre-capitalist societies. Pre-capitalist societies were not known for massive wealth creation, with material misery and famine being more their mark. Countries were mercantilist, which was a reasonable attitude in a world marked by relatively constant levels of income per head. If the pie can’t grow much then the way to wealth is to accrue more of the pie for oneself. Sound familiar? Financial services can’t grow the pie much, but they sure can accrue more of it to themselves.

Having enabled the crisis governments promptly stepped in to redistribute the losses. Governments transferred the losses from those who took the risks and often received the gain to taxpayers, government employees, welfare recipients and users of public services. Basically the masses of the West have been made liable for the misdeeds of the often exceedingly wealthy few. The full costs of this are not yet apparent. Accounting and regulatory gimmicks amongst other government actions have hidden them for now. The erosion of the cultural underpinnings of our way of life is perhaps the most pernicious consequence, but its effects are also the hardest to see. Our kids will suffer the consequences.

This transfer of wealth from the masses to the politically connected occurred in our democracies. So much for the fear that the masses will vote themselves other peoples money. Turns out we should have been concerned for the masses money. We should still be concerned. Inflation and currency depreciation are the next step. Overt expropriation can not do it all. The analogy of the boiled frog comes to mind.

As for the GFC revealed losses. They are still there. The government can hide them and shift who incurs them. But it can’t make them go away. Someone has to feel the pain. They can feel it fast or feel it slow. But rest assured it will be felt. In this case a problem deferred is a problem allowed to fester and grow.

There is probably a law of conservation of losses. The government can hide them through accounting tricks and regulatory activity. But they are still there. The government can make some whole. It can insure depositors, cap losses for shareholders and not touch bond holders. It can keep failed financial managers in their jobs. But it can’t stop someone incurring the costs of these benefits. For like all government benefits, they come at a cost. And in this instance the cost almost certainly exceeds the benefit.

Finance never did create much new wealth. It primarily transferred it from one to another. Normally from those not earning their living through financial services, to those that do!

It’s time for our brightest and best to direct their energy and ingenuity to activities that result in more wealth, in a larger pie. We need fewer investment bankers, lawyers and accountants and more entrepreneurs, scientists and engineers. Let’s build a better future, not return to a mercantilist past.