Monday, September 29, 2008

Lessons From a Financial Crisis

By now, with the stock exchange herd mentality in full swing, it's painfully obvious that the financial world is in for some changes, regardless of what happens. Being a student of history and current events, it's equally obvious that there are some important takeaway lessons from this financial situation. Whether anyone learns from their mistakes and uses the dislocation as an opportunity to effect major changes (as opposed to retrenching and doubling down on the conventional wisdom) is anybody's guess; I suspect that getting anyone much in North America to learn from history at this late date is a fool's errand, but I may be a fool, so I'll just keep talking.

The points lessons that are apparent from where I'm sitting are as follows:
  1. Deregulation is evil. This lesson isn't news to anyone who's been paying attention, but I should point out that tighter and more rigourous regulation would have prevented many of these problems from existing. Predatory lending and entirely speculative leveraging methods can only flourish in an unregulated, non-transparent environment.

  2. Speculation is equally evil, and needs to be replaced with saner, sounder investment. We as a culture need to return to market fundamentals, like actually investing in companies over a long period of time, rather than just trying to flip stocks and forex to make a quick profit.

  3. It's time for a Tobin tax, and a small surcharge on all stock trades. Even something as miniscule as a quarter of a percent would wipe out much "stock churning" (because it would effectively eliminate its exceedingly narrow profit margin), thereby reducing market volatility and removing the temptation for professionally high-strung traders to stampede in one direction or the other.

  4. The credit-dependent economy needs to shrink, and badly. There is no earthly reason why the world in general needs to be that dependent on credit.

    Businesses need to learn how to buy in cash again, like Granddad did, and citizens need to stop feeling like their personhood is defined by their credit cards, and/or debt level, and the culture at large needs to stop encouraging people to be in debt.1 (As this article demonstrates, there are a substantial number of credit card companies whose revenue stream depends on people not paying off their card balances. Do I actually need to mention how fundamentally broken that system is?)

    For that matter, corporations in general need to stop acting like consumers' cash money is no good -- ever tried to get an ISP account (for example) without a credit card?! Marginalisation and penalisation should not be the default response to someone who wants to deal in cash (read: prefers to use their money unmediated by a giant transnational corporation); that response is symptomatic of a big big problem and needs to go away.

  5. The business culture in general needs to start making longer term plans than "close of trading today," and "next quarter." I don't mean to harp on the "back to basics" idea too much, but Granddad and Grandma really did have the right idea there as well.

  6. SUPPORT YOUR LOCAL SMALL, INDEPENDENT RETAILERS. Unless I completely miss my guess, large corporations are going to get hit far more by this than the mom-and-pop shop at the corner, unless Mom and Pop's statistics pan out very badly (they had all their money wrapped up in investments, for instance).


For those of you inclined to go the extra 1.609344km, I would add a seventh point: If you haven't started already, now is the time to begin decoupling from the mainstream economy. Stop shopping at chain stores, or transnationals; cut down your discretionary spending; if you're in debt, make getting out of it a priority; find out who speaks barter in your local area; join a Freecycle group or swap meet; join or support a co-op or farm basket programme in your area; look for alternate employment, that kind of thing.

Maybe it's too late for some people to learn from their mistakes, and I'm not expecting a business culture revolution, but if small and micro businesspeople implemented changes like these, North America might be a very different -- and better -- place in ten or fifteen years. We can hope, right?

________________________________
1 Companies that depend on their clients maintaining a debt balance in order to derive revenue refer to frustrating people like me (who pay off their balance on time or ahead of time) as "deadbeats." Spot the dysfunction, boys and girls!

6 Comments:

Blogger (O)CT(O)PUS said...

All goods points but let me leave a general comment:

By all accounts, all bailouts stink to high heaven, but the point is not about retribution for those who caused the meltdown or about the excesses of laissez faire capitalism but about protecting millions of innocent people caught up and hurt by it. In other words, when a car hits a pedestrian, do you call an ambulance first or do you lynch the driver before giving first aid to the victim?

10:16 AM  
Anonymous Anonymous said...

I don't believe the bailout is going to help the innocents, however. In your scenario, it's more akin to giving the driver a big fat check and his car a tow to the body shop, while leaving the pedestrian in the street.

10:49 AM  
Blogger Interrobang said...

Aside from the people who are going to lose their homes because of the way the real estate market is now working, I'm really not seeing a lot of examples given of how "millions of innocent people" are going to get hurt by this. Care to actually cite some examples, other than just saying that millions of people are going to get hurt? I understand that the economy will doubtless slow down, and people may lose their jobs, but a lot of that seems like a psychosomatic reaction of the body politic to me. (Case in point: I've been watching the people on Bay Street carefully manage the Canadian economy as though it were their own personal greenhouse for about fifteen years now; ask me about the strategic use of putting the word "recession" in public print, and its immediate, overnight effects on things like hiring sometime. That is, the symptoms of a slowdown aren't caused by any real economic cooling; it's the inverse: Many of the contributing factors to economic slowdown are actually caused by people like David Derbes going in the press and saying, "There's going to be a recession." It's happened five or six times while I've been paying attention.)

Thanks to predatory lending, a fingers-in-the-ears "la la la, I don't want to hear it" approach to due diligence on the part of the lenders, and other unscrupulous tactics that pretty much set a lot of these borrowers up to fail, and the bull-in-a-financial-china-shop attitude to the unregulated derivatives market, the people who perpetrated this mess may not have planned for people to lose their homes exactly, but they're sure responsible.

None of which has much to do with the point of my post, which is that the system in general is broken, and that if they were paying attention and willing to stop "doing X because X is the way we've always done it," people could actually take concrete steps to ameliorate the brokenness. In no way are any of these steps retributive; if I'd been after retribution, I would have outlined a plan much more like what I said in " The Invisible Hand Needs a Medina Mugger's Manicure."

However, I won't lie: I am looking forward to seeing a some bankers take a major skinning. I've been homeless and right now, I'm in the financial equivalent of a fortified castle. Don't wake me up until the hordes really are at the gates.

9:15 PM  
Blogger Heraldblog said...

Buying local is the best thing any of us can do right now. It's not always possible, but worth a try.

Urban gardening is another exciting development. I churned up my side yard and planted tomatoes and green peppers this year. I'll double the space next year.

A man in Milwaukee, Will Allen, was just awarded a MacArthur genius grant for teaching innovative urban gardening techniques.=

Great blog. I liked your comment at Digby's blog.

9:27 PM  
Anonymous Anonymous said...

I would be grateful if you would mention that Digby secretly banned me. Some people were wondering where I'd got to. One of the most disgusting aspects of the abusive secret ban is that the people get to continue to pretend to be open to all sort of political views while in fact selecting who can and cannot post along political lines.

It's also interesting to see that Digby prefers to ban lefties to some of the right wing people on her blog comment threads. Who knows who else she's banned?

DavidByron

8:31 PM  
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10:30 PM  

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