Comments on: The end of financialisation? http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/ Blogging politics, culture, sociology and life from Brisvegas Fri, 19 Mar 2010 05:48:03 +0000 hourly 1 By: Mark http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513885 Mark Mon, 22 Sep 2008 13:00:59 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513885 Sounds good, Andrew, and that's good timing, as I'm submitting my thesis on 3 October and defending it at a seminar on 30 October, so I'm going to have more time for beer soon! Sounds good, Andrew, and that’s good timing, as I’m submitting my thesis on 3 October and defending it at a seminar on 30 October, so I’m going to have more time for beer soon!

]]> By: Andrew Reynolds http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513866 Andrew Reynolds Mon, 22 Sep 2008 12:24:23 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513866 Mark, No disrepect taken. I think we would broadly agree that I am not a left winger. Actually, I will be over in Brisvegas is a month or so. Perhaps if you have time for a beer (I think I owe you one or two) we could catch up. Mark,
No disrepect taken. I think we would broadly agree that I am not a left winger.
Actually, I will be over in Brisvegas is a month or so. Perhaps if you have time for a beer (I think I owe you one or two) we could catch up.

]]> By: Mark http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513839 Mark Mon, 22 Sep 2008 11:24:48 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513839 You could try Troppo, BBB, now that "radical centrism" includes Rafe Champion's posts... ;) You could try Troppo, BBB, now that “radical centrism” includes Rafe Champion’s posts… ;)

]]> By: Bingo Bango Boingo http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513836 Bingo Bango Boingo Mon, 22 Sep 2008 11:22:45 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513836 Really? Damn. I've got a cracking post about the life of Malcolm Turnbull from a Randian Objectivist perspective. I was going to email you about that. Nevermind. BBB Really? Damn. I’ve got a cracking post about the life of Malcolm Turnbull from a Randian Objectivist perspective. I was going to email you about that. Nevermind.

BBB

]]> By: Mark http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513829 Mark Mon, 22 Sep 2008 10:52:08 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513829 No disrespect to Andrew, but we do restrict blogging here to left wing perspectives - coz we're a left wing blog. I don't think Andrew would characterise himself that way. Everyone's obviously most welcome to participate in comments, and we value Andrew's input, but if he's got a desire to do a post, the best thing to do would be to write one on his own blog and link. No disrespect to Andrew, but we do restrict blogging here to left wing perspectives – coz we’re a left wing blog. I don’t think Andrew would characterise himself that way. Everyone’s obviously most welcome to participate in comments, and we value Andrew’s input, but if he’s got a desire to do a post, the best thing to do would be to write one on his own blog and link.

]]> By: Andrew Reynolds http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513811 Andrew Reynolds Mon, 22 Sep 2008 10:09:49 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513811 BBB, I think the LPers would probably get enough of my opinion anyway. :) BBB,
I think the LPers would probably get enough of my opinion anyway. :)

]]> By: Bingo Bango Boingo http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513783 Bingo Bango Boingo Mon, 22 Sep 2008 08:57:35 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513783 AR, you should ask Mark whether LP will also host it as a guest post. BBB AR, you should ask Mark whether LP will also host it as a guest post.

BBB

]]> By: Andrew Reynolds http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513764 Andrew Reynolds Mon, 22 Sep 2008 07:41:38 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513764 Thanks Katz - I had missed that. It can be another addition to the long piece I am writing for ozrisk. Thanks Katz – I had missed that. It can be another addition to the long piece I am writing for ozrisk.

]]> By: Katz http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513752 Katz Mon, 22 Sep 2008 06:43:10 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513752 See my 107 above. See my 107 above.

]]> By: Andrew Reynolds http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513747 Andrew Reynolds Mon, 22 Sep 2008 06:38:13 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513747 Katz, I always thought that the GSEs were barred from those by their legislation. Do you have a link to some further info on that? Katz,
I always thought that the GSEs were barred from those by their legislation. Do you have a link to some further info on that?

]]> By: Katz http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513700 Katz Mon, 22 Sep 2008 05:32:50 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513700 AR is mostly correct, except that he continues to neglect to acknowledge that Fannie and Freddie also took on more tha $400b of subprime mortgages. It's time to address the conceptual dissonance that drives much of this discussion. It is assumed that because we are talking about the US, that, ipso facto, we are talking about a regulatory environment for real estate that is much lighter and more market-driven than our own. This simply isn't the case. The Autralian model is a paragon of market virtue by comparison. And let us look at the latest evolution of the American mania for regulation. Paulson's bail-out has established the US taxpayer as the biggest mug in the game of buying over-priced assets. The proposed legislation ensures that assets will be sold to the Treasury if and only if the Treasury is the highest bidder and if and only if the financial institutions think it is better to offload their trash rather than to hang on to their treasure. By legislation, the US taxpayer (great-grandchild of current taxpayers) has become the buyer of last resort. Regulations don't get much more absurd than that. But it's not Paulson's money, so what does he care? AR is mostly correct, except that he continues to neglect to acknowledge that Fannie and Freddie also took on more tha $400b of subprime mortgages.

It’s time to address the conceptual dissonance that drives much of this discussion. It is assumed that because we are talking about the US, that, ipso facto, we are talking about a regulatory environment for real estate that is much lighter and more market-driven than our own. This simply isn’t the case. The Autralian model is a paragon of market virtue by comparison.

And let us look at the latest evolution of the American mania for regulation. Paulson’s bail-out has established the US taxpayer as the biggest mug in the game of buying over-priced assets. The proposed legislation ensures that assets will be sold to the Treasury if and only if the Treasury is the highest bidder and if and only if the financial institutions think it is better to offload their trash rather than to hang on to their treasure.

By legislation, the US taxpayer (great-grandchild of current taxpayers) has become the buyer of last resort.

Regulations don’t get much more absurd than that.

But it’s not Paulson’s money, so what does he care?

]]> By: Andrew Reynolds http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513571 Andrew Reynolds Mon, 22 Sep 2008 02:15:07 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513571 BFF, I will indulge you - although I doubt you are truly willing to set aside what seem to be your prejudices. My views are informed through 18 years working for regulators, banks and, for 7 years, prosecution of (alleged) bankers - so I have at least a little knowledge of the area. Firstly - apart from a few loans given out by fraudsters most of the loans were made in the expectation of returns. Banks are not charities and so they were expecting to get prinicipal and interest back. Where the loans were made to people with NINJA conditions (no income, no job or assets) it would have been through capital increase - i.e. appreciation in the value of the home. A second problem here was those banks using brokers to sell the loans and then giving them incentives for getting the loans in through the door, rather than (as happens here - and not by regulation) for continuing performace through trail commissions. This mean that some brokers were just handing them out and using high-pressure techniques and breaking both the law and their contracts with the banks. At a regulatory level, however, the problem gets more interesting. Firstly, Fannie and Freddie, as GSEs (government sponsored enterprises) were using their implicit government support to lower the lending rates to the prime loans they were (largely) restricted to. This also heavily skewed the markets - home lending through Fannie and Freddie became the same as lending to governments, so there was no risk sensitivity. They were also able to (and increasingly did) use these borrowing rates to issue many complex derivatives based on home loans. They were also, as GSEs, not subject to the same regulations as everyone else. Nobody really cared about this because there was an understanding that Uncle Sam would ride to the rescue if needed - as they did. A further, major, regulatory problem is the way that housing loans were (and in the US still are) treated under Basel II. For capital purposes all home loans were treated exactly the same - whether a ninja loan to someone in the projects or a 10% LVR loan on a $10,000,000 stately home on Long Island. Not incidentally, none of the GSEs could touch either of these loans. Everyone knew this was silly, so there grew up a large market in derivatives based on home loans that was designed to arbitrage the difference between the loans the GSEs could touch and those they could not. The net result of this interplay between the GSEs, the capital regulations and lax lending standards due to high monetary growth was that the banks were stuffed with cash they had to get out the door. They were unable to use the cash to make loans to the good risks that Fannie and Freddie had cornered and the capital regulations said that all home loans were as safe as each other. The brokers were often being paid to make loans (not necessarily good ones) and the banks did not care as much as they should have as, for the last 10 or more years, home prices had risen as much as, if not more, than their prime lending rates. Many of the banks were also, by their charters, prohibited from lending outside the US or for other than homes. If Fannie and Freddie had not been there and the capital regulations (if they existed) had actually been risk sensitive then lending would have been (IMHO) better - but, as always, not perfect. This would have reduced (but perhaps not eliminated) the ninja loans, meaning the house prices would not have gone up as much, meaning returns from other than capital would have been examined. I am not trying to assign sole blame for this to the regulators. All I am saying is that they did not help - so expecting more regulation to fix the problem would be the triumph of hope over experience. In the US at least, the problem was in large part caused by the multiple overlapping systems of regulation, the effects of the GSEs and the frankly stupid incentives it gave many of the market participants. BFF,
I will indulge you – although I doubt you are truly willing to set aside what seem to be your prejudices. My views are informed through 18 years working for regulators, banks and, for 7 years, prosecution of (alleged) bankers – so I have at least a little knowledge of the area.
Firstly – apart from a few loans given out by fraudsters most of the loans were made in the expectation of returns. Banks are not charities and so they were expecting to get prinicipal and interest back. Where the loans were made to people with NINJA conditions (no income, no job or assets) it would have been through capital increase – i.e. appreciation in the value of the home.
A second problem here was those banks using brokers to sell the loans and then giving them incentives for getting the loans in through the door, rather than (as happens here – and not by regulation) for continuing performace through trail commissions. This mean that some brokers were just handing them out and using high-pressure techniques and breaking both the law and their contracts with the banks.
At a regulatory level, however, the problem gets more interesting. Firstly, Fannie and Freddie, as GSEs (government sponsored enterprises) were using their implicit government support to lower the lending rates to the prime loans they were (largely) restricted to. This also heavily skewed the markets – home lending through Fannie and Freddie became the same as lending to governments, so there was no risk sensitivity. They were also able to (and increasingly did) use these borrowing rates to issue many complex derivatives based on home loans. They were also, as GSEs, not subject to the same regulations as everyone else. Nobody really cared about this because there was an understanding that Uncle Sam would ride to the rescue if needed – as they did.
A further, major, regulatory problem is the way that housing loans were (and in the US still are) treated under Basel II. For capital purposes all home loans were treated exactly the same – whether a ninja loan to someone in the projects or a 10% LVR loan on a $10,000,000 stately home on Long Island. Not incidentally, none of the GSEs could touch either of these loans.
Everyone knew this was silly, so there grew up a large market in derivatives based on home loans that was designed to arbitrage the difference between the loans the GSEs could touch and those they could not.
The net result of this interplay between the GSEs, the capital regulations and lax lending standards due to high monetary growth was that the banks were stuffed with cash they had to get out the door. They were unable to use the cash to make loans to the good risks that Fannie and Freddie had cornered and the capital regulations said that all home loans were as safe as each other. The brokers were often being paid to make loans (not necessarily good ones) and the banks did not care as much as they should have as, for the last 10 or more years, home prices had risen as much as, if not more, than their prime lending rates. Many of the banks were also, by their charters, prohibited from lending outside the US or for other than homes.
If Fannie and Freddie had not been there and the capital regulations (if they existed) had actually been risk sensitive then lending would have been (IMHO) better – but, as always, not perfect. This would have reduced (but perhaps not eliminated) the ninja loans, meaning the house prices would not have gone up as much, meaning returns from other than capital would have been examined.
I am not trying to assign sole blame for this to the regulators. All I am saying is that they did not help – so expecting more regulation to fix the problem would be the triumph of hope over experience. In the US at least, the problem was in large part caused by the multiple overlapping systems of regulation, the effects of the GSEs and the frankly stupid incentives it gave many of the market participants.

]]> By: Mark http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513565 Mark Mon, 22 Sep 2008 02:10:31 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513565 Rafe Champion knows the root cause - too much regulation! http://clubtroppo.com.au/2008/09/22/the-death-of-the-free-market/ Rafe Champion knows the root cause – too much regulation!

http://clubtroppo.com.au/2008/09/22/the-death-of-the-free-market/

]]> By: FDB http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513542 FDB Mon, 22 Sep 2008 01:26:50 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513542 "I don’t think it is at all ‘blindingly obvious’ what the root cause is and we’ll probably end up blaming the wrong people, setting ourselves up for the next one." Regardless of the root cause, pumping public money in to fix it hardly discourages its reoccurance. “I don’t think it is at all ‘blindingly obvious’ what the root cause is and we’ll probably end up blaming the wrong people, setting ourselves up for the next one.”

Regardless of the root cause, pumping public money in to fix it hardly discourages its reoccurance.

]]> By: Peter http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513536 Peter Mon, 22 Sep 2008 01:14:15 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513536 The Boy From Flynn needs to read up on the Community Reinvestment Act (though there are arguments that this was not a cause). <a href="http://en.wikipedia.org/wiki/Community_Reinvestment_Act" rel="nofollow">Wiki</a> is not a bad starting point. I don't think it is at all 'blindingly obvious' what the root cause is and we'll probably end up blaming the wrong people, setting ourselves up for the next one. The Boy From Flynn needs to read up on the Community Reinvestment Act (though there are arguments that this was not a cause). Wiki is not a bad starting point.

I don’t think it is at all ‘blindingly obvious’ what the root cause is and we’ll probably end up blaming the wrong people, setting ourselves up for the next one.

]]> By: Boy from Flynn http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513432 Boy from Flynn Sun, 21 Sep 2008 20:10:51 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513432 Andrew, I am about to head off on holiday for a week, where I probably won't have internet access. But do indulge me, I'll read it when I get back. While it is blindingly obvious what caused this crisis, tell me how you think government made it worse. And what in your opinion should be done about it? Though at the end of the day, it is an inescapable fact that the root of all of this is moneylenders profiteering by giving out loans that they KNEW many people would not be able to pay back (yes, many averege joe's were stupid and greedy too but they would never have been able to default on such loans if regulation had prevented them from accessing them in the first place). From what I can gather, this sector was left pretty much unregulated in order to encourage those who would not ordinarlily qualify for mortgages to take out home ownership. Would it not have made more sense to simply funnel money into public housing? But of course, that's not the neoliberal way is it? But do tell me what you think Andrew, I'm listening. Andrew, I am about to head off on holiday for a week, where I probably won’t have internet access. But do indulge me, I’ll read it when I get back.

While it is blindingly obvious what caused this crisis, tell me how you think government made it worse. And what in your opinion should be done about it?

Though at the end of the day, it is an inescapable fact that the root of all of this is moneylenders profiteering by giving out loans that they KNEW many people would not be able to pay back (yes, many averege joe’s were stupid and greedy too but they would never have been able to default on such loans if regulation had prevented them from accessing them in the first place). From what I can gather, this sector was left pretty much unregulated in order to encourage those who would not ordinarlily qualify for mortgages to take out home ownership.

Would it not have made more sense to simply funnel money into public housing? But of course, that’s not the neoliberal way is it?

But do tell me what you think Andrew, I’m listening.

]]> By: Andrew Reynolds http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513309 Andrew Reynolds Sun, 21 Sep 2008 13:04:20 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513309 BFF, Firstly, I have never called for anarchy as you seem to be implying. If you are not prepared to even look at an argument that regulation may have at the very least helped this along then there is not much point engaging with you, is there? BFF,
Firstly, I have never called for anarchy as you seem to be implying.
If you are not prepared to even look at an argument that regulation may have at the very least helped this along then there is not much point engaging with you, is there?

]]> By: Boy from Flynn http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513234 Boy from Flynn Sun, 21 Sep 2008 09:40:15 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513234 So what mistakes did government (rather than individuals in the market) make that have caused this mess? That does sound like what you're implying. If (I say "if") this fucks up badly, I didn't choose to participate but I'll still get shafted all because a bunch of sleazy dirtbags were allowed to get away with stuffing their pockets with the proceeds of dodgy loans. The failure of (a neoliberal) government here was the failure to appropriately regulate this sector. Not too much "interference" but rather not enough in the right places. FFS, stop being so negative about government - when government gets it right, we all benefit. Or was it a mistake to socialize say, the immunization program? Should it be run for private profit etc etc? Jeez. Thankfully, the sort behaviour that so obviously came naturally to particular individuals when they were not properly policed was already banned here by our regulators. I really can't see how anyone can argue that government caused this mess by not giving market players ENOUGH freedom. History will judge that the opposite was the case. So what mistakes did government (rather than individuals in the market) make that have caused this mess? That does sound like what you’re implying. If (I say “if”) this fucks up badly, I didn’t choose to participate but I’ll still get shafted all because a bunch of sleazy dirtbags were allowed to get away with stuffing their pockets with the proceeds of dodgy loans. The failure of (a neoliberal) government here was the failure to appropriately regulate this sector. Not too much “interference” but rather not enough in the right places.

FFS, stop being so negative about government – when government gets it right, we all benefit. Or was it a mistake to socialize say, the immunization program? Should it be run for private profit etc etc? Jeez.

Thankfully, the sort behaviour that so obviously came naturally to particular individuals when they were not properly policed was already banned here by our regulators. I really can’t see how anyone can argue that government caused this mess by not giving market players ENOUGH freedom. History will judge that the opposite was the case.

]]> By: jack Strocchi http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513231 jack Strocchi Sun, 21 Sep 2008 09:36:09 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513231 Just browsing over the web commentary five years ago and came accross <a href="http://johnquiggin.com/index.php/archives/2003/06/07/weekend-antiglobalism/#comment-7500" rel="nofollow">this passage</a>, from a visitor hailing from the "Strocchiverse". which contains the first recorded blog use of the term <a href="http://blogsearch.google.com/blogsearch?hl=en&q=financialisation&ie=UTF-8&as_maxm=9&as_miny=2003&as_maxy=2008&as_minm=6&as_mind=30&as_maxd=22&as_drrb=b&ctz=-600&scoring=d&filter=0&sa=N&start=250" rel="nofollow">"financialisation"</a>. The analysis remains valid, especially the bit about "purging the financial class" ie economic cleansing through what we might call the "sterilisation of the speculator" eg Tobin Tax. With few exceptions financialists are predators, parasites or ponces who either have no idea what they are doing or know only too well and shouldnt be allowed to do such things in the first place. <blockquote># Jack Strocchi Says: <a href="http://johnquiggin.com/index.php/archives/2003/06/07/weekend-antiglobalism/#comment-7500" rel="nofollow">June 9th, 2003 at 2:12 am</a> <i>I would agree with Pr Q on <b>financialisation</b>. The action of deregulated Global Financial markets is counter-productive. They fail, causing: * financial instability: distributing their costs - local financial stability (hedging)purchased at global financial instability (contagion) * income inequality: concentrating their benefits to facile calculators & manipulators Now extra credit flows, not into more competitive goods and labour markets, but straight into overheating capital (financial asset) markets causing asset price inflation (bubbles). There clearly needs to be a tax/regulatory impediment to financial “casino capitalising” or some sort of <b>purge of the finance class</b>.</i></blockquote> The proximate cause of this financial crisis was the conjunction of "debtquity and diversity" in the home loan sector. A perfect convergence of the New Right "masters of the universe" and New Left sub-prime "dregs of society". It is the perfect example of post-modern liberalism. The financial Scrooges and cultural Wets dancing in unison, on their own graves it seems. Just browsing over the web commentary five years ago and came accross this passage, from a visitor hailing from the “Strocchiverse”. which contains the first recorded blog use of the term “financialisation”.

The analysis remains valid, especially the bit about “purging the financial class” ie economic cleansing through what we might call the “sterilisation of the speculator” eg Tobin Tax. With few exceptions financialists are predators, parasites or ponces who either have no idea what they are doing or know only too well and shouldnt be allowed to do such things in the first place.

# Jack Strocchi Says: June 9th, 2003 at 2:12 am

I would agree with Pr Q on financialisation. The action of deregulated Global Financial markets is counter-productive.

They fail, causing:

* financial instability: distributing their costs – local financial stability (hedging)purchased at global financial instability (contagion)
* income inequality: concentrating their benefits to facile calculators & manipulators

Now extra credit flows, not into more competitive goods and labour markets, but straight into overheating capital (financial asset) markets causing asset price inflation (bubbles).

There clearly needs to be a tax/regulatory impediment to financial “casino capitalising” or some sort of purge of the finance class.

The proximate cause of this financial crisis was the conjunction of “debtquity and diversity” in the home loan sector. A perfect convergence of the New Right “masters of the universe” and New Left sub-prime “dregs of society”.

It is the perfect example of post-modern liberalism. The financial Scrooges and cultural Wets dancing in unison, on their own graves it seems.

]]> By: Bingo Bango Boingo http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/comment-page-3/#comment-513222 Bingo Bango Boingo Sun, 21 Sep 2008 09:18:51 +0000 http://larvatusprodeo.net/2008/09/18/the-end-of-financialisation/#comment-513222 The whole 'teh' thing crosses the political divide, BFF. It is also used by lefties to denounce the ramblings of RWDBs, with some justification. BBB The whole ‘teh’ thing crosses the political divide, BFF. It is also used by lefties to denounce the ramblings of RWDBs, with some justification.

BBB

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