Friday, October 10, 2008

Ideas have consequences ...

Naomi Klein on the Chicago School and the global financial meltdown:



Comment:

This speech is a lesson. Some knowledge of economy is required, but overall it is in quite simple words.

The connection made is "... people falling in love with a perfect Utopian system - seductive of the perfect Utopian market." Just as people did with Marxism - but both turned out to be distortions, merely a tool used by powerful people to justify excesses by creating crises.

Interestingly, the speaker calls the Neo-Liberals as well as the extreme Leftists as the "modern Trotsky-ites".

"Milton's misfortune is that his policies have actually been tried"
(John Kenneth Galbraith)

5 comments:

PCSer said...

Sir,
You are stellar character, and incredible writer. I greatly admire your blogging skills. Please continue to pursue this blog.

Zeemax said...

Some technical stuff:

It all started with Mortgage financing. Perfectly legitimate. Fannie Mae and Freddie Mac were assigned by the US Administration to get every American a home, and they mostly did. It was a success. The financing came from the secondary market i.e. issuance of mortgage backed fixed-income AAA rated securities. All these were backed by Prime brick & mortar properties.

Then, the Glass Steagal Act, which was enacted in the 1930s to place a firewall between public savings and speculative activity was repealed as a result of Reagonomics - and this prompted large banks to jump into the lucrative housing finance market. Since the Prime market was taken up by Fannie Mae and Freddie Mac, they went into sub-Prime. At first it wasn't so bad, but eventually it turned to lending to people without any income.

... and then the packaging, splitting, stripping, repackaging, leveraging - endlessly - totally unregulated.

It still wasn't so bad, but then the Credit Default Swap market was created out of London, which was a trade-able insurance coverage for defaults on the same credit markets, and it was so successful that still it hasn't been reconciled whether that insurance is against the extent of debts/assets which actually exist. It is estimated much of this CDS (Credit Default Swap) securities are backed by nothing. It has been established that the amount insured on General Motors debt is more than the debt itself!

Banks hold a huge amount of these CDS.

This CDS market totals about $ 67 trillion. I repeat, $ 67 trillion. That's about the entire world GDP. If it crashes, we're going back to camels and caves.

Zeemax said...

PCSer,

Thank you for dropping by! I hope you will make contributions from time to time.

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