How about that stock market? It’s not the end of trading but market has rallied over 180 points on ‘hopes’ that the Greek economy would be tossed a ‘lifeline’.
Um, I tend to agree with the sentiments expressed by a ‘market guru’ in this video “if my broker was buying stock because of an anticipated bailout, I’d fire’ em!” (For those of you disinclined/incapable of viewing web-based video for any number of reasons…)
Said guru goes on to label today’s action as a ‘dress rehearsal’ for what’s lying in wait for the rest of the world. That time when investors pull out their guns and demand to be ‘compensated’ for the ‘risk’ they are being, er, ‘asked’ to bear…instead of being told to go fuck themselves! Which is far less than what they so richly deserve, which happens to be a good neck stretching! But that’s just what I think…
Moving on we arrive at tonight’s offering for a look at what else might be waiting for us in the ‘not too distant future’.
Before proceeding I feel obliged to throw a wrench into the ‘central assumption’ that makes Stoneleigh’s ‘thought experiment’ possible. The only way inherently corrupt social structures survive is through their ability to ‘deliver the goods’. Once that ability fails, the whole edifice falls apart…making the following ‘thought experiment’ (actually the every day reality for your typical Banana Republic) ‘optimistic in the extreme’.
Corruption, Culpability and Short-Termism
People are increasingly collectively horrified at the extent of the fraud and corruption that lies at the heart of our financial and broader governance structures. They seem surprised, as if this were something new, when it has actually been growing in tandem with our credit hyper-expansion for decades. Corruption in complex systems never goes away, it merely waxes and wanes, and goes through phases where it is more or less visible.
During long manic periods, all manner of abuses occur, but no one notices [you notice all right but you tend not to complain, even if ‘the party’ passes you by] while the party continues, because no one [With the authority to stop the abuse] wants to notice. As long as [connected] people generally have access to easy credit and the illusory wealth effect it brings, they don't ask hard questions and are largely oblivious to risk. Many lied on their own mortgage application, in order to qualify for a larger loan than they could really afford (and know others that did the same.) They cannot seem to imagine what the consequences might one day be, both for themselves and for the financial system as a whole. To paraphrase a journalist, who commented on the national pyramid bubble in Albania in the mid-1990s, when people feel they are operating within the bounds of properly structured criminality, they feel no personal responsibility and do not [openly] fear consequences. [There was no shortage of people who remarked “Who can afford these prices?” when the Real Estate bubble was nearing its zenith, it was very clear to the average individual that the pool of ‘qualified buyers’ was shrinking exponentially! It wasn’t the public but the corporate-owned media who was asleep at the switch…the story wasn’t considered ‘newsworthy’.]
Both the predators and the prey are complicit in the development of a mania. Predators lent money into existence without regard to risk, since they were selling that on to Wall Street investors through securitization. Just like those they preyed upon by actively enticing people into loans they could not afford, they turned a blind eye to the blatant lies on mortgage applications, inflated assessments and other fraudulent aspects of the developing bubble. They made their money through fees anyway, but did not contemplate the creation of systemic risk that would ultimately bring them down as well. [Or so it would appear, I, for one, am less inclined to be as charitable, nobody is THAT stupid!]
Both sides had an interest in the party continuing because it benefited them personally in the short term. The prey were insisting on being handed the empty bag, which is all that's left at the height of a bubble, while the predators were only too pleased to oblige. Of the two, the predators were certainly in a better position to assess the situation and must be regarded as the more culpable party, but without the greed of the prey, the exploitation would not have been possible. [While generally true, this ignores the fact that many of the prey were coerced into untenable positions by rising prices and stagnant wages.]
When times have been both relatively good and stable for a long time, people's time horizons lengthen, and they feel they have the luxury of the longer-term view. [This might be true for members of the ‘middle class’ but the working class has been suffering for a long time.] Economists would say that their discount rates (the extent to which they value the present over the future) have declined. Humans are never collectively very good at taking a long-term view, but in stable times, where they don't have to worry about where their next meal is coming from, they are at their best in this regard. It is in times like this that environmental movements arise and humans start collectively valuing other forms of life (many individuals do this anyway, but for it to become a collective movement requires a human herding element that is only present at certain times. )
The height of a mania is a very unusual time that combines the best of good times for a majority of people, illusory though it may be, with a rapid rate of change. People begin to manifest mixed messages, for instance environmentalism tinged with fear. As discount rates steepen, people make more and more short-term decisions and ignore the longer-term risks. They throw caution to the wind, with predictable consequences, first through euphoria and then in desperate denial. That is how we became the authors of our own present debt predicament.
Eventually, as the mania comes to an end, the rapid rate of change mostly to the upside will be replaced with a rapid rate of change to the downside, combined with a significant contraction in material wealth, as excess claims to it are extinguished. The confluence of circumstances that had led to a longer-term view will reverse sharply. Unfortunately, the result will be a state of crisis management, just when cool heads and rationality would matter most. [How fortunate for the criminals!] We who have had the luxury of the long term will find out what it is like to worry about where our next meal is coming from, and just how short our time horizons will become under those circumstances. [No irony should be lost on the fact that this hasn’t happened already, when the supply lines run dry, it will be because ‘investors’ are holding them hostage!]
In many parts of the world, instability has been a chronic condition for decades. There are huge disparities between haves and have nots, and one's position of fortune or misfortune is often determined in relation to personal connections with those in power, when power itself can be a very ephemeral thing. These are conditions that promote very high discount rates, not just among the have nots who have to worry about feeding themselves, but also among the haves whose benefactors could be out of power tomorrow, ending their privileged position. Under these circumstances, governance is often appalling, because those in or near power have a direct incentive to loot the public coffers while they have the chance. Where power structures are clan-based, the incentive is even stronger, as losing power could easily lead to persecution by the incoming group, and the consequent need to escape with portable wealth. [Understand, if there is no benefit to living close to those who would exploit you, you won’t live there.]
What this engenders is a culture of endemic corruption, which we would do well to study, as it is likely where we [some of us, anyway] will find ourselves for much of this century. We think we live with corruption now, as we hear about fraud, ponzi schemes, bailouts combined with epic bonuses and a revolving door between Goldman Sachs and the US Treasury. As self-evidently corrupt as this is, it is nothing in terms of the impact on daily life compared with the top-to-bottom corruption other peoples have to live with. We have not had to pay off every public official for the performance of his own job, pay bribes to secure contracts, pay to have legal standards waived, pay protection money to the police or pay a high enough political 'roof' to prevent our property from being claimed by the better connected. We have not had to live where life is cheap, authority figures at all levels are completely unaccountable, abuse of arbitrary power is rampant, the legal system actively undermines the rule of law and casual violence abounds. This is what happens when people feel that they have no long term.
Our media, when it focuses on unluckier parts of the world at all in our infotainment bubble, tends to do so with an air of superiority, as if we were somehow innately better than those who live under corrupt regimes. They fail to note that our position at the centre of a globalized world has allowed us to cream off the surpluses of the periphery, giving us the stability required for the luxury of the long term while actively depriving others of the same. Our boom has been an aggravating factor in the culture of corruption that has taken root in so many places, but our coming bust will see these same tendencies develop in our own countries.
Here we go again, it seems I’m always pointing to the irony of such situations and the irony here is stupendous! Without the ‘payola’ the US generates as a method of keeping puppets loyal (can you say foreign aid payments?) the whole slag heap of ‘top to bottom’ corruption stops short.
Without the graft these idiots have nothing to give, which means they also lose the leash they use to control others with. There’s no need to fear or obey the powerless.
Yeah, ‘some of us’ will, because it’s in their nature, become the obedient ‘lap dogs’ of the momentarily connected. Most of us, however, would take a page from Satan’s book…it is far better to rule in Hell than to serve in Heaven!
Thanks for letting me inside your head,
Gegner
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