Recent comments by de Lafayette

• Why No Glass-Steagall II?

  {BE: The notion that capital markets could self-regulate was decisively rejected.}
  
  Perhaps, but a child, then seven years old, by the name of Alan Greenspan was clearly not attentive to what was happening.
  
  Some years later, having read books by an Ayn Rand, it seems he came to that very idea cited in the caption above. And would insist upon the notion later as head of the Fed until the very end of his tenure ... as the banking sector fell into a deep dark hole in the fall of 2008.
  
  And to this day, he claims "Nobody saw it coming!" Well he should have, shouldn't he? After all, he was in the catbird seat at the time the dark abyss was opening its giant maw.
  
  Meaning what? Meaning this, paraphrasing an American philosopher by the name of George Santayana, "Those who refuse to learn from the mistakes of history are condemned to repeat them."

• Big Banks’ Tall Tales

  {SJ: After all, more debt (relative to equity) means a higher payoff when things go well. And, when things go badly, it becomes the taxpayers’ problem (or the problem of some foreign government and their taxpayers).}
  
  Well put, but if we must chose one of the other of the above scenarios, which is the more crucial to the nation? The well-being of banks or that of its citizens? I vote clearly for the latter.
  
  Which makes me wonder why we do not recognize the fatal error made when Clinton was ill-advised by Rubin and Summers (et al, namely a Republican Congress) to do away with the Glass-Steagal Act.
  
  There are, by their very natures, two banking sectors: One is Commercial Banking that is or should be risk-averse and Investment Banking that is risk-prone. Never the twain should meet in the same financial entity.
  
  Meaning quite simply, who in their right-mind can accept as fundamentally justified that the deposit funds of the former (meaning my and your account) should be employed to collateralize the risks of the latter?
  
  Yes, the FDIC is there to prevent any great loss from occurring should the deposits evaporate like the morning dew come the next banking calamity.
  
  But, the FDIC is nothing more than the Treasury, which is little more than the Fed – meaning that the Fed will print money in order to save our deposits (up to but not beyond the statutory limits).
  
  Which is what both bankers and politicians seem to think when it comes to managing total risk. That is, regardless of the consequences, the Fed will print money to reimburse the loses.
  
  Nice, comforting thought. But, still, I’d not care to have my money in an American bank when that happens.
  
  My point is this: Rather than the various measures taken to date to assure that “nothing can go wrong”, I would rather that the large banks be forced to dismantle and distribute further the inevitable risk of another debt-related catastrophe happening. And in the process, let’s put back up the firewall between the two banking sectors.
  
  Yes, the hue and cry from the Investment Bankers will be great. And it will as well be music to my ears …
  

• Why Did Economists Not Foresee the Crisis?

  None of the answers apply, I submit.
  
  What happened was in the realm of fraud and chicanery. What model has those elements built into it?
  
  The Great Recession was provoked by a national Credit Mechanism Seizure in the fall of 2008, which occurred because of massive amounts of Toxic Waste discovered in securitized loans that rocked the financial foundation of the nation.
  
  What model would have predicted that? This outcome is a failure of oversight authorities who were asleep at the wheel. Who should have been doing the debt-instrument auditing necessary to have discovered it and then take the measures to stop it.
  
  The question remains nonetheless: "How do we prevent this from happening again?" Because it WILL happen again if permitted - due to a Tax Code that induces market manipulators on both Main Street and Wall Street to employ fraud in order to "get rich quick".
  
  The error was entirely human. The consequences were economic and, no, financial market-fraud is nowhere on the radar screens of most economists. (Some, in fact, did predict the calamity.)
  
  

• The End of Hunger and Malnutrition

  It may seem silly, but I consider the US a "developing country", but not in the economic sense.
  
  It needs to develop a culture - rather than fixate upon money, power, guns and eating oneself into the oblivion of obesity.
  
  No doubt, it is one of the richest countries in the world in terms of GDP per person. But in terms of culture? It finds itself in an arid desert.
  
  But what IS culture? Consider the dictionary definition: The qualities of a society that arises from a concern for what is regarded as excellent in arts, letters, manners, scholarly pursuits, etc.
  
  Excellence in the arts? Batman? In letters? Of the 28 or so writers listed as the Most Influential, only a few are alive. In manners? Come on ...
  
  In scholarly pursuits? Well, there is a great deal of activity at many of America's finest academic institutions - but rarely does the work play out into the rest of society to any great extent.
  
  Jack 'n Jill Sixpack are still the American model when it comes to defining a middle-class existence.
  
  And it is the fault of whom?
  
  I suggest it is the overwhelming influence of the BoobTube - that leveler to the Most Common Denominator at the very bottom of human interest. Such as sports, hell-bent Hollywood drama, hotdog eating contests, political fanaticism and a fixation upon whatever depicts obtaining a great deal of money very quickly.
  
  Money cannot buy society happiness. Or cultural attributes that are shared commonly. Most common of all those attributes being a sense of Social Justice that allows all to live decently – so fixated is it on “winning” and individual achievement.
  
  The dumbing-down of America continues apace.
  

• Is State Capitalism Winning?

  France, where I live, seems an unlikely candidate for state capitalism - but it is indeed one of the most prone EU countries for the role. Not long ago a Prime Minister was underscoring the necessity of French National Champions as a cornerstone policy to develop jobs.
  
  In fact, like most countries the larger part of any workforce is employed by small to medium large companies. So the "accident" of a communist country (China) changing sides to become a behemoth of capitalism bears some investigation, and even disbelief.
  
  No one can deny the Chinese success story, but to ascribe that success to State Capitalism is a step too far. The Chinese have been since time immemorial good entrepreneurs. It was a Chinese who first "discovered" both the African continent, the Arabian Peninsula, Iran and India to China's west and established trading ports - this during the 15th century - a bit before Columbus found the Americas on another voyage of discovery.
  
  Should we therefore be surprised of the Chinese resurgence? Not really. Should it be ascribed to State Capitalism? Not really, either.
  
  State capitalism in France, otoh, has been responsible for some very good policy initiatives. The first being to select for state development both a nuclear energy option and a hi-speed train transport system. Both of these industries are now world leaders in their domains.
  
  America, serial entrepreneur, renounced both such businesses. Much to its chagrin today. Its nuclear generation capacity is stagnant and no new plants are being built. (Thus wedding even further the US to carbon-based highly pollutant fuels.) And there is no challenge to high polluting commercial airliners from non-polluting hi-speed electric trains.
  
  These are only two examples where State Capitalism can undertake risky ventures in order to develop ... uh, National Champions (for lack of a better phrase). Where State Capitalism has worked wondrously in the US is, first, in aerospace technologies that took mankind to the moon. Then Arpanet that eventually evolved into the Internet we know today - the most important innovation in advancing our destiny since the Gutenberg bible was first printed.
  
  Are Western democracies therefore better off with State Capitalism? The answer to that question can only be, "It depends ...»
  
  It depends upon what national objectives we are trying to accomplish. We cannot simply depend upon markets to respond to a consumer need ipso facto. Markets often have to be prompted by a precursor effort to open the opportunity. State Capitalism thus works well to undertake such exploratory initiatives. But the lesson to be learned from Europe is that, once undertaken and proven valid, and then it is best for the state to get out of the business and leave it professionals.