Chutzpah, experts, and the global economic crisis

I hope to start blogging again from next week, gradually picking up frequency with the summer around the corner. Aside from time constraints, one reason why I felt like taking a breather from blogging was because of a contradictory urge to, at once, respond to and ignore what to me seems like a never-ending absurdist play. I talk, of course, of the global economic crisis.

Like many, I have been repelled by the greed, hubris, and foolishness of those who caused the global economic crisis-- which here in the US and worldwide has already caused disruption, suffering, and mayhem in the lives of countless people. At the same time, I felt compelled to comment on it, for whatever it was worth, largely because of my utter amazement at a number of things that seemed to defy both common sense and common decency. In this list, we might include: the utter refusal of anyone to take any responsibility for what had happened; the absurdity of rewarding many of the culprits who contributed to this mess with golden opportunity and plum posts; the rebranding and self-invention of these agents of chaos as 'experts'; the scale of human suffering; the mode in which Wall Street and the market sulked their way into getting concessions from the government; the refusal to listen to the voices of everyday workers and ordinary, regular people who lost their jobs; and the abject refusal to subject the ideology behind the system to any kind of sustained critique.

Indeed, one of the myths about the crisis that has been circulating at dizzying pace is that no one is to blame for it. Attribute it, if you please, to the 'systemic' or 'cyclical' nature of the beast, luck of the draw, goes-with-the territory, and all that stuff.

This boggles the mind because, in effect, it means that those who made fortunes in commissions, cuts, and transactions related to bogus valuations of assets will (a) walk way from the mess without being held accountable while (b) those who had nothing to do with it stand to lose their houses, jobs, benefits, livelihoods, dreams and careers.

I don't understand it.

I may not be as smart as the genuises who work in the finance and banking industries who led us to this situation.( I am not interested in indicting capitalism or vilifying any particular industries or occupations. I make no moral judgments about the accumulation of wealth or profit either. That kind of response is fruitless and unfair.) But I can make sense of the world, and there is a defensible rationale to the way in which I view the world. And from numerous conversations over the last couple of years, with friends, colleagues, acquaintances, and strangers who work in diverse fields-- including finance, law, technology, and academia-- I can attest that they feel the same way.

I'm compelled to comment again, in response to an article on the global crisis in the New York Review of Books and an article about a book on banking from The New Yorker, both of which I encountered through the sublime 3 Quarks Daily. Let me highlight two extracts from the articles:

Here, from the latter is Larry Summers on the risk of CDOs and Richard Posner's response:

the model of packaging plus securitization spurned the principle that a bank had to individually assess and monitor every loan. The mathematics of valuation models—horrendously complex equations to assess probabilities and correlations, cooked up in mad-scientist style by the firms’ “quants”—took on the burden of assessing statistical risk. The idea that a banker looks a borrower in the eye and takes a view on whether he can trust him came to seem laughably nineteenth-century. As for the risks? Well, as Lawrence Summers said when he was Deputy Secretary of the Treasury, “The parties to these kinds of contract are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies.”

Alas, Richard A. Posner, a judge on the U.S. Court of Appeals for the Seventh Circuit, observes with pointed restraint, “That turned out not to be true.” (emphasis added)

And, from the former piece, the neither-here-nor-there insight from Georg Soros:

...markets do have moods. It should be recognized that exuberance actually is quite rational. When I see a bubble beginning, forming, I jump on it because that's how I make money. So it's perfectly rational.

It's the job of the regulators to regulate. However, we should try not to go overboard. While markets are imperfect, regulators are even more imperfect: not only are they human, they're also bureaucratic and subject to political influences. So we want to keep regulation to a minimum, but we have to recognize that markets are inherently unstable

My questions are simple.

One, why is it that many of those whose decisions, visions, or policies contributed to this situation are being asked to diagnose the malady and prescribe treatment?

Two, why is it that those who made-- and continue to make--- fortunes by gaming the system without, arguably, adding anything of substantive value to the world are being authorized as experts who might provide the solution?

Three, can we rely on either of these two categories of individuals to empathize with the disenfranchised? (It should be obvious that the fact that some of them make billions and give back a fraction in charity does not necessarily signify empathy with their fellow humans.)

And, four, if we do live in a democratic society and a world where the value of democracy is cherished, why do the voices of the powerful and wealthy count for more than the voices of the disenfranchised in determining our collective future?

On another note, 3 Quarks Daily also has a link to a comment from economist and blogger Brad Delong about the talk.

Regarding Niall Ferguson's insistent disagreement with Paul Krugman, Delong says: "Niall Ferguson does indeed know a lot less than economists knew in the 1920s. Back then when R.G. Hawtrey was laying out the Treasury View he claimed that fiscal policy was ineffective--and was wrong. Niall Ferguson's belief that fiscal policy is destructive shows that he has not even got that far."

I remember Ferguson, a well-known cheerleader for the mantra of a "benign" British empire, lecturing Amartya Sen about history: "Professor Sen is an exceedingly distinguished economist. But if there were such a thing as a Nobel Prize for history, I am afraid he would not win it. " (See the Sen versus Ferguson discussion at History News Network).

I hope Professor Ferguson enjoys the irony of Professor Delong's comment.

After this post, my plan is to stick to more salubrious matters (for the most part, though I am sure there will be things that will, against my intent, elicit comment.) I hope to write more on matters literary as well, and on music, and miscellany, including gardens, flowers, and cats. This is not some retreat from the political into the rarified aesthetic realms ; literature is profoundly political in the more catholic, capacious sense of the term, even if not in the heavy-fisted ways that some would like it to be. I hope to turn to an examination of other conceptions of value, more adequate to the richness of human being than the narrow and limited understanding of human value implied by the impoverished notion of the human as homo economicus