Re: [OPE-L] "A financial September 11: Lessons of the banking crisis"

From: ajit sinha (sinha_a99@YAHOO.COM)
Date: Fri Sep 28 2007 - 12:28:32 EDT

--- glevy@PRATT.EDU wrote:

> > May be it's me who does not understand the
> complexity
> > of the theory, but I find all such pieces to be
> full
> > of theoretical confusions and mixing of cause and
> > effect.
> Hi Ajit:
> Here's another article (in this case by Alan
> Woods)that you (and Jurriaan,
> for different reasons) almost certainly won't like:
> In any event, I'd be interested in hearing what you
> and others on the list
> think are the causes of the current financial
> "crisis" (I put that in
> quotes because you or others on the list may or may
> not believe there is a
> crisis ...yet)?
> In solidarity, Jerry
This reads like a journalist reporting without any
meaningful analysis. I gave up after reading part one.
But here are some quotations just to highlight the
problems with such rhetorical writings:

(1)"What is now left of the claim that the bankers and
capitalists deserve their profits and interest because
they are brave pioneers of private enterprise who are
being rewarded for "risk taking"? Where is the risk
if, when there is a crisis, the government immediately
steps in to underwrite all the losses? This is the
real face of "market economics". When the market is
going up and the banks are making huge profits out of
all kinds of swindling and speculative deals, the
market rules. But when the economic climate changes
and the cold winds begin to blow, they soon forget all
about market principles and demand subsidies from the

(2)"Thanks to the Thatcherite reforms of the 1980s and
the deregulation of the City, all this has changed.
The bankers are now fully absorbed into the casino
world of modern capitalism and addicted to gambling on
the stock markets. The problem is that they are
gambling not with their own money but with the
life-savings and pension funds of millions of ordinary
people, overwhelmingly working class or middle class."

If (2) is true, which probably is, then would the
author want the governments to let the banks collapse
so the poor working middle classes lose all their
life's savings? If not, then what is the point of the
rhetoric in (1)?

(3)"The entire banking system is now up to its neck in
fraud and swindles of all sorts. This was always the

Where did the author get his data for the fraud and
swindles and how did he arrive at the scientific
measure of "up to the neck"? But more importantly, if
"this was always the case", then what is "now" doing
in the first sentence?

(4)"The English economist Gilbart as early as 1834
wrote: "whatever gives facilities to trade gives
facilities to speculation. Trade and speculation are
in some cases so nearly allied, that it is impossible
to say at what precise point trade ends and
speculation begins." In Marx's day it was estimated
that possibly "nine-tenths of all the deposits in the
United Kingdom may have no existence beyond their
record in the books of the bankers who are
respectively accountable for them."(The Currency
Theory Reviewed, etc., pp. 62-63)"

Any producer must "speculate" about the future demand
and prices and profits, otherwise how and why would
she produce? If banks sit on all their deposits then
banking system will simply not exist and even
capitalism would collapse. 10% minimum reserve
requitement is perhaps a conservative figure, what's
the problem with that?

(5)"This is what both the British and American
bourgeois are afraid of. That is why both the Fed and
now (reluctantly) the Bank of England are injecting
more inflation into the economy. By so doing they may
postpone the evil day a little longer, but only at the
cost of causing an even sharper and deeper collapse
later on.

Let us supppose that the city of New Orleans had
successfully protected itself from Catherina and I go
on to claim, in my conviction that there would be some
other hurricane in future that would be even stronger
than Catherina, that "By so doing they may postpone
the evil day a little longer, but only at the cost of
causing an even sharper and deeper collapse later on."
What would that mean? Unless I make an argument that
the very act of defence of the city would cause the
future hurricane to be much stronger, my statement
would be considered by most reasonable people to be
idiotic. Where is the analysis that the measures to
avoid such crises must lead to greater crises? When I
was in the US, I remember the big "savings and loan
crisis" happened during, I think, Reagan's time. But
it was simply managed by the government and it didn't
bring about a future meltdown of capitalism. My guess
is most of the people don't even remember the savings
and loans crisis now. So I don't know what to make of
all these poorly reasoned but prophetic articles. If I
lived in Florida and kept claiming the big one is
coming whenever wind blew at a more than 10 miles and
hour; I'm sure one day I will be right and then tell
everybody--didn't I tell you so? Wouldn't you bow to
me then for being all knowing? Cheers, ajit sinha

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