[OPE] John McCain and the risks of the banking crisis: a brief ideology scan

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Tue Mar 25 2008 - 16:37:39 EDT

Dr A. Lieven, a great scholar, comments on McCain:

"Not just US voters, but European governments, should use the next nine months to ponder the consequences if Mr McCain is elected and how they could either prevent a McCain administration from pursuing pyromaniac policies or, if necessary, protect Europe from the ensuing conflagrations."

McCain, an amiable neoconservative (but tough enough, like, he did Vietnam so he can handle it), shows a good awareness of the systemic requirements of capitalism:

"I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers," McCain said. "Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy." http://money.cnn.com/2008/03/25/news/economy/mccain_economy.ap/index.htm?postversion=2008032510

The trouble with that idea is, that it could mean anything, insofar as it begs the question of what "responsible financial behaviour" consists in, and what "systemic risk" consists in.  On this issue, opinions precisely differ a great deal, and what view you take depends a lot on personal values. In American pragmatism, basically, the "proof is in the pudding". This means, that if you are adventurous and you take a lot of risk, and you are successful, then you are a winner, and everybody will regard you as responsible. If however you are unsuccessful and you lose, then they will say your behaviour was the height of irresponsibility. 

So really all that says is, that you have to prove your ability to take risks, and then behavioural economics studies the history of likelihoods of success of different kinds of behavioural strategies. In this respect, the plutocratic parties in the US are historically rather two-faced: thus, for example, on the one hand, they'll bail out the banks, on the other hand they hail soldier Spanky Gibson as a "hero" for returning to Iraq after his leg got blown off, not a small feat after all. They like workers to take risks, if it makes money for the boss or at least protects people. But if it doesn't do this, then it is "irresponsible behaviour". 

The rhetorical ideology of "global threats" wafting through policy departments in Washington is very ingeniously construed, in such a way that it serves the goal of expanding the market, and the job of "workingclass heroes" is to nullify those threats, get the chestnuts out of the fire, so to speak (well if you don't like chestnuts, apples or something like that). Of course, everybody realizes that this kind of "philosophy of risk" is not really so credible, so then as a variation of the theme the political leaders make episodic trips to the war front, just to let everybody know, that they're tough too, and not scared of anything. You've got to lead from the front. For example, Hilary Clinton went to Bosnia, and that was actually quite scary, you know. Or, Mr Bush flies to Iraq in Air Force 1. Or Dick Cheney will stand on an aircraft carrier to protect the sealanes.

Meanwhile, Sheila Bair, Chairman of the Federal Deposit Insurance Corporation, makes an appearance on Fox News etc. to reassure everybody. She points out for instance that "There are 76 banks on the troubled-bank list, and most of those will be nursed back to health or be acquired by stronger institutions rather than fail. Plus, those 76 banks represent $22 billion in assets out of $13 trillion overall. That number could go up, but we would still be well within historical norms and far below the number we've seen in other troubled times. To put things in perspective, there were 1,500 banks on the troubled bank list in 1990." http://money.cnn.com/2008/03/21/magazines/fortune/Benner_Bair.fortune/index.htm?postversion=2008032404

The line is that "lax lending" must be curbed, and "strong underwriting standards" must be maintained, or introduced. As I have pointed out previously in my posts, that implies a more conservative lending stance across the board, hitting those in marginal positions the hardest. But, really, Sheila Bair is not saying anything more than John McCain, because how do you define "lax lending" and how do you define "strong underwriting standards"? The FDIC itself states it "never releases its ratings on the safety and soundness of banks and thrift institutions to the public", so you basically have to take her word for it. http://www.fdic.gov/bank/individual/bank/index.html

Some "pudding"! Instead therefore, you have to rely on the credit ratings for banks made by private institutions... who are sponsored by the banks. The irony here is that the US government cannot actually tell the full truth to the American people about their own banking system. If Sheila Bair is to be believed, the recession is "a spot of bad economic weather" which will blow over within a year or so. So you lose your house or your job? That's bad news, and we are very sorry, but good times lie ahead in the future. 

In that case, we ought to venture into a more profound critique of capitalist finance, but where is it? In "muckraking leftist" journal Counterpunch, Eric Toussaint and Damien Millet for instance inquire "how is it that banks can readily waive bad debts to the tune of tens of billions of dollars yet have constantly refused to cancel the debts of developing countries?". http://www.counterpunch.org/toussaint03202008.html

Well of course the answer to that is, that developing countries have to learn to adhere to financial discipline, you see. The fact they are "developing countries" means that they have to learn to be financially responsible first, and you don't do that by waiving their debts. That just creates the idea that money grows on trees, and it doesn't. They first have to learn that money doesn't grow on trees, especially if those trees don't belong to anybody and therefore cannot be a source of wealth.  The risks of rich countries are simply different from the risks of developing countries, and for the rest, we're all insured anyway, so why worry.

That is just to say, really it all boils down to risk perceptions. You can perceive too much risk, or too little risk, and "risk management" means that you estimate the level of risk correctly, so that you don't get too much risk taking, or too little risk taking. 

You might object, that the same risk which is too high in the eyes or some, is too low in the eyes of others. So now how do we resolve this problem of perception? The "scientific" answer to this problem is to say, that some people are in a position to take on more risk than other people, and there are some objective criteria for this. And what is a more objective criterion than money itself?

If you have a lot of money, then you can take more risks with some of your money, whereas if you have little money, you can take on less risk with your money, and that is how it is. You might then well object that if you are very poor, then really you have nothing to lose, and therefore you might take on big risks. This seems a contradiction of the theory, but really it is not you see. If a poor person takes a big risk to get $2, this is a risk of quite a different order, than if a rich person risks $2 million. Risking $2 million is simply a much bigger risk than $2, anyone can understand that. To take a risk with $2 million you have to be much more responsible than if you take a risk with $2. In this way you can prove, that rich people are more responsible and take bigger risks than poor people do, and that is exactly why the rich are rich, and the poor are poor, and it explains why the rich run the government, and not you. For the rest, the main thing is to teach poor people to be more financially responsible, develop a sound attitude to money, and take risks appropriate to their situation. 

So there are teachers and there are learners, and you are best off to learn from financially successful people. But what are financially successful people? Well, scientifically, they are people who don't take on too much risk nor too little risk, and the proof of that is, that they got rich and stayed rich. This is called "financial style". You might object, well, these rich people mostly do not even manage their own funds, they hire consultants to do it for them. The answer to that is, that everybody can get a financial counsellor, and be counselled to financial success. But you do have to co-operate, and understand that some people have a better financial understanding than you do. So really the first thing to do is to admit that you are poor, because you don't know how to handle money. Because if you did, then you'd be rich.

Lingering doubts may of course remain about the scientificity of risk management, but all that means is that the problem of risk perception always remains, it is always there, and that is precisely why you need lots of financial counsellors and financial managers. 

In a sense, it is true that you do have to take a risk, to resolve the problem of risk perception. Well we all have to take some risks, that's life. So trust the financiers for God's sake (I'll get to that in a tick) , they know better than you do. You might then object that, well, these people just lost $1 trillion, so why take the risk of trusting these people? The answer to that is, that you have to see things in broader perspective. As stated, $2 million is a bigger risk than $2. But if that $2 million is part of a capital of $200 billion, then the risk is really the same as if you risk $2. It looks big, but relatively speaking, it is the same. The problem is not as big as you think. But, you might object, I thought you said that a risk of $2 million is bigger than a risk of $2!  In a sense, that is true, but in another sense, that is not true. But you can only understand this meaningfully, if you develop real financial sense. And wouldn't you rather be rich? 

So you see, if you want to be rich (and who doesn't?), you have to trust in the people who know much more about money than you do, and they will look after you. And they will look after your money. As the Good Lord said, "knock, and the door will be opened". You might still object that the Lord threw the money-changers out of the temple, and that a rich man cannot get through the eye of a needle if he's a camel. But the answer to that is just that you shouldn't confuse finance with religion, and rich people with camels, because they aren't. Hugh Hefner knows that, haha. You do business during the week, and on Sunday you go to church. 

God with his boundless love forgives everybody for their financial sins (and we are all sinners), especially if they donate generously to charity, which rich people after all do, and he knows what you have done, even if other people do not, and therefore in the eyes of God we can all be honest, even if we are so sinful that we couldn't possibly tell anyone about what we've really done. The President says we can all be redeemed, including himself of course. For the rest, the Lord giveth and the Lord taketh away, and though his ways may be very mysterious, he is always right. All you need to do, is believe.

But if you are totally bereft, what reason is there left to believe? Well, the economist Andrew Clark of the Royal Economic Society shows that science proves that "religious belief cushions the impact of adverse events"; "Catholics and Protestants alike are less depressed when bad things happen to them - for example, when they lose their jobs. Religious belief provides comfort in troubled times." (FT March 21 2008). If people become suicide bombers, we can explain that. Quite simply, they've got the wrong religion. That is why we need more theological discussion. To have that discussion, we need peaceful democracy, and that is precisely what is being achieved in Iraq, if you give it time.

So anyway you see that, even if you are not okay, science proves that the Lord still provides, he can give you spiritual solace and calm. But you may say, I don't want solace, I just want more money. Haha, everybody always wants more money. But sometimes you just have to be satisfied with what you haven't got. There is a time and purpose for everything under heaven. Right now, there may be a gnashing of teeth. But the future beckons, and you still have the chance of entering paradise then.

In the end, it's your own choice. So don't go blaming the banks, get it?





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