03-01-13 - Finance and Realism

interfluidity is pretty great. It's like if I wrote about economics and actually knew what I was talking about.

Now some ranting.

The financial system of the world is in a very sick state. Since the Great Recession, things have actually gotten worse. Zero reforms have been passed to prevent instability and counter-humanist actions by the big banks. What's worse is that there has been even *more* consolidation, so the reins of power are now in the hands of the very few, and government is almost helpless against them. Furthermore, Europe's troubles have provided a great opportunity for for the big banks to redesign the finances of many european countries in their favor.

There *will* be another major collapse similar to the housing crash. I have no idea how long it will take or how it will happen exactly, but with the current economic climate it's inevitable. When government wants nothing but growth and has no stomach for regulation, the inevitable result is bubble and crash.

When there are crises, there are great opportunities for change. How have they been used?

LTCM -> should have been a wake up call about the danger of huge leverage and computer trading.  Nothing done.

Dot com bubble -> chance to break investment banks from financial advisors, make televised stock pumping illegal, etc.  Nothing done.

9/11 -> used to strip Americans of civil liberties and provide justificiation for the Cheney/Rumsfeld project in Iraq.

Obama election -> great opportunity to restore some transparency, rule of law, and civil rights.  Opportunity not taken.

Great Recession -> chance to restore bank separation and generally improve regulation of the financial system.  Opportunity not taken.

Collapse of Iceland, Ireland, Italy, Spain, etc. -> Goldman is there literally writing the conditions of the bailouts.

Reduced revenue for all levels of US government -> small government schemers use it to tighten the one way ratchet.

the forces of evil are far more clever about using crises. Of course they are, they have huge advantages when it comes to acting decisively in a moment of crisis (lack of morals, political power, unified organization, etc.).

The entire productive world economy is now functioning to subsidize the financial sector (and brand owners & patent holders). We let this happen party because we are all fools, and partly because they control the government, so the system is designed to make it that way.

It's absurd to think of capitalism as any kind of fair rational playing field; if capitalism was left on its own unfettered, it would very quickly become a world oligopoly, in which a few players controlled everything. (in a game design sense, capitalism is a game which is badly afflicted by "runaways" ; once one player starts winning, they become even more powerful, and soon the other players have no hope other than a massive blunder). The only way to make capitalism work decently is with a robust regulatory structure which crafts the system so that it is okay for workers and consumers. A capitalism economy is a lot like a game system, the way it plays is a direct result of the rules. We are sculptors of our own capitalism environment; it is a human political creation.

Anyway, ranting about it is pointless of course and I gave up on all that long ago, because it won't get better. Money wins. A rational realist only has one option : if the system is going to stay this way you have to work in finance (or try to get some bullshit patent so you can sell your tech company). If you don't choose to work in finance, you are choosing to subsidize people who work in finance, which is a silly thing to do.

Long ago I decided it was dumb to be angry about the way the world works, and it was pointless to try to change it. So when you identify something, the only rational thing to do is to use it for your benefit. But I can't bring myself to actually do that for some reason.

Sometimes I wonder if the whole idea of being "moral" is a trick that was used to brainwash us into being good obedient and controllable pawns. It's largely the churches that created this idea of it being so great to live a quiet life of moral goodness, when at the same time the churches themselves were in immoral ruthless power grabs. It's like one of the monkeys in the tribe convinces everyone that you shouldn't hit other monkeys when they steal your food, and then he proceeds to steal all your food. Very clever, monkey, very clever.

(Obviously those in power use the "moral" argument in a transparent and disgusting way to supress opposition; like claiming that government workers who speak out about the evils of government are "traitors" or that questioning the merits of going to war is cowardly or unpatriotic, or that regulating the financial sector in a recession is "irresponsible". Of course the way kids are taught to "respect authority" and such is just to keep them in line. Of course the entire public school system is a way of converting individuals into mindless worker drones. But those specific things are really what I'm talking about in the above paragaph).


Yann Collet said...

Although loosely related, i like to share this video, which i believe underlines fairly well where this system is going, and more importantly where it is already today :


As stated by the presentor, most people seem unaware of the squeezing level of wealth distribution already at work.

nereus said...

Ayup. Are reading mathbabe? She's a fan of Waldman too. And Shalizi. The quality has distilled itself down into a tight circle these days.

nothings said...


John Carmack said...

Cbloom rants is an odd site for someone that long ago decided that it is dumb to be angry about the way the world works…

I find it curious that people who clearly despise oligopolies always want the federal government monopoly to do something about it. The government can do far more damage than Apple or Goldman.

cbloom said...

@Yann - I really don't like the emphasis on just the income inequality. I feel that is a symptom of the disease, and not the disease itself.

Also the idea that a CEO shouldn't be paid 380X more than an employee if they don't "work harder" is naive.

If being a good CEO really was a super rare skill and it was extremely important, then that income skew might be correct.

However it is obvious that pay at the high end has become this weird abstract thing that's not connected to performance at all. CEO pay in particular I believe is just a reflection of the lack of governance in most corporate boards and the general revolving door and backroom handshaking the runs big business.

It should be that boards say "hey we're paying this moron a fortune and we could hire someone for much cheaper that would do a better job", but of course they don't because they're all on each others' boards and play golf together and etc.

Marco Mustapic said...

Capitalism will end, it is based on growth and that cannot happen indefinitely. What kind of society will follow?

@JohnCarmack the difference between a government and private oligopolies is that you have a (minimal?) say in government, while private companies are basically small tyrannies. Of course, modern governments were created to help powerful individuals, who used them to become oligopolies.

cbloom said...

@Macro - not so sure about capitalism ending, but certainly capitalism in America as we know it will end. You're right that our unhealthy system is only viable due to general massive growth and prosperity in this country. There will be huge upheavals here in the next century as we face the world-wide resource shortage and the equalization of globalization.

Marco Mustapic said...

@cbloom exactly. How can one (as a capitalist) have greater margins? Market expansion, innovation or erosion of labor rights are the only choices. If all of the world is connected in the same economic system, expansion is no longer possible.

Innovation is possible, but since commodification is getting faster and faster (eg cell phones are nearing that phase, that's why manufacturers want to build the next gadget, like "smart" watches). For essential products innovation is way more difficult, so we get to ridiculous things like future markets.

Erosion of labor rights decreases the purchasing power of your own customers.

Although not very deep, this book talks about this.


old rants