Language, Greenberg, and the International Financial Collapse
For many, many months now, officials in Washington have been telling us that the government must use taxpayer dollars to rescue huge financial institutions - like banks and AIG - because, otherwise, the world's financial system and the global economy will collapse. As a civilian with no expertise in international finance, I can't claim to have any evidence that those assertions are false. But I've also wondered whether they were, in fact, true - or whether anyone really knew whether they were true or not.
Part of my skepticism comes from language. Whenever our financial experts and political leaders (from Paulson to Geithner to Barney Frank to President Obama himself) talk about this issue, they stop using evidence and arguments and resort to metaphors instead. I haven't heard anyone say that "if AIG goes under, then X and Y will happen, which will lead to Z" (Z clearly being unpleasant). Instead they say that if we don't bail out AIG (or Citigroup or Goldman Sachs), then the whole system of global finance will "collapse" or "implode." Or "freeze up" or "disintegrate." Or "grind to a halt."
Now I like metaphors, but metaphors are not arguments - and, as any good writer knows, metaphors can be ingeniously used to conceal a lack of evidence or clarity.
That clarity and evidence may be sorely lacking on this issue was suggested last week when Maurice Greenberg, the founder and long-time chief of AIG, testified to congress that, in fact, allowing AIG to fail would not have produced a major international collapse. "There would have been a ripple, but it wouldn't have been catastrophic," Greenberg said. "I don't think it would have been disastrous."
Now Greenberg, of course, is a man with an unusually large number of axes to grind (he was tossed out as head of the company a few years ago), and most of his testimony to congress was stunningly self-serving.
But maybe he's right. Maybe we could have saved $180 billion on AIG (and billions more on other institutions), and nothing really terrible would have happened. It's a sobering thought.
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I've always said that people without evidence or a firm grasp(at least) of the problem usually use either statistics or metaphors. Now, when I hear statistics I KNOW they're lying because they can make anything true with well picked numbers. When they resort to metaphors, which is often these days, they are defending a stand which was brought to them by others, probably using statistics. They never analyzed the problem themselves, but so-and-so, a great thinker in the field told them that, like a cow pissing on a flat rock, all our money would just piss away if we don't give all our money to a handful of very rich men who never speak in anything but statistics and metaphors. There was a time when people thought enemas would cure all your ills. They did it all the time and some people killed themselves by doing it after every meal. But it was not entirely a lie, just not appropriate for all occasions. At the moment I think this country needs an enema.
Amen! I've been wondering the same thing and waiting for someone to explain it in those terms. If A, then B, then C. There is a missing part to the equation - how exactly does the economy go from not bailing out the banks to complete collapse?
"But maybe he's right. Maybe we could have saved $180 billion on AIG (and billions more on other institutions), and nothing really terrible would have happened. It's a sobering thought."
Maybe there's a bullet in the chamber, and then again, maybe there isn't. Let's roll the dice. What a great idea....
I don't understand any of it. I was too dumb to buy pieces of paper. I bought a piece of land, for a thousand dollars. Later some guy said it was worth a hundred thousand; now he's saying it's only worth a thousand, and he's crying that he lost 90 grand. I've still got the land, and it hasn't changed a bit. So why should I care if he has to change some numbers on his piece of paper?
"Collapse" is a currency word--it moves the political agenda--just like most other metaphorical words.
Exactly! The soft science of economic theory has had a very large share of influence and continues to dominate the argument of what will happen. I, as another layperson, am getting the impression that the impressarios of finance have about as much of a clue as I do as to what would be the effects of financial failures of these institutions. I think it's more about retaining power than causing "implosions", "freeze ups" and "collapses".
Historically, when the power holders do feel impending doom, it has been the poor and working classes that have had to do the suffering for those "too big to fail" and this time will be no different. But that's ok because we're used to heavy lifting; just getting a bit tired of waiting for all those brilliant minds to solve their own problems without relying on the strength of our backs and the money in our wallets.
The taxpayer will not shoulder the burden of government deficits they will simply disappear with a revaluation of the dollar into a new dollar or a one-world currency. To say that in 10 years every man, woman and child in America will owe over $50,000 is really saying today's dollar will be worth one-tenth of one cent.
This is the repayment of false prosperity brought about by politicians and businessmen of all stripes who threw out regulation while assuming the "best and the brightest" could somehow create a perpetual economic utopia. The party is over.
I'm with you - the party is over. Infinite growth in a finite space is not possible. Carrying capacity is a concept economists are sorely missing.
I like the metaphor of yeast in a barrel of wine, eating all the sugar until they die. It may be that for all of our cognitive capabilities we as a species are no different from yeast. Having the best and brightest spend trillions of dollars to stimulate consumption reinforces this metaphor.
The collapse of consumption-driven economics would probably be a good thing.
What's the metaphor the government needs to sell steady-state economics?
Government manipulates public opinion through metaphors. Like business, it stimulates greed and fear as needed.
The larger problem is that our 'leaders' do not understand the problem and thus cannot explain it even to one another. The financial bubble fed on a fantasy of ever increasing asset values and viewed potential defaults as a matter of individual failure: this or that borrower would find itself in trouble and be liquidated; those writing insurance would pay off and everyone;s counterparty would be adequately hedged. Once asset values began to tank, the essential fraudulence of the model became clear to everyone.
Saving AIG was really just saving Goldman and a few foreign banks. Thus far, equities have fallen nearly fifty percent but debt has remained except for GM bonds which are not looking good. The real question is this: can the Fed and the Treasury shovel money into the banks fast enough to keep asset values from falling further? Residential mortgages increased by ten trillion dollars since 2000. Home prices increased more than 100% from 2000 to 2007. Now add increases in commercial mortgages, credit card loans, corporate debt, municipal debt. It is hard to see how the strategy of propping up asset values can possibly work unless those continuing to hold cash are unable to count.
If we don't "win" in Iraq, the terrorists will be drinking blood on our streets.
If we don't stop Saddam now, the next one will come in the shape of a mushroom cloud.
Anyone see the parallels?
How about 'jump starting' the economy?
Trying to jump start that debt fueled consumption engine called the US economy by getting failed banks to lend taxpayer money to consumers who would be fools to borrow is like trying to jump start a car that's run out of gas, so you can drive it further down into the ditch.
If there was any lesson regarding the AIG, Fannie and Freddie fiascos (none were banks) it is that we all must get more educated about financial issues that affect us every day.
We are still woefully negligent as a society in our own financial matters and as we must put back regulation eroded by congress, we must be more vigilant. More talk about regulation and education so we are not hosed again. Less ideological talk about Nationalization, thinking other people would be less greedy with our money.
That is the height of stupidity.
I did not agree with the AIG bailout initially (basically they were a fraud, providing uncollateralized insurance to the largest US banks, investments banks, sovereign funds, international banks and states all over the world via their UK office); once I understood that a very real “electronic run on the banks” destroyed all confidence in the system, something had to be done and fast.
We actually needed real action from government for once, it was urgent and there was no way any responsible person could justify doing nothing. Here are outstanding items that made us crater.
1. Mark to Market clarification when there is no market. (some action)
2. SEC, short sale rule. (they are hedging in returning to the rule in place since 1935 that was repealed just before the market collapsed)
3. SEC (again) naked short sale rule. (no action)
4. Global regulation headed by the America and not France or Belgium. (watch out)
You are aware the British wanted to regulate AIG and were told to back off? That is why the American taxpayer is bailing out AIG - our government promised Europe that we would regulate AIG, and we didn't.
I hope I am wrong about this, but I can't help thinking that beneath all the "rescuing" of the financial system is simply a grand-scale version of the kind of cleptocracy and skimming of the economy by elites that we in the developed world cluck about when we witness it in third world nations. The kind of poor nations advised by economists of the Chicago school to take drastic measures to "save" their economies, which end up without health care, schools and infrastructure. On the other hand, they also end up with plenty of poverty for the people, and a few former leaders with luxury homes outside the country, and Swiss bank accounts.
It is called DISASTER CAPITALISM.
The chickens are home to roost -- we (well, people acting in our name) have done this in other countries, why not here? Argentina, anyone?
"Ripple" to quote Mr. Greenberg, is itself a metaphor..
The point you raise is good, but the evasions via metaphor is not due to the fact that the world's economy won't really collapse..
We didn't elect this, but ultimately, OUR money was used to purchase all of the mortgage derivatives, to oversimplify this a bit. So if we zero out all of the credit default swaps, which is what is meant by letting AIG et. al fail or seek bankruptcy protection, then all of the funds used to purchase these worthless contracts disappears. Even the safest, most conservative mutual/bond funds are not immune. Asset deflation that makes what we have seen so far pale in comparison.
It is not a credit crisis, it is an insolvency crisis caused by subprime mortgage-based derivative
The most apt metaphor I heard for the financial collapse was also the first and, very likely, entirely inadvertant. When talking to the press about the first bailout package Bush referred to the likelyhood the 'whole house of cards' might collapse. Wow! When talking about the financial system more substantial 'achitectural' terms are usually used - 'foundation', 'buttress', 'framework' are the most common metaphors for the financial system. Hearing Bush use his metaphor of collapse-prone playing card houses set off alarm bells for me. This is bad, I thought, this is VERY bad.
I say we should all get behind the metaphors because the metaphors are too big to fail. There should be additional bail-out money for the metaphors. Because if they fail, the entire economy will go down the tubes.
I say support the metaphors while they are out there battling the enemy. God Bless the metaphors and the U.S.A.
I say you should buy a ribbon sticker for your car that says, "Support the Metaphors".
:-) Tell it like it is! You're either for our metaphors or against us.
EXCELLENT! Both of you!!!
ROFLMAO!!
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