Tim Geithner’s book Stress Test is illuminating already- and I am only half way through.
He was chair of the NY Federal Reserve and an advisor to Bill Clinton. He also became Obama’s Secretary of the Treasury. He was one of three executive BIGGIES during the recent financial crisis and Tim never even got his degree in economics.
His book is mostly about dealing with the American capitalist system and doing so as it grew to encompass all the countries over the last few decades in the phenomenon known as globalization. The first half is about how he ‘learns on the job’, follows the practices of those whom he followed and how the world of capital and the economies embracing it, are basically out of control.
I think the second half is about how he and two others captained the world through 2007/08 despite not knowing very much about what would work or not.
‘Course he has yet to actually use those words but he he writes of ‘bubbles’, crashes, recessions, depressions and the like throughout. He seems to expect financial chaos as part of the system. And he openly admits his lack of understanding. He talks of “no one really understanding the complexities of derivatives and credit default swaps and all the fancy financial instruments that have been allowed to proliferate”. And he talks about the inherent inabilities of regulatory bodies to influence much. This is kind of telling when you consider that understanding and regulating the banks and Wall Street was the job he was always hired to do.
He also told about the International Monetary Fund riding to the rescue of faltering economies with strict economic reforms attached to the rescue only to change their minds half-way through their work. The over-riding impression: no one really knows what the hell was going on before the 2007/08 crash and I am inclined to surmise that none of them has gotten much more learned since.
But, never mind. The world’s economies revolve around confidence and manipulations and that is psychology on a monumental scale. I doubt that any one person – especially economists and bankers (not known for their expertise or even empathy with the humanities) – could have a grasp on such matters at any time. George Soros, maybe.
“So, what is your point, Dave?”
Well, to paraphrase Rafe Mair, “Never overestimate the abilities of experts”. Basically, that means that the people in charge don’t know what they are doing. Which isn’t news, really. But Geithner is pretty open about it. They just ‘wung it’ during the financial crisis and, in the short term, it seems to have worked.
In the long term, it won’t. It can’t. Impossible. Very briefly: all economies are now linked and yet none of them are equal. In fact, the capitalist system is based on having inequalities and it has built-in mechanisms to keep it that way. Thus one can expect financial chaos to be forever present somewhere.
Being linked means inequities and people revolt over that kind of thing. If they don’t revolt, they at least migrate and that is already happening on a massive scale as the rurals go urban, the southerners go north and the easteners and the westerners get riled up (Islam).
And don’t forget: all economies are based primarily on the ups and downs of confidence and who has that?
Do you have confidence in the system?
Well, yeah. You do. Otherwise you would be buying bullets instead of bargains at Costco. But is your confidence high? Probably not. Most people are feeling the financial pinch and the main message in the news is fear. One would have to be ridiculously Pollyanna-ish to remain bullish and optimistic in the face of what they see and experience around them. Especially given climate change.
But we are not the gauge by which to judge. Think about the Muslims. Think about the Africans. Think about the average Asian or Indian or Pakistani or Russian. Think about the ‘drug-cartel’ managed countries of Central and South America. The only reason most of those folks aren’t showing the signs of lessening confidence in their system is because they had very little in the first place. Economic globalization is exacerbating that sense of insecurity already and many of them are leaving for safer and higher ground – namely, here.
I can’t help but see it this way………the ship is sinking slowly and all the lifeboats have been launched or are being lowered. But there are way more passengers than there is room in the lifeboats. And the weather is bad and promising to get worse. Now THAT is basic economics – supply and demand – all in a bad and unpredictable climate.
Don’t believe me? Read Stress Test.