http://edition.cnn.com/2008/BUSINESS/10/24/global.markets/index.html
Money quote:
"Greenspan, who some analysts say did not do enough to control financial institutions during his two-decade tenure, made his comments in prepared testimony to the House of Representatives Oversight and Reform Committee.
He admitted he made a mistake during his time as chair by presuming that lenders were more capable than regulators of protecting their finances, adding he was "shocked" when the system "broke down."
"I still do not understand exactly how it happened," he said."
Hell, from what I've seen on the net, no one understands how this event happened.
What I can gather though:
The financial institutions of the world have been aggregating at an accelerated rate since the 1980s. As Nassim Taleb recently noted on PBS, "It's much worse to have one large bank fail than ten small ones." The contracts of so-called financial tools such as CDSs or derivatives sometimes contain thousands of pages, written in the unpenetrable language of their astrophysicist authors. And people have invested heavily, overwhelmingly into these tools. The end result? A massively complex, closed network with very few, very large hubs that are prone to systemic failure due to feedback. The globalization and centralization of the world's financial and energy systems has created the perfect environment for total failure due to something akin to Taleb's famed black swans. The number and size of inputs available to add new energy to the system pales in scope to the system itself (the 800bil buyout looks pretty small compared to the 450 trillion in the derivatives market ALONE).
Also consider the following:
- The deleveraging of hedge funds (a $1.9 trillion market)
- The deleveraging of the American spender
- Massive debt in the USA ($59 trillion if you count unpaid commitments such as SS and Medicare)
- Increased military urbanization and corporatism in the USA
- The 'balkanization' of American life into isolated racial, economic, and religious subgroups. Thomas Barnett calls religion the "strongest social lubricant" in America, and I agree, but I don't think people move from ideology to ideology so much as they can't tell the difference between Vineyard and Presbyterian philosophies. Many people are swamped by their preferred medias (hey Washington Times readers!), live in communities that do not facilitate interaction, are disconnected from their food and energy sources. Government is deaf to these problems, as seen in New York City, where the ancient (by US standards) and resilient community (despite its problems) of Harlem is being transformed into a corporate business hub.The nation, as far as I can tell, is fractured, which might be part of the reason we've seen an increased radicalisation of the Republican party over the past generation.
Hoo wah!
(Just an opinion. The Thomas Barnetts/Tom Friedmans/globalization-as-salvation hockers of the world look rather Panglossian right about now. And I note TPMB has barely been following the crisis, instead choosing to post on such cursory topics as Chinese defense spending. He also tipped his hat to Palin in an attempt to be above the rabble of American politics, which I found startling and uncharacteristically generous. Tom Friedman is currently selling a green revolution as salvation for America, and based off two interviews I've seen about his new book, he believes that American life will be able to continue its routine. The work of James Kunstler and Matt Simmons has made me skeptical about green energy's ability to replicate the last 80 years of oil glut. Maybe its time to start seriously investing in cold fusion?)
EDIT:
The original post was written late at night after one too many glasses of Omar Khayyam at my favorite pub in Cairo. Cleaned up the language a bit and added links to a few specific posts instead of general websites. I didn't like the way the original seemed dismissive of the work of Friedman or Barnett. I have a lot of respect for Thomas Barnett specifically as a thinker and author, and there are many reasons why I buy all his books, watch for him on C-SPAN, and read his website daily.
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