Will Stirling Newberry please pick up the white courtesy phone? We have a question on "rents"
[See update below. -- lambert]
I think these paragraphs in baseline scenario contain a key, perhaps the key, both economic and political* to our current plight, but somebody who knows what they're talking about -- and that, in this context, is definitely not me -- needs to elucidate:
Big financial players now know they have a colossal potential put or bailout option. They can also construct interconnected structures that no one can understand, except possibly the Treasury. So every 10-20 years (or more often?) we will experience a crisis of current proportions?
There is a growing consensus that large banks should be broken up; no more “too big to fail”. But the President’s implied point about economic/political complexity suggests* that derivatives - for all their obvious potential benefits - are too dangerous to be allowed at anything like their current scale. Who will be willing down the road to let Treasury, without outside comment or oversight, repeatedly provide massive amounts of resources to financial system insiders?
Derivatives have the potential to create a rent-seeking structure that is unparalleled in human history. No society can afford to allow that kind of financial system to operate. Either we figure out how to make it much more transparent - and amenable to outside review - or the re-regulation process currently in the hands of Senator Dodd and Congressman Frank needs to consider more radical alternatives.
How about "transparent" meaning "criminalize [what has become known as] financial engineering," just like shell games are crimininalized on the street?
Let me talk about why this means that your world is fucked up, and is going to continue to be fucked up for a while yet. You see, you, and I mean you, support giving power, privilege, and position - the ability to do shit and make enough money to live - to people just like this wunderkind who can act as if four relatively solved problems require "innovation." In fact, we've had two generations of "innovation" to get around the known solutions, because they didn't have what a business goon really wants: the ability to create a "solution" that becomes so pervasive that everyone else has to pay rent. Consider credit cards. They represent a 3.5% tax on virtually the entire economy. Now that's innovation a business thug can get behind: resolving a problem that has been solved, and collecting hundreds of billions in rent, because not everyone can set up a credit card.
"Rent-seeking" is what the banks who are charging you an ATM fee to withdraw your own unemployment check are doing. That ATM fee is a rent.
"Rents" is also (Stirling?) what the insurance companies are charging you for the privilege of not getting care; that's the system that all the health care "reforms" on offer from the Obama administration and its allies are concerned to preserve. (They want to make sure that the parasite doesn't kill the host; but they are committed to fixing the parasite even more firmly in place, through such measures as the computerization of health records.) The $350 billion single payer will save comes largely (Stirling?) from eliminating the overhead of processing the rents.
But what I don't get is how derivatives enable rent-seeking behavior.
Stirling? (No need to answer here or now; just think about it, since you're the subject matter expert. When an answer appears, we'll notice it...)
NOTE Assuming, arguendo, that there is a difference.
UPDATE * Amazingly, the post starts out from Obama's comment that he doesn't read blogs. Here is the inference:
Blogs relax previous format restrictions. Length can vary, as can technical content. Comments allow immediate feedback, clarification; debate is healthy for ideas. Experts can now express a view or an endorsement immediately to a broader audience - and get pushback, as appropriate.
And, on the President’s point, experts can now talk directly to other experts at a very detailed operational level, and the results of that conversation are now public - and again attract public content (let’s be honest: sometimes experts are way off-base and they need to be told). This is very threatening to official technocrats, both because their monopoly on expertise crumbles and because a broader set of people become skilled at criticizing their ideas. These technocrats would much rather have their boss read newspapers and weekly magazines.
There is a good reason that the IMF is not free to speak candidly about the United States; it is full of experts who know what they are talking about.
But the President knows all this, which suggests another interpretation for his remarks. Perhaps the financial situation - e.g., in and around derivatives - really is too complex for anyone to understand, unless they have the inside knowledge of regulators. This would mean, of course, that going forward no one can question Treasury about anything important.
Which would explain, I suppose, why nobody's there to answer the phone?
Then again, this argument would imply that only those who inside a huge pile of shit can know whether there's a pony there. I don't think that's true.