In which a group of graying eternal amateurs discuss their passions, interests and obsessions, among them: movies, art, politics, evolutionary biology, taxes, writing, computers, these kids these days, and lousy educations.

E-Mail Donald
Demographer, recovering sociologist, and arts buff

E-Mail Fenster
College administrator and arts buff

E-Mail Francis
Architectural historian and arts buff

E-Mail Friedrich
Entrepreneur and arts buff
E-Mail Michael
Media flunky and arts buff


We assume it's OK to quote emailers by name.







Try Advanced Search


  1. Seattle Squeeze: New Urban Living
  2. Checking In
  3. Ben Aronson's Representational Abstractions
  4. Rock is ... Forever?
  5. We Need the Arts: A Sob Story
  6. Form Following (Commercial) Function
  7. Two Humorous Items from the Financial Crisis
  8. Ken Auster of the Kute Kaptions
  9. What Might Representational Painters Paint?
  10. In The Times ...


CultureBlogs
Sasha Castel
AC Douglas
Out of Lascaux
The Ambler
PhilosoBlog
Modern Art Notes
Cranky Professor
Mike Snider on Poetry
Silliman on Poetry
Felix Salmon
Gregdotorg
BookSlut
Polly Frost
Polly and Ray's Forum
Cronaca
Plep
Stumbling Tongue
Brian's Culture Blog
Banana Oil
Scourge of Modernism
Visible Darkness
Seablogger
Thomas Hobbs
Blog Lodge
Leibman Theory
Goliard Dream
Third Level Digression
Here Inside
My Stupid Dog
W.J. Duquette


Politics, Education, and Economics Blogs
Andrew Sullivan
The Corner at National Review
Steve Sailer
Samizdata
Junius
Joanne Jacobs
CalPundit
Natalie Solent
A Libertarian Parent in the Countryside
Rational Parenting
Public Interest.co.uk
Colby Cosh
View from the Right
Pejman Pundit
Spleenville
God of the Machine
One Good Turn
CinderellaBloggerfella
Liberty Log
Daily Pundit
InstaPundit
MindFloss
Catallaxy Files
Greatest Jeneration
Glenn Frazier
Jane Galt
Jim Miller
Limbic Nutrition
Innocents Abroad
Chicago Boyz
James Lileks
Cybrarian at Large
Hello Bloggy!
Setting the World to Rights
Travelling Shoes


Miscellaneous
Redwood Dragon
IMAO
The Invisible Hand
ScrappleFace
Daze Reader
Lynn Sislo
The Fat Guy
Jon Walz

Links


Our Last 50 Referrers







« Apple Jam | Main | Ivy in High Places »

November 30, 2008

"Financialization"

Michael Blowhard writes:

Dear Blowhards --

* At the suggestion of the super-smart yet ever-down-to-earth Moira Breen, I recently bought and read Eamonn Fingleton's "In Praise of Hard Industries." In part the book is a rant against reckless globalism and neoliberalism. But Fingleton moves beyond scares and negatives. He asserts that there's a lot to be said in favor of savings, investment, creating tangible objects, worrying about debts and deficits, and being wary about the reach of financiers. Squaresville stuff so far as the sophisticates are concerned, I suppose, yet convincing enough for caveman me. Fingleton's main point is that -- despite the arguments made by service-economy cheerleaders -- there's nothing inevitable, let alone desirable, about the kind of manufacturing hollowing-out that has been inflicted on the U.S. by its ruling classes in recent decades. Making and selling desirable and useful things isn't just for ambitious Third Worlders, Fingleton argues. There's a lot of profitable manufacturing that an advanced country can do successfully. He cites dozens of examples of high-investment, high-skills, high-profits, thing-making industries in Japan, Germany, Switzerland and other countries in support of this point.

* Here's Eamonn Fingleton's website. Here's an interview with him. Here he has posted an excerpt from "In Praise of Hard Industries." It's a chapter entitled "Finance: A Cuckoo in the Economy's Nest," and it's about the way so much of our economy has been taken over by the finance class:

Many of the financial sector's fastest-growing activities turn out to be utterly unproductive and even pos­itively destructive from the point of view of the general public good. As we will now see, much of what the financial sector has been doing in recent years has been feathering its own nest at the expense of the great investing public.

* What Eamonn Fingleton is describing above is now apparently known as "financialization." It's an ugly word but -- since it has already become an accepted one -- I suppose we may as well get used to it. That's an informative Wikipedia article, by the way.

* Investment-business legend John C. Bogle has recently been making points similar to Eamonn Fingleton's. The finance industry is necessary, says Bogle in many interviews. (Part One, Part Two.) But financiers have stopped helping their clients make money, and have turned instead to the business of using their clients' savings to enrich themselves no matter what the social consequences. It seems hard these days to argue with that assessment. Here's John Bogle's website.

* Was it only a a month ago that Obama was promising "Change"? Leftie Robert Kuttner isn't seeing much of it. Kuttner -- who puts much of the blame for our current financial mess squarely on the shoulders of the Clinton administration, and more specifically on Robert Rubin -- is unhappy that so many familiar faces are showing up among Obama's appointments. Nice passage:

What kind of magic does this man [Robert] Rubin have? He was one of the key Democratic architects of the extreme financial deregulation that brought the economy to this pass. At Citi, he was one of the grand strategists of the speculation in securitized loans and off-balance-sheet gimmicks that has brought Citi to the edge of bankruptcy. Yet he continues to fall upwards. Surely Barack Obama must have noticed that Rubin is a false prophet. So why is his entire senior economic group a Team of Rubinistas?

Newsweek's Evan Thomas and Michael Hirsh share Kuttner's concerns:

Rubin arguably helped create the financial crisis that Obama now must fix. As Treasury secretary, Rubin pushed to allow banks to get into riskier businesses, and as a high-level official at Citigroup for the past nine years he and his colleagues at Citi have presided over the near collapse of an institution that will require a massive taxpayer bailout because it is too big to fail.

Thomas and Hirsh quote Dean Baker: "It's outrageous. We're turning to the same people who made this mess in the first place." I wonder how much more of this kind of "Change" we can take. Dean Baker blogs here.

* P.J. O'Rourke looks back at 28 years of opportunity and says to his fellow conservatives, "We blew it." One funny line: "For what we will spend on the Farm, Nutrition and Bioenergy Act of 2008 we could have avoided the war in Iraq and simply bought a controlling interest in Saddam Hussein's country."

Best,

Michael

posted by Michael at November 30, 2008




Comments

"Fingleton's main point is that -- despite the arguments made by service-economy cheerleaders -- there's nothing inevitable, let alone desirable, about the kind of manufacturing hollowing-out that has been inflicted on the U.S. by its ruling classes in recent decades. Making and selling desirable and useful things isn't just for ambitious Third Worlders, Fingleton argues. There's a lot of profitable manufacturing that an advanced country can do successfully. He cites dozens of examples of high-investment, high-skills, high-profits, thing-making industries in Japan, Germany, Switzerland and other countries in support of this point."

Absolutely true, of course. Which is why the American economy is simply packed with companies that do these sorts of things.

It might surprise people but American manufacturing output is at an all time high. Manufacturing output has not shrunk at all.

There are two things that have shrunk....manufacturing as a percentage of the economy....this is because services have grown faster than manufacturing, not because manufacturing has shrunk.

The second is employment in manufacturing. Partly this is because there is less vertical integration meaning that some jobs which were classified as manufacturing (say, car designer) now gets done in an outside firm ,where it is classified as a service job. The ohter part is that manufacuring is becoming more productive in its use of labour. Which is good because it's rising productivity which creates wealth.

Posted by: Tim Worstall on December 1, 2008 8:16 AM



The conservative dream of smaller government and fiscal responsibility looks like remaining a dream. Maybe one needs to dream small. In NSW we have the world's most obscene tax. It's called payroll-tax and it's a direct tax on employment. Employ beyond a certain number and you will be taxed. It is, of course, destructive...but people are used to it, like the Harbour Bridge and the Opera House. "Enlightened" governments give "breaks" on payroll tax to "foster" certain stuff. Yet it's a turd on the breakfast table, an obvious obscenity.

They say my Rugby League club, St George, was outrageously successful fifty years ago because the person in charge of sharpening pencils kept every pencil sharp. Maybe it's pencil-sharpening time for conservatives. Rather than bang-on about reducing or removing every tax in sight, get rid of one really crappy tax. Then another. Then, who knows...one really dodgy subsidy. Baby steps. Show us where your heart is.

Also, it took an awful lot of government and media applause to produce the mortgage crisis. Now we are being treated to lots of media and government wisdom re crap credit. It's a little late for wisdom on that subject. What about being wise about an active scam? Ken Lay, Enron and Lehman Brothers were among the first to sidle up to government with alternative energy and cap-and-trade schemes. Those guys have been detained for a while, but Buffett and Pickens will be more than happy to advise on the tax and investment benefits of medieval wind technology.

Can we be wise about that NOW?

Posted by: Robert Townshend on December 1, 2008 8:18 AM



None of this is surprising.

Obama is one of the major contributors to the subprime mortgage crisis.

He was counsel to ACORN in filing suit against lenders to end "redlining." You know, the practice of restricting lending to those who are likely to repay their loans.

Who could we find among the current political players who is clean? All are beholden to the diversity credo that propped up the subprime mess.

Posted by: Shouting Thomas on December 1, 2008 8:56 AM



None of this is surprising.

Obama is one of the major contributors to the subprime mortgage crisis.

He was counsel to ACORN in filing suit against lenders to end "redlining." You know, the practice of restricting lending to those who are likely to repay their loans.

Who could we find among the current political players who is clean? All are beholden to the diversity credo that propped up the subprime mess.

Posted by: Shouting Thomas on December 1, 2008 8:56 AM



As long as our elites are wedded to the free trade dogma there is no chance that the U.S. manufacturing sector will regain full health. It well may be that Tim Worstall is correct in stating that the manufacturing sector has not shrunk. That's a far cry from a manufacturing sector that is growing robustly.

Anyway, how many manufacturing sector jobs have been mexicanized, are off limits to native white citizens?!

Posted by: ricpic on December 1, 2008 11:40 AM



Leave it to ST to ignore the major thrust of the primary linked article that points to the self serving, arcane, and oblique strategies that have been employed by the "financialists" to enrich themselves and some of the wealthy elite at the expense of large numbers of average citizens with 401 K accounts, pension funds, and so on. Using tunnel vision ST ignores all the financial "instruments" that proliferated in the past few decades and all the mortgage and credit activity that went into average (read mostly white, employed, and basically credit worthy) Americans pockets that got used, not for simple home purchases, but rather for speculative real estate investment, creative re-financing schemes, and expanded credit lines that were used for consumer spending to blame the crisis on efforts to lessen the ill effects of past discriminatory lending practices. Once again, ST blames the victims and those who speak for them rather than the elite who benefited from the boom and now stand to benefit from the bailout.

Posted by: Chris White on December 1, 2008 12:47 PM



"Once again, ST blames the victims..."

Love the predicable psychobabble, Chris.

What's with this romance about the poor? The poor are just as likely to be worthless scoundrels as the rich.

The current financial catastrophe was built on the backs of fools who believe in the romantic purity of the poor... like you. Both parties bilked the middle class by selling them on the great diversity swindle.

That foolish romanticization of "the victims" that you prattle on about is exactly what the "wealthy elite" use to effect their scams. You keep falling for it, too.

I don't think you will ever catch on.

Posted by: Shouting Thomas on December 1, 2008 2:43 PM



Mr. Worstall:

It's true that U.S. is the world's leading manufacturing economy and that we're far more productive than many places like, say, China. What's not great is that the manufacturing jobs we've lost (3 million) have been replaced with crappy paying service jobs, chiefly in the hospitality industry. And, of course, we chiefly imported the labor, legal and otherwise, that filled those service jobs. I guess it's just too bad for the U.S. citizens whose livelihoods disappeared; let them compete with the illegals, huh?

Wall Street was certainly happy to see our major companies export all that manufacturing capacity and the concommitent influx of Asian savings back into its coffers. Screw the schlubs who were stupid enough to actually make things; Wall Street was making money!

And of course Wall Street had to find something to do with all that money; they decided to lend it to all those people who used to have better jobs and to the people who had come to the U.S. to work in those crappy service jobs. It was not one of Wall Street's greater pieces of wisdom, grant you, to make lots and lots of subprime mortgages to the downsized and the recently arrived, but, what the heck, they were too big to fail...unlike the manufacturing sector.

And for all our manufacturing prowess, our manufacturing sector still isn't the recipient of much new investment. Note that in several recent years most profits of major corporations were chiefly invested in stock buybacks, again to make Wall Street happy. That's a productive use of cash, don't you think? Most honest-to-goodness new investment is going to, um, China or other parts east, where there are no pesky environmental rules and where many U.S. manufactured goods are kept out by a variety of tariff and non-tariff barriers. Ah, the glories of globalization and 'free' trade!

Thank goodness everything is working out so well for our highly productive manufacturing sector. After all, we can save our sinking economy by flooding the world with our exports. Except, oops, most of our exports are, um, agricultural products, and with the strong dollar, our prospects are looking too good. Jeeze, too bad. I guess we're screwed. But we can watch our big screen TVs, until they're repossessed.

Posted by: Friedrich von Blowhard on December 1, 2008 6:44 PM



Talk about predictable psychobabble … “The current financial catastrophe was built on the backs of fools who believe in the romantic purity of the poor.”

I don’t believe in the romantic purity of the poor. I am fully aware that some small portion of the blame for the financial crisis can be attributed to subprime mortgages being given to poor people who should not have been approved and that political considerations were a factor in this taking place. To think, however, that mortgage lending to the poor was the primary cause for the current crisis requires having one’s head so buried in the sand (or eleswhere) that it defies logic and reason.

The underlying point in most of the links given point to the real crux of the matter, the willingness, nay eagerness, of those in the financial sector to make a personal profit at the expense of their clients and, as we now see, of the whole economy. From excessive fees to arcane financial “instruments” so convoluted that the financial geniuses who brought this crisis upon us are (somewhat convincingly) claiming that they didn’t actually understand how they worked and what the risks were.

So, if assigning blame for the financial crisis comes down to making an oversimplification I’ll continue to point the finger at the Masters of the Universe with their risk management schemes over liberals “making” banks give mortgages to the poor.

Posted by: Chris White on December 1, 2008 7:10 PM



I'll decode your statements, Chris:

Human nature was to blame.

It wasn't just liberals who put a gun to lenders' heads. Presidents Clinton and Bush agreed as one with the great diversity scam. Obama was elected to double down on the diversity scam.

So, I get it... the "poor" are your home team.

This enthusiasm that you keep displaying for your home team is why sports were invented. Rooting for the home team can be as wild and emotional as you want, and it's absolutely harmless. You really should start watching football on TV so that you can expend some of this energy in the appropriate, harmless venue.

The great diversity scam succeeded because it could be prosecuted with appeals to racial and social justice. Who can argue with extending home ownership to the "historically oppressed?" The tool used to pry open the doors to the treasury was your silly social justice rhetoric.

Your social justice rhetoric gets used over and over to fleece the dimwits... yet, you keep coming back to that rhetoric as if it's the answer. When will you ever get it? That rhetoric is your opium because it appeals to your vanity.

The scammers used, and keep using the dumb rhetoric of social justice to effect their con games. You keep believing that there is some way to stop this cycle. No, there isn't. The problem is human nature. All your great political social ideals ultimately get swallowed up by some scam artist intent on lining his own politics. Your future great social ideals will suffer the same fate.

Do you have any interest in ever attempting to understand this, or is the pissy rhetoric of social justice so conforting and built into your ego that you can't let it go?

When fools start talking social justice, I reach for my back pocket and check for my wallet.

Posted by: Shouting Thomas on December 1, 2008 8:00 PM



So, according to P.J., the Republican Party crashed and burned because we didn't open up our borders to more Democratic-voting immigrants, and because we didn't invade enough countries in the name of democracy, when it was the Iraq War that started Bush's decline in the polls, and when 80% of the American people, irrespective of race, favor stricter immigration enforcement?I hope that's supposed to be funny...

Posted by: Tschafer on December 1, 2008 9:08 PM



I predict a big comeback in U.S. manufacturing. In fact it is almost inevitable: sooner or later you have got to export as much as you import, even with China. That is the good news I suppose. The bad news is that the Americans who work in these factories won't be making nearly the wages their parents did.

Posted by: Luke Lea on December 1, 2008 10:43 PM



Let me see if I follow this theory.

Politicians (primarily liberal Democrats presumably) put pressure on the financial sector to make more mortgage loans to those in the lower economic brackets, especially in the inner cities, as a way to increase their voting base. Mortgage lenders comply by creating sub-prime instruments. Borrowers, unable to keep up with the payments begin to default on those mortgages and the entire world economy begins to go into free fall.

Does this sound reasonable, logical, and mostly complete or not? How about this simplified explanation instead?

Corporate global capitalism, ascendant following the collapse of the U.S.S.R., accelerates the trend toward manufacturing being done in countries with low wages and lax environmental laws while financial services are further concentrated in a handful of places like London and New York. As financial services represent an ever-increasing percentage of GDP in the U.K. and U.S. the sector gains ever-increasing political and economic power. They use that power to influence politicians of both parties (arguably weighted toward "free market" conservatives) to decrease regulations and regulatory oversight enabling them to offer more "innovative" financial service "products" such as Credit Default Swaps. Risk management becomes an arcane exercise in running complex computational algorithms. The financialists make their profits up front with fees and get bonuses based on the volume of transaction activity while the actual risk is distributed throughout the system in ways that are too convoluted for nearly anyone to follow. Booms become larger (like the dot-com bubble) as do the inevitable busts that follow. The real estate boom, fueled in part by sub-prime mortgages and fanned by speculators, goes bust and begins to take down the financial firms that created the problem. They are deemed "too big to fail" and so use the influence they've built up to get bailed out by taxpayers.

I say the latter seems closer to describing what happened, meaning if there are villains they are more likely to be wearing $2000 shoes and have been getting six and seven figure bonuses for the past few years; they are less likely to be hourly wage earners enjoying the comforts of a small home they shouldn't have bought until they get foreclosed on. Go team!

Posted by: Chris White on December 2, 2008 10:10 AM






Post a comment
Name:


Email Address:


URL:


Comments:



Remember your info?