May 19, 2008
The New Target of the Left: Financial Institutions
The left is constantly looking for targets. For some time the target was hedge funds. Now the financial crisis has produced a new target, financial institutions. Hedge funds did not misbehave as an industry in the sub-prime mortgage crisis, some did but many others made money or stayed out. So the new target, financial institutions. A heard much of it in a New York conference for pete's sake.
Here is most of the argument of the left, as far as I can make it out: The decline of a modern civilization is marked by the growth in size and importance of financial institutions. In the United States banks are growing, making money, and obsorbing wealth. As financial intermediaries, banks take all the gains from, exploit, passive investors who make little on their capital over .... (fill in the blank). Therefore, we are in decline as a civilization if we do not stop the banks. The data is flawed the analysis sketcy but there you have it. Our banks are the today's villians. Comments? Mine are coming. [By the way, comments are posted not when written but when reviewed, usually at the end of each day.]
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Probably ought to watch.... Zeitgeist at http://www.zeitgeistmovie.com/
The Money Masters at: video.google.com/videoplay?docid=-515319560256183936
and read The Creature from Jekyll Island by G. Edward Griffin
Actually I'm not of a conspiracy theorist, but someone's gone to an awful lot of time, money, talent, research and hard work to make this point. And the point is that everything they were espousing in these years old video's and books is coming true. Hmmmmm, something to really think about before taking a public stance now isn't it? John
Posted by: JOhn | May 19, 2008 9:30:25 AM
Left leaning concern about exploitation by lenders is long standing. Every major religious tradition, for example, has had usury limitations, with Islam, banning interest all together, going the furthest. The gravamen of the concern has been exploitation of the poor in these transactions. This theme of concern continues to be a concern given that the subprime loan crisis has disproportionately impacted, often through foreclosure, the economically insecure and ignorant.
The left has also long been concerned with excesses of wealth (another concern expressed in most major religious movements). Concern at the moment on this front is also natural, because the fantastic growth of income and wealth at the top of the economic pyramid in the United States in the last decade or two has been highly concentrated in the financial sector. Wall Street executives make much more, on average, than comparably senior executives in the "real economy." Many of the highest paying law firms in the economy, likewise, have large financial institutions as principal clients.
On both counts, this time around, commercial banking, which is more regulated, has come out with rather clean hands, having rather low involvement in subprimes and other questionable financial practices, and relatively low senior executive compensation (as well as easily understood links to the "real economy.") Notably, in left leaning circles, there has also been relatively little concern expressed about commercial banking. Nobody is arguing for the abolition of (or undue profits as a result of) the conventional or FHA mortgages or SBA loans, nor is there great criticism of ordinary long term equity investments in publicly traded companies.
Instead, the current round of concern focuses on less regulated non-bank financial institutions -- both at the bottom end in the areas of mortgage lending firms (especially subprime mortgage brokers) and payday lenders, and at the top, in less regulated investment banks, hedge funds and private equity funds, and on complex transactions like collateralized securities and derivatives. At the bottom, the claim made to social usefulness seems empirically questionable (e.g. subprime lending did not make an important positive contribution to homeownership rates if one looks at even a few years time frame). At the top, the very wealthy seem unable to tell a very compelling story about their contribution to the economy (which isn't to say that there isn't a contribution).
In contrast, few on the left complain about overpaid doctors -- despite the fact that they are paid more than their colleagues anywhere else in the world by a large factor, and despite intensely rising health care costs driven to a significant extent by rising provider costs -- because the story for their social utility is easy to tell. Insurance companies are the whipping boys on the left for rising health care costs, in contrast, because, again, they have harder to tell stories about their economic contribution, in addition to being the bearers of bad news as premiums rise and the home to the highest paid people in the economic sector of health care because they are large institutions, far larger than any one hospital or medical practice.
If financial institutions want to avoid damaging regulation, they need to enhance trust by telling a better story about how they enhance value and being more transparent, so that people do not fear the unknown.
Posted by: ohwilleke | May 19, 2008 3:58:25 PM
Posted by: Marcelo | May 19, 2008 8:11:35 PM