So, part of what I like about this conversation is that it is taking place with friends who are not part of my little corner of academia. Intelligibility is something that occurs or does not occur not only across disciplines but also social spaces and friendships.
In that vein let me try to clarify some of the confusions elicited by part II. The debate was taken to be an ethical one. It might be true that we may have to reward some of the people who got us into and profited from this mess, but it would be ethically worse to punish them while the world collapsed. To use Buffet's metaphor, the patient is on the table, and we must put aside debate, do what is necessary, and save the patient's life (or pearl harbor has just been attacked, and we must put aside debate, and act to secure the nation (by interning Japanese-Americans? By nuking two cities?)). In other words, we are in a time of crisis. Rather than take issue with this ethical situation as it is, I am more interested how we come to understand ourselves to be in this particular ethical situation. That is, in what ways is this crisis made intelligible (or is 'crisis' itself a mode which helps us understand and come to terms with a situation?)? How is a particular ethical situation narrativized and deployed, and in what ways does it direct political energies?
These registers were confused in the previous post. The distinction I drew between a private ethics and a public pragmatics was probably also not helpful, because what I was trying to get at the way in which (multiple and shifting) frames of intelligibility push various discourses and affects to its margins. I think my basic contention was that, while I am in favor of an anti-ideological, ethical pragmatism I am equally suspicious of a discourse of pragmatism that claims to be apolitical and unideological. The irony of our particular situation is that the pragmatic, the thing we must do to save the patient on the table, comes to us not by reason but by faith in a technocratic class and network of institutions that have shown themselves to be anything but pragmatic or apolitical. But maybe this is too top-down. Perhaps we can say something like: from the perspective of someone who beleives that the government is inherently bad at running big insitutions like banks, that history has shown this, emprically, any suggestion to nationalize the banks will appear impractical. In turn, people who suggest such an option, even if credible, mainstream, and numerous, will appear to be emotional ideolouges.
Anyway, all of that was intended to be preamble for what I had thought was my main point, though as I come to this point I find that I have the least to say about it.
--
All that I wrote a few days after 'Part II,' and then some version of life got in the way of me writing more in this blog. What motivated the original post is lost to me now, but I think what I wanted to do is think a more about what it feels like to be in the middle of an economic crisis. A refrain I heard a lot throughout the winter from all sectors was that no one understood the economics of the crisis, not even perhaps the bankers and traders that facilitated the crisis. What is it like, then, for us to have a public debate about something that we don't understand? What sort of qualified faith do we have to have, and in whom? Or could we, with enough patience and study, come to master the inner workings of the system?
I think these concerns came from an article I read linking neo-liberal capitalism (since the 70s or so) with a sort of unintelligibility, a feeling that the system of interconnected markets had grown so complex and so global, that it was impossible to apprehend in its totality. In any case, now that I look at them, I think the posts themselves and the comments are a performance of the types of reasoning one uses to talk about something absent any claim to expertise.
I have now ended this topic in my blog.
Some links on the way out:
About the banks influence. Goldman in particular. On the Wall Street Journal, of all papers, criticizing Summers and Geithner. And one on Joseph Stigliz.
Saturday, April 11, 2009
Thursday, April 9, 2009
The unintelligible crisis, part II
So as I mentioned in part I, this particular set of thoughts is a response to this email from a friend. The economic "analysis" there is presented largely in terms of the current debate, a sort of summary of what the average person has access to. But that's not really the most interesting part of my friend's email. Rather, I think the email sets up the debate in ways that are very familiar and common-sensical, and I'd like to interrogate that a bit. I don't mean this sound like a meta-level critique of what was probably a tossed-off letter; rather, I think the assumptions inherent in the email very much speak to our limit to really think this current crisis.
So I will quote the ending (the rest of the email you can find in part I):
Ethics vs. Pragmatism
The core message of the email is something like this: I don't know which economic plan is best, because I don't understand any of the plans or what's going on with the economy. On that issue I will have to defer to the experts. And if they say a given plan will work, then we should do that. We may feel that it's not right, that the wrong people are benefiting, that it's unethical or even immoral, but those are private concerns, to be debated amongst ourselves, and should not impact sound policy.
Again I don't mean to caricature Brett's email in any way. Obama said the same thing in his speech to congress:
A division has been created here. What Brett calls "ethics" have been made private and personal, an interesting topic of conversation, perhaps, but not a basis for how we must act. We may sense an injustice in this economic plan, may feel that our society is unequal, unfair, but these feelings are configured as just that - feelings, emotions - a populist rage that can be the object of social analysis but will not be taken seriously. These feelings are at best irrational, but more likely those of a child who feels wronged. "Life isn't fair," they tell us at that age, with a condescending smile.
On the other hand, what Brett calls "pragmatic" is what becomes public. Away from the irrationality of ethics, away from the pathos of justice, the pragmatic is simply what will work. It emerges at a time of crisis but asks that we don't change too quickly. It occurs through vigorous rational debate in the public sphere, but insists that debate refrain from a recourse to politics. Rather, in this case, we defer to the economic experts; even Obama is imagined as simply a communicator. So here the economic pragmatic becomes naturalized - there are economic laws that stand apart from the ideologies of politics, and we must listen to those best equiped to understand those laws: the Timothy Geithners and Larry Summers, the smartest guys in the room, the absolutely competent, the ones who have the best interests of the country at heart.
After eight years of an administration that never listened to the experts, on climate change or stem cell research or interrogation or security or war or the economy or anything else, this sounds like a convincing argument. But you can see what has happened here. We have claimed to have evacuated politics from the public sphere - but is this ever possible? Isn't the public inherently political? To be a little more concrete, Brett and I may or may not trust Warren Buffet or Paul Krugman or any number of other people, but there is one group I certainly do not trust. Following Simon Johnson in this interview, if we described the way policy has been formed in this country for the past thirty years, the word to describe our political system would be fairly simple: oligarchy. The corporate super-rich have had an inordinate influence on the public sphere, and it just so happens that these are the exact same people who will benefit the most from this bank bailout. This isn't (just) a matter of personal distaste - the types of policy options that are being presented, and the terms of the debate, are all expressions of power relations, and right now there is a class of people who still have an extraordinary presence in Washington. Timothy Geithner and Larry Summers are the very people who deregulated the banking industry (as well as the energy industry, leading to the Enron fiasco), have profited from that deregulation, and they still have deep ties to the industry.
Economic "laws" are not immutable, nor is the creation or change of an economic system something that occurs against a neutral, apolitical backdrop. Rather, it is always shot through with power relations. Our current system is unethical because it is not functional for everyone, or for most people, and I would argue that this is precisely the point. Currently, a few people benefit, and those people are not citizens among citizens, but are inordinately powerful. I do not want to change an economic system overnight; I am not a revolutionary. But if there are any Friedmanite "distortions" here, it is the super-powerful super rich, and those people must go.
Meanwhile, even if we do away with Bush era ideology, the ideology of privatization, perhaps it would be wise to publicize something else - this private conversation we've been having, about what is ethical and what is just. It may require that we disavow our love affair with functionality and efficiency, but I nevertheless think that it would put our collective and individual actions on firmer ground.
One final note (and yes there will be a Part III - I'm very loqacious about all of this somehow): the idea that many people have to nationalize the banks is not at all radical. Nationalizing here is at most a momentary socialism, but more likely just an organizational tool. The new banks will be resold to private investors, but just different private investors. It is simply a way to reintroduce competition while keeping everything else about late capitalism. That there is such resistance to this option indicates to me the foothold a very small group of people have in our political sphere. It is really 300 rich people defending their position against 300 other rich people - but then oligarchies tend to be parochial in this way.
So I will quote the ending (the rest of the email you can find in part I):
I think I'm in a funny position because ultimately I believe capitalism is immoral and support radical changes to our economic system. At the same time I am a pragmatist and recognize that our financial system has created the most successful economic machine in the history of the world, that it serves a function to benefit human welfare (albeit imperfectly) and I'd rather have it continue than collapse altogether, or be changed imprudently for moral reasons without pragmatic consideration. Humanity hasn't been smart enough to figure out an economic system that is both functional and ethical. Eventually we will, but there's no point in breaking the old machine until we've the replacement ready.
Ethics vs. Pragmatism
The core message of the email is something like this: I don't know which economic plan is best, because I don't understand any of the plans or what's going on with the economy. On that issue I will have to defer to the experts. And if they say a given plan will work, then we should do that. We may feel that it's not right, that the wrong people are benefiting, that it's unethical or even immoral, but those are private concerns, to be debated amongst ourselves, and should not impact sound policy.
Again I don't mean to caricature Brett's email in any way. Obama said the same thing in his speech to congress:
I know how unpopular it is to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions. I promise you -- I get it. But I also know that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. (Applause.) My job -- our job -- is to solve the problem. Our job is to govern with a sense of responsibility.
A division has been created here. What Brett calls "ethics" have been made private and personal, an interesting topic of conversation, perhaps, but not a basis for how we must act. We may sense an injustice in this economic plan, may feel that our society is unequal, unfair, but these feelings are configured as just that - feelings, emotions - a populist rage that can be the object of social analysis but will not be taken seriously. These feelings are at best irrational, but more likely those of a child who feels wronged. "Life isn't fair," they tell us at that age, with a condescending smile.
On the other hand, what Brett calls "pragmatic" is what becomes public. Away from the irrationality of ethics, away from the pathos of justice, the pragmatic is simply what will work. It emerges at a time of crisis but asks that we don't change too quickly. It occurs through vigorous rational debate in the public sphere, but insists that debate refrain from a recourse to politics. Rather, in this case, we defer to the economic experts; even Obama is imagined as simply a communicator. So here the economic pragmatic becomes naturalized - there are economic laws that stand apart from the ideologies of politics, and we must listen to those best equiped to understand those laws: the Timothy Geithners and Larry Summers, the smartest guys in the room, the absolutely competent, the ones who have the best interests of the country at heart.
After eight years of an administration that never listened to the experts, on climate change or stem cell research or interrogation or security or war or the economy or anything else, this sounds like a convincing argument. But you can see what has happened here. We have claimed to have evacuated politics from the public sphere - but is this ever possible? Isn't the public inherently political? To be a little more concrete, Brett and I may or may not trust Warren Buffet or Paul Krugman or any number of other people, but there is one group I certainly do not trust. Following Simon Johnson in this interview, if we described the way policy has been formed in this country for the past thirty years, the word to describe our political system would be fairly simple: oligarchy. The corporate super-rich have had an inordinate influence on the public sphere, and it just so happens that these are the exact same people who will benefit the most from this bank bailout. This isn't (just) a matter of personal distaste - the types of policy options that are being presented, and the terms of the debate, are all expressions of power relations, and right now there is a class of people who still have an extraordinary presence in Washington. Timothy Geithner and Larry Summers are the very people who deregulated the banking industry (as well as the energy industry, leading to the Enron fiasco), have profited from that deregulation, and they still have deep ties to the industry.
Economic "laws" are not immutable, nor is the creation or change of an economic system something that occurs against a neutral, apolitical backdrop. Rather, it is always shot through with power relations. Our current system is unethical because it is not functional for everyone, or for most people, and I would argue that this is precisely the point. Currently, a few people benefit, and those people are not citizens among citizens, but are inordinately powerful. I do not want to change an economic system overnight; I am not a revolutionary. But if there are any Friedmanite "distortions" here, it is the super-powerful super rich, and those people must go.
Meanwhile, even if we do away with Bush era ideology, the ideology of privatization, perhaps it would be wise to publicize something else - this private conversation we've been having, about what is ethical and what is just. It may require that we disavow our love affair with functionality and efficiency, but I nevertheless think that it would put our collective and individual actions on firmer ground.
One final note (and yes there will be a Part III - I'm very loqacious about all of this somehow): the idea that many people have to nationalize the banks is not at all radical. Nationalizing here is at most a momentary socialism, but more likely just an organizational tool. The new banks will be resold to private investors, but just different private investors. It is simply a way to reintroduce competition while keeping everything else about late capitalism. That there is such resistance to this option indicates to me the foothold a very small group of people have in our political sphere. It is really 300 rich people defending their position against 300 other rich people - but then oligarchies tend to be parochial in this way.
The unintelligible crisis, Part I
I've been having the beginnings of a debate about the bank bailout with a friend. I sent him this criticism of Geithner's plan by Joseph Stiglitz and he sent me the below email in response, which I am now publishing in public with little guilt, mostly because I don't have many readers. For context, know that this friend is my oldest friend (since kindegarten) and also one of the smartest people I know, so we've had many discussions and debates like this over the years...
His email (without the end, which is quoted later):
Ok, first, let me say why I am concerned about the Geithner plan, based on the limited research I have done, largely through the popular media. In addition to the Stiglitz op-ed, I would recommend this episode of This American Life as a good basic primer on how banks work and why they are in trouble (to the degree that it sort of obviates the need for this post...)
I would NOT actually recommend either of the Warren Buffet interviews linked to in my friend's email because he doesn't go into much detail, least of all about the bank bailouts. He seems to want to stay politically neutral and in support of the current administration (which changes from the first to second clip). This also rather comically leads him to incessantly mention pearl harbor in the second clip mostly as a way of saying, "yo, republican CNBC douchbags, STFU."
If in the below argument I misunderstand some fundamental aspect of the sitution or of economics, please know in advance that I don't actually know what I'm talking about here.
The one thing that Buffet does do is come out in favor of marking these "toxic assets" to market. So, following from the example in the TAL episode, let's say a bank owns a house which was originally purchased at $100, but is now worth $50. The banks actually wanted the government to buy that house above market value, like at $90. Then the banks would be fine, taxpayers not such much. Buffet won't say what he does like, but he does say he is in favor of marking to market, that is, setting the price to what it's worth, in this case $50, which the government would just buy en masse. When the banks are literally walking away from these things, it seems that this would at least stop the bleeding, as it were (which also shows how arrogant they are in not wanting to mark them to market). So that's a band-aid, and I guess still better for the banks then the value of the asset slipping even farther, but in this situation the banks have still lost tons of money, and therefore are insolvent, and certainly can't lend. Stiglitz explains:
I can understand this - the problem becomes more an organizational one than anything else. As indicated by the TAL episode, the government overpays on the toxic assets to recapitalize the banks, but then owns the bank. They can then break it up, reorganize the good stuff into a new bank, and sell the new bank to other rich people. They can hold onto the bad stuff until the market turns around, however long that takes. Moreover, from a "pragmatic" perspective, it doesn't involve breaking nor even substantially changing the system as it is, even though the banks themselves might be broken up and the current management fired sans bonus.
So having read all this, what do I think of Geithner's plan? Well, I don't know. The way Stiglitz describes it, it's actually not a mark-to-market program. In the example he gives the public-private trust buys the asset at 50% above its market value (this is not in his criticism, just in his description of how the program would work). So in his example a house that's worth $100 would be purchased at $150. This works to recapitalize the banks (hopefully), and if all goes well (say, the asset is really worth $200) the government would get their loan back plus a little extra money on the side ($138 in the loan, and $37 on the side). If it doesn't then the government actually loses more money than the asset was originally worth, and has to then pay out $138 to the private investor.
In fact, now that I think about it, that's crazy. Again, maybe I just don't understand what I'm reading, but wouldn't it be better to just overpay for the asset upfront? That is, if they want to overpay and buy a $100 house for $150, why not just put in all the money right away, instead having an investor come in for a paltry $6 in equity? The only problem with that is that it's a lot of money upfront...but won't they have to pay all these private investors at some point in the future when at least some of these assets go bust?
And aren't these assets already bust? In the proposal the banks sell us the worst of what are already called "toxic" assets. It almost seems like they're thinking that once investors start buying, the market will go up again, thus recreating the housing bubble, except this time it won't be a bubble. It'll be real. What? One thing Buffet does say in the CNBC interview is that there isn't a short term solution to this housing thing. What he means is, we need people. Grown-ups. With jobs. And money. To live in those houses. Why do they figure that the housing market is basically ok? To paraphrase a poet, sometimes a piece of exurban McMansion trash is just a piece of exurban McMansion trash.
Again, I could easily be horribly not understanding something basic about how all this works, but I think I've convinced myself. Geithner's plan seems to take the worst of all the possible options on the table, and somehow makes it crappier. Instead of going with the simple plan that has been known to work, he's inventing some elaborate band-aid that puts in faith in a bubble that has just collapsed and the very people who created that bubble. WTF?
But, as I mentioned, that is the most superficial part of what I wanted to say in response to Brett's email. Because, afterall, all I've done is the most basic of internet research to come to this conclusion. As he says, I am still trusting the opinion of experts. And this is what I want to talk about in part II...
His email (without the end, which is quoted later):
So this guy could be right about all this but also he could be wrong, and i think the truth is that people like you and me just aren't really going to be able to know and judge that for ourselves. I don't know the details of the Geithner plan, and even if I did I wouldn't understand it. There are ethical issues we may have opinions about, but for the details of whether or not a particular plan will work I'd have to defer to those who know better than I. And certainly a ethical judgment may depend on assuming that a particular plan will work or has the best chance of working of any plans we have and can hope to enact in a reasonable time.
So, on an ethical level, you and I might differ on the idea that we should let bankers who got us into this mess profit hugely, with minimal risk to themselves, at the potential downside of taxpayers -- if that's what it takes to get us out of economic crisis. If a plan on those terms will work, and we don't have a better idea that we think will work, I say do it. It stinks rotten that the villains get a paycheck, but it's better than the alternative of our economy falling apart and everyone suffering for it. Now I don't know if this plan will work, or if we have a better plan, but that's where my ethical expertise is outstripped by my economic ignorance and I'm forced to just listen to people I trust.
Maybe I should trust Joseph Stiglitz. But I don't anything about him. He's got a Nobel prize, but so did the guys who ran Long Term Capital Management. I do know something about Warren Buffet though and I do trust him. Here's what he was saying back in October
http://www.charlierose.com/view/interview/9284
And a bit more recently:
http://www.cnbc.com/id/29595047
Ok, first, let me say why I am concerned about the Geithner plan, based on the limited research I have done, largely through the popular media. In addition to the Stiglitz op-ed, I would recommend this episode of This American Life as a good basic primer on how banks work and why they are in trouble (to the degree that it sort of obviates the need for this post...)
I would NOT actually recommend either of the Warren Buffet interviews linked to in my friend's email because he doesn't go into much detail, least of all about the bank bailouts. He seems to want to stay politically neutral and in support of the current administration (which changes from the first to second clip). This also rather comically leads him to incessantly mention pearl harbor in the second clip mostly as a way of saying, "yo, republican CNBC douchbags, STFU."
If in the below argument I misunderstand some fundamental aspect of the sitution or of economics, please know in advance that I don't actually know what I'm talking about here.
The one thing that Buffet does do is come out in favor of marking these "toxic assets" to market. So, following from the example in the TAL episode, let's say a bank owns a house which was originally purchased at $100, but is now worth $50. The banks actually wanted the government to buy that house above market value, like at $90. Then the banks would be fine, taxpayers not such much. Buffet won't say what he does like, but he does say he is in favor of marking to market, that is, setting the price to what it's worth, in this case $50, which the government would just buy en masse. When the banks are literally walking away from these things, it seems that this would at least stop the bleeding, as it were (which also shows how arrogant they are in not wanting to mark them to market). So that's a band-aid, and I guess still better for the banks then the value of the asset slipping even farther, but in this situation the banks have still lost tons of money, and therefore are insolvent, and certainly can't lend. Stiglitz explains:
The main problem is not a lack of liquidity. If it were, then a far simpler program would work: just provide the funds without loan guarantees. The real issue is that the banks made bad loans in a bubble and were highly leveraged. They have lost their capital, and this capital has to be replaced.So, the question is, how to recapitalize (eg. save) the banks, espcially since both the "ethical" and "pragmatic" imperative seems to be marking these assets to market. I think TARP tried to do this just by giving them money, but it wasn't enough, so they are still not solvent and thus not lending. Well, one option, supported by Johnson in this excellent Bill Moyers interview as well as by many others, is to have the FDIC nationalize the banks for a little while, then sell them to some private group. The so-called 'swedish model.' This article explains what that might mean:
The bank itself is shut down and its assets are transferred to a new entity controlled by the FDIC. The FDIC attempts to maximize the value of these assets, typically by selling them to another bank or banks.
I can understand this - the problem becomes more an organizational one than anything else. As indicated by the TAL episode, the government overpays on the toxic assets to recapitalize the banks, but then owns the bank. They can then break it up, reorganize the good stuff into a new bank, and sell the new bank to other rich people. They can hold onto the bad stuff until the market turns around, however long that takes. Moreover, from a "pragmatic" perspective, it doesn't involve breaking nor even substantially changing the system as it is, even though the banks themselves might be broken up and the current management fired sans bonus.
So having read all this, what do I think of Geithner's plan? Well, I don't know. The way Stiglitz describes it, it's actually not a mark-to-market program. In the example he gives the public-private trust buys the asset at 50% above its market value (this is not in his criticism, just in his description of how the program would work). So in his example a house that's worth $100 would be purchased at $150. This works to recapitalize the banks (hopefully), and if all goes well (say, the asset is really worth $200) the government would get their loan back plus a little extra money on the side ($138 in the loan, and $37 on the side). If it doesn't then the government actually loses more money than the asset was originally worth, and has to then pay out $138 to the private investor.
In fact, now that I think about it, that's crazy. Again, maybe I just don't understand what I'm reading, but wouldn't it be better to just overpay for the asset upfront? That is, if they want to overpay and buy a $100 house for $150, why not just put in all the money right away, instead having an investor come in for a paltry $6 in equity? The only problem with that is that it's a lot of money upfront...but won't they have to pay all these private investors at some point in the future when at least some of these assets go bust?
And aren't these assets already bust? In the proposal the banks sell us the worst of what are already called "toxic" assets. It almost seems like they're thinking that once investors start buying, the market will go up again, thus recreating the housing bubble, except this time it won't be a bubble. It'll be real. What? One thing Buffet does say in the CNBC interview is that there isn't a short term solution to this housing thing. What he means is, we need people. Grown-ups. With jobs. And money. To live in those houses. Why do they figure that the housing market is basically ok? To paraphrase a poet, sometimes a piece of exurban McMansion trash is just a piece of exurban McMansion trash.
Again, I could easily be horribly not understanding something basic about how all this works, but I think I've convinced myself. Geithner's plan seems to take the worst of all the possible options on the table, and somehow makes it crappier. Instead of going with the simple plan that has been known to work, he's inventing some elaborate band-aid that puts in faith in a bubble that has just collapsed and the very people who created that bubble. WTF?
But, as I mentioned, that is the most superficial part of what I wanted to say in response to Brett's email. Because, afterall, all I've done is the most basic of internet research to come to this conclusion. As he says, I am still trusting the opinion of experts. And this is what I want to talk about in part II...
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