Meltdown; Reform

In the last few months I've been reading everything I can about the the current financial crisis, trying to understand the underlying causes as well as likely consequences.

It's tempting to see these events and the bailouts that have followed as simply the final outrageous chapter of the Bush Administration, but I'm concluding that it is an even bigger and more significant event than one would think based on the daily reporting on the subject. If it leads to a reform of the financial system, it may turn out to be the most significant thing that's happened to this country and the global economy in 400 years, with repercussions that will take a generation to play out, unlike previous "business cycles" of boom, bust, and recovery.

Hopefully, cooler heads will prevail. Some of them are coming to sensible conclusions already. Of all the articles I've read so far, these stand out as must-reads for perspective and for solutions, and I recommend them all:

NIALL FERGUSON: Wall St. Lays Another Egg
http://www.vanityfair.com/politics/features/2008/12/banks200812?printable=true&currentPage=all

The English historian charts the death of "Planet Finance" and the end of investment banks. But the more powerful insight is that these cycles of boom and bust are an inevitable result of the creation of banks and interest-bearing financial products over the last 400 years, which led to the disastrous expansion of the real estate market in what he calls "the age of leverage." A historical overview with this takeaway: without major changes to the financial system, it's going to keep happening.

MICHAEL LEWIS: The End
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom

If you just read one, read this. The author of Liar's Poker discovers the human story behind the Wall St. meltdown. The writing is so vivid that article reads like a screenplay for a very funny and horrifying movie you will want to see. It will have you laughing and crying at the same time, while shining a bright light on the attitudes of both the protagonists and the skeptics.

GEORGE SOROS: The Crisis and What to Do About It
http://www.georgesoros.com/crisis-and-what-to-do110608

An investor as legendary in his own way as Warren Buffett has long warned of the dangers of unrestrained financial markets. Here he explains his concept of "reflexivity — the two way circular connection between market prices and the underlying reality" which makes all classic economic theory wrong and leads to policy errors on the part of both regulators and financiers that guarantee it will keep happening. Soros calls for new regulations that prevent overleveraging by financial institutions.

JOSEPH STIGLITZ: Reversal of Fortune
http://www.vanityfair.com/politics/features/2008/11/stiglitz200811

A sane economist with a sensible prescription for regulating the financial industry. This article almost restores your hope that something rational can be done to ameliorate the situation.

JOSEPH STIGLITZ: Capitalist Fools
http://www.vanityfair.com/magazine/2009/01/stiglitz200901

For the big picture view, Stiglitz warms to the task of assigning blame by pointing to five key mistakes in public and corporate financial policies that led to the current crisis.

LEONARDO BOFF: Is the Worst of the Crisis Still to Come?
http://www.organicconsumers.org/articles/article_15835.cfm

A meta-perspective by a Spanish theologian, who sees the crisis as inherent in capitalism itself:

The limits of capital lie in the limits of the Earth. That was not the case in the crisis of 1929. The Earth's capacity for support was taken as a given then. That is not so today: if we do not save the sustainability of the Earth, there will be no basis for capital's proposed growth. After having made labor's position precarious, replacing it with the machine, now capital is liquidating nature.

:: SH

Comments

[stew]

You might be interested in listening to Bud Burell and Peter Schiff. The guys at Financial Sense are pretty up on things.

http://www.financialsense.com/fsn/main.html
January 3, 2009
Bud Burrell, July 12, 2008
The Greatest Crime in History

Bud Burrell, October 11, 2008
What's Wrong with This Picture?

Peter Schiff, March 10, 2007
"Crash Proof"

[drSpace]

Thanks, Stew.