Re: [xmca] US discovers capitalism doesn't work

I agree with Martin, especially on the need to do analysis from the
point of view of people acting by the rules, such as the ordinary
people working in banks, either on the customer front or in middle
management supervising them. One seemingly simple component in the
psychology of playing by the rules were the incentives; apparently it
was possible to double one's yearly income by selling as much credit
as possible. That is a very strong institutional sign of acceptance
of something that might have felt dubious by the people actually
making the credit decisions.

A new feature in the day to day work of these people was that the
decision making responsibility regarding the loans was for the first
time shifted to a computer program, which by some risk assessing
algorithm came up with the 'yes' or 'no' credit (mostly yes) in each
individual case. I think this new tool must have been one important
component in how acceptability was produced in the personal
experience and more widely to a practice that has after the fact been
turned out to be highly questionable.

What I learned when now visiting the US and talking with people, was
that it is not only poor people who really couldn't afford the loans
they were given (let alone the interest on it which rose soaring as
they made deals with the banks in which they were led to believe that
the first three years were interest free, as they did not need to pay
back anything during that time) who are now in trouble, but the
middle class people who turned the imaginary rise in the value of
their own houses into more credit money from the bank - just to buy
new bigger cars and the like.

Jonna

Martin Packer kirjoitti 20.9.2008 kello 19.21:

> It seems to me that we ought to mark here the events of the past
> week in the
> US, as they throw light on the kind of social reality in which many
> of us
> live. I'm certainly no economist, but this is what I think I've
> figured out
> so far.
>
> A bunch of smart bankers figured out how to turn debt, especially
> mortgage
> debt, into a commodity. They arranged to package it and label it as
> high
> quality, with some dubious auditing. They arranged to market it to
> individual and corporate investors. And then they set about mass
> producing
> this new commodity, by exploiting the people whose debt they could
> purchase.
> They advertized easy credit to naïve would-be home owners. This
> pushed up
> house prices, but this was fine because it created more demand for
> mortgages
> and these loans were for higher amounts, so the size of the debts
> was doubly
> increased. They sold credit with one hand while with the other hand
> they
> sold the debt this created. A win-win situation, seemingly.
>
> Several things went wrong at the same time. The price of housing
> got so high
> that the demand to buy it dried up. The mortgage contracts turned
> out to be
> so grossly exploitative that the people bound by them were simply
> squeezed
> dry. So the value of the new commodities fell into doubt, and the
> banks
> found they could no longer sell them. They were over-stocked with
> goods that
> were no longer wanted, and overnight a vast amount of value simply
> disappeared. The banks woke up to discover that they could no
> longer pay
> their own debts, to one another, to industry, or to investors. The
> country
> woke up to find their savings disappearing, their currency falling,
> their
> homes not worth what they paid for them, their credit revoked, and
> their
> jobs on the line.
>
> So now the federal government has stepped in, and will buy these
> unwanted
> commodities from the banks for a total of perhaps $500 billion. The
> banks
> will get real cash in its place and will be able to do business
> again. The
> government will hope to squeeze some value from the mortgage holders,
> presumably on less onerous terms, in order to get something back
> for its
> purchase. The wheels of capitalism will turn again, and the crisis
> may be
> over.
>
> This at least is the picture that is now visible, on the basis of data
> collected by government agencies and reporting by the media. But the
> participants in all this were able to see only a small part of what
> they
> were doing, and understood what they saw only poorly. Part of this was
> wishful thinking and deception, but it was also a result of the
> positioning
> of the various actors and the ways capitalist economies take on a
> life of
> their own, escaping both the needs and the intentions of we who
> inhabit
> them.
>
> It's a fascinating situation, enough for a dozen good dissertations.
> Alexandra Michel and Stanton Wortham, who were at ISCAR, are
> publishing a
> book based on their study of the contrasting cultures of two
> investment
> banks. I hope they will extend their work to include what is going
> on today.
> To me it would be especially interesting to explore the psychological
> dimension – how desires are created and manipulated, how
> perceptions of risk
> and probability are changed, how people act in a time of such
> instability.
> But it also shows how modern society, civilized and modern and
> advanced, is
> a house of cards.
>
> Martin
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Received on Sun Sep 21 04:27 PDT 2008