Financial Crisis: Contending Explanations
There are two popular summary explanations of the US financial crisis that bear thinking about but need transcending. The first, that the crisis is due to greed, has been a consistent theme in McCain’s speeches: "reckless conduct, corruption and unbridled greed…". This is remarkable for someone who supported every major financial deregulation of the last 20 years, legal changes that took away all limits to the pursuit of self-interest in financial markets.
Greed of course does play a role, as it always does. Part of the effect of ever lengthening chains of financial transactions – mortgages sold by banks, packaged into mortgage backed securities and derivatives thereof and sold in various markets around the world – is to cut any form of Smithian empathy, both Adam Smith and “Mr. Smith goes to Washington,” between financiers and debtors. The New Deal cultural and legal limits on the pursuit of self-serving behavior in financial markets were ended by deregulation and the Reagan/Thatcher celebration of the “free market” that McCain has participated in with such gusto.
If the McCain interpretation is typically Rovean in its “war is peace” creepiness, Obama speeches have been predictably subtler. He has tended to point out the economic suffering that “main street” was already suffering at the hands of Wall Street. In the words of Vice Presidential candidate Joe Biden, “This has been a Republican philosophy of letting Wall Street do what they want and the middle class be damned.” http://www.fresnobee.com/645/story/868357.html
NBC Nightly News economics expert Steve Liesman expressed a Keynesian yearning when asked how Wall Street is likely to change: “It’ll be a different Wall Street that finances America, but my hope is that in the days, weeks and years to come we’ll be talking less about finance and more about the real economy that finance is supposed to be helping.”
The idea that finance has become decoupled from the “real” economy may be useful now in preventing the kind of massive fraud proposed by the Bush administration: an unlimited mandate and truly large budget managed by highly self interested people without a public equity position and without oversight. But it is also romantic in its assumption that there is a “real” economy that somehow works fine if only finance doesn’t muck it up.
As Marx argues in volume III of Capital, the advancement of the credit system accelerates the development of technology and the extension of the world market. This is the real accomplishment of the deregulation and globalization of finance over the past generation. Yet it also turns capitalist production into the “purest and most colossal system of gambling and swindling…” (Marx Capital III, p.572, NLR edition). It is the latter that the Keynesians emphasize but this is to see finance in a one sided way, useful, perhaps, for opposing the Paulson “plan,” but not sufficient for a long-term approach to the crisis.
