I thought this elaborate and interesting comment from Supratim deserves wider dissemination through a separate blog post (I've also added my comment on his comment).
First, I find this whole OWS movement extremely interesting for one aspect – it is anarchic in nature, the protesters are self aware that they are being anarchic and they very actively resist "leadership" type people or programs or structures. They currently actively resist being co-opted by the "leftist" agenda of the trade unions or the Centre for Tax Reform or CEPR or the "Progressives" or who have you. I have been following the blogs of a couple of very active trade union leaders in the US, and they are scratching their heads as to how to have a meaningful dialogue with them.
These same so-called, anti-capitalist protesters celebrated the life and times of Steve Jobs in unision – they co-opted him into their movement! They had no problems with his wealth or the fact that Apple stopped all CSR after Steve Jobs took over. He has not donated any thing major to charity either, unlike Buffet or Gates, neither is his estate going to do so.
The lack of a coherent message is related to their leaderless state, IMO – different sets of people have gathered with different agendas, but with one clear angst – that they have been pissed on by the political classes. They are mad at both right wing and left wing politicians far more than they are even mad at the banks. So, I do not hold the lack of message against them – this is democracy in action, at a very, very basic level – village level, if you will.
Second, I do think that OWS is not anti-capitalistic, in general – but, it is strongly against the big banks. Wall Street is not the symbol, it is the core of the problem. I will try to explain why below, bear with me, if it gets a bit long and technical.
The playing field was created by the US govt with its virtual (and then actual) sovereign backing of Fanny and Freddy – this distorted the housing market hugely over the past 20 years – so, this was a liquidity bubble created by the US govt over 20 years! But, the average man on the street does not understand this distortion – the fact that the US govt was actually artificially boosting demand. It was artificially inflating the Great American Dream of household ownership. That was and remains the underlying cause of the great meltdown.
Then, with the repeal of Glas-Stegal by Clinton in 1996 – the Wall Street Banks got into the action. They saw $$$$ all over the place, some of the brightest brains on the planet (remember, many of these guys are math PhDs, physicists, even actual rocket scientists) started first packaging and selling, all of a Fannie/Freddie implied guarantee (which in turn was an implied sovereign g'tee). So, these guys were suddenly racking up yields of 14-18% on debt, that was actually sovereign! Compare with treasury yields – which were hovering below 5% then. It was like shooting fish in a barrel.
Then, the smarter boys got up and said, hey how do we push up the yield curve? And, make 24% instead of 14%? Don't forget that the STUPID US govt was still the backstop. Until then, all of the debt were essentially being sold – so the wall street was just taking the spread. Then, they got the bright idea – double up! Let us bet our own books, too – ipos give us 4% fees, brokerage gives us 0.5%, M&A gives us up to 6% – and here are all the juicy yields that we are handing over to our clients. So, they start to bet their own books. And, their leverage goes up and up and up ….. Lehman ended up eventually with over 18x. Goldman was over 12x. JPM was over 6x, but they had commercial books, too.
Then, the "masters of the universe" get the next smart idea – slice and dice, CDS and buy protection (options) against bad pieces of the slices. And, this is all still being funded by the liquidity spigot of the FED and the Fannie/Freddy backstop. By 2003-04, this was all starting to unravel as no one really knew who held what and was on the hook for what, and fraud starts getting into the picture – the chase for yields kicking up another notch. So, you get sub-prime, you get incredible math and you get moral hazard from the rating agencies.
It finally all unravels in 2008, and the process is still on – no one still knows who owns what and who is on the hook for what. That is why Europe is such a tinderbox today. I won't go into the whole bailout saga, as the debate for that can occupy us for the next 10 years.
But, what does the average Joe see? He sees banks screwed up big time, including some fraud, and they get bailed out with their tax dollars, bank CEOs still making out like bandits and no jail time for anyone. They have forgotten about Fanny/Freddie, if they ever realised their importance and the US govt has been extremely shy about "outing" its own part in the mess, as well. The fact that Greenspan, Clinton, Bush, and the various Treasury secretaries have all led us to this point is not known or acknowledged by the average Joe – can't blame much. It was a very complex play. But, at a gut level, it plays to their distrust of both the right and the left in the US. The Tea Party was the first reaction, OWS is the second one.
So, OWS is really a backlash against the banks, against the re-possessions that have been happening (again some really fraudulently) and this whole feeling that the banks have gotten away with murder. Despite being a banker, an active investor and a true blue capitalist, I think this movement is good for the US – some of the stuff that the banks have done have not been punished adequately – this will keep the pressure up on the banks. Because one things is clear – we can NOT have any banks in any system that are too big to fail. That is why Lehman was such a good lesson, but unfortunately the US govt lost its nerve thereafter – can't blame them much. Like I said, no one one knows what is owned by whom.
Watch Europe now for the next leg of the action, and buy Gold! Faith in paper currencies is going to be crushed, thanks to stupid governments.
As far as all of those who point to statistics about income inequality are concerned, I think we should just point out one single fact to them: The last 30 years has seen some of the greatest technology innovation in HUMAN HISTORY, including one of the three epochs of technology change in human history (farming, steam engine, semi conductor chip). Obviously, you are going to see a huge change in income levels for the innovators and people who ride on their backs (this includes the CEOs). But, look at median incomes in the US or the Europe, however you want to slice or dice it, median incomes have risen for EVERYONE until 2008, and have FALLEN for EVERYONE since then.
If the OWS salutes Steve Jobs, we should just ask all the socialists to shut up – the OWS does not want to listen to them anyway.
"This cycle is erriely repeating itself now after the housing/financial bust of 2007-09. To the best of my knowledge neither Adam Smith nor Hayek dwelt much on this cyclical and structural weakness of free market systems."
Like the Average Joe, he misses the key point – this was not free market in operation. The US govt was gaming the rules and distorting the market, and the Wall Street Banks played by those very same rules to first make a fortune, and then lost a part of it.
Close down Fannie Mae and Freddie Mac and then we will talk about a free housing market in the US.
Thanks, Supratim. That is excellent analysis of causes and echoes what I've observed and commented on in the past two years, starting with this: http://sabhlokcity.com/2009/01/building-a-monetary-and-financial-system-for-a-free-society/The blame, in my reckoning lies thus: US government 40%, US Fed 40% and Wall St banks 20%. It is hard to blame the Wall st (as you've rightly pointed out) for moral hazard created by incessant government and Fed intervention. It is like leaving piles of money lying around without any accountability – even the best of humans will succumb to temptation. Maximising utility subject to opportunity is what humans do best. The job of government is to not distort opportunity.On the other side, re: your view that this is not an anti-capitalist movement, I agree only partially. The reason is that an anti-intellectual "grassroots" movement as this is inevitably going to want more government as the solution. They don't understand either socialism or capitalism, being intellectually challenged, but their handout mentality (see this http://www.washingtontimes.com/news/2011/oct/17/liberalisms-unwashed-last-stand/) makes them leftists, wanting bigger government.
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