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The missed opportunity and the 'Black Box' of the crisis - On recovery and credit rating agencies PDF Print E-mail
The Labour Movement-Economy

money axiologites wikiIt is some time now since the on-going - with all the fluctuations - stock-market recovery on a world level, and the first tendencies towards a reversal of the development prefix have started to become noticeable. But is a situation always what it seems? Who is it that assesses the situation? What are the difficult points in the present state of affairs?

Assessing the assessors

Before the problems with AIG and its rescue, just as before the bankruptcy of Lehmann Brothers, the situation was not, in essence, any different from that which succeeded it. Had, for example, any of the credit rating agencies which are now returning to the scene noted this situation? No.

Only a very few people, like Professor Nouriel Roubini, were issuing warnings about the real state of the economy. But now also, as then, no one listens to him when he speaks of the 'failure of certain theories', such as that of the 'efficient market hypothesis]', of 'reasonable expectations', and of 'self-regulating markets'.[1] States, the International Monetary Fund, the World Bank, the OECD, the European Union, the European Central Bank, the Federal Reserve Bank, and all that superb and expert manpower, the 'virtuosi' of the economy and of business theory and action, had not hinted at or said anything openly about the real state of the economy. Is this, then, an elite which was possessed by hypocrisy or by ignorance and incompetence? Depending upon the mixture, we have to draw differing conclusions. Nevertheless, from the result it can be seen that they did nothing to prevent this crisis; they said nothing about the setting up and operation of the 'shadow' banking system - by agencies which operate in essence as banks, but are structured in such a way as to circumvent regulatory interventions which protect the economy from dangerous practices.[2]

We therefore have to downgrade these private international credit rating agencies, and, naturally, the competent public authorities. Is there anyone willing and able to do this? Unfortunately, no.

The nature of the credit rating agencies

But what is the nature of these credit rating agencies?
Are they perhaps formed, as corporate and capital mixtures, by the same investment, development, finance, stock-market and business players who, while breaking the rules, played the disastrously dangerous game - or are they simply enterprises providing information services? Some help with the answer to this question is perhaps provided by the letter of Nicolas Sarkozy to Germany's Chancellor, Angela Merkel, in 2009, in which he asks the authorities to investigate the "role these agencies should play in the determination of risks", given that at the same time they contribute to the creation of the products which they assess!

At the time when publicity was given to this letter, Charlie McCreevy, European Commissioner for Internal Market, stated that he proposed to re-examine the internal governance framework, the administration, the sources of revenue, and potential conflicts of interests of the credit rating agencies.[3]

When the crisis broke out, these agencies wanted to be as unobtrusive as possible , but now they are 'returning' and are accused by many[4] of profiteering again and of pursuing strategies beyond tolerable limits, thus confirming that these agencies are, in fact, simply speculative enterprises. Thus they function under a regime of the pursuit of their 'lawful' interest, at the same time losing the impartiality which they would like to claim. It should be pointed out that if this is not the case, then their role before the outbreak of the crisis could only be regarded as one of highly-paid ignorance and incompetence.  

Since the beginning of the stock-market recovery, we pointed out that this was achieved by the state packages invested in the stock-market portfolios, and not by the boosting of the real economy. Our view has now received confirmation by the analyses of central banks or figures such as Nouriel Roubini. This option is clearly the reason why public money has not been channelled into the real economy, or into getting rid of the 'toxic bubble', given that a large part of it has continued to exist - very menacingly should a new domino come into play apocalyptically in this crisis. In addition, a part of the packages was tied to the purchase of state bonds, directly or indirectly, following stock-market leverage. It was on this that the complicity of states and central banks was built. This is a complicity which was undoubtedly connected with the need to reinforce stock-market recovery and the recycling of the packages and the concealment of the crisis.

States did not reveal this new game, in the efforts - inter alia - to support their state bonds, with the result that they became more deeply involved with their solidarity with the guilty parties in the private sector. It really seems that with the economy, chiefly in its stock-market form, 'thinking makes it so'. And, of course, this can go on for a long time - but not for ever.

States took back the money that they had given at relatively smaller cost, since they could not afford to repair the public finance imbalance except by refinancing in 'good' credit conditions.

We shall not, of course, embark on a discussion as to why states arrived at this intractable economic state, or as to why, given that money is issued as by right by states (though not always and not directly), they cannot manage this issue. At some point, naturally, this discussion must be embarked upon - and in depth. If this is not undertaken, the next world crisis, as it will also have unfinished business from the present one, as we can foresee, will raze everything to the ground.

One of the keys to this transitional down-playing and concealment of the crisis is the detachment of the 'toxic bubble' from the reading of profit and loss accounts and statements]. The private investment and finance sector has acted, in producing the bubble, by breaking precisely the rule which exists as to the issuing of money for the public sector and for states. The private sector devised and continues to devise, with impunity, unlimited money for the market in a distorting way, for purposes of profit. It has engaged in the counterfeiting of 'intangible' assets, and has escaped punishment.

Greece and the markets

Many people now, at the time of Greece's public finance crisis, speak of 'talking markets' and, in part, of the credit rating agencies. But is the situation in the country as it is described? How did the unthinking markets 'speak' up to August 2008? And how clear are their warnings now? Why do they stay mute or supply misinformation about a series of other matters which concern them? We have to understand that although the markets have a meaning and a role. But are these only the ones that reason can give them? The markets are not gods. They are not geniuses. They gather and exploit our own knowledge or ignorance, brilliance or stupidity, honesty or lying.

The markets are not integrated or long-term judges. They are mechanisms for relations and values, which, like ourselves, are always in need of more reason and morality. They do not respond to all our needs. Where were the markets in the 'model bubble' of Ireland, of Iceland, or of Dubai? What sort of genius and credibility did they show?

Where can we find them in order to award them the prize for foresight? And why should we now think that they are proposing the correct measures in the public finance crashes which are the result of the rolling-over of the private economics greed and bubble?

In the case of Greece, it could be said that the main core of the public finance crisis is the chronic situation which, of course, is interwoven with an intertwining of interests of a different type in the public and private sector.

At the world level, where Greece is no exception, we spoke from the start of a distorted neo-Keynesianism which was a chronic and fundamental concealed support for neo-Liberalism. This malignant and distorted neo-Keynesianism has been upgraded and has become more 'sarcastic' in the course of the crisis.

In theory, Keynesianism is not a support for stock-market, finance, and profiteering investment capital, but for employment and social cohesion and welfare.

How has this escaped our attention, and why do we not talk about it?

We should recall one name: Paulson. But who remembers him today? If he had let another or other colossuses collapse, they would not be rating us today.

We were convinced, and it was, in part, reasonable, that, left to itself, the market, without the money of states and from taxation, the ingenious capital enterprises and the stock markets would have been wiped out, and none of those many corporate and business names which we are hearing again would have existed. And we were convinced that this was a bad thing (do such dreadful things happen in the market?) because we would all be out of work, and it would only be after many years that we could have reconstituted economic life in our societies.

What we were thinking about was, of course, our jobs and our life - not the guilty elites who committed crimes against humanity. But the method of the states and governments - at least those obsessively - involved was that of recycling as regards the deeper causes of the crisis.

At best, the manoeuvres and structures of the technocrats and their structures demonstrated, apart from greed and immorality, the thinking of the leisure class. These are the people who, as the 'Leisure Class', as described by Thorstein Veblen, managed, in their ridiculous and impatient vanity, to make the prices of second-hand expensive cars higher than those for new ones. It could be said that they were victims of Murphy's Law, or, to put it in more academic terms, that they were Pareto's 20% who caused 80% of the problems. Must we reward them and must their role recover, so that they become the appraisers of the making good of the evil which they themselves caused? Such is the incompetence which is our scourge. Societies and states, chiefly through their politicians, exist more in order to break such vicious circles rather than to become accomplices and to expand their complicity. The recovery of prestige and of a role, and neglect of the measures which should have been taken to avert this crisis have been among the worst things tο happen, and which guarantee - in the long term - a wretched future. But let us examine the issues in order.  

The fatal mistakes and their causes

The causes of the fatal mistakes in the handling of the rescue plans were:
1. The absence of political clout and integrity in dealing with the private sector, which was seeking help because it was on the point of collapse. It was seeking the help of the state, invoking, as a legitimating factor, the social cost of such collapse.

2. The 'bought and paid for' - metaphorically and literally - approach, or, otherwise, the interweaving of interests as between the public and private sector.

3. The purely superficial, or limited, competence, in terms of knowledge and ideology, of politicians and technocrats.

4. The failure of constructive assimilation and enhancement in their outlook of societies and of the critical trends in thinking and proposals, even from dogmatic positions such as those of the neo-liberals.

5. The obsessive neo-liberal one-sided thinking about politics, technocracy, society, and the economy, resulting in an absence of fruitful approaches as alternatives.

6. The passive ignorance of issues on the part of citizens and peoples, and, in the end, the passivity even in their protests, which have not targeted the Gordian Knot in terms of institutions and law.

7. The absence of alternative and counterbalancing examples, as well as a growing sense of of urgency in time and climate for the rescue.

A typical example is provided by the case of Gordon Brown, who, though initially presenting an image of a saviour of the markets from their immediate collapse, a little later appeared trapped and discredited. Who can doubt that without the measures of Paulson and Brown which averted the bubbles from becoming joint credit bankruptcy funding, we would have had something much worse than 1929? But were these policies adequate to save us from the cause of the problem and from the aggravated repetition of the phenomenon?

Quite simply, this 'funding', in the name of which the markets and money exist, will never be set up. It has been irreversibly postponed. This postponement had and will have a cost which will be paid over a long period and will lead to deep-seated distortions, the first and most important being the failure to learn any lessons by or about those responsible for the crisis.

The results of the fatal mistakes

Let us pass on to the results which complete the vicious circle of error:
1. Transposing of the crisis on to public finance remediation and state economies. (The case of Greece is clearly not a straightforward instance. However, there can be no doubt that the conditions and the policies of the crisis played their intensifying role.)

2. The inability of states to devise and implement standing, or new, long-term and deep-seated public finance policies and strategies, or development restructurings.

3. Failure to remediate the field, the causes, the landscape, and the factors of the crisis at an institutional level.

4. Further oligopolisation and distortion of the finance, stock-market, and capital system, with state assistance.

5. Inflated concentration and centralisation of capital by transposition of the prospects and management of recovery on to those responsible for the causes of and those to blame for the crisis, who have given oxygen, calories, and opportunities to neoplastic tissue, to their partners in a clientage system and usurpers of power, as well as to the violators of institutions who employed blackmail even when they were collapsing. This is the most senseless medicine, or institutional move.

6. Transposition of the crisis, and, in all probability, systemic distortion leading to the magnification of a future cyclical crisis.

7. Limitation of the potential of the crisis as a field of learning for societies as to the changes necessary for a fundamental remediation.

In this way, concealment in management, the maintenance of domestic and international distortions, together with the elevation of those responsible into saviours, turned the crisis into provokatsia and into an element of paternalistic totalitarianism in developments, as the private credit search for a way out from the straitjacket of the crisis through state bonds has now expanded by a process of recycling.

The bubble remains even in 1 to 10 funding, but, nevertheless, the mania for profit continues in the stock markets, thus intensifying a climate of profound alienation and hypocrisy in the communications system, and the warnings of the market. Desire is returning without reasoned thought as the fury of a fresh stock-market bubble which is in parallel with the toxic and, in all likelihood, a public finance bubble.

There are, of course, opportunities 'of the jungle' in this situation. Sometimes the profiteering is with Greece, with bonds, and with stock-market prices, at other times it is with Spain or with Britain, in which case Greece gains temporary relief in the belief that something is changing, and at yet other times it is with currencies and their parities. Here we are speaking of deconstructive profiteering practices which simply avoid offending against the legitimate state of affairs, which could lead those responsible for the bubbles to account for them. At some point, however, perhaps the necessary attention will slip, because of their rapacity, and then they will make a new domino fall.

Unfortunately, the profiteering crisis which has been created from the redistribution of the cost of recovery has brought to the surface - only imperfectly - the corrupt and rotten political defects in institutions, such as the self-exclusion of the European Central Bank from the role of direct lender to the economies of the Eurozone - in favour of the profiteers in the finance and capital market.

Furthermore, this undermining of institutions from within, for example, is perverse and immoral complicity in the crisis, and in its causes, results, and management. The finance and capital companies have operated on the responsibility of governments and of the central institutional economic bodies with the maximum moral hazard. The state has become a tool of the private sector. We need not, therefore, wonder about how the communications market of profiteering at the cost of state economies developed when, even according to the terms of its foundation, the European Central Bank is disarmed, so that it cannot play a substantive integrated institutional and counterbalancing role in connection with those who are in essence pirates of economies, or on the model of the, essentially private, Federal Reserve Bank. The pirate 'logic' of power has, as always, prevailed over the institutions, and, unfortunately, this has been revealed only when its excesses become absolute.

Up to now, there has been, unfortunately, no will for the correction of these distorting situations, and toleration on the part of the institutions. If, however, we wish to arrive at a completeness of our relations and rules according to what is just, we must reach a rational, moral, and cultural prestige of institutions and societies such that, even without there being an adversary, competitor, or opponent, we do not negotiate over, we do not lay claim to, even in a way in accordance with the institutions, something which is not our right, and does not belong to us.

The demand for a non-dogmatic economic policy free of the practices of barbarism
We have to realise at a deep level that there is nowhere any such thing as Lebensraum - there is only space for life, which is not occupied: it is experienced and set free. Thus we must bring a new spirit into the economy. Otherwise, every economic policy will go from a 'Munich Pact' to a 'Molotov - Ribbentrop Pact', and from there to an unprecedented barbarism 'by other means', to recall Clausewitz's dictum. Let us leave time and history to do their job, with kings and perhaps also ourselves, the ordinary folk, somewhat more 'naked', honest, and more open to self-criticism than is usual. Unfortunately, in the economy the inflationary 'nothing' is recycled and capitalised or substantiated, an abyss which shows the deficit which uncovers the cultural error which we make, as individuals and as societies.

The economy is a tool which needs to be subdued by reason and harnessed by law. The symbolic power of money, and of economic institutions require a powerful intelligence and unselfish will in governance. This is what is missing.

We must understand the economy in the field of the world of concept in order to 'lift the spell' from it and see it as a functional field of operation and aim, so that we are no longer 'under the spell'. At present, we are dominated by a technocratic economic and political self-deception and immaturity which conceal fundamental environmental, social, external distortions behind the public finance institutional weaknesses. These externalities are being shown up, and will require major and painful institutional and cultural disciplining of the whole of the economy and the markets. They will require a painful corrective policy heading in a different direction from that which, with a paternalistic mania and the barbarism of the Assassins, the markets wish to impose.

Economic theory, policy, and function have many points of absurdity, barbarism, and dogmatic doctrinal domination. The sophistical development of economic dogmatism conceals the barbarism against humanity and the systemic illiteracy of these sophistries. Perhaps a first solution is to be found if we look at the economy and the market systemically, as a field of development and expression of the 'moral sentiments' which constituted the cardinal theory of Adam Smith (and which responds to the problems posed by the theory of moral hazard in the economy) before Smith, inspired by the organic and functional theories of the physician - philosopher and physiocrat Quesnay, devised the basic theory of Liberalism in The Wealth of Nations.

Why, then, has such a substantive concern on the part of economic theory and its integration into the totality of the sciences and policies of man taken so long? Which dogmatism has concealed the problems and the distortions of economic theory and policy, so that it is only two centuries later that there are mere crumbs of such a development produced by thinkers and theoreticians of importance, sometimes from a critical angle, as in the case of Thorstein Veblen, or sometimes constructively, as in that of Amartya Sen?

We are not asking for condemnation and conflict over the problems and those responsible, but a correct diagnosis and a remedial policy on a long-term basis, without antagonisms between ideas and players which polarise fruitlessly and appropriate approaches - correct or otherwise - in a divisive manner. The economy is a basic field for the development of correct human, ecological and cultural relations on a small and large scale. Today's world-wide, anachronistic, 'joint credit', developmental, competitive concealment and coercion (instead of beneficial sharing) does not bode well for positive developments,[5] or for mankind and societies, or for the environment, or, of course, for the economy itself, which increasingly will be dominated by internal crises and impasses, as well as by its monstrous externalities.

[1] Nouriel
Roubini, 'End of an era for the uncontrolled free market' [in Greek], kathimerini.gr 06/06/2009.
Krugman, Paul, The Conscience of a Liberal [Greek edition], publ. Polis.
'The credit rating agencies in the Commission's firing-line', [in Greek], in.gr 17/08/2007.
For a cliff-hanger with bonds and stock markets, [in Greek], sofokleous10.gr 12/12/2009, 'French President Sarkozy at the Summit in Brussels: "The credit rating agencies cannot dictate countries' economic policy"'.
Ioannis Zisis, 'The starting-point of the economic crisis and the danger of a new totalitarianism', [in Greek], solon.org.gr

Yiannis Zisis, writer

Photo from wikipedia

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