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The 'stumble'

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Message Jerome A. Paris

Crises are endemic to financial systems. Attempts to regulate them may do more harm than good

For three decades, public policy has been dominated by the power of markets—flexible and resilient, harnessing self-interest for the public good, and better than any planner-in-chief. Nowhere are markets deeper and more liquid than in modern finance. But finance has stumbled and there are growing calls from all sides for bold re-regulation.


This is the lead editorial of the Economist, the bible of the neoliberals and deregulators around the planet, and it is worth deconstructing in detail. Just this very short paragraph above is a good example of how to set the parameters of the debate and preempt decisions:

  • markets are described as an unalloyed good, better than government (caricatured as the Gosplan), even to the extent that they are said to provide for the "public good" - the biggest lie of all, but repeated endlessly until it gained "common wisdom" status, ie that of a fact that needs  not be proven anymore (truthiness could be a way to describe that common wisdom);

  • in that context, the use of 'stumble' is a very aggressive gambit: it means to convey that the current crisis is but a temporary hiccup after a very long and strong period of prosperity - and it is meant to separate the current consequences of deregulation from their earlier proclaimed successes, ie the way to assess deregulation is not to take boom and bust as a whole, but to focus on boom and treat the bust as an inevitable, exogenous event that must be dealt with separately;

  • of course, underlying this is the fact that markets are described as a natural policy choice - a choice made by all, over a very long period of time, and justified by their supposed "power." This is a way to avoid the discussion of deregulation as an ideological choice. The use of "re-regulation" in the last sentence is the only acknowledgement that these policies are by no means irreversible nor the only way to do things;

  • most importantly, in a display of how expert the right is at controlling public discourse, one finds the notion that the Economist is a solitary voice facing an overwhelming consensus ("calls from all sides"), as opposed to one of the biggest loudspeakers of the only ideology that can be heard in all official discourses and throughout "serious" media. Accuse the other side of your own failings, claim victimhood, and push forward again with the same ideas as the only solution to everything.

As the title of the piece shows, the goal is the same as it has always been: reduce regulation of finance. Whatever the facts, they never stop promoting their selfish, self-serving and destructive agenda. They claim the (supposed) good times, and say that the bad times are inevitable (and thus not their fault) and that only their solutions can bring back the good times. It's a simple recipe, and unfortunately it works.

And the looting will go on as it does.

It is natural and right that regulators should seek to learn lessons. The credit crisis will damage not just the reputation of the financial system but also the lives of those who lose their houses, businesses and jobs as a result of it. But before governments set about reforming financial regulation, they need both to be clear about the causes of the crisis and to understand just how little regulators can achieve.


Again, with barely concealed contempt for the poor losers of the crisis (their plight comes after the "reputation of the financial system" and they probably deserve what happened to them anyway - suckers) this subtly underscores that notion that nothing bad happened until the crisis. Before it, all was well, prosperity was growing for all, there were no poor, no foreclosures, nothing. Financial markets were working their wonders.

The goal is to separate as much as possible the boom and the bust, in order to claim the boom and blame the bust on somethng else. But, even more importantly, it is about creating a mythical version of the boost, where the good times were shared by all - and were naturally created by de-regulation.

This is the context where governments come in - they are well meaning, trying to do their best to react to the bust - it is their responsibility, after all (another subtle reminder that it is not the markets'). But sadly, being governments, there's little they can do, you see. This has been repeated so many times that it fits naturally in existing notions (cue in Reagan "I'm from the government and I'm here to help you" - he was so funny ... ah, these were the days - back when we were tough enough to beat the evil Soviets and bring back the morning). So that layer fits in - don't expect government to do much now.

there are two reasons to hesitate before plunging headlong into a purge of the system. First, finance was not solely to blame for the crisis. Lax monetary policy also played a starring role. Low interest rates boosted the prices of assets, especially of housing, which in turn fed into complex debt securities. This created a spiral of debt that is only now being unwound. True, monetary policy is too blunt a tool to manage asset prices with, but, as the IMF now says, central banks in economies with deep mortgage markets should in future lean against the wind when house prices are rising fast.


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Energy banker based, yes, in Paris, France. Writing about energy, economics, international geopolitics, European and French stuff, and whatever else catches my attention. Very strongly pro-European. Liberal in the US, libe'ral in France and proud of (more...)
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The 'stumble'

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