Monday, September 15, 2008

The Lemon Brothers Go Squish

A big investment firm called Lehman Brothers is in the process of failing today. The failure was actually announced on Friday. Monday will have some sort of government directed buyout/bailout thingy.

My brain has been screaming at me all weekend long.

Lehman Brothers was a horrifically large financial institution with monumentally complex financial arrangements ruled by complex mathematical structures that I doubt anyone in the company actually understood.

The problem, of course, is that the business was full of pretentious snits who believed they understood all the complex interrelations of their investments.

The foundation of the Lehman Brother's House of Cards was a large mortgage portfolio built on the absurd idea that a society can bear an enormous burden of interest bearing, real estate backed loans.

Libertarians tend to deride this type of thinking as rent seeking.

The mathematics at the heart of these conglomerates is inherently instable, which is why governments following this model have to take on the risk of offering reinsurance schemes coupled with complex regulations.

The regulatory regimes and reinsurance schemes promise to mitigate the risk. Instead, they tend to transform the national (or even global economy) into a resonating chamber that magnifies the risk until we are reduced to a society that is thrashed about by rogue waves of financial destruction.

Big Finance, Big Government, and Big Education form a cabal that teaches us that economic security comes with centralized economic planning.

Predictably, the big centralized regime has the effect of distributing the risks (and costs) to the many and concentrates the rewards on the few.

Dunderheaded thugs on the left keep screaming that centralized regime will be perfect once the right glorious leader is installed in power. The rhetoric of the Republicans is in the right place, but the center of the party is ruled by good ole boy rogues who are willing to sell their souls to big business.

Unfortunately, I just can't see how to break this political lock, for it is not really just a political problem.

Our politics, after all, are a reflection of what we learned in school. The way we are taught to think about financial problems leads us to seek rents. In seeking rent, we seek economic centralization. The economic centralization causes a concentration of wealth, which leads to discontent and a demand for nationalization.

Regardless of how totalitarian Obama is with the next wave of regulations, and regardless of how onerous the economic burdens he places on the economy, we will still have these waves of economic chaos as this failed system continues.

There is no way out of the cycle as long as our left wing dominated education system continues to teach us failed economic thinking that has us locked in this cycle.

Big Government, Big Business and Big Education have all failed us. We have to find a way to break our addiction to BIG.

3 comments:

Anonymous said...

"The way we are taught to think about financial problems leads us to seek rents. In seeking rent, we seek economic centralization. The economic centralization causes a concentration of wealth, which leads to discontent and a demand for nationalization."

So if I understand what you are saying; Big government is exploitin' the proletariat majority, forcing them to 'ang' on to outdated imperialist dogma, which perpetuates the rift between economic and social differences in our society, ultimately forcing the working class to live in a virtual anachro-syndacalist totalitarian collective? A self promulgating autocracy in which the working class ultimately bear witness to the violence that is inherent in the system?....HELP! HELP! I'm being repressed!

y-intercept said...

Anonymous Coward ... that is a beautiful example of the way that we are being taught to think in school. My guess is that you went to a university.

I would change the last sentence "HELP! HELP! I'm being repressed!"

My point is that when we think this way, we end up oppressing ourselves.

All we have to do is figure out how to stop thinking this way.

Reach Upward said...

I think our anonymous cowardly friend was quoting from Monty Python's Holy Grail (scroll down to 3 EXTERIOR - DAY).