Cause of the Credit Crunch:Oligarchs or Stupid Fools?

It is curious how two article on the Credit Crunch raise more clearly the issue of financial oligarchs controling more of the political economic scene in the US. Here are the two article. One is  by David Brooks at the NYTimes – Greed and Stupidity  and other, cited also  by Brooks, is Simon Johnson’s the Quiet Coup in the Atlantic. Clearly  David Brooks is reacting to the idea of Oligrachs – a form of government where power effectively rests with a small elite segment of society distinguished by royalty, wealth, family, military influence or religious hegemony.


See no oligarch evil. Clearly Brooks is writing to dispel the notion of no oligarch’s:

 The second and, to me, more persuasive theory revolves around ignorance and uncertainty. The primary problem is not the greed of a giant oligarchy. It’s that overconfident bankers didn’t know what they were doing. They thought they had these sophisticated tools to reduce risk. But when big events — like the rise of China — fundamentally altered the world economy, their tools were worse than useless.

In effect Brook’s is deeply discounting Johnson’s idea that a)the 30 year rise of a financial oligarchy in terms going from 16% of all US business profits in 1980 to 41% of all profits in 2007 is just a statistical quirk; and not to worry that compensation for top executives in Financial firms has seen such a meteoric rise that hundreds of millions of dollars (if not $billions) of annual compensation are the rule reaching 35,000 times the US Average national salary; b)the fact that during this same period the numbers, frequency and severity of financial-excess induced recessions rose from none to everyone in a series of bubbles exposing repeated cupidity by bankers and financiers; and c)all the actions over the past 20-30 years to co-opt government regulators and Congressional overseers have been marked with continuing successes such as increasing deregulation, co-opting the financial regulatory agencies rendering an impotent SEC and CTC in reigning in financial abuses such that the US states attorney generals were turning in more aggressive and successful prosecutions. All these factors are underlined by the fact the financial community have become the leading lobby and campaign contributors to both parties. Now Mr Brooks would have you believe that none of this was planned and strategic actions taken by the financial elites. Rather these were just coincidental actions taken by the same bankers and financial players who a)proved so stupid in their use of financial leverage and false securitisation of risk; b)merely a spike in political contribution money similar to what so many other industries, unions and other interests offer to candidates.

I will let you be the judge by reading the two articles – then consider the following book The Cost of Capitalism by Robert Barbera. After reading any or all of these – Riddle me this: why are we paying these ship of stupid Financial Fools hundreds of millions in total compensation? Are they not the Darwinian Masters of the Financial Universe – being paid such that they should be rendering 6 Sigma decisions – wrong only once in a million decisions. Or are they merely Grifters – impossibly clever only for one thing (surely not banking or other investments for Brooks has labeled them fools – okay employers and supporters of quant fools). These Not-Oligarch’s one talent appears to be how to game their government, their regulators, their employees, the press, and their fellow financial gamesters. The latter is true because one of the hallmarks of this crisis has been the inability/unwillingness of the big banks and other financial institutions to come to the aid of their own such as Bear Stearns, CITI(shotgun marriage) or Lehman. In fact the financial community self eviscerated itself with sanctioned short-selling and deep-throat “inside” rumor mongering. And after such supreme financial mayhem – some still landed on their feet, ready to get on with financial business as soon as possible. Just read the banks before stress test quarterly reports – financial legerdemain skirting defiance of SOX and their own shareholders. But remember call them Fools, not Oligarchs.

Post Script: After this incredible,  almost laughable piece by David Brooks  one almost suspects a reflex party-discipline approach to the financial crisis among Conservative writers and pundits. For another example of Conservative thought being woefully out-of-touch see George Will: The Markets Aint Misbehavin’.