19 January 2008

me and my shadow

It's a bit rich for an obscure indie blogger with no economic cred to say "I told you so", but there was a little schadenfreude in the air as I read Denis Atkins' column in today's Courier-Mail. Atkins surveyed the unveiling trail of wreckage the sub-prime crisis is creating. Two of his points really struck me:

1) "It is the hidden black holes that analysts fear most." Well, der, as they say. My point exactly. This is precisely what deregulation facilitates (that's bureaucratese for "makes happen.") Human ingenuity, which of course reaches its apogee in the financial sector - with a little help from the legal fraternity - will find ways to profit from any regulated environment. So, when you deregulate in the expectation that money will find its highest and best use, don't be surprised when all sorts of arcane practices become the norm, and no-one outside the immediate players can figure out what's gone on. And they ain't telling.

2) But what I really liked was the example given of how a couple of the mega-investment houses, Morgan Stanley and Merrill Lynch, had their credit-worthiness down graded from AAA to CCC, as rated by Standard and Poors and Moodys.

Somewhere many posts ago, I seem to remember that I ranted about these so-called independent rating agencies. How could their analysis have been so far off the mark that they downgrade such impeccable companies overnight? Are they so incompetent?

Of course not. They are not independent. They are as independent as those other egregious examples of the untrammelled benefits of extreme wealth, the remuneration consultants. You'll never find one of these firms recommending a lower salary, and you won't find a ratings agency downgrading a client.

These are the arrangements, the systems of governance, that will have to be unwound before any sense of fairness, of decency, can start to inform our economic system. You may well argue that economic systems are not meant to deliver either fairness or decency and you may be right. But if so, there will be costs and eventually they won't be pretty. A little regulation may, unlike knowledge, actually be a good thing.

Anyway, economic growth has its benefits which were demonstrated today when I spent a little time in downtown Rocky while out doing the grocery shopping. One, there are several good coffee places. There are a couple of good antiques shops. And a magic music shop (Green Bros) where I picked up a capo for the Aria. They are indeed brothers - well they all look awfully alike) and a couple of them were knocking out some mighty fine jazz standards on piano and trumpet. This is living!

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