Tuesday, February 15, 2011

Redleaf's and Vigilante's Panic

I can't remember any book I've read on the financial crisis (and I've read more than a few) quite as distinctive as the wretchedly misnamed Panic by Andrew Redleaf and Richard Vigilante. Misnamed inasmuch as a better title would have been the subtitle: The Betrayal of Capitalism.  Must be the publisher's fault: the authors use a version of the latter for their proprietary website, and it certainly is a much better description of what they seem to believe they are describing.

Distinctive how?  Actually, not in detail: almost every element in the book parallels--though it often improves upon--an insight from elsewhere.  But I don't know anyone who has put the pieces of the puzzle together in anything like the same way.  This is a point worth stressing because on first blush it might be possible to mistake the book for a standard right wing diatribe.  Thus early on, the authors declare:
We are staunch Republicans who believe that Ronald Reagan was the greatest president in our lifetimes.  We firmly believe that the market, like the Lord, punishes the wicked eventually.
 And there's more: their enthusiasm for entrepreneurship seems almost Hayekian (although Hayek's name appears only once while the  word "entrepreneur" appears 88 times in the manuscript).  His enthusiasm for the morality of entrepreneurship seems almost Randian (although her name does not appear).  And they veer dangerously close to right-wing absurdity on a few issues--notably the question whether Fannie and Freddie were the helpless pawns of a misguided government housing policy (they weren't).

But don't leave yet; in fact their presentation is far more original than you might guess on first blush.   Granted that they love markets but there is a whole panoply of  issues on which their approach is more sophisticated and challenging than vulgar libertarianism.  One: they've got a far deeper and  more subtle understanding of how finance-trading gets done than anything I've seen elsewhere, excepting only Richard Bookstaber's superb Demon of Our Own Design.  They write fully informed about both trading and academic work and offer provocative explanations of why it is that  professors miss the good stuff. They present a stimulating account of the place of risk in markets (not what you think) and the (dis)similarities between financial markets and the market for goods.

And two: for all their loud Reaganism they aren't at all hostile to regulation--but it had better be smart regulation and it appears they harbor firm convictions as to just what "smart regulation" might (and might not) entail.  Specifically, they our current regime implements a kind of a "green zone"--as in Iraq--inside of which the well-connected find protection and comfort, while outside chaos reigns.   Put differently, the worst sort of crony capitalism.  Consider:
We have heard it said that crony capitalism is indistinguishable from socialism.  Wrong.  It's worse.  No Democratic administration, with the exception of Roosevelt's first term, has been as abusive of markets as the [George W.] Bush administration.   ...The socialists are an intellectual party comfortable with abstraction and with theory.  Moreover, precisely because they have visionary and ambitious goals ... the socialists have recognized they can get where they want to go only by riding on the back of capitalism.

Crony capitalists have neither the inclination for theory nor the interest in general economic success that attaches to the socialists.  It is no accident that in our lifetime all the worst administrations for economic policy have been Republican ...
 [On the last point, they make an exception for the Gipper; what the hell ever possessed them to think that Reagan was an honest capitalist is beyond me but this blind spot doesn't destroy the force of the argument.]

Operating against this background, the reader will hardly surprised to learn how deeply disaffected the authors are for just about everything that passed as reform policy over the last couple of years.  Don't take over the banks. Don't save the undeserving. And most of all, not TARP, oh dear God,  not TARP.   Rather, first--early on--force lots of disclosure, from "banks" and "nonbanks" alike--get everything on the record, because uncertainty is the great enemy of smooth functioning.  And in the crisis itself:
What was needed, instead of TARP, was a three-sentence piece of legislation: (1) For the next one hundred eighty days the U.S. Treasury is authorized to buy asset-backed securities whose price appears to be an extreme discount from economic value.  (2)  For the purpose of calculating the debt of the United States, securities purchased under this authorization shall be credited against that debt at purchase price ....  (3) All securities acquired under this authorization must be sold within twenty-four months.
 I have to admit I'm still digesting all this; I find it sufficiently engaging and provocative--and original--that I want to give it some thought.  On the other hand, it makes sense to distrust anybody who writes with such easy  assurance.  I'm not at all sure they are snake oil salesmen even though, at times, they sound like snake oil salesmen.   Yet I grant them this: they are almost distinctive in their commitment to a favorite theme of mine--specifically that "the market" is not a mantra or a magic trick or a philosopher's stone.  It's a complex human artifact that probably nobody understands in full (that may be in the nature of its being as market). It's refreshing--if unsettling--to engage with anybody who seems to grasp that point at all. 

1 comment:

Panic Attacks said...

The three-sentence piece of legislation which is given here are very important in any country such that instead of the TARP these three-sentence piece of legislation must be announced.