FT.com / Markets / Insight - Eliminate financial double-think - The Diigo Meta page

• 21 Aug 09
  

  Michal Chytil

  crisis banks

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  T. Rex Bean

  tett finance regulation

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  Colin Henderson

  doublethink transparency crisis economics banking crisis

• 

  W21st NYC

  doublethink Tett Wall Street government policy & the financial crisis cap v cap

  • However, amid all that debate about American efficiency, one point that Western commentators almost never discussed was the proliferation of middlemen in America’s financial world.
  • Why? The obvious answer is that the banking sector has been very powerful. Three decades ago, Pierre Bourdieu, a French sociologist, observed that elites in a society typically maintain their power not simply by controlling the means of production (ie money), but by dominating the cultural discourse too (ie a society’s intellectual map). And what is most important in relation to that cognitive map is not what is overtly stated and discussed – but what is left unstated, or ignored. Or as he wrote: “The most successful ideological effects are those which have no need of words, and ask no more than a complicitous silence.”
  • 7 more annotations...

  • • The Western financial system is a powerful case in point. For the first seven years of this decade, most politicians, voters (and journalists) effectively ignored the extraordinary revolution brewing in the debt and derivatives world, because these areas of finance were widely (and wrongly) believed to be very boring, or so complex they could only be understood by a tiny technocratic elite.

      That essentially left bankers free to operate with minimal external scrutiny. It also meant there was little discussion about the inconsistencies that plagued the free-market rhetoric – or intellectual map – that ruled the day. And these paradoxes were numerous.

    • One of the founding principles of free market theory, for example, is the idea that markets work best when there is a free flow of information.
    • Yet, some of those bankers who have been promoting free market rhetoric in recent years have also been preventing the widespread dissemination of detailed data on, say, credit derivatives prices. Similarly, while bankers have taken the idea of creative destruction as an article of faith, in terms of how markets are supposed to work, they have been operating on the assumption that their own industry would never suffer too violent a wave of creative destruction.
    • And securitisation has produced a particularly curious – or absurd – paradox. A few years ago, it was widely assumed that the process of slicing and dicing credit would create a more “complete”, free-market financial system. But by 2005, credit products had become so complex and bespoke, that most never traded at all. Thus they had to be valued according to models, since they could not even be priced in a market – in a supposed free-market system.
    • “complicitous silence”
    • After all, one reason why this double-think persisted for so long is that bankers and policy makers alike have all been trained in recent years to take economic theories at their face value, shorn from social context, or power structures.
    • But if regulators and politicians are to have any hope of building a more effective financial system in future, it is crucial that they start thinking more about power structures, vested interests and social silence.

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