Multiculturalism helped cause the financial crash (!)

Yes, it’s true. Just ask our local News Limited opinion hard-head Andrew Bolt, who writes today that:

You see, this crash wasn’t really caused in the first case by bankers’ greed. Or not by their greed alone.

The “greed” that started it was that of poor people in the US who wanted a house and took out home mortgages they had little hope of repaying.

What helped them to get these ninja loans – loans to people with no income, no jobs and no assets – were tough rules pushed through by then-president Bill Clinton forcing banks to issue more loans to minorities, or else.

And financing and guaranteeing many of them were two semi-nationalised mortgage wholesalers, Fannie Mae and Freddie Mac, which were excused some of the tougher capital requirements of banks, so greedy was Clinton for success.

Bolt, of course, keen to absolve bankers from their responsibilities and markets from failure, sells short a whole range of factors that underwrote the crisis, such as the overleveraging of sub-prime based financial products, the anti-regulatory zeal that prospered under the reign of Greenspan, the excessive risks taken by bankers in the search for market share and new markets, and, yes, their drive to pile a bit more on those bonuses they have so craved. As Mike Steketee wrote in the Oz last week:

Defenders of the free market have gone back all the way to the Community Reinvestment Act passed in the US in 1977 to argue regulation, rather than deregulation, has created the present problem. This legislation was designed to end discrimination in lending practices against lower income neighbourhoods often suffering from urban blight. It stipulated lending be consistent with “safe and sound operations”. Although financial institutions were evaluated for compliance with the act, it never required they lose money on mortgages or that they be given to people with slim prospects of repaying them. Even if, as some claim, the legislation ultimately played a part in encouraging excesses, such as the bundling of sub-prime loans into packages that hid their riskiness, that was a failure not of too much but of too little regulation. According to congressional evidence this year from law professor and former US Treasury official Michael Barr, 50 per cent of sub-prime loans came from financial institutions not covered by the act and another 25 to 30 per cent from those only partially covered. “The worst and most widespread abuses occurred in the institutions with the least federal oversight,” Barr said.

The Bolt line has also been comprehensively debunked in that well-known left wing rag, the Wall Street Journal. But the sort of simplistic drivel pedaled by Bolt (and his stablemate Janet Albrechtsen, though at least she doesn’t ping ‘minorities’) fills sites like alt.conspiracy. And there it is being pedaled, almost cut-and-paste, by highly-paid columnists in the legitimate Australian media. Go figure.

Never the twain?

One of the many disturbing things about the global financial ructions of the past few weeks is that climate change has disappeared from the news agenda. We really do seem to be short term animals, interested only in what’s on this side of the horizon. Hardly a surprise, perhaps, at a time when many people really are worried about their immediate future. But one implication of the media silence is that addressing financial problems and addressing global warming are antithetical, when so far as I’m concerned they are one and the same thing. Both are driven by our belief that unlimited economic growth is necessary and somehow sustainable.

So it was with surprise that last night I found myself agreeing with New York Times columnist Thomas Friedman, who I usually think of as an insufferable windbag, who was being interviewed by George Negus on Dateline. 

A new economics?

It’s funny how people keep talking about The Land of Plenty as if it’s a book about the Howard era when in fact the ‘big idea’ at the heart of the book is that we’re at the end of two thirty year cycles, the first based around economic protectionism and the centrality of governments, the second based around deregulation and the centrality of markets. It seemed a novel idea when I was writing late last year and earlier this year, albeit one that’s since been realised in ways I’d never wish for.

The basis of my thinking wasn’t to do with any particular government (the vast majority of the book was written in the belief that Rudd would win, then in the first few months of the government), so much as the whole political and economic system, which I believed then and believe now to be unsustainable. We seemed to be living in an ‘economic fool’s paradise’, as I put it, where a decade and a half of economic growth had been fueled by consumer spending funded by easy credit, and then a commodities boom. The whole thing was a house of cards. A Very Public Sociologist has since put together a convincing summation that points out how the whole edifice was balanced rather precariously on rising housing prices. John Quiggin’s recent posts have also been excellent. And an erudite summary of last week’s events can be found at LP. Howard? Rudd? It wasn’t going to make much difference.

But the thing that amazes me, speaking as a non-economist, is the idea that the collapse should be a surprise.

Melting down

‘Meltdown’ seems an appropriate metaphor for the week in which the world’s markets crashed then rose then crashed then . . . and in which Ross Garnaut handed over his final climate change report. The first should hardly have been surprising, and nor should the weakness of the second. If we are living in a global speculative economy founded on bad debt, then sooner or later something has to give. In effect the markets are holding people to ransom. If we don’t feed the beast by bailing them out, then they will ruin us. And if the government is pandering to business on all matters environmental, as satirised on last night’s wonderfully apt and timely episode of The Hollow Men, then a weak-kneed stance on climate change (25 per cent reductions at best), with anything stronger, or even that, being denounced by the usual suspects, is to be expected. Meltdown indeed. 

Meanwhile, commentators just as John Quiggin and Mark Bahnisch at LP have been talking about ‘the end of neoliberalism’, with varying degrees of skepticism. It’s a nice idea, but underestimates just how deeply embedded neoliberal ideas are in the global finance system. My sense is that the bail-out (just voted on in the US senate) will happen, even if it won’t necessarily work because there’s more to this than simply lancing a boil. Regulatory noises are being made and some tightening will take place. But the system will stay relatively unchanged because too much depends on it and because money and power have little respect, in the end, for principle.

Ideally, what we should see as the result of the past few weeks is a wide-ranging debate about just where we are and how we got here. A debate that took into account the history of radical conservative ideas, and their ultimate unsustainability, not merely on environmental grounds, but because ’shareholder value capitalism’, based on speculation and short-termism, doesn’t work especially well for non-finance business either. It’s up to us to start that debate, and that’s the hard bit. Get-up are giving it a go (and combining both economic and environmental issues), but right now people are thinking about the short-term future of their homes, interest rates, their superannuation, and the lines of credit they need to run their businesses. Meanwhile, amidst growing anxiety about matters economic, global warming has dropped down people’s list of concerns.

And who can blame them? What was it that Bertolt Brecht once said? ‘Grub first, then ethics.’