Monday, February 23, 2009

Collapse of Complex Systems I: Nationalization and Shadow Capitalism

February 23, 2009

Perhaps the "debate" about nationalizing banks is distracting us from the more interesting questions: what complex systems are spinning apart? Who stands to win and lose if the current financial pyramid does topple under its own weight?

Lost in the media kerfluffle about nationalizing banks is the larger question: exactly what difference does any of this make? Not to put too fine a point on it, but if assets are falling in value, risk is being priced into loan qualifications for the first time in a decade and nobody in their right mind is seeking to saddle themselves or their firm with more debt, then who cares who or what owns the banks?

I've been working through three related texts in the past few weeks:
The Fall of the Roman Empire
Collapse: How Societies Choose to Fail or Succeed
The Collapse of Complex Societies (recommended by astute correspondent Geoffrey G.)

The name of this week's theme, "Collapse of Complex Systems," arises from these excellent analyses.

Before we get into the main topic, let's review the case for nationalizing banks as a "cure for what ails us:"

'Nationalize' the Banks (Nouriel Roubini interview) (WSJ.com) Dr. Doom says a takeover and resale is the market-friendly solution.

"Mr. Roubini tells me that bank nationalization "is something the partisans would have regarded as anathema a few weeks ago. But when I and others put it in the context of the Swedish approach [of the 1990s] -- i.e. you take banks over, you clean them up, and you sell them in rapid order to the private sector -- it's clear that it's temporary. No one's in favor of a permanent government takeover of the financial system."

There's another reason why the concept should appeal to (fiscal) conservatives, he explains. "The idea that government will fork out trillions of dollars to try to rescue financial institutions, and throw more money after bad dollars, is not appealing because then the fiscal cost is much larger. So rather than being seen as something Bolshevik, nationalization is seen as pragmatic. Paradoxically, the proposal is more market-friendly than the alternative of zombie banks."

And courtesy of frequent contributor Michael Goodfellow, here is a counter-argument which suggests that "nationalizing the banks is the fix" is simplistic, naive and perhaps entirely wrong-headed:
Banks vs. bank holding companies (Marginal Revolution blog)

"I usually don't like to speak so negatively, but it's the advocates of nationalization who are in denial. There is a belief that Obama, Bernanke, and/or Geithner are somehow spineless or in the pocket of the banking lobby. The sadder truth is that they understand just how ill-prepared the U.S. government, or the Fed, would be to run such an enterprise.

I do understand that if all the water runs out of the sink, as it may, nationalization will come in some form or another, however disastrous that may be. But the desire to postpone it until the last possible moment, and the desire to pursue even a small chance of avoiding nationalization, are signs of wisdom, not cowardice.

When you read about nationalization, and see only the word "bank," and not "bank holding company," be very afraid of the advice on tap."

What strikes me about the nationalization "debate" (in italics to suggest it is staged/phony/a mere distraction) is its extreme reification/distance from the core issue, which is what passes for "capitalism" nowadays is a shadow simulacrum of the real thing. These bogus "debates" dominate the mainstream media (MSM) not because the issue is "important" in the sense of "curing what ails us" (beware facile medical analogies) but because they offer brilliant obfuscation of what really "ails us": a model of capitalism which only superficially simulates real capitalism.

Large-scale enterprises which are passed off or presented as "free market capitalism" are in fact one of the following simulacrums of capitalism:

1. Crony capitalism in which money is siphoned off and funneled to one's pals (see TARP).

2. Gangster capitalism in which legitimate competitors are restricted/limited by regulations
designed to favor the gangsters' enterprises, or by financial legerdemain or threats/blackmail/seizure.

3. Monopoly capitalism in which an oligarchy owns controlling stakes in key institutions and enterprises, and then maintains a carefully tended facade of "competition" to shroud the reality of plutocracy.

4. Pie-in-the-sky capitalism as presented by ideologically funded think-tanks and MSM/plutocracy shills in academia, NGOs (non-governmental organizations, a.k.a. non-profits) and the media.

Virtually every example of monopoly/crony capitalism can be cleaned up via propaganda and manipulated/edited "data" into shiny "free market capitalism" if sufficient manure, oops, I mean funding, is shoveled into the think-tanks and shills' pockets.

5. Central government planning masquerading as "free market capitalism." Look no further than the millions of dollars in contracts awarded under the umbrellas of Homeland Security and Defense. Not to mention TARP, "loans" to the so-called "domestic" auto industry, and other blatant central planning/politically driven awards within supposedly "competitive" structures.

From this perspective, the "debate" about who "owns" the banks, or if the government
nationalizes them just long enough to absorb the losses and then spins them off to the old cronies as "private enterprises" again, is essentially Kabuki theater for the edification of the masses.
By all means, rake those evil greedy bankers over the coals in front of the hot lights of an indignant Congress (which collected millions of dollars in campaign donations from said evil greedy bankers without a peep)--great stuff, great theater; all we need is a gladiator match or two afterward to complete the public "show."

And yes, let's "nationalize" the losses (that is, shove them onto the taxpayers), pull a few wires and strings, and then sell the profit centers off as private companies. And who stands ready to buy these newly cleaned-of-bad-assets banks?

Hmm--does this remind anyone else of how the assets of the old Soviet Union ended up in the hands of a small oligarchy?

The line that "we need to fix the banks before the economy can prosper again" has been repeated so often that it has acquired a truism status akin to gravity: of course apples must fall to earth.

But is this really true, or is it just a way of defending a desperate attempt to return to the glory days of simulated capitalism?

Maybe the "problems" we face globally lie elsewhere than the banks' bad debt and inability to leverage 40-to-1. (Sob; without unlimited borrowing and leverage, capitalism is broken!)
Maybe we should look for systems which are collapsing beneath the superficial "debate" about nationalization. We are told as a matter of faith that the central "problem" is bad debt and insolvent banks. That seems too simplistic and convenient to be true; at a deeper level, it seems the real "problem" is that free-market capitalism has been entirely subverted by simulacrums presented as capitalism.

We are supposed to be terrified of systemic financial collapse, as if civilization will end the second we can't buy cars and houses with almost no money down and banks can't write trillions of dollars in derivatives. I would hazard that what the powers that be are terrified of is the collapse of simulacrum-capitalism, of which the financial system is the most visible facet.

While we're on the subject of "collapse," here are a few other relevant titles:
Fruitless Fall: The Collapse of the Honey Bee and the Coming Agricultural Crisis
The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel
Reinventing Collapse: The Soviet Example and American Prospects
Shameless pitch for my own book: Weblogs & New Media: Marketing in Crisis

NOTE: I barely had time to turn on a computer the past few weeks. Thus the usual haphazard nature of site slipped even further toward entropy. My apologies as I work toward a semblance of normalcy--whatever that is.

Of Two Minds reader forum (hosted offsite, reader moderated)

What's for dinner at your house?
has been updated with two new recipes:
Quick Easy Vegetable Soup and Pork Butt Stew.

New Operation SERF Installment:
Operation SERF, Part 10
Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.


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