01-10-2008 - Traces, n. 9

Stock markets and values

Crisis Underscores
the Reduction of the Human

Markets gone haywire, chain-reaction failures, and a series of financial wrongdoing that risks bringing down the global economy. But behind the storm that has battered Wall Street and environs there is a lot more than just a crisis of capitalism.
There is a reductive way of conceiving reason

by Giorgio Vittadini

Renowned commentators some years ago were lauding the pure capitalist-financial model as the panacea of all of ills, as if there had never been scandals like Enron, Parmalat, and the Argentine debt bonds, which laid bare the responsibilities of this same financial world.
This led to attacks on the European financial system, considered backward compared to America, of which it was supposed to become a sort of province. Now it happens that, while the commentators themselves praised the failure to rescue Lehman Brothers, the American government did not trust laissez-faire without rules to find a remedy for the situation and has stepped in to save Bear Stearns, Fannie Mae, Freddie Mac, and AIG.

Millions deceived
America itself, and particularly the Bush presidency, traditionally considered defenders of laissez-faire, have decreed the end of the idea that the free market alone is capable of remedying the distortions it creates.
In the American system, instead of asking what is valuable for the real economy, the trend is to indiscriminately propose standardized products, to be interested only in quarterly results, and to focus solely on getting commissions. With this logic, millions were deceived into believing that they could afford to purchase their homes with loans they could never repay. Then they sliced up the loans into bonds which were increasingly detached from reality, in the illusion of warding off and decreasing the risk of insolvency (or rather, shifting it onto others).
It follows that the system is on its knees from a crisis of liquidity. This is shown by Lehman Brothers, which has lost 90% of its value. It means that value based on supply and demand is an artificial value and that the trading on the stock markets is not capable of providing information about the real value of what is being traded.
Then, as shown by the polemics already aroused by the likely golden handshake offered to the super-manager of AIG, enormous in itself and completely irrelevant to the value of the business, we need to add that flexible compensations, like stock options for CEOs, are unrelated to the real wealth created by their businesses.

Realism and quarterly results
In this picture, the point is not to question the market, nor the market with a capitalist structure, which has a value in itself that needs to be safeguarded. And, even worse, it is certainly not desirable to adopt a state-run economic planning regime, which would be going to the opposite extreme (public guarantees and public indebtedness…).
The point is to admit that this is not just an economic crisis. It is an anthropological crisis that calls into question a human idea of reduced rationality, tending as it does to the maximization of short-term profits, but inattentive to the principles essential to create a real and lasting affluence. Hence, it is doomed to be cut off from reality and has built a virtual world that will fatally collapse. To look ahead, we need a rationality that reveals how even now Homo oeconomicus has other much greater motives than just quarterly profits unrelated to society. We need a healthy realism that will anchor finance firmly to the real economy, of which it is and must be only an instrument. From this point of view, after having demonized many aspects of the economic system, it is perhaps necessary to reappraise some, such as its close ties to the territory and its concern for the real economy, which is one of its riches that is not yet extinct. Whether we speak of microcosm or macrocosm, realism or new rationality, they are indispensable to every future development.
(First published in Il Riformista, September 30, 2008)