terça-feira, 11 de janeiro de 2011

The Financial Crisis, the Recession, and the American Political Economy

A Systemic Perspective

Charles Ferguson shows how useful a varied background in math, political science and business can be, as he dissects the complexities and recent crisis of the U.S. financial system. In a lecture that distills many of the arguments of his recent film, Inside Job, Ferguson conveys dispassionately yet persuasively the reasons we all should feel profound anxiety not only about the nation’s financial institutions, but about our economic and political future as well.

Ferguson details the “securitization food chain,” a system of investing (and gambling) with debt that U.S. financial institutions enthusiastically adopted around 15 years ago. Encouraged by friendly government policies, a handful of investment behemoths such as JP Morgan and Lehman Brothers began transforming the banking landscape, buying up mortgages and other forms of debt worth countless billions of dollars, and packaging these securities for buyers worldwide. Allied financial institutions became adept at selling cheap mortgages to ordinary people, creating an inflated housing market. Insurance and ratings companies bought in. The speed of growth and scale of this securities chain was unprecedented, recounts Ferguson -- as was its impact on the nation’s economy, both at the market’s peak, and after its collapse.

Ferguson provides a very detailed and pointed sidebar on industry incentives that underlay the wild growth years. These included allowing investment banks to bet on the failure of their own securities; and linking rating agencies’ income to their approval of risky securities. Individuals inside big institutions made out like bandits, because they could. Senior executives in places like Bear Stearns took out over $1 billion in cash each in the years prior to the 2008 collapse. The head of Countrywide Mortgage saw the end coming, and cashed out over $100 million in stock. Asks Ferguson, “Why was such extreme behavior permitted? I have to conclude there was a complete abdication on the part of the regulatory system.”

Ferguson finds galling both government apathy in regulating and in prosecuting high-end white collar crime, but perceives the reason: a financial services industry that “as it rapidly consolidated and concentrated became the dominant source not only of corporate profits but campaign contributions and political funding in the U.S.” Evidence for unrestrained financial power lies in the fact that the government response to the crisis has been engineered by Wall Street insiders intent on shoring up firms too big to fail. Ferguson cites as well “corruption of the economics discipline,” the rising role of money in politics, and the increasing concentration of wealth in the hands of a few.

The dominance of a single industry constitutes a deep change and danger for America, believes Ferguson. The nation “has evolved a political duopoly where two political parties agree on things related to finance and money.” Without a political structure immune to such influence, Ferguson sees little likelihood of challenging the interests of the financial giants.