Tag Archives: John Cassidy

Ever More Traders, Seemingly Fewer Builders – Consensus is Growing

The consensus is growing.  The problem is truly coming into focus.  The solution seems to elude us all.

A while back, I wrote this blog post:  “Traders” vs. “Builders” – the “Fantasy Economy” vs. the “Real Economy.(It is the most read post on our blog in the last quarter).  It was prompted by my reading of the Richard Florida book, The Great Reset.  Though the entire book is worth reading, it is a small section that jumped out at me most strongly.  Here’s the key quote:

…builders need to take their preeminent position back from the traders for the economy of the future to flourish.

A long list of observers and authors are weighing in on this disconnect in our society.  Here’s a quote from Frank Rich, Still the Best Congress Money Can Buy, from this morning’s New York Times:

As John Cassidy underscored in a definitive article titled “Who Needs Wall Street?” in The New Yorker last week, the financial sector has paid little for bringing the world to near-collapse or for receiving the taxpayers’ bailout that was denied to most small-enough-to-fail Americans. The sector still rakes in more than a fourth of American business profits, up from a seventh 25 years ago. And what is its contribution to America in exchange for this quarter-century of ever-more over-the-top rewards? “During a period in which American companies have created iPhones, Home Depot and Lipitor,” Cassidy writes, the industry reaping the highest profits and compensation is one that “doesn’t design, build or sell a tangible thing.

The article Rich quoted is What Good Is Wall Street? Much of what investment bankers do is socially worthless by John Cassidy.  He puts it simply:

For years, the most profitable industry in America has been one that doesn’t design, build, or sell a single tangible thing.

And here are excerpts from The Power of Failure by William D. Cohan (William D. Cohan on Wall Street and Main Street):

Despite the very dire consequences of the latest financial crisis that Wall Street perpetrated on the world, America cannot seem to shake its infatuation with Wall Street bankers and traders.

We continue to shower them with riches, prestige and glory. We make movies about them. We write books about them. We seriously overpay and then envy them. This year alone, while millions of others suffer from the Great Recession, bankers and traders are expected to be paid — incredibly — another estimated $144 billion in compensation and benefits. Accordingly, Wall Street remains the No. 1 destination for our best and brightest.

There is enormous power in failure, especially when one learns from it. Wall Street has been making a lot of mistakes lately. But will it bother to ever learn from them? And will we have the courage to return Wall Street to a less exalted place? The answer to these questions will increasingly come to define what America is all about in the future.

So, Wall Street has taken us down some blind paths, and failed spectacularly.  Yet, Wall Street profits are up, and seems to already be back on top.  Our best and brightest would still rather work there than elsewhere.  And when they do, they build little or nothing – they master “trading,” not “building.”

We need our best and our brightest building an actual economy, not moving money around in a stagnant one.  But we seem to be powerless to bring about any needed change.

So, what shall we do in this fantasy economy era?

What went Wrong? How do We Fix It? — The Two Questions of our era

What got us into this mess?

First, an admission.  I, like all of you, have too many books on my “I should read this” list that I simply will never get to.  In my case, I prepare a minimum of two new book synopsis presentations a month, and that means that there are other books that I simply do not have time to delve into.  At this moment, the books that I am not getting to are books that try to answer these two questions, both related to our current economic meltdown and ongoing crisis:

Question number 1:  What went wrong?
Question number 2:  How do we fix it?

There are a lot, a mean a whole lot, of answers to the first question being thrown out for our consideration.  (Not quite as many for the second question).

Business Week has a review up of one of the many new books tackling these questions.  (One of the many I do not know when I will find time to read).  The book is How Markets Fail:
  The Logic of Economic Calamities by John Cassidy
.  (Read the review here).

Here’s a quote from the book (taken from the review):
Between the collapse of communism and the outbreak of the subprime crisis, an understandable and justified respect for market forces mutated into a rigid and unquestioning devotion to a particular, and blatantly unrealistic, adaptation of Adam Smith’s invisible hand.” And it was this faith, he goes on to say, that led Alan Greenspan, among others, to turn a blind eye to what was happening in the real world of money and business.

This book calls for greater government regulation as one part of a solution.  Chris Farrell ends his review with this:
More important, the reader comes away persuaded that reality-based economics can play a critical role in what the 18th century British conservative Edmund Burke called “one of the finest problems in legislation, namely, to determine what the state ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion.”
Let’s hope the legislators in Washington share this principled view of their role. Cassidy makes a compelling case that a return to hands-off economics would be a disaster.

As I stated earlier in this post, there is much being written about what went wrong.  A provocative piece in The Atlantic points to an unexpected but specific contributing cause:  the role of pastors in fundamentalist/prosperity gospel churches on the sub-prime mortgage crisis.  The article, Did Christianity Cause the Crash? by Hanna Rosin, argues this:
America’s mainstream religious denominations used to teach the faithful that they would be rewarded in the afterlife. But over the past generation, a different strain of Christian faith has proliferated—one that promises to make believers rich in the here and now. Known as the prosperity gospel, and claiming tens of millions of adherents, it fosters risk-taking and intense material optimism. It pumped air into the housing bubble. And one year into the worst downturn since the Depression, it’s still going strong.

The article chronicles how some banks partnered with some churches, especially some pastors, to help people get into houses.  Houses they could not afford, and ultimately could not keep.  Here’s the conclusion of the article, referencing Pastor Fernando Garay from Virginia:
And there is Garay’s kind of hope, which perhaps for many people better reflects the reality of their lives. Garay’s is a faith that, for all its seeming confidence, hints at desperation, at circumstances gone so far wrong that they can only be made right by a sudden, unexpected jackpot.
Once, I asked Garay how you would know for certain if God had told you to buy a house, and he answered like a roulette dealer. “Ten Christians will say that God told them to buy a house. In nine of the cases, it will go bad. The 10th one is the real Christian.” And the other nine? “For them, there’s always another house.”

I don’t know that there is one cause.  As Scott Peck stated, it is “overdetermined.”  The cause of most problems is overdetermined – that is, there is no one cause, there is a constellation of causes.  And, thus, there is no one solution.

But finding the causes, so that we can avoid them in the future, and then finding the solutions, so that we can dig out of this mess, seems to be the necessary agenda at this time in our history.