Hi Joe Stocks.
What an incredible piece of fed-speak mumbo-jumbo (referenced in your post here: Message 23273327 ). You know really, a mere mortal has to have some sort of "decoder" ring to deconstruct what the heck it is Greenspan is saying, and what the underlying assumptions are in his analysis.
Just want to highlight a few sections in the wonderful piece you posted:
1 - Greenspan: "... there is an increased reliance on private counterparty surveillance as the primary means of financial control. Governments supplement private surveillance when the judge that market imperfections could lead to sub-optimal economic performance.
Firstly, while Greenspan may be speaking to Congress or whatever, how on earth is an average citizen supposed to make sense out of this? I think my biggest issue with this phraseology is that it's meant to sound so "clinical", so "rational", so "expert" that mere mortals really shouldn't attempt to delve into such things. The overarching metaphor is an "age of enlightenment" style machine or mechanism, that you try to "optimize" and avoid "imperfections" that could lead to such suboptimization.
But an important question is never really clarified, and that is "in whose interests exactly is this economic machine to be optimized?" All the people in the U.S.? The financial elites in the U.S.? The middle and upper classes in the developing world? All the people of the world? The African subcontinent? And if the Fed's interests are in optimizing the U.S. economy for the interests of all people in the U.S., how important are the interests of people in other nations? Particularly in the extremely poor and war-torn nations of the world.
And, is the Fed being truthful in what they imply - that the US economy is being "optimized" to satisfy the broader interests of the US economy? Is there is a difference between the constituency whose interests they "profess" to manage the economy on behalf - i.e. the general public - and the constituency whose interests they "in reality" manage the economy on behalf - i.e. a core element of the U.S. and global economic elite?
Because, if I actually trusted the Fed were sincere in their intention, then non-transparent financial market intervention would not be so bad, because I would "trust" that my interests were being represented. However, if you feel the Fed is a quasi-criminal enterprise, beholden to elite financial interests who manage the fed most importantly to serve their own interests, well then the lack of transparency is quite another thing.
And, given the Fed's significant control of the cost of credit in the economy, there is obviously the potential for an enormous abuse of the public trust.
So some key issues: (i) What are the criteria by which the Fed seeks to "optimize" the economic machine? , (ii) Is the Fed genuine and truthful in their position about whose interests they represent? , and (iii) If in fact the Fed is disingenuous regarding whose interests they ultimately represent, what is the cost of the lack of transparency in managing the global credit system?
2 - Greenspan: "But let us consider now another aspect of market regulation efforts: transparency.. There should not be much dispute that markets function best when the participants are fully informed. Yet, paradoxically, the full disclosure of what some participants know can undermine incentives to take risk, a precondition to economic growth.
Take, for example, the real estate developer who conceives of an innovative project that will significantly raise the value of the land on which it will be situated--provided that the site possesses suitable characteristics. Suppose further that it is costly for the developer to determine whether a given site is suitable. If he or she discovers a suitable site and is able to quietly purchase the land from its current owners without revealing the value of the project, the developer makes a substantial profit, and the community overall presumably benefits from improved land use.
But what if, before the purchase of the land, the developer was required to disclose his or her purchase intentions and, in particular, the value enhancement created by the project? The sellers then seeing the bigger picture would elevate their offers sufficiently high to extract the full value of the innovation from the developer. Under these circumstances, would any projects go forward? Clearly not, because developers would be unwilling to bear the cost of evaluating potential sites knowing that they would reap none of the benefit of discovering suitable ones. A requirement for fuller disclosure of the potential, heretofore undiscovered value of the land would engender neither more disclosure nor improved land use.
OK Alan, let's examine this a bit. You have portrayed the "transparency" issue in a purely economic context. But does transparency not have at least as important "moral" role to play - that is, in ensuring that intent to do harm or commit fraud by economic actors is exposed at the earliest possible time? I mean, in the example above, Greenspan argues that the "value-added" component of an entrepreneur's innovation should not be made transparent in the marketplace. I have no problem if that value-added innovation is not subject to market transparency. However, what if this same entrepreneur was a REALLY wealthy individual who sought to poison a neighboring lake ecosystem, thereby killing off a number of people and children in a small town, such that he or she could acquire land on the cheap? Is that not a slightly different story? Is this not, in effect, the story of Enron and many other examples of US mega-corporate fraud?
So when we consider the lack of transparency in "private counterparty surveillance" - which manner of lack of transparency does this suggest? That such transparency is a rightly owed to "brilliant financial product innovators" who have a right to the fruits of the their exception genius in financial engineering? Or is it more a variety of non-transparency of a criminal cabal who manipulate credit conditions to benefit a narrow and self-serving interest group to the detriment of the broader community, as well as finance wars of empire?
It makes quite a difference doesn't it. I'm sure many argued in the 1990's that Enron was deserving of reaping the rewards of being such an "innovative" company. And, that improved transparency would have hampered their ability to be so "flexible and creative" in delivering unique solutions in the energy market. Of course, in the end it proved to be no such thing, and was shown to be a criminal enterprise, a racket, pure and simple? Is Enron a smaller version of the Fed? Or is the Fed more like a benevolent guardian who serves as a custodian for the genuine interests of those who have been put under their care?
3 - Greenspan: "To require disclosure of the structure of the innovative product either before or after its introduction would immediately eliminate the quasi-monopoly return and discourage future endeavors to innovate in that area. The result is that market imperfections would remain unaddressed and the . Even requiring disclosure on a confidential basis solely to regulatory authorities may well inhibit such risk-taking.
Oh well done Alan. God forbid that the authorities would have had greater transparency into Enron. How detrimental would it have been to investors, employees, and countries in which Enron did business if Enron's "allocation of capital to its most-productive uses would be thwarted".
4 - Greenspan: To require disclosure of the structure of the innovative product either before or after its introduction would immediately eliminate the quasi-monopoly return and discourage future endeavors to innovate in that area.
Well OK, but let's take the global narcotics trade, which your intelligence agency friends control - but through the lens of time-honored free market principles of course. Since these intelligence agencies already have a well-established monopoly in the global narcotics trade, could you at least provide transparency into the "quasi-monopoly" returns that are derived from Afghanistan, Columbia, etc. I'm sure we can all agree on a way to move forward that won't "discourage future endeavors to innovate in that area". You know, like the innovation of crack cocaine in the early 1980's, and its flooding into the inner cities of Los Angeles and California in the early 80's, that was described so well and in such detail by Gary Webb in his Dark Alliance series.
5 - Greenspan: "Regulators may not always be able to differentiate easily between secrecy to protect intellectual property and secrecy to deceive or to commit outright fraud. Yet a supervisory system must make that distinction as best it can. There is nothing unusual about making difficult tradeoffs in regulation."
Oh yes Alan, that is so true. I'm sure you're going about making this distinction "as best you can", and we should entirely trust you and your cohorts to be sincere and accountable in your efforts here. Certainly, no reason to doubt your track record on this front.
6 - Greenspan: But unfettered competitive capitalism is by no means fully accepted as the optimal economic paradigm, at least as yet.
Thank God. But, not for lack of trying on the part of you and your counterparts at the Fed there Al.
Anyway, AG, I'm glad we had this little chat. I feel much better.
g |
