It’s been a month since I’ve posted and a lot has happened. We’re still speaking crisis big time. I’m having good fun checking out CNBC’s and newspapers’ headlines. Judging them, we should be lucky to be alive. What I find most disconcerting is the lack of insight or intellectual analysis. We’re swinging from debating on the end of capitalism to comparing the current crisis to the 1930s. Where are the philosophers, or the people who can see the bigger picture? Where’s the nuance?
What I am irritated by is the number of people acting like financial specialists, and the increasingly wild unbiased analyzes that come from that. Nobody complained when the stock market was hyped up and everybody was making money. Sure, when you lose money and feel like you’re the victim of the grand whole, which you may well be (you don’t control those showers of rain either, right?), you will want to be heard. However, I do not believe it is the right approach in the end.
For instance, when we look at the debate on bonuses. People think that the gigantic bonuses (yes I agree they were quite steep, not saying whether they were justified or not) led to the financial crisis. The reasoning is probably that the bonuses led the CEOs and traders to take more risk. However, when we do away with the bonuses, we won’t do away with the risk. The problem is, thus, not simply the bonuses but the risk. An introspection into the nature of risk would be much more needed than doing away with structured products, hedge funds, non-nationalized banks, overpaid CEOs etc… As this will kill innovation, and we know how well socialist states operated over 15 years ago.
They say no risk, no gain and so it is. At the same time, they never said risk, no pain. Our greed may have taken us too far, but as we can see in the above graph, our greed will stand corrected.
ps if you need a good laugh, check out my new collection of jokes over at www.creditcrunchjokes.com
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Oct 19th, 2008 at 12:11 pm
What do the numbers on the vertical axis of the graph represent and why is it showing that “our greed will stand corrected”?
Oct 19th, 2008 at 12:41 pm
It’s a logarithmic graph with on the vertical axis, the value of the Dow Jones index.
When you look at the graph, you see periods above the average and below. Every above average period is followed by a “bearish” (meaning slower growth etc) period. This is telling that you can be as greedy as you want, but there is a limit to how much it will be satisfied. In time, your greed will always be corrected by periods of lesser growth (or who knows no growth at all).
Oct 28th, 2008 at 7:10 am
And what about ‘resultaten behaald in het verleden, zijn geen garantie voor de toekomst’..?
Oct 28th, 2008 at 8:11 am
Yeah that’s true, but can you explain explicitly what you mean to say?
Dec 30th, 2008 at 4:46 pm
Tim, I have been thinking on a clever remark on your article for ten minutes to start a good discussion, but I just can’t think of one. I just totally agree with you, I’m sorry. The only thing left for me to do is just ask you for some clarification.
Survival of the fittest counts in nature and still counts in business. Times of plenty and times of scarcity will always come. The only thing you can do is knowing that it will come and adapting to it as well as possible.
But adapting means change. While the (economic) cyclus continues to come, change (or evolution to stay within the metaphor) will always be needed to survive. So just telling that risk is part of live isn’t really helping you to adapt to danger. That’s why people try to look for improvement. So when it’s not in the bonuses, where can we find these needed improvements?
But when we look at the ‘nature-metaphor’, times of crisis demand changes of the individual beings, not of nature itself. But is it also true that crisis in economy demands adaption of the individual organizations and not of the government? On the other hand, while nature is perfect, out government is not.
So what is it that you wanted to tell us. Is it wrong to have a critical opinion on our economic system, or is “it’s the bonuses” just the wrong analyses of the system?
Dec 30th, 2008 at 5:25 pm
I’m saying that by just looking at the bonuses you are just looking at the effects and not the cause. As you say, the economy is a cycle and we’d better be prepared for that.
That’s why we need people with vision, not someone yelling on television and headlines suggesting that the whole system is corrupt. When you know risk is inherent in a system, you should have vision beforehand, not just when the change becomes imminent.
Now, people have taken too much risk, they want to throw the baby out with the bathwater. I’m saying that we should be more careful in making gross statements that bonuses in general are wrong or that this is the end of the free market.
The free market currently brought us is in a crisis, as has happened before, but when we compare the ups and downs with former socialist nations, for instance, I would say we are still better off in general.
I’m urging for a more nuanced debate. The current bonus system may need revision and so the way we deal with risk. Of course, this debate should be critical, but not hostile.