Civil society depends on civil order

There was an article in The Age on Saturday that attempts to analyse the post-riot problems of the world we inhabit in a way, so far as I can see, that if acted upon would only make them worse. What the author does is look at “the miserable reality” of our democracies.

Four years into the deepest economic crisis since the Great Depression, governments of vital parts of the capitalist world are running on empty. Pessimism has the upper hand. Understandably. Since the infamous Dutch tulip craze of the early 17th century, there have been 10 major panics caused by burst financial bubbles. Seven have happened since the early 1970s. Each triggered economic and political disruptions, but the 2007 blowout is the worst. And it’s by no means over.

We have apparently had ten major panics caused by the bursting of bubbles since the early 1600s and seven of them have been in the last forty years! Things must have really destabilised over these past few years. Hundreds of years with only three, and now seven in only four decades. Clearly democracy is on the rocks.

It is “bankers’ greed” that is the problem with our democracies, it seems. Those people we entrust with our savings are doing something that is causing our political system to sway. We are now in danger of a growing take over by an “authoritarian power”. I don’t know if this is being directed at Rudd-Gillard or “even Obama”, but what are we to make of this:

Gone for the moment are the democratic virtues of publicly accountable government and a decent civil society based on the commitment to empowering the powerless.

Ah yes. Empowering the powerless. It is just one of those things that one cannot by definition do, since the moment someone is empowered, they are no longer the powerless. In a democracy, we put political power into the hands of some and try to limit the damage they will do as much as we can by putting all the obstacles we can think of in their way while giving them the authority to do what needs to be done. We have in Australia, like in the US, a bicameral system Federal Government that must deal with independent state governments who have power of their own. We have courts that attempt to ensure that the laws passed are within our constitutional framework and that the executive does not overstep its bounds. We have Federal Parliamentary elections every three years with no possibility of a referendum extending it to four. This is it, I’m afraid. This is, more or less, as good as it gets.

Recessions happen. If the last forty years have been all that bad, we have a very high level of badness in Australia. But I too worry about the future. The odd thing about the Howard-Costello years was how extraordinarily good they were. Now our elected government is in the grip of a Keynesian stupidity, which is what happens when socialists get elected to govern. But as for our author, this seems to be the problem he has:

Banking and credit sector executives who caused the crisis remain unpunished. No toothy regulatory structures for countering their greed have been built.

Did these people really cause the crisis? Not even in the United States can that be said to be true, let alone in Australia. Just who are those local banking and credit sector executives and precisely what was it they did that brought on the GFC? In just which way should they have behaved differently before the crisis was revealed? Not knowing in just which way the unexpected will unfold is simply one of those things.

Yet it seems to me that this is really the point he is making:

With injustice now the blighted face of democracy, cynicism and fatalism gain ground. ‘What’s the best way to deal with this crisis?’ runs a popular Japanese joke. The answer: ‘Let the system collapse.’ The panacea looks more plausible by the day.

I am not sure just which system we should let collapse. Our political system of representative government? Our financial system based on a regulated market economy? Somehow this seems to be the part that needs to collapse:

Surrounded this week by street hecklers, the Mayor of London, Boris Johnson, minced no words. Mouthing fulsome praise for business, he threatened those ‘who’ve been robbing and stealing’ with ‘punishment they’ll bitterly regret’.

We all may come to regret it, for the strange vulnerability of democrats and democracy to authoritarian power should not be underestimated.

Is this it, is this the terrifying face of authoritarian power: the desire to punish those who rioted, looted shops and burned buses in the street? My friend, civil society depends on civil order. This is just the kind of thing people such as myself wish to see our governments and court systems do. This is not a failure of democracy. This is how a democracy works.

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38 Responses to Civil society depends on civil order

  1. Tim Quilty

    Just a minor aside – I thought the parliamentary term could be extended by an act of parliament. No need for a referendum.

  2. .

    What you’re forgetting is that if you punish rioters, you’re like Anders Brevik, according to “Professor” Keane.

    Yep. The same society that looked after that Malaysian student and wants to punish the muggers without fear or favour is the same as “atheist Christian” loon Brevik.

    Prof. Keane is as crazy as Brevik. That’s the only connection being made there.

  3. TerjeP

    Seven have happened since the early 1970s.

    Which is when the world abandoned the gold standard and opted for currency volatility and price levels being set by “expert” central bankers. We ought to return to a unit of account for which both supply and demand are determined by the market and where the government is nothing more than a faithful follower.

  4. So did they list what those 10 major panics were? And the seven in the last 40 years?

    And is this significant anyway given the relative size and extent of the global economy now as compared to in the 1600s?

  5. papachango

    David Warren argues the nanny state is the culprit:

    So does Brendan O’Neill, our new favourite Q&A guest.

    As an aside, some acquaintances living near London, sent us an email where they actually blamed the whole thing on ‘the socially destructive policies of Thatcher’.

    FFS the left need to find someone else to hate…

  6. dover_beach

    some acquaintances living near London, sent us an email where they actually blamed the whole thing on ‘the socially destructive policies of Thatcher’

    Well, what else can you say when you’ve spent the entire post-WW2 period ‘questioning’, ‘problemitizing’, etc. the authority and worth of central social institutions like the family? This is not to say that Thatcher is entirely guiltless, but its not as if her critics are guiltless themselves.

  7. johno

    One thing I don’t understand about this ‘banker’s greed’ arguement is why do bankers suddenly become greedy and cause a bubble, then stop being greedy when markets are stable.

    Could there be a whole lot of other stuff going on, such as changes to government policy, changing market conditions, changes in banking practises based on changes in our understanding of how markets work, that provide a better explanation!

  8. THR

    One thing I don’t understand about this ‘banker’s greed’ arguement is why do bankers suddenly become greedy and cause a bubble,

    Because they held the rest of the economy to ransom, required massive bail-outs, and sent the rest of the economy into recession, all of which were the precipitating factors for ‘austerity’.

  9. boy on a bike

    So the idiots that borrowed all that money are blameless?

  10. THR

    So the idiots that borrowed all that money are blameless?

    Did they get bailed out? In the US, at least, millions lost their homes and jobs. Why does your heart bleed for bankers, BOAB?

  11. Rococo Liberal

    THR

    Tye loans were non-recourse; the borrowers just handed in the keys and walked away. And why did these borrowers get money to buy houses they couldn’t afford? Regulation brought in Democrats.

  12. Peter Patton

    We have apparently had ten major panics caused by the bursting of bubbles since the early 1600s and seven of them have been in the last forty years!

    Well, given that average wealth and prosperity barely changed from 2,000 BC to 1800 AD, this statistic is hardly surprising.

  13. squawkbox

    Only three panics caused by financial bubbles between 1600 and 1970? Without pretending to any great expertise in economic history, I can think of five:
    Tulip mania
    John Law and the Mississippi Company
    The South Sea Bubble
    Railway mania in the 1840s
    Crash of 1929.

  14. Peter Patton

    Melbourne Property bust 1880s
    Bank Panic 1873 – US
    1840s depression

  15. Jim Rose

    Becker and Posner are blogging on the riots this week.

    search their blog for french riots and you will find their insightful remark from 2006

  16. Peter Patton

    Again, England needs a Gladstone, or it will just keep getting even more fucked.

  17. wreckage

    Did they get bailed out?

    Yes, repeatedly. The most recent bail-out was a freeze on foreclosures extended until the end of the year.

    Also, since housing loans are non-recourse in most of the USA, the little people were never actually in debt. The bubble we saw bursting, and its savagery, was the market re-assessing the value of an American mortgage to zero*.

    *not actually zero.

  18. THR

    Also, since housing loans are non-recourse in most of the USA, the little people were never actually in debt.

    Ah yes, the old Right wing standard – blame the victims. It’s as dishonourable as it is dishonest. The non-recourse nature of the loans were known to every lender in advance, and could and should have been part of their risk assessment.

    So tell us, wreckage, were those poor bums securitising their own debts and on-selling them to investment banks?

  19. Peter Patton

    wreckage what exactly can a market buggarup? You seem to see “the market” as something odd, unnatural or foreign; imported poison, really. So what do you see as the natural and indigenous state of affairs?

  20. Peter Patton

    So tell us, wreckage, were those poor bums securitising their own debts and on-selling them to investment banks?

    WTF? Of course they were. Except they use slghtly different nomenclature:

    1. Credit cards

    2. Flipping the loan.

  21. .

    The non-recourse nature of the loans were known to every lender in advance, and could and should have been part of their risk assessment.

    They were. The US insures bank losses and they lent money from the Treasury to GSEs. So what would it matter? Furthermore the FHA would pay the PMI for mortgage applicants who needed a bridging loan.

    It is an absurd, insane system which will fail again. They are not set up to fail, they are encouraged and rewarded for failure.

    A taxpayer who never takes out a mortgage is the real victim, or a low income earner put out of work by macro conditions they had nothing to do with causing.

  22. THR

    Except they use slghtly different nomenclature:

    Which is to say, they do nothing of the sort. Thanks for playing.

  23. .

    Thanks for playing? How about turning the description of a stupid, unworkable, loony system supported by the Democrats and Republicans as some sort of “us and them” meme?

    Thanks for playing.

  24. Peter Patton

    THR

    It is clear you do not know what ‘securitise’ even means. WHY are you and your middle class Melbourne marxist set so completely ignorant of not only economics, but the entire commercial world around you?

  25. THR

    It is clear you do not know what ‘securitise’ even means.

    You ignorant loon, Patton. Please tell us all how individuals were securitising and on-selling their own credit card debt. Did they just roll up to Goldman Sachs with a bunch of invoices?

    You ought not to mock LP any more, with howlers like this on continual display.

  26. wreckage

    PP: I’m just pointing out that even Cracked.com knows more than to claim that all the great failures of economies have occurred recently.

    As to my own view on markets? Well, I can go along with the assertion that they don’t exist, except in retrospect, as a measure of what people were doing and where.

    THR; good freakin’ grief. “Blame the victims”! I said non-recourse loans were a bad idea not that people who had them were bad people. If you’re just going to shriek “Ugh! You’re all right-wing and disgusting!” then I suppose I can call you a Communist and we can both feel VERY good about vanquishing our respective tribe’s hated enemy; distinguished as repulsive by their membership of the tribe we’re not in.

    Look. Non-recourse loans on housing are a bad idea because they eventually have to make it harder and more expensive to get home-loans, OR they have to eventually cause a market collapse; they’re like certain kinds of options trading in that once the market changes direction (starts to fall, in this case) the losses become irrecoverable.

    What you’re saying when you say “the banks should have priced in the risk” is that the banks should have priced those self-same victims out of the market! How is there any benefit to the non-recourse if the only people who can get them are people who have assets equal to the value of the land they want to buy?

    What this means is that next time the market so much as hiccups the banks will start foreclosing early and often. And if the legislature stops them, there’ll be another crash.

    Or the banks will have to stop accepting the house as collateral for the loan- ie., only people with substantial personal wealth will get loans.

    It’s fantastic how you’ve decided that I love banks and hate poor people. Doubtless this is because you hate the West and love Stalin. Alternatively you could try listening to what I’m saying rather than what you think I ought to be saying.

  27. .

    I know wreckage. THR couldn’t be anymore wrong. It’s not about blame. It’s about avoiding systemic failure of an industry that is already treated as a public good and very poorly managed, in part due to being under the aegis of some crazy rules that reward failure.

    I’ll be more concise: the US mortgage industry is as economically sound as the “Great Leap Forward”. There are so many damned levels of dumb.

  28. Peter Patton

    THR

    Without the mortgages, how do you think they’d have a credit card? They lived high on roast chicken, watermelon, and caviar tacos using credit cards tied to the increasing value of their house, underwritten by the Greenspan put. Hullo?

  29. daddy dave

    What you’re saying when you say “the banks should have priced in the risk” is that the banks should have priced those self-same victims out of the market!

    yes indeed, or alternatively, given them sky-high repayment rates. Those are the two ways to price the risk.

  30. Peter Patton

    Actually, the banks DID price the risk, and the IBs agreed to split that risk.

  31. THR

    What this means is that next time the market so much as hiccups the banks will start foreclosing early and often.

    No, they won’t. In instances of a bubble it’s in the banks’ best interests not to foreclose, lest forced sales crash the price of the asset in question. Hence, in Australia, where things were a bit more orderly during the GFC, banks were going out of their way to extend help to potential defaulters rather than trigger a market crash.

  32. .

    In instances of a bubble it’s in the banks’ best interests not to foreclose

    Please explain this in the context of a non subsidised banking sector and with the agenda of prudent asset-liability management.

  33. THR

    Please explain this in the context of a non subsidised banking sector and with the agenda of prudent asset-liability management.

    If the market crashes, the banks will get less money for assets when they do foreclose. This remains the case irrespective of bailouts, subsidies, and Ponzi schemes.

  34. Peter Patton

    THR

    Hence, in Australia, where things were a bit more orderly during the GFC,

    Do you seriously mean Australia’s lack of blacks and Latinos, here?

  35. .

    If the market crashes, the banks will get less money for assets when they do foreclose. This remains the case irrespective of bailouts, subsidies, and Ponzi schemes.

    Sorry THR, this is irrelevant pap and a recipe for disaster. You’re saying no cashflow is better because it means you can hold out on counterparty risk whilst being unable to fund any liabilities?

  36. THR

    Sorry THR, this is irrelevant pap and a recipe for disaster.

    I think you’ve misread me, dot. I’m diagnosing, not prescribing.

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