Welcome to Eureka Street

back to site

The chuckling economist


'The market crash', by Chris JohnstonFrom October 2008

On the night of 6 October 2008 the Nobel Laureate economist stood before a crowded lecture theatre in Geneva and grinned like a five-year-old at his own birthday party.

Two extra theatres, complete with big screens, were opened to accommodate the punters. Students, academics, UN workers, private bankers, and the odd housewife, such as myself, crowded around like it was a football game.

That day the markets had bled over the world and the University flooded with people waiting to hear his diagnosis, but Joseph Stiglitz couldn't stop chuckling. Perhaps it was because he stood minutes from the UN, where he used to be Chief Economist of the World Bank, and where he ended his term in fisty cuffs with the IMF and the US treasury over their financial bullying of developing nations.

When he stood at the podium, Joseph Stiglitz had schadenfreude written all over his face.

As bankers pressed their suits against my back and French translations echoed over the crowd, Stiglitz commenced by quoting Keynes and 'the importance of the influence of ideas' on the markets. He called for the revitalisation of history and traditional economic laws, and for the financial markets to be populated by people with a solid generalist education rather than narrow 'financial' specialists who don't know the first thing about human behaviour.

To make his point he quoted George Bush's summation of the financial crisis, 'We built too many houses'.

Stiglitz giggled with the audience, who laughed like the wonderful Europeans they are, but as a sobering follow-on, he stated that three million Americans have lost their homes and in the coming months another two million people will have their houses foreclosed.

He added, with raised eyebrows, that many of these houses are being bulldozed because they are vacant, then shook his head and mentioned waste. I wondered about increased homeless rates, increased unemployment and where all those families of those vacant houses were now.

Stiglitz argued that the markets had failed in their three main tasks: to mobilise savings, manage risk and allocate capital. The US has no savings to write home about, their debt runs indefinitely into the future, risk hasn't been managed — Look above! The sky's falling in — and capital, well all those vacant houses speak volumes.

Stiglitz calculated that the current American bailout package is equivalent to the amount that developed nations give in foreign aid to developing nations over a decade, and asked us to remember that the dodgy loans that caused this crisis were given to low income families who couldn't afford them. This collapse of the markets wasn't just about big men falling from power.

The audience shook its head, groaned as one, and he went on to say that the current US debt hasn't yet accounted for future medical needs of returning veterans from the Iraq war, estimated at half a trillion dollars. It will only get worse.

As I sat in that theatre, on a cold Monday evening surrounded by well-dressed Swiss, I could almost hear old wise voices rise through the carpet. Old-fashioned warnings like greed, pride, hubris and lack of trust riddled Stiglitz's speech. These basic vices, that centuries of education have warned us against, rose through his analysis of the financial markets like warm swords.

What shocked my non-economic brain was the explanation of how these sub-prime mortgages were made pretty and sold onto unsuspecting customers in America and abroad. Stiglitz explained how, up in the air, up in the unregulated ether, someone desperate to save their own overstretched skin, took these mortgages and 'spliced and diced' them into fancy financial products and then had the gall to sell them on.

I had images of a celestial butcher, blood over his apron as he hacked at the rotten mortgage carcass, 'splicing and dicing' and pulling out entrails, which he mixed with sawdust and animal fat, then wrapped in shiny plastic to be sold as meat. Stiglitz said these 'cut up' financial products were 'not fit for human consumption', and needed warnings attached to them before they could be sold with a clear conscience. I imagined the elderly, the pension funds and local councillors, taking a bite from the putrid 'meat' and falling dead to the floor.

I used to think that financial products were generally benign, if not boring, because only those with spare cash could afford them, but I forgot the age-old spiritual cliché and current reality of the globalised world: we are all connected. This enormous and desperate overreaching of empire, boiled in the cauldron of the illusive financial markets and manifested in these financial products, is bound to hurt the little guy. History proves that one.

Many times during the lecture Stiglitz lamented the lack of regulation. Greenspan was meant to take the punchbowl away when the party got too rowdy but he didn't. Instead he refilled the punchbowl over and over until everyone was so drunk they didn't know their own name and tripped over each over in a consumption stupor.

Stiglitz is no socialist. How far have we come as a species if those in the centre cry out for regulation, for accountability, for an understanding of history and a deeper respect for an obvious aspect of human life? If people panic, lose trust, then the human collective is at risk of some sort of Armageddon.

We need trust; we need to remember what has gone before us. We need to remember the lessons of the Great Depression; we need to hear the voices of philosophers and the saints warning us of pride and greed.

And now we need to remember that when something presents itself as an untouchable specialisation and uses incomprehensible gobbledegook to sell a product, we need wise eyes to check it before we swallow its promises.

I understood, as I sat amongst the powerful and the interested, that, at its most rudimentary level, economics is about how human beings organise themselves materially and what a mess, monetarily and environmentally, we have made of that in the last few years.

Stiglitz argued that deregulation is the problem, proposing increased nationalising of the banks akin to the Swedish model, and I had a strong sense of a tide turning. Perhaps the end of the American empire, but also a return to fiscal regulation and increased socialised public assets, something I thought my children might see, but never expected in my lifetime. There is nothing like a dead duck president to speed things up.

The financial markets have been in the ether above our heads for a long time. Most of us pay scant regard to them, only watching the home-loan rates and hoping we can make it through the next month while, rightly, shaking our heads at executive pay packets.

Listening to Stiglitz, I was relieved that someone was coming down from the economic high plains and explaining what these cowboys had done. It wasn't pretty. The markets are falling from the sky, from places where they have remained unchecked by any democratic, or proper regulatory system. I realised that, all over this small world of ours, they will continue to fall unless something serious changes in how things are done.

Stiglitz said it may not be too late, but between you and me, he didn't look too convinced.

Stiglitz was still smiling at the end of his talk. Perhaps it is some sort of personal soap opera for him: finally vindicated after years of fighting with the US treasury and the IMF. I walked back into the cold Geneva night and had a beer, but I couldn't shake the thought of that butcher in the sky, slicing and dicing up a financial product, someone's home, until it was sexy, but rancid.

I raised my glass with my friend and we bitterly toasted the end of empire. What next? An awful reversal of the trickle-down effect? How hard will the fall be? It was cold, rainy and downright sad. We toasted Stiglitz as well. We may not have understood or agreed with everything we heard but finally his voice calling for someone, somewhere, to get some decent digs on the Emperor — and fast — has been heard.

We are all connected and none of us want to be in the way when a fat, drunk, naked Emperor falls from the sky.

Bronwyn LayBronwyn Lay lives with her family in rural France, over the border from Geneva. She is currently enrolled in a Masters of English Literature at the University of Geneva and is working on her first novel. Previously she worked as a legal aid lawyer in Australia with post-graduate qualifications in political theory.

Topic tags: bronwyn lay, nobel laureate, joseph stiglitz, geneva, world bank, imf, market crash, global economy



submit a comment

Existing comments

If you want more from Stiglitz, read the current Vanity Fair. The wealthy have once again destroyed the poor and lined their own pockets.

Imagine the life of a family offered the hope of a family home, and then losing that and hope - they have a right to be angry. It is hard to believe that Obama only won by a less than 10% majority, it should have been much higher. And many in the Catholic Church opposed him for supposedly supporting abortions. How many lives have been destroyed by the previous administration.

Trickle down economics has shown its true colours once again.

Nicholas Punch O.P. | 05 January 2009  

Is there a statesman who can rise above politics to act on lessons we have learned? How many secure people are willing to give up their adherence to the fallacy of consumerism as we have lived it for the past 100 years?

Ray O'Donoghue | 05 January 2009  

It is good to see people who can expose these crooks for what they are. What makes me angry is the the culprits who caused this disaster will as usual get away with it! I can't help but wonder how they will answer to their actions in the next life!

Gavin O'Brien | 05 January 2009