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Dangerous neglect of underlying patterns

Credibility Crunch engendered by Hope-mongering: "Credit crunch" focus as symptom of a dangerous mindset (Part #19)

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The above indications point to the merit of considering how the current focus on the "credit crunch" and the major dramatic challenges to the financial system effectively obscure underlying patterns of systemic neglect -- of which the "credit crunch" is merely a symptom. Such underlying patterns are necessarily even more disruptive of cognitive equanimity and "business as usual".

Frame control: The crisis with regard to the financial system, and identification of who is responsible, is especially interesting as an illustration of contrasting responses to frame control:

  • exceptionalism: as dramatically illustrated by the widespread incidence of sexual abuse by clergy over decades (if not centuries), this was most successfully framed in terms of exceptionalism and isolated "bad apples". Any implication of systemic problems, calling into question the authority of the church and its hierarchy, was successfully quashed in official inquiries and their recommendations -- whatever the conclusions drawn by the faithful and the wider population. It was the "bad apples" who were to be blamed in a process reminiscent of scapegoating.

  • systemic dysfunctionality: any discussion to date regarding who or what is responsible for the financial crisis and the credit crunch has carefully focused on its systemic nature -- as emphasized, for example, by Jean-Claude Trichet, president of the European Central Bank. Some blame has been temporarily attached to traders who have engaged in short selling as a form of speculation that allows a trader to take a "negative position" in a company, although this process has been framed as necessary to ensure a healthy market. Ironically (by comparison with abuse by the clergy) the genuinely problematic transactions are termed "naked short selling" and those engaged in this process are to be held responsible (by implication only) for significant destabilization of the financial system, hopefully to be otherwise presented as healthy (whatever token regulatory measures are deemed appropriate). The process of providing disproportionately high rewards and bonuses to those responsible for the operation of the financial system, or complicit in its operation, is embarrassing (in dialogue with the uninitiated) but not considered indicative of culpability by those associated with the system. Although, as indicated by Nicolas Sarkozy, president of France, the very fact that certain individuals were so rewarded would seem to indicate very clear recognition of who was responsible for excesses in the system (from which many profited) and the disastrous consequences for others.

Here it is evident how responsibility is avoided by two seemingly distinct processes, one in which individuals are blamed and the other in which the system as a whole is to blame. There is no question in the first case of considering the degree to which the system is to blame and none in the second of considering the degree to which individuals are to blame for what some might term "financial crimes against humanity" -- although some may be isolated as scapegoats (even as "Nasty financial war criminals", who will reeive a slap on the wrist and a golden handshake).

Despite the dimensions of the financial disaster, there is even a sense in which anything problematic in the organization of the system can be reframed in terms of system dynamics. Interesting in this respect is use of the judgement-free metaphor of "turbulence" in the market to describe the crisis (such as by Alistair Darling, UK Chancellor of the Exchequer). Such a metaphor frames the crisis as an act of nature, if not an Act of God, clearly beyond human responsibility, whether individual or collective -- possibly to be understood as a cyclic problem like exceptional flooding or hurricanes. As with one view (increasingly deprecated) of global warming, the financial crisis is then in no way to be considered a consequence of human activity.

In its own effort to relativize the dimensions of the crisis, The Economist (27 September 2008) compares the cost of bailouts from various recent financial crises as a percentage of GDP: USA (1988, 3.7%), Finland (1991 (12.8%), Sweden (1991, 3.6%), Mexico (1994, 19.3%), Japan (1997, 24.0%), S Korea (1997, 31.2%) -- the current crisis then being relatively trivial at an estimated 5.8%.

Dysfunctional pattern of thinking: However, as indicated above, the real challenge is not the particular crisis of the financial system. Many have commented on its problems, and their implications, over past decades -- and been completely ignored by those complicit in its processes or responsible for them. The real challenge lies in the pattern of thinking which sustained that particular system and denied its problematic nature -- in a massive act of hope-mongering. The question is whether that pattern of thinking is actively denying the existence of other systemic challenges and repressing consideration of their potential implications -- namely sustaining a pattern of hope-mongering in other areas.

In this sense, is the subprime crisis, and its consequences for the financial system as a whole, to be considered an indicator of a dysfunctional mode of thought in which humanity collectively engages at this time? Alternatively, should that crisis of confidence, framed as a "credit crunch", be seen as a metaphor for what might be better understood as a "credibility crunch" -- credibility being intimately related to creditworthiness? It is appropriate to note the repeated references to "confidence" and "building confidence" in relation to the financial crisis. The financial system, as with the monetary system, is indeed based entirely on the confidence through which credit is accepted and "liquidity" ensured in an otherwise "frozen" system. Their analogues may prove especially significant for the future.

The justification for exploring such systemic parallels is indicated by comparison with issues relating to climate change as notably reported by Tony Macalister (Crisis must be turned to green benefit, The Guardian, 23 September 2008):

There were marked similarities between the lack of transparency and action on complex lending risks that had wreaked havoc in the banking community and the kinds of dangers being stored up by corporate and political inaction over global warming... governments and business leaders have massively underestimated the risks posed by rising sea levels and changing weather patterns -- any costs associated with moving to a low-carbon economy were... "negligible" compared with the costs of doing nothing. The banking crisis meant the rules of engagement by governments had changed completely.... The same system of "force majeure" was needed to tackle climate change through new eco-taxes, and help to supplement carbon trading.

On the other hand Jim Kunstler (World Made By Hand, 2008) writes:

What the mainstream is truly missing here en masse is that another tsunami is building right behind the finance fiasco, and that it will render moot the whole reeking cargo of schemes and wishes that comprises the Great Bail-out. I am speaking of the global oil problem. In fact, the problems in banking and money currently roaring in the center ring of the world circus, can be described categorically as a product of the oil problem -- since oil is the primary resource of industrial economies and therefore the motive force behind our ability to generate "wealth." Without reliable and ever-growing supplies of oil, there is no industrial growth, and without industrial growth things like capital investment instruments lose their legitimacy. That is why the Frankenstein family of Ponzi securities was invented in the first place -- to compensate for the demise of industrial growth by creating wealth out of... nothing!

But, if the sophisticated economic and financial models, developed with no concern for cost by banking and investment institutions (including the IMF and the World Bank), were unable to predict the liquidity crisis and provide adequate warnings, how credible are the arguments of economists and others regarding other potential crises -- notably those relating to non-renewable resources and population overshoot?

International Tribunal for Financial Crimes against Humanity?

Those who are held to have engaged in crimes against humanity typically act legally according to the laws of their own country. They helped make them. Those of the Nazi regime tried for war crimes in the Nuremburg Trials would not have been found guilty within their own legal system. The current financial crisis is being effectively framed as the responsibility of no one in particular -- although a few minor actors may be presented as scapegoats.

Those who profited extensively by the processes that engendered the crisis are not held to be "guilty", in fact the bailout will respect past contractual obligations to them however excessive their provisions may be. Were the contractual obligations of those tried at Nurmeburg respected? How much harm to humans is required before those deemed responsible are considered to have acted criminally against humanity? How is that determination made? Are they simply those who profited disproportionately by their complicity in concealing "toxic" risk? Does such misrepresentation not constitute a crime? Does incitement to such misrepresentation not constitute a crime?

Given that $700 billion can be so readily found to bailout those whose business model has failed so disastrously, how come no such funds are available to those living dangerously below the poverty line -- in the USA or elsewhere? At what point does the failure to assist such people itself become a crime against humanity? How is that determination made? When there are millions of deaths by starvation?

What other risks are being managed in a similar manner with similar arrogance? Should the current approach to such risk management now be considered criminal? How will bailouts be made when their disasters strike?


How is it that so few parallels are drawn with the mortage lending disaster in the USA in the 1980s involving the Savings and Loan Association -- for which the bailout cost a variously estimated $0.5 to 1.4 trillion?

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