Blasting Corruption and Greed on Wall Street

Here's an excellent bit from a post by Steve Randy Waldman on his Interfluidity blog:

I feel about the financial sector the same way I would feel about my morphine dealer after looking down to find piranha feeding between my ribs. It’s worse than that. It’s like you pay some guy to find the best swimming holes in the Amazon and not only is he clueless, but he anesthetizes you so you don’t notice when he screws up and he eventually starts taking kickbacks from the fish. The financial sector failed three times. First it screwed up real capital allocation, throwing money at housing and consumer lending rather than finding and funding projects that would situate us well going forward. Then it failed again by seeming to succeed, when a good financial system would quickly render poor investment decisions unmistakably noxious. It’s best not to find yourself swimming among piranha in the first place, but if it happens, you want the very first nibble to hurt like hell. Finally, the financial sector failed by keeping itself rich and its creditors whole, which, despite protestations to the contrary, amounts to a failure at an institutional level to understand how badly it fucked up and make corrections going forward.

If “malinvestment” (and related maldistribution) is at the root of our problems, does it follow that austerity is the solution going forward? Not at all. Past poor investment is a sunk cost, our task now is to maximize the usefulness of resources that we still have. Failing to use perishable resources, especially resources that decay with disuse, is terribly dumb. “Stimulus” and “austerity” are both simpleminded and poorly specified strategies. In theory, we have two overlapping systems, a financial system and a political system, whose shared purpose is to make information-dense decisions about how best to use or conserve our resources. It’s not clear how we should make these decisions when both systems seem badly broken. But you go to the future with the institutions you have, not the institutions you might want or wish to have at a later time.

As we evaluate financial reform and political change, we should keep in mind that it is not 2008 that we must struggle to prevent. It’s 2006 that was the worst of times, the piranha were feeding while we splashed and giggled in our water wings.

I love the snappy literary images and the bite of his commentary. We need more commentary with teeth!

I just wish Waldman could loose his piranha onto the Wall Street Bankers (and mortgage brokers, and ratings agencies, etc.) who have wrecked the world's economy!