Saturday, January 3, 2009

MIA: A New Paradigm

Naked Capitalism provides a link to the following article at the Guardian online:

"Banks defy Brown call to free up credit
Loans for business increasingly scarce and outlook bleak, says report

"A Bank of England survey found that in spite of Gordon Brown's call for more loans, lenders had further reduced the amount of credit available in the last three months of 2008 and warned that they planned t0 continue to pare back . . . Labour bankbench MPs seized on the figures to put more pressure on Brown and Alistair Darling to take action to kick-start lending . . ."

After one of the most manic, stupid and corrupt lending sprees in the history of the world, Labour wants to throw good money after bad.

The same zeitgeist pervades the U.S. Borrowing and lending must be supported at all costs. But no one can justify the bailout of owners of preferred stock and corporate bonds of insolvent financial institutions. All we hear of is that if only these insolvent companies would lend, all would be well.

Wishing and hoping does not make it so. The Democratic brand of American corporatism has no higher aspirations than the Republican brand. The same is true for Britain. It is all about enriching themselves and their allies in the establishment.

What is needed is a new paradigm. In The Structure of Scientific Revolutions, , Thomas Kuhn popularized the term "paradigm shift". You may enjoy the Wikipedia review of this book. The book can be read at book uploading services, for example at scribd. Chapter 5, "The Priority of Paradigms", and Chaper 10, "Revolutions as Changes of World View", show my point as titles alone.

It is time for a new paradigm in finance and economics. Out with the current one, in with the old. The new paradigm should be an old one: neither a borrower nor a lender be (wherever possible). The current system is falling of its own excesses. We should not be owing money to each other in an endless daisy chain. We should own outright what we possess and borrow prudently with proper collateral. This collateral could be a CPA certification or it could be arable land. Instead what we see is what Kuhn observed. He noted that the keepers of the current paradigm needed to die off to allow the better, simpler paradigm to take root. The current financial establishment is so rich and powerful from the current practice of unrestrained lending that it will not let go. The enablers such as Greenspan and Bernanke, and Republicrats in the US and Labouratives in the UK, either don't know enough to understand that the old truths remain true though old, and/or the politicians are bought off cheaply.

Bernanke knows how much Greenspan is earning "advising" Pimco and others, and he expects the same will accrue to him as his payoff when he leaves government service.

And etc.

The powers-that-be are in a frenzied rush to prop up the debt-based economy. No one can predict the outcomes re stock and bond prices, inflation rates, etc. Too many unknowns exist for that. What is a safer prediction is based on recent and less recent history: this is unlikely to end well and it is unlikely to be over. The more "experts" come on to assert confidently that we have seen the bottom of the stock market and housing market, the more one should fear "surprises" to the downside. (See my prior post.)

Copyright (C) Long Lake LLC 2009

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