Category: Reviews (Books and music)

Michael Dunn, Australia and the Empire: From 1788 to the Present. Sydney, Fontana Collins, 1984.

Stuart Kells, Shakespeare’s Library: Unlocking the Great Mystery in Literature. Melbourne, Text Publishing, 2018.

Jerry White, London in the Eighteenth Century: A Great and Monstrous Thing. London, The Bodley Head, 2012.

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Review by Dan Byrnes of Ross Garnaut with David Lewellyn-Smith, The Great Crash of 2008. Melbourne University Press, 2009. This is a short book with very useful graphs and so on. I bought it in 2018 out of nostalgia at a second-hand book fest, the “nostalgia” being of the form that with me being by now a wise old man, I won’t ever forgive the USA for the 2008 Crash. Nor will I forget. The 2008 Crash seemed to me to be entirely driven by US organisations and sales forces; and the chief product on sale prior to the crash seemed to have been a skilful and very complicated repackaging of the USA sub-prime mortgage scenario, that is, US poverty. If India had repackaged its poverty and then sold it around the world, there’d have been a huge outcry of protest. But evidently the USA can do it, no gets put in jail, and the world has to wear it.

The 2008 GFC,(Global Financial Crash) as it become known, seemed to me to have been the production of concerted US fraudsterdom, and I remain distinctly not-impressed for the foreseeable. None of this was ever good enough, but looking back as we now can, maybe the 2008 GFC was the product of US problems which have been festering for a very long time? And so, I feel that the USA pulled off a very sophisticated conjob for a time. I’d feel more forgiving maybe, if my own local council had not been taken for a ride by the USA to the tune of about $20 million – which luckily it has got back by now.

As I said, none of this has been good enough. What do Garnaut and Llewellyn-Smith make of it? Well, for about a year before the 2008 GFC become evident, most economic commentators were ambivalent at best. The one who saw a crash coming most clearly, and she made me so edgy I kept her article on top of one of my nearby computers for a year – that’s right, she was a woman – still didn’t see it coming really clearly. She thought it – might happen.

Then, when it did happen, US Senator John McCain (now deceased) quickly defended the “US fundamentals” as being quite sound. When they were very unsound indeed, as was revealed as the financial damage was day-by-day uncovered. McCain was talking political nonsense, political reflex action. Still, I was rather stunned to read (p. 222) in Garnaut and Smith-Llewellyn (hereafter, G&S-L), that Hirschhad said, “As the foundations weaken, the structure rises ever higher”. Had McCain, indeed, mistaken the strength of the foundations for the height of the structure? Had perceptions actually been quite so bad? And, possibly, yes, And well, in all fairness, we now have to look at the G&S-L argument in detail, more so as so many commentators asserted at the time, 2008-2009-2010, all this was VERY complicated.

Engagingly, G&S-L see the entire imbroglio as due to the work of The Great Crash Elephant. To which I’d object, as elephants are reputed to have long long memories, whereas no one involved in this imbroglio seems to have had any memory at all of anything useful. And it wasn’t just a local imbroglio, it was international. I hesitate here to use the word “global” as the word “global” has been sadly abused by US propagandists who obviously can’t control just a single street in one city; I mean Wall Street in New York City. Wall Street is admittedly a powerful street, this may be the very thing that’s most wrong with it by now. But yes, the problem was and is in fact, global. As G&S-L see it, the lifeblood of The Great Crash Elephant is, the global shadow banking system.

Part of the 2008 GFC imbroglio was that the global shadow banking system invaded the traditional banking sector, the legal one, the shopfront one we think we know and deal with often in our town.

G&S-L know their economic history. This shows in their Galbraithian take on “financial exuberances” and on the breathtaking stupidities of the Allan Greenspan outlook on economic behaviour. This shows in their view that perceptions of risk have shifted. (This is where they might have mentioned computerisation and mathematical economics, which they have avoided discussing, perhaps due to the complexity of the topics.) Tellingly, G&S-L end one chapter quoting a corporate idiot, ironically, one from Australia – capitalism had changed because perceptions of risk had changed. Sadly, this seems to have been true. Changes in the perception of risk led paradoxically to changes in  perception(s) of value. Of course, during a crash, values are written down.

G&S-L seem to feel that recessions come as a surprise to those who suffer from them. Yet recessions happen so often, this simply cannot be true. I feel that there is something wrong here with mathematical economics. It is not hard to find an average (or a mean) for durations between economic downturns (business cycles?).

What then is the problem? I can only conclude that the problem is one of forgetfulness, which is more a psychological than an economic situation. Irrational financial exuberance encourages amnesia about previous recessions. The problem then seems to be one of the present and the future, not with the past, not with economic history. The problem is not a problem of memory, but of a lack of memory. It is a problem of an absence where an absence should not be. What, after all, is financial history for, what is Economic History, for? We need to ask: is money worth was it’s said to be worth, or is it merely worth what it is worth?

G&S-L say (on p.109) that normal business could no longer find funding. On the same page they mention “clever money and “greed”. There was a disruption of credit, but G&S-L do not say quite if this was due to humans or due to computerisation (or both?), and they arguably should have. Traditional (deposit-taking) banks had been allowed by governments to become involved in the world’s shadow banking system– which is comprised of hedge funds, recognised probabilities of profit and loss, unrecognised conflicts of interest, moral hazards made strange. The assumption that the outcomes of risky process would be statistically “normal”. You name it … it happened.

G&S-L memorialise (p. 53) that Dinallo, a US insurance regulator, had once described the shadow banking system as “a failed attempt to create a new asset class that guaranteed investor returns without the capital provisions that make such guarantees substantive”. In other words, it was a con job.

This was a problem of too-little regulation, in that financial systems become subject to shocks if they are not protected by rules that are enforced. The too-big-to-fail things, the mysteries of which escaped ordinary morality, went on. US financial culture does not escape the criticism of G&S-L, but world-wide, few if any governments or financial cultures could withstand the forces associated with corrupted US arguments. There were culture problems, big time. As one might expect if powerful interests in the USA were trying on a big -time fraud job. Which they were.

In Australia the downturn was less severe, and the Rudd/Labor government (to its credit, many commentators say it did well) took the brunt of this corrupted US financial force, while major parts of the banking sector had fallen victim to the world’s “shadow banking system”. Internationally, governments engaged in financial expansionism (including “printing of money”) rather than do otherwise. Financial contraction was, evidently, to be avoided. And this was, perhaps, crucial to the world response. Any non-expansionary moves made since have been criticised severely, and here Trump’s US isolationism and economic protectionism has been protested. The UK Brexit move has been widely criticised. Go figure.

New forms of regulation were proposed, to regulate especially, perceptions of financial risk, but ideas of new regulations were also seen charily, as too much government intervention was distrusted in the very areas where it might have once been recommended, a set of worrying macro-economic questions. (All the more worrying as the US population seems to be attuned to micro-economic questions and morality, not macro-economic. Old-fashioned, nineteenth-century Protestant religion personal morality, one might observe caustically in passing. This sort of morality is simply inadequate, morally and practically, this seems obvious)

All this was the first truly global crash, G&S-L tend to think. The world became quadripolar (which surely went against the grain of views so popular on the US Internet, about “new world order”).

G&S-L meantime accept a view of soft power as the capacity to influence others in terms of the attractiveness of one’s own culture and society. (In terms of which, for the future, US soft power is entirely lost on this book reviewer, more so if “smart power” is the union of soft power with old-fashioned military force). And one of the last questions of all, how should any of this be interpreted in terms of the challenges posed by global warming? Irrespective of the contents of the stomach of the Great Crash Elephant, I’d be inclined to see the 2008 GFC as the last gasp of the pre-global-warming scenario.

There does need to be a revised version of this book. I think, regarding Australian scenarios at least and in the light of the light of the 2018 royal commission into the Australian banking and financial sectors – into those who run our superannuation, investment and financial futures. The most charitable view one can take of these people is that they are not fraudsters, they are simply people who have no memory –partly as they haven’t read their economic history, partly as the world shadow banking system took over their traditional banking system slowly and by stealth. They are walking indicators of the forces of amnesia in the financial sector. The implications are truly horrifying because they might affect your or my pocket yesterday, today or tomorrow.

At the time? I was very annoyed, as at the time, commentators were wringing their hands in stupid despair, and saying things like, “this is all so complicated, no one understands it”. (They meant, derivatives and “collateralised debt obligations”.)  I thought, what a load of crap this is, can’t these boys and girls recognise a sophisticated fraud when it stares them in the face? And no, they couldn’t. I despair here, because I have a memory, which is called, having an interest in economic history. But this is not good enough for the economists, the finance page journalists, pundits on the Internet, various academics around the world.

And the finding is that no, they actually can’t recognise fraud when it stares them in the face, drat it. They really can’t, because they don’t read economic history, they behave like, and they write like, people who have never read their economic history. They don’t realise that crashes have happened before, that they’ve even, though years ago now, been called Business Cycles. Thankfully, Behavioural Economics by now has made its invasion of The History of Economic Thought, and been badly delayed anyway by “institutional inertia” (read, stupidity by banks) in my book. (After the 2008 GFC I went back to my history records, and found that since 1945 the average time between economic downturns in various large regions of the world, had shrunk from 11.5/12.5 years to about 8.5 years.)

Meaning that after 2008/2009, we should have had another downturn about 2017-2018. By such numbers, we are overdue for a downturn, and it is no surprise to find that our newspaper finance pages predict that a new crash is imminent. I myself am scratching my head for explanations about why the next crash seems so overdue, as pessimistically, nothing leads me to believe that matters financial have improved. Memories in the financial sector, amongst economic historians, amongst journalists who frequent the financial pages, seem not to have improved.

And to the end of this book, I have to confess, that by early 2019, I am quite convinced that the Israeli historian, Harari, is correct. In Yuval Noah Harari’s 2018 book, 21 Lessons for the 21^stCentury, (London, Jonathan Cape), he opines that in time to come, we may all be ruled by algorithms running in computers, that know more than humans can know, and can also process relevant information much much faster. It is also well-known by 2018 that many computers in the finance sectors are pre-programmed to sell shares in pre-set ways. (Which BTW is not something that G&S-L mention as a factor in the 2008 crash.)

Omigod, I suddenly thought! What if the algorithms get to be the arbiters of value too? As they probably already are? For perceptions of value, including th evaluation of currencies, the valuation of assets (as held by corporations, as held by governments), although some might say, misperceptions-of-value, were an integral part of the 2008 GFC!

And on reflection, I still think it; algorithms in computers are going in future to have a lot to do with noting and interpreting questions of value. Right down, in the hands of computer programmers employed by our real estate agents, to the valuations of our own houses. And to our land valuations as measured by our local governments. That we live in, that we bring our children up in, that we sit around and eat and drink and be merry in.

Meantime, if you like, you can continue to trust the USA in your own time, but certainly not in my time. Go right ahead, trust in Wall Street, New York, but not in my time, thank you. I reckon, after the 2008 GFC the USA can take its “soft power” and shove it. Meantime, do your own thinking. (Ends)