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sophiaserpentiaEconomists speak of the business cycle as if it were a natural pattern of events. They've even given it a name: "business cycle."
But i've been paying attention to recessions and expansions since i started to become economically aware, and i think really that there's nothing natural about the business cycle at all.
Look at what precipitated the last recession in 2001. Sept. 11 had something to do with it, but really wasn't the cause. Recall, there were several major examples of corporate misbehavior that year - Enron, MCI Worldcom, Global Crossing, Arthur Andersen. The engineered energy shortages in California. Numerous financial swindles were uncovered in the insurance and banking industries as well. Lots of capital evaporated as the dot-com house of cards imploded.
Look at what is happening this time. The housing bubble, adjustable-rate mortgages which are essentially baloon notes, lending to anyone with a pulse regardless of credit-worthiness; and the wal-mart-ization of risk via bundling loans into securitized parcels.
I'm willing to bet that similar patterns preceded every recession and panic.
Frankly, it looks like the "business cycle" is simply a way for economists to gift wrap greed, unscrupulousness, lack of perspective, and plain arrogance and stupidity, and tie a flashy bow on top.
So, why doesn't malfeasance and misbehavior remain isolated? Why can't investors and bankers who have lived through previous recessions and who know poor business plans when they see them, learn from past mistakes and avoid them the next time around?
When it's the biggest players on the block who are leading the way off the straight and narrow, and making money hand over fist, then smaller companies have very little choice but to adopt similar strategies or go out of business. Their stockholders will not have much patience when, for two or three years, the "risk" remains only risk on paper, and meanwhile competitors are raking in dough and grabbing a larger portion of market share.
And so, the greed-stupidity spiral feeds itself like a cyclone.
But there's another dimension to this as well. The people at the top will rarely truly suffer in all this. Occasionally one or two will be ruined, commit suicide, spend 18 months in minimum security; but it's much more likely that they'll make it through with their yachts and Aspen cabins intact. Many of them will probably even avoid having a smudge on their reputation. It doesn't really matter to them, even though a recession means grueling hardship for millions of people.
I wrote a few months ago about the stock market decline of 2001 as a huge swindle of the middle class by the upper class. The middle class are essentially petty capitalists - owners of home equity and a few shares of stock or mutual fund. But every business cycle, the small bits of worth that the middle class is able to build up for itself is farmed off the top, leaving the middle class without that which it had spent 7-10 years working to save up.
For each of the millions of families now being foreclosed upon and kicked out of their home (let's not overlook the racial dimension of this, it's important!) when they can no longer afford payments on their adjustable-rate mortgage, there's a speculative vulture who will swoop in, buy the house for cheap off the bank who no longer wants it, and hold on to it until the market goes back up. That family's crisis is a money-making opportunity for someone else.
And so it goes.
But i've been paying attention to recessions and expansions since i started to become economically aware, and i think really that there's nothing natural about the business cycle at all.
Look at what precipitated the last recession in 2001. Sept. 11 had something to do with it, but really wasn't the cause. Recall, there were several major examples of corporate misbehavior that year - Enron, MCI Worldcom, Global Crossing, Arthur Andersen. The engineered energy shortages in California. Numerous financial swindles were uncovered in the insurance and banking industries as well. Lots of capital evaporated as the dot-com house of cards imploded.
Look at what is happening this time. The housing bubble, adjustable-rate mortgages which are essentially baloon notes, lending to anyone with a pulse regardless of credit-worthiness; and the wal-mart-ization of risk via bundling loans into securitized parcels.
I'm willing to bet that similar patterns preceded every recession and panic.
Frankly, it looks like the "business cycle" is simply a way for economists to gift wrap greed, unscrupulousness, lack of perspective, and plain arrogance and stupidity, and tie a flashy bow on top.
So, why doesn't malfeasance and misbehavior remain isolated? Why can't investors and bankers who have lived through previous recessions and who know poor business plans when they see them, learn from past mistakes and avoid them the next time around?
When it's the biggest players on the block who are leading the way off the straight and narrow, and making money hand over fist, then smaller companies have very little choice but to adopt similar strategies or go out of business. Their stockholders will not have much patience when, for two or three years, the "risk" remains only risk on paper, and meanwhile competitors are raking in dough and grabbing a larger portion of market share.
And so, the greed-stupidity spiral feeds itself like a cyclone.
But there's another dimension to this as well. The people at the top will rarely truly suffer in all this. Occasionally one or two will be ruined, commit suicide, spend 18 months in minimum security; but it's much more likely that they'll make it through with their yachts and Aspen cabins intact. Many of them will probably even avoid having a smudge on their reputation. It doesn't really matter to them, even though a recession means grueling hardship for millions of people.
I wrote a few months ago about the stock market decline of 2001 as a huge swindle of the middle class by the upper class. The middle class are essentially petty capitalists - owners of home equity and a few shares of stock or mutual fund. But every business cycle, the small bits of worth that the middle class is able to build up for itself is farmed off the top, leaving the middle class without that which it had spent 7-10 years working to save up.
For each of the millions of families now being foreclosed upon and kicked out of their home (let's not overlook the racial dimension of this, it's important!) when they can no longer afford payments on their adjustable-rate mortgage, there's a speculative vulture who will swoop in, buy the house for cheap off the bank who no longer wants it, and hold on to it until the market goes back up. That family's crisis is a money-making opportunity for someone else.
And so it goes.
