The titans of Wall Street, having free reign to pursue profits irrespective of the risks involved, outsmarted themselves by creating more and more complex financial networks both in order to continue squeezing out more profits and to postpone the eventuality of a coming crisis. They ended up believing that the new world of finance will not collapse because it had been expanding since the moment of its creation.
COMMENTARYoctober 25, 2008 EPW Economic & Political Weekly14The ‘Masters of the Universe’ Outsmart ThemselvesChronis PolychroniouThe titans of Wall Street, having free reign to pursue profits irrespective of the risks involved, outsmarted themselves by creating more and more complex financial networks both in order to continue squeezing out more profits and to postpone the eventuality of a coming crisis. They ended up believing that the new world of finance will not collapse because it had been expanding since the moment of its creation. Even though it probably has deeper and more structural causes associ-ated with it, perhaps due to over-accumulation, to use an old fashioned Marxist economic term, the September-October 2008 global financial crisis will go down in history as a combined event of scandalous corporate greed and callous-ness, and government irresponsibility. As for the historic bailout plans in the US and Europe, they should long be remembered not as policies that brought back state intervention, but rather as shameless, undisguised top-down class warfare. In contrast to basic economics textbooks and prevailing ideology, capitalism has always thrived on the basis of strong state support, including the type of govern-ment interventions that shift market-driven domestic expansion overseas and the distribution of wealth from bottom to top. Under neoliberalism, the state functions as the exclusive domain of the super-rich and powerful as it has been clearly converted into an appendix of big business and multinationals. In this context,thebailout plans – socialising losses for the disastrous actions of greedy individuals and companies – are the elite’s only natural response to the inherent flaws built into the fabric of an economic system that makes virtue of unfettered economic behaviour and praises greed and unlimited wealth while displaying at the same time contempt for the poor, disdain for justice, carelessness for the future of the planet. Relentless Pursuit of ProfitsThe September-October global financial crisis did not come out of the blue. Since theUS moved sharply to financial liberali-sation in the late 1970s, with much of the world following obediently thereafter, great many financial crises have erupted, and the latest one, with profitability depending on speculative coups, was a time bomb just waiting to explode. Both insiders, like Berkshire Hathaway’s billion-aire chairman Warren Buffett, and academic experts (Paul Krugman, David Felix, Dean Baker, to name just the few that come to mind) had long understood that the system had reached its limits and were warning of a possible meltdown. Indeed, since 2001, the year of Bush’s ascension to power, the American economy has faced a multitude of severe problems: a recession, the bursting of the dot-com and the housing bubbles, and major cor-porate scandals. Add to that the immense pressures imposed by the global war on terror and the Iraq war, and a crystal ball is hardly needed to forecast gloomy days ahead for the economy. Writingin theNew York Times on Octo-ber 14, 2003, Paul Krugman, this year’s Nobel laureate in economics, was quite prophetic about the current financial debacle: “Lehman Brothers has a mathe-matical model known as Damocles that it calls ‘an early warning system to identify the likelihood of countries entering into financial crises’. Developing nations are looking pretty safe these days. But apply-ing the same model to some advanced countries would set Damocles’ alarm bells ringing.” Lehman’s press release adds, “Most conspicuous of these threats is the United States.”The real question then is why were so many smart people in Wall Street and the banking sector, including the current chairman of theUS Federal Reserve System, Ben Bernanke, and his predecessor, Alan Greenspan, doing nothing all along to avoid the crisis except praising the virtues of free market capitalism. One response would be that they simply misjudged the crisis or even failed to see itcoming. Sure, and the extensive risk-analysis algorithms that the Wall Street baronsrelied on were being used instead to assess long-term gains and losses from gambling money on the race tracks in Belmont and Saratoga where the super rich undoubtedly spend part of their long weekends. A more likely scenario is that the masters of the universe (a term originally used by Tom Wolfe in his novel The Bonfire of Vanities to describe the titans of Wall Street), having free reign to pursue profits irrespective of the risks involved, Chronis Polychroniou (cjpol@muc.edu.gr), author and journalist, writes frequently on current global, political, economic and social affairs.
COMMENTARYoctober 25, 2008 EPW Economic & Political Weekly14The ‘Masters of the Universe’ Outsmart ThemselvesChronis PolychroniouThe titans of Wall Street, having free reign to pursue profits irrespective of the risks involved, outsmarted themselves by creating more and more complex financial networks both in order to continue squeezing out more profits and to postpone the eventuality of a coming crisis. They ended up believing that the new world of finance will not collapse because it had been expanding since the moment of its creation. Even though it probably has deeper and more structural causes associ-ated with it, perhaps due to over-accumulation, to use an old fashioned Marxist economic term, the September-October 2008 global financial crisis will go down in history as a combined event of scandalous corporate greed and callous-ness, and government irresponsibility. As for the historic bailout plans in the US and Europe, they should long be remembered not as policies that brought back state intervention, but rather as shameless, undisguised top-down class warfare. In contrast to basic economics textbooks and prevailing ideology, capitalism has always thrived on the basis of strong state support, including the type of govern-ment interventions that shift market-driven domestic expansion overseas and the distribution of wealth from bottom to top. Under neoliberalism, the state functions as the exclusive domain of the super-rich and powerful as it has been clearly converted into an appendix of big business and multinationals. In this context,thebailout plans – socialising losses for the disastrous actions of greedy individuals and companies – are the elite’s only natural response to the inherent flaws built into the fabric of an economic system that makes virtue of unfettered economic behaviour and praises greed and unlimited wealth while displaying at the same time contempt for the poor, disdain for justice, carelessness for the future of the planet. Relentless Pursuit of ProfitsThe September-October global financial crisis did not come out of the blue. Since theUS moved sharply to financial liberali-sation in the late 1970s, with much of the world following obediently thereafter, great many financial crises have erupted, and the latest one, with profitability depending on speculative coups, was a time bomb just waiting to explode. Both insiders, like Berkshire Hathaway’s billion-aire chairman Warren Buffett, and academic experts (Paul Krugman, David Felix, Dean Baker, to name just the few that come to mind) had long understood that the system had reached its limits and were warning of a possible meltdown. Indeed, since 2001, the year of Bush’s ascension to power, the American economy has faced a multitude of severe problems: a recession, the bursting of the dot-com and the housing bubbles, and major cor-porate scandals. Add to that the immense pressures imposed by the global war on terror and the Iraq war, and a crystal ball is hardly needed to forecast gloomy days ahead for the economy. Writingin theNew York Times on Octo-ber 14, 2003, Paul Krugman, this year’s Nobel laureate in economics, was quite prophetic about the current financial debacle: “Lehman Brothers has a mathe-matical model known as Damocles that it calls ‘an early warning system to identify the likelihood of countries entering into financial crises’. Developing nations are looking pretty safe these days. But apply-ing the same model to some advanced countries would set Damocles’ alarm bells ringing.” Lehman’s press release adds, “Most conspicuous of these threats is the United States.”The real question then is why were so many smart people in Wall Street and the banking sector, including the current chairman of theUS Federal Reserve System, Ben Bernanke, and his predecessor, Alan Greenspan, doing nothing all along to avoid the crisis except praising the virtues of free market capitalism. One response would be that they simply misjudged the crisis or even failed to see itcoming. Sure, and the extensive risk-analysis algorithms that the Wall Street baronsrelied on were being used instead to assess long-term gains and losses from gambling money on the race tracks in Belmont and Saratoga where the super rich undoubtedly spend part of their long weekends. A more likely scenario is that the masters of the universe (a term originally used by Tom Wolfe in his novel The Bonfire of Vanities to describe the titans of Wall Street), having free reign to pursue profits irrespective of the risks involved, Chronis Polychroniou (cjpol@muc.edu.gr), author and journalist, writes frequently on current global, political, economic and social affairs. 
