We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.

Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

“The core problem over the past few decades was not bankers’ greed or the complex financial instruments that enabled them to satisfy it. It was the immense pyramids of debt built up by the Anglo-Saxon half of the world, and the equally massive mountains of savings created in the other. Almost everything that occurred in the past couple of years was, directly or indirectly, a consequence of this.”

- Ed Conway, Daily Telegraph. He has not bought the whole free market line on what is wrong with finance today, but this is pretty good.

16 comments to Samizdata quote of the day

  • widmerpool

    I really despise people who claim other people saving is responsible for their financial problems. As someone who saves and has never had any debt other than a slight overdraft at university I blame the feckless twats living beyond their means. Especially the ones in government.

  • Hugo

    Agreed, saving is not the problem. But feckless lending to people that won’t pay you back is, whether it’s banks lending mortgages to people who can’t afford them, or Easterners lending huge amounts to Westerners.

  • @widmerpool: Isn’t that maybe the point that is being made? We in the West are (as a whole) the wasters and others are the savers. It may well be the imbalance that has in part brought this about. If most of us behaved responsibly (like you say) as individuals, we wouldn’t be dependent on the bankers and they could have gone and shot themselves for all we’d have cared. Instead, we had to bail them out because, as a nation, we needed them to survive!

    I coudn’t agree more with you about the wasters in government. They set the tone and, like idiots, many of the people followed!

  • MarkyMark

    Whilst I agree with Mr Conway’s central point that the politicians have wasted the opportunity to deal with underlying problems l think that an ‘Anglo-Saxon’ versus the ‘rest of world’ dichotomy is too simplistic.

    The Greeks, Spaniards and other Latins have economic problems that are nothing to do with too much saving and production.

    On the other hand the ‘Anglo’ Australia, Canada and New Zealand have too much debt but they also seemingly have a natural resource base and productive capacity to repay the debt and balance their trade somewhat.

    I think that Mr Conway lets The City and Wall Street get off too lightly. Whilst they might not have caused the crisis the existence of a quadrillion (thousand trillion) worth of derivatives makes the problem of trying to sort out all this economic much much harder by amplifying matters such that a small failure in one part of the system can quickly threaten the whole.

  • I really don’t understand this. Firstly, from the Samizdata quote:

    It was the immense pyramids of debt built up by the Anglo-Saxon half of the world, …

    What is Anglo-Saxon about the problem of Euro-PIGS?

    Then:

    … and the equally massive mountains of savings created in the other. Almost everything that occurred in the past couple of years was, directly or indirectly, a consequence of this.

    Chinese ‘savings’, like anyone else’s savings, are vastly more likely to be invested than stuffed in mattresses under the bed. Thus the money is not lost to the economy (of the world in this case).

    The problem is that western economies have ‘invested’ in much more government expenditure than they can afford. Worse, that ‘investment’ is not investment; it is squandering: the same sort of squandering done so often (fictionally and actually) by the profligate and prodigal inheritors of competent (so wealthy) merchants, generals, admirals and princes.

    Blowing the taxpayers’ money on useless things is far more of a problem than buying (at a competitive price) useful things made by the Chinese.

    Best regards

  • permanentexpat

    Few folk seem to learn that you don’t spend money you dont have…and that if you are able to save, the gumment penalises you for your thrift by handing out the fruit of your labour to those who don’t.
    That aside (so unimportant that it obviously is) I have just posted this at EUReferendum:

    Disastrous 2007 was the sole responsibility of the Democrat controlled American Congress which, in attempting stupid social engineering, put the arm on Banks to extend mortgages to folk who had not a hope in hell of making repayment.
    Disastrous 2010 is the sole responsibility of the EUSSR’s (also social engineered) lust for dictatorial power & damn the consequences. Total fiscal irresponsibility (it’s your money, not theirs)…total unaccountability (it has never produced audited accounts since inception)…total arrogance & corrupt to the core.
    We have endured and paid for this criminal charade for long enough, but our successive gumments have subscribed to & encouraged this monster…worse, our archaic system precludes any voices raised in protest from being heared…this is no longer Democracy by any measure…total catastrophe is hard on our heels & will happen unless comething mind-bogglingly cathartic takes place

  • Brad

    Savers can be blamed as savings is an investment and if you have not performed an adequate analysis of what you are investing in you have a share of the blame.

    As for the Western share of the blame, it is the mounting debt to be sure, but it also has to do with the dislocation of responsibility for oneself and an endless debasement of the monetary supply. Basically it is the end result of decades of soft socialism that doesn’t educate people on what real equity is, how it is made, and how it should be allocated. When a person feels that there is a safety net for them, or that they are on the line to pay for someone else’s safety net, coupled with an endless use of Keynesian economics not just in bad economic times, but to enhance the boom, made for a culture of spend now and worry about it later. Socialism has blurred the defintions and calculation of equity to a point where most people don’t know how to function. People have no motivation to save for themselves when they have the inkling that whatever they don’t consume now will be reallocated somehow – use it or lose it.

  • Alice

    Nigel S: “Worse, that ‘investment’ is not investment; it is squandering”

    Nigel’s statement is worth repeating. There is nothing inherently wrong with debt, or with its corollary (saving). What matters is whether that saving/debt is spent on something productive or on unproductive consumption.

    Mr. Conway misses the main point. The “core problem” has not been saving/debt (two sides of the same circulating coin). The problem has been excessive job-destroying, business-killing, economy-smothering regulation.

    Regulation! It is bad enough when foolish politicians borrow someone else’s savings to hand it out as bread & circuses. It is much worse when they borrow others’ savings to hire an army of Equal Opportunity Outreach Coordinators and the like, who go around and effectively shut down previously tax-paying savings-creating industries.

  • Laird

    On a (slight) aside, I’m getting a little bored with people (a la MarkyMark) citing the notional amount of aggregate derivatives as if it is somehow a meaningful number. It’s not.

    Look, if I sell you options on $1 million of some stock, we’ve each entered into a derivative trade (yes, options are a form of derivative) with a notional value of $1 million. Between the two of us we’ve just created $2 million of derivatives. Does that mean anything? Did we somehow create $2MM of “risk”? Of course not. When the options mature and we settle up one of us will have made some money and one lost, but probably not more than a few thousand dollars either way. In comparison to the notional value of the reference asset (i.e., the asset from which the contract is “derived”) it’s a tiny percentage.

    Throwing around statements of there being a gazillion bazillion trillion dollars of derivatives worldwide adds nothing to the discussion. It’s a totally meaningless figure, and its only function is to scare the ignorant. (Or to display one’s own.)

  • MarkyMark

    Laird, tell that to AIG. They didn’t get the memo that these things all cancel out in the wash.

  • Roue le Jour

    I don’t see why governments should borrow at all. Out side of an actual, bombs-falling-on-your-head war they should be constitutionally required to balance the books. Otherwise, the principle that one government cannot tie the hands of another is just so much hot air.

  • Paul Marks

    Yes – the quotation is wrong, both bits of it. Although the first half of the quotation is a mixture of truth and error – whereas the latter half is just total B.S.

    Yes the credit money expansion (not just the “debts”) in places like Britain and the United States was the cause of the crises – but so was the credit games in other parts of the world.

    For example the mortgage backed securities were bought all over the place – and they were often used as the basis for inverted pyramids of debt in those other places also.

    For example most of the AIG bailout money (how many zillions of Dollars was that) went to Europe – why was that? See above.

    However, the other part of the quote – the idea that savings were a problem, is the total B.S.

    It is the Alan Greenspan “Yellow Peril” excuse – “it was not me guys – it was those evil Chinese saving so much money”. REAL SAVINGS DO NOT CAUSE THESE PROBLEMS – PERIOD.

    The trouble with Mr Conway is not that he has bad intentions (he has good intentions) the problem is that he does not know the subject he is writing about (which is fairly normal for people writing about these matters). He know a lot about business, but very little about economics (and NO they are not the same thing).

    And his words will be used by the “world governance” crowd – the people who want to deal with “problems” like “too much savings” by international regulations and international taxes. After all “the world must be rebalanced” and order brought to the “chaos of the free market” ((not that has been anything even very close to a “free market” in the United States since 1913, but let us ignore that detail).

    “Well what are you saying Paul – that we should listen to some dirt poor car park attendant in Kettering?”

    Well YES – as long as people like Mr Conway do not know the subect they are writing about.

    It is not my fault that most successful and connected people know jack shit about these matters.

    Perhaps they could not be wealthy and successful if they did know (and said and wrote what they knew) – as they would be frozen out of the game. But that is not my fault either.

  • Gareth

    Paul Marks said: “It is the Alan Greenspan “Yellow Peril” excuse – “it was not me guys – it was those evil Chinese saving so much money”. REAL SAVINGS DO NOT CAUSE THESE PROBLEMS – PERIOD.”

    Brad makes a perfectly valid point. Information is the key to financial transactions. The less than transparent nature of what peoples’ savings were being invested in meant the feedback of people seeing banks investing in risky things and choosing to take their money elsewhere didn’t happen.

    On both the debt and saving side of the system a mx of plain fraud and some kind of mania that CDOs were magic and credit ratings set in stone prevented the public and businesses and bankers and regulators from seeing a more honest picture of the risks. To be fair there is also a degree general ignorance of how banking works and statism that comes from the regulatory system and compensation schemes.

  • Paul Marks

    By the way Glenn Beck has been reading the Daily Telegraph (or is at least passing on information from people who have). For example the D.T. claim that although Europe faces a terrible economic threat at least there is no Fascist threat today (this itself a rather debateble point) it is just the more “benign” force of the Marxists that may take advantage of the crash.

    Since when has Marxism A BELIEF SYSTEM THAT HAS LED TO MORE MURDERS THAN ANY OTHER SYSTEM OF THOUGHT IN HUMAN HISTORY been “benign”?

    For people confused that a conservative newspaper could print such things…….

    Modern journalists (unlike the journalists in the time of Frank Johnson) go to universities – and they are not the sort of student who thinks that the lecturers are talking nonsense. On the contrary they are “good students” who broadly follow what they are taught.

    And this is the sort of stuff that modern universities (and schools) teach.

  • Laird

    Is support of Gareth’s last post, see the article in today’s Wall Street Journal about big banks making quarter-end adjustment to their reported balance sheets to disguise the amount of their “true” debt. The game continues.

    And in reply to MarkyMark’s last remark, I didn’t say that there wouldn’t be any losses, even substantial ones, in derivatives trades, merely that their actual amount is many orders of magnitude less than the notional amounts routinely thrown around to scare the peasants. And, to press that point further, there are so many types of financial instruments lumped into the general category of “derivatives” that the word itself has no meaning. Furthermore, the vast majority of them are used as legitimate hedges to reduce risk (such as interest rate swaps used for asset/liability duration matching purposes). In those cases a loss on the swap is offset by a gain on the reference instrument. Again, I’m not saying that there is no risk in certain types of derivatives, only that throwing around unfamiliar numbers with lots of “-illions” at the end generates much heat but little light. It’s a dishonest tactic.

  • Laird

    Oops, the very first word of my last post should have been “In” (not “Is”). In case you hadn’t figured that out already.