Everything Crashes

Saturday 27 December 2008

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by: André Pratte, La Presse

The Chronicles of Favilla (see below) favor a return to medieval codes of honor for today's financial warriors. (Image: Paolo Uccello)

One of the most deeply anchored images in our collective memory of the 1929 crisis is that of those investors who, having lost everything, threw themselves out of the windows of Wall Street's edifices. However, as economist John Kenneth Galbraith showed in his famous book on the crash, that image comes under the rubric of urban legend. Perhaps there were one or two suicides linked to the crisis, but they were isolated cases; statistics revealed no significant increase in the suicide rate during this period.

Also see below:
2008 or the Recession of Honor •

The 2008 crisis will have pushed at least one businessman to take his own life. René-Thierry Magon de la Villehuchet was discovered dead in his New York office Tuesday morning, December 23. Mr. de la Villehuchet directed a fund that had invested $1.4 billion with financier Bernard Madoff, who acknowledged having fleeced investors of some $50 billion.

This tragic incident comes on top of multiple repercussions to the financial crisis, more and more unexpected repercussions, ever more widespread and ever more serious. Who would have thought that Toyota would be affected to the point of recording its first losses in 70 years?

The image of the World Trade Center towers comes to mind: as they collapsed, the skyscrapers projected thousands of tons of debris and dust onto the crowd that fled in all directions. It was not terrorists who brought down the audacious edifice constructed over the course of the last few years by the engineers of international finance. It was the combination of a long series of mistakes, excesses, indifference and complicity.

Its scaffolding was based on the human being's eternal weakness, the lure of the payoff. Everyone, whether a small or big investor, was looking for superior yield and disposed to believe anyone who guaranteed it for them on the basis of his word. The pyramid was also of an unheard-of complexity, a complexity that simultaneously seduced and stunned. Who knows exactly what "synthetic CDOs" are? Yet, thousands of investors the world over - including municipalities, school boards and retirement funds - bought these financial instruments which, today, risk making them lose their entire capital.

The lure of the payoff and financial products' growing complexity opened the door wide to swindlers, Madoff being far from the only one. All that under the distracted - if not positively obliging - eye of the regulatory authorities.

We can wish it happy as much as we like; 2009 will, at best, be a gray year. Who knows what we'll find under the ruins of the financial skyscraper? Who knows how long it will take to rebuild a healthy system?

The guilty will be identified and punished; the faults will be pinpointed and caulked. Yet, at bottom, this crisis will have had the same source as that of 1929: human nature. Let's quote Galbraith: "Americans had built themselves a world of speculative pipe dreams. That world was inhabited, not by people who had to be convinced, but by people who sought excuses for believing."

In 2008, just like 79 years earlier, it's a world of pipe dreams that's collapsed.

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Translation: Truthout French language editor Leslie Thatcher.

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2008 or the Recession of Honor

Friday 26 December 2008

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by: Chronicles of Favilla, Les Echos

Twenty years ago, the Berlin Wall fell, and with it, a regime dishonored by its oppressions and disqualified by the economic ineffectiveness of its centralized socialism. Today, some forecast the end of financial capitalism, victim to its own excesses of "decentralization" pushed to anarchic levels. Indeed, the year 2008 ends on the gigantic Madoff swindle, which - paradoxically - crowns the crimes of a system of reputedly exaggeratedly sophisticated practices with a rustic and vulgar technique. To tell the truth, it is only the climax, as we know, of a series of errancies: unlimited greed, undue management remuneration, irresponsible complicity on the part of control organisms, surrenders of principle by unethical rating agencies ... This case has already been adequately stated. But beyond these technical descriptions, a diagnosis comes to mind that basically summarizes all these hateful series of events. These milieus have little by little lost all sense of honor.

Honor is the value our Middle Ages discovered to contain the excesses of gang leaders, required to observe duties in return for their power. By an effective maneuver that market authorities have not succeeded in reproducing, the then-consensus succeeded in convincing the swashbucklers themselves that the privileges assured by force had no legitimacy without a minimum of honor. That is: "valor," i.e. personal capabilities; "loyalty," or the rejection of all insidious maneuver; "largesse," another way of expressing contempt for gain; "courtesy" due the women of the court, in other words, the value of respect. These four conditions are literally lifted from the official code devoted to the era. Simply contrasting them to the behavior of today's would-be financiers economizes on all commentary. Except, we should finally add, that one who abused those values excluded himself from the knightly class. But then, with the passage of time, Montesquieu could write, "one may be simultane ously covered with infamy and honors" (for today, read: dollars): that was a harbinger of the Revolution. Wall Street's sorcerer's apprentices will have accomplished the additional achievement of making this aspect of the Middle Ages seem something we must win back in 2009.

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Translation: Truthout French language editor Leslie Thatcher.

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