Wall Street and Hegel
Interesting post by J.M. Bernstein in the NY Times on the philosopher Hegel and how he would view Wall street. The conclusion (though read the entire post):
… Every account of the financial crisis points to a terrifying series of structures that all have the same character: the profit-driven actions of the financial sector became increasingly detached from their function of supporting and advancing the growth of capital. What thus emerged were patterns of action which, may have seemed to reflect the “ways of the world” but in financial terms, were as empty as those of a knight of virtue, leading to the near collapse of the system as a whole. A system of compensation that provides huge bonuses based on short-term profits necessarily ignores the long-term interests of investors. As does a system that ignores the creditworthiness of borrowers; allows credit rating agencies to be paid by those they rate and encourages the creation of highly complex and deceptive financial instruments. In each case, the actions — and profits — of the financial agents became insulated from both the interests of investors and the wealth-creating needs of industry.
Despite the fact that we have seen how current practices are practically self-defeating for the system as a whole, the bill that emerged from the Congress comes nowhere near putting an end to the practices that necessitated the bailouts. Every one of those practices will remain in place with just a veneer of regulation giving them the look of legitimacy.
What market regulations should prohibit are practices in which profit-taking can routinely occur without wealth creation; wealth creation is the world-interest that makes bankers’ self-interest possible. Arguments that market discipline, the discipline of self-interest, should allow Wall Street to remain self-regulating only reveal that Wall Street, as Hegel would say, “simply does not know what it is doing.”
We know that nearly all the financial conditions that led to the economic crisis were the same in Canada as they were in the United States with a single, glaring exception: Canada did not deregulate its banks and financial sector, and, as a consequence, Canada avoided the worst of the economic crisis that continues to warp the infrastructure of American life. Nothing but fierce and smart government regulation can head off another American economic crisis in the future. This is not a matter of “balancing” the interests of free-market inventiveness against the need for stability; nor is it a matter of a clash between the ideology of the free-market versus the ideology of government control. Nor is it, even, a matter of a choice between neo-liberal economic theory and neo-Keynesian theory. Rather, as Hegel would have insisted, regulation is the force of reason needed to undo the concoctions of fantasy.
