There’s a wonderful, if likely apocryphal, anecdote describing Winston Churchill’s reaction to the post-World War II takeover of Yugoslavia by Marshall Tito’s communist “partizans.”
As the story goes, a young intelligence officer burst into Churchill’s office to inform him, in agitated tones, that Yugoslavia was about to fall into communist hands.
Churchill glowered at him, and icily remarked: “Sir, I do not intend to live in Yugoslavia after the war. Do you intend to live in Yugoslavia after the war?”
And with those words, Churchill, ever the realist, dismissed both the young officer and the future of Yugoslavia from consideration.
If only the world financial crisis could be similarly dismissed! Would that we could say, as might Churchill:
“Sir, I have no intention of ever using a bank/buying a car/owning real estate/running a business/holding a job/or in any way participating in the economy! Do you intend to participate in the world economy??!!”
And how might we respond? As the Yale a cappella group the Whiffenpoofs sang, “We are poor little lambs who have lost our way … baa, baa, baa!”
Like every reporter/columnist/business writer in America, I’ve tried to figure out what happened, identify the perps, assign blame and predict the future. Who was that masked man — or masked woman? Was it:
Blythe Masters, the 34-year-old who devised the toxic derivatives known as credit default swaps during 1997?
Federal Reserve Chairman Alan Greenspan, who rather than fiddling while Rome burned, read Ayn Rand, deregulated the financial system, left his job at just the right time and watched the world collapse?
Chris Cox at the Securities Exchange Commission, who was as sleepy and incompetent as FEMA’s Michael “You’re doin’ a heckuva job” Brown?
All those legions of greedy, clever, amoral bankers, traders, hedge funders and subprime mortgage peddlers/bundlers who engaged in a de facto conspiracy to steal all the money in the world?
George W. Bush, who, as we learned during the recent election, is responsible for everything bad that has happened in the world since Jan. 20, 2001?
Or all the clueless Ivy Leaguers who have run the guv’mint for 20 years?
Perhaps the fault is not with ourselves, but with our stars.
The world financial system, like the Internet, is something that came to be through the self-interested interactions of millions of people. There’s no “there” there — nothing that can be described, regulated, controlled and understood. Like the Internet, the world financial system is a concept, not a thing. Absent users, it doesn’t exist.
Network theory says that the flexibility, usefulness and stability of any network depends on how many users it has and on how useful the network is to them. Each user node might be insignificant (e.g., your blog) but with enough nodes (every Web site) the network gains value, links multiply and stability increases.
So, the bigger the better — the more globalization, the more information, the more stability. Right?
Wrong. In practice, the intricate, multi-layered linking of the world financial system led to fragility.
With globalization, the network itself created the linked criteria that allowed the financial system to function. Just as businesses try to game Google’s algorithms to get to the top of customer searches, financial players gamed the system, exploiting its unregulated diversity to advance their individual interests.
EBay’s network is reinforced and stabilized by customer interaction, as buyers and sellers individually rate each other, but such ratings played no part in the ownerless financial system
Individual players — bankers, traders, derivative peddlers — had no skin in the game, no interest in long-term stability. It might have been clear to many of them that the system was headed for a spectacular collapse, but since every participant was richly rewarded, it made sense to keep the balls in the air as long as possible. The game, like the World Series of Poker, was about nothing — except money.
It was an enormous, decentralized network through which rivers of cash flowed, money which could be siphoned off by the bold, the clever and the lucky. It was a Ponzi scheme without a Ponzi, a pyramid investment deal without a promoter, a Nigerian letter without Nigerians.
By their very nature, such crash-prone systems might not be correctable. Highly complex shared networks, like the Internet itself, are most likely impossible to regulate, even in the best (or worst) of times.
And if you think that all of the world’s governments can get together and devise a fair, transparent, and stable world financial system, then you probably believe that the United Nations has brought an end to war since 1945.
You can toss your computer when it blackscreens, but a world financial meltdown is not easily corrected and the damage not easily repaired.
That leaves us to sing along with the Whiffenpoofs.
“Gentlemen songsters off on a spree
“Doomed from here to eternity
“Lord have mercy on such as we
“Baa, Baa, Baa”
John Hazlehurst can be reached at John.Hazlehurst@csbj.com or 227-5861.