Putting the Dog Back in Dogma
One of the more interestingly intellectual jihads I came across recently was this strange commentary in the FT this week. It was an incontinent lament against the evils of pragmatism. Never before have so many words been so eloquently spilled saying so very, very little.
Titled The excesses of pragmatism, I cannot tell if the writer actually believe his own empty tripe, or if he is truly ignorant as to how we got into the mess in the first place. Have a glance at this doozy of a paragraph:
"A beloved myth holds that dogmatists (or ideologues) get us into problems like these, and pragmatists get us out. In fact, the difference between dogmatists and pragmatists is hard to draw. We got into this mess in a pragmatic way. We kept following a method that had succeeded before. In the 1990s, securitised mortgages and various derivatives seemed to offer a sophisticated way of managing risk. Whatever works gets overdone. The longer the system went on without collapsing, the more incentive there was to strip protective “give” out of the system. The system became more complicated, diversified, elegant and (as we now know) fragile. There were horrible excesses, but they were excesses of pragmatism, not of ideology."
Um, not even close.
You may disingenuously ignore the changes that occurred over the ensuing decade after the 1990s. You can vacuously skip over the legislative changes, the monetary policy shift, the massive change in the way mortgage underwriters were compensated, and the way loans got written. But that doesn't mean they didn't occur.
Let's review the ideological underpinnings of the current crisis.
• Greenspan believe we could clean up a bubble, rather than prevent one. So he let one form in the 1990s. Went it popped, he tried to clean it up by taking rates way, way down. Consider that the Greenspan Fed maintained a 1.75% Fed fund for 33 months (December 2001 to September 2004), and eventually brought rates down to 1%, keeping them there for over a year.
• We also know that despite repeated warnings by fellow FOMC governors, Greenspan refused to supervise banks lending standards, as is the charge of the Federal Reserve. Hence, my accusation of nonfeasance.
• The exempting of CDOs from all regulatory scrutiny thanks to the passage of the Commodities Futures Modernization Act of 2000 was another triumph of not pragmatism but ideology.
There are many many other elements, but for now, let's stick with just these major ideological factors. To Caldwell, since these somehow worked in the past, that is considered pragmatism (?!?).
Those of us who live in planet earth call it rampant and extreme ideology.
Here's another densely empty passage, one where innocent pixels were needlessly slaughtered:
"Dogmatism is pragmatism that has stood the test of time. Institutions tend to be forged in moments of crisis. Ideas that fail are discarded; ideas that succeed are retained, elaborated and then over-elaborated until they collapse. The problems of 30 years from now will turn out to have been hidden somewhere in the parts of today’s bail-out packages that wind up being most effective. If we are lucky, the most effective parts will be the most morally admirable parts. But that is not inevitable. In politics, correlation often passes for causation. The recovery of the Russian economy after the rouble crisis of 1998 coincides with the arrival of Vladimir Putin in power. If a strong hand coincides with prosperity, the public sometimes assumes a stronger hand will mean more prosperity. Needless to say, leaders always think like that."
Where does one begin with a paragraph so overladen with nonsense? Has Caldwell actually convinced himself that it was Putin that led to the Russian recovery? Gee, you would think a market guy might have noticed over the same time period Oil had gone from $30 to $145! Do you suppose that had a little something to do with the Russian recovery? Or is that Putin simply a genius?
Only ideologues are capable of such sheer intellectual dishonesty.
The author may be right about one thing: Ideas that fail are discarded. That process is going on right now. I suspect we are watching the death rattle of a certain type of ideology. Its a tainted brand called unregulated, market absolutism.
Good riddance to you.
>
Source:
The excesses of pragmatism
Christopher Caldwell
FT, October 10 2008 18:31
http://www.ft.com/cms/s/0/0b48d8ec-96e9-11dd-8cc4-000077b07658.html
Sunday, October 12, 2008 | 12:00 PM | Permalink
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Double-Talk.
It was the dogmatism of Say's Law taken to the extremes of Supply-Side Economics and its natural engendering of Hocus Pocus pro-forma EBITDA accountancy. It was all these things that brought us to today.
It was zealotry and dogmatism and unbridled, unrestrained optimistic willfulness.
It was optimism without a valence moderator. It was Idealogy from the starting gun.
Posted by: Eclectic | Oct 12, 2008 12:15:52 PM
Has Caldwell actually convinced himself that it was Putin that led to the Russian recovery?
No. If you think so I challenge your reading comprehension.Did you miss this?
In politics, correlation often passes for causation.
Posted by: Ban Me | Oct 12, 2008 12:16:24 PM
I love your market commentary Barry but I don't see how you can call a price-fixing body setting interest rates at 1.75% for 33 months "unregulated, market absolutism."
Not to mention the "implicit" government backing of Fannie & Freddie which was always and obviously explicit.
Or how about an entrenched system of government privilege granted to stock and real-estate capital gains at the expense of savings and interest?
Just because Alan Greenspan palled around with Ayn Rand 30 years ago doesn't mean anything he or his central banker ilk are doing has anything to do with the free market. The people who have been most prescient in predicting the current crisis (Austrian economists and hard money types) are exactly the ones who consistently call for *less* government intrusion in the markets, not more.
The "pragmatic" approach you extol is now calling for massively inflationary government interventions as a response to the current crisis. No time to think about the relative justice (or lack thereof) of throwing savers and renters under the bus to try and prop up asset prices. I guess we'll see how this approach works out.
I mean, you write a book called "Bailout Nation" and then want to blame what's going on on some "unregulated market" chimera?
Posted by: Andrew Bissell | Oct 12, 2008 12:18:45 PM
Um, with all due respect, I think you need to read a bit more closely.
In the second paragraph, Caldwell is saying that Putin's rise to power COINCIDED with the Russian recovery, and that Russian the public is therefore likely to attribute the recovery's CAUSATION to his rise. MISTAKENLY.
Posted by: jstanley01 | Oct 12, 2008 12:22:02 PM
Im not usually a conspriacy believer... but did anyone find it strange that Condi Rice was picutred with Finance Chiefs?
Why is our former NSA chief even being involved?
There is something rotten in the system and it is more dangerous than what we are being told... meaning this isn't fundamental or profit takin by traders.
If banks are solvent why even touch FDIC?
Posted by: DontTouchMyChickenSelects | Oct 12, 2008 12:24:57 PM
Those of us who live in planet earth call it rampant and extreme ideology.
Actually, those of us who have been fighting this in the political sphere have been calling it rampant conservative ideology. There's an alternative, and it's called progressive ideology, it's not called pragmatism or centrism. In fact many of the reforms you lament were passed by 'centrist' coalitions of politicians in thrall to conservative ideas.
Pragmatism in your political choices comes from being a progressive Democrat. Until there are more of us, you will continue to impotently wonder why politicians can't make better decisions.
Posted by: Matt Stoller | Oct 12, 2008 12:28:24 PM
jstanley01
I meant precisely what I wrote.
He is saying the public was blind to oil price increases, but not to the strong hand.
its BS.
Posted by: Barry Ritholtz | Oct 12, 2008 12:29:05 PM
BR,
do you have a substantive rebuttal to this, well-argued post:
Posted by: Andrew Bissell | Oct 12, 2008 12:18:45 PM
?
For my own account: If we want to 'fix' this problem, we need to, as always, go to the Source of it..
Posted by: Mark E Hoffer | Oct 12, 2008 12:29:37 PM
Pretzel logic, you might say? Strange arguments from Caldwell. Only pragmatism and fundamental valuation is going to dig us out of this immense mess that the dogma of deregulation got us into.
We have had a Tyranny of the Incompetent - in finance, government and the mainstream media. The few people on Wall St capable of doing real fundamental analysis were marginalized while the Top Performers reached for Extra Yield.
We will not have a true and meaningful recovery until we embrace reality and begin a wholesale elimination of the PR wankers and BS merchants in all walks of life.
The practical solution to $T of CDS uncertainty? Void them all - life and commerce goes on.
Posted by: leftback | Oct 12, 2008 12:30:48 PM
Andrew Bissell and Mark Hoffer
I understand your argument, and I am quite empathetic to it. I've spilled plenty of Ink trashing Greenspan, who seem to be finally getting the blame he so rightfully deserves.
I just dont believe there is a nation on the planet ready to give up central banking. its tilting at windmills .
Perhaps I am in favor of only Central Banks run by Paul Volcker, and the sooner we can clone him, the sooner we can have intelligent central banking . .
Posted by: Barry Ritholtz | Oct 12, 2008 12:34:29 PM
Was it not all simply just a huge Ponzi scheme?
Posted by: Bob A | Oct 12, 2008 12:37:58 PM
Let me add to my prior comments:
...It was a supremely determined example of religiosity in almost every way that got us here to this point.
It was the Greatest Story Never Told. It was First and Second Kudlonians, chapter and verse.
Dogma is the only appropriate word that could be used to describe what caused this crisis.
-It's Greenspan chuckling to 60-Minutes how he hoodwinked the ignorant bastards in congressional testimony. It's his former religious confidence that the system always seems to "muddle through" and thus evidently could withstand incompetence from the Fed.
-It's Slain-in-the-Blood believe in the Immaculate Ammortization of liar loans, little doc, no doc, fake doc and Pick-a-De-lay Payments.
-It's the string of hidden goodwill, put together in a daisy chain of mergers and acquisitions accountancy.
-It's the Magical Mystery Tour of trading financial assets and the hocus pocus believe that doing so would alone create wealth.
-It's the slope-of-hope that a world in equilibrium could be cut in half by the collapse of the Soviet Bloc, and that the bag of rock salt on one half, when touched to the quart of crystal clear water of the other side, would defy all the laws of economics and not make salty water.
Shall I preach on, or can we have the offeratory hymm now and ask for converted souls to come to the altar?
Posted by: Eclectic | Oct 12, 2008 12:38:20 PM
Barry -- while your analysis is excellent, you do overlook one contributing factor on a regular basis - the incredible reckless behavior on the part of the consumer. This was the main cause (or certainly not the only cause), but the abdication of responsible borrowing, purchasing, home improving, etc. of the average person was a significant factor in the bubble. Savings rates went negative, people bought large screen tvs for every room, and people bought houses they couldn't afford.
Posted by: Andrew P | Oct 12, 2008 12:39:17 PM
How about dispensing with Dogmatism vs. Pragmatism,and observe stunning, breathtaking corruption. To paraphrase Jim Grant (in a 9/18/08 missive with the pithy title of :"Gold 36,000") let's never forget 30 to 1 leverage, no-doc, option ARMs and (my take) the Three Little Pigs - Moodys, Fitch and S & P, who for the requisite fee, would stamp any Boy Scout latrine with the royal imprimatur.
Posted by: John Badalian | Oct 12, 2008 12:50:14 PM
How about dispensing with Dogmatism vs. Pragmatism,and observe stunning, breathtaking corruption. To paraphrase Jim Grant (in a 9/18/08 missive with the pithy title of :"Gold 36,000") let's never forget 30 to 1 leverage, no-doc, option ARMs and (my take) the Three Little Pigs - Moodys, Fitch and S & P, who for the requisite fee, would stamp any Boy Scout latrine with the royal imprimatur.
Posted by: John Badalian | Oct 12, 2008 12:51:39 PM
Andrew P.,
A good preacher has little problem converting the congregation.
--
Read my comments on how this was expressed by Adam Smith himself in his day, and it'll answer your question (at 4:25:23 PM):
http://bigpicture.typepad.com/comments/2007/02/alan_greenspan_.html
...and a secret, to all:
You WILL FIND the core reason for this crisis in that posting, because Adam Smith understood it very well and warned about it, even as he wrote what most people think is the Gospel of Unrestrained Free-Market Capitalism.
Posted by: Eclectic | Oct 12, 2008 12:55:59 PM
"The author may be right about one thing: Ideas that fail are discarded."
Surely you jest.
After the American RightWing's ideological blueprint of the '80s was decisively demonstrated as a dismal miserable failure in the latter '90s, one would have assumed it was a lesson for the future of a huge mistake that never again should be repeated.
But, NOOOOOOOOOOOOOOOOOO !
After we crossed that enlightened 'Bridge to the 21st Century', the American RightWing not only dragged us back across that bridge but back into the Dark Ages of unenlightenment, and implemented the very same failed blueprint all over again.
Zombie RightWing ideology never dies, no matter how many times it fails. They will always contend that the real problem was that the blueprint was just not RightWing enough. Their prescription for failed RightWing ideology is MORE failed RightWing ideology.
.
Posted by: VJ | Oct 12, 2008 1:01:23 PM
The ideologues flail and flail about with even greater ferocity knowing the end is near. It would be hilarious to watch if not so sad.
Some people will NEVER admit they were wrong no matter the evidence or facts - that's called IDEOLOGY. As frustrating as these people are, they are simply not worth wasting time on. They are to be ignored (and chuckled at).
Posted by: Jeff M. | Oct 12, 2008 1:03:13 PM
How pragmatic is it not to look past the results for the current quarter?
Not very.
Posted by: Will Divide | Oct 12, 2008 1:08:10 PM
The biggest Ponzi scheme of all time and the true wackjobs/wingnuts/whatever come out and blame it on 'a few unethical mortgage officers' and 'liar borrowers'
Book title for someone:
In Fraud We Trust... The Greatest Ponzi Scheme of all Time
give me some credit in the acknowledgements
Posted by: Bob A | Oct 12, 2008 1:08:47 PM
The human mind, a cunning faculty, easily creates intellectual constructs - ideologies - to validate instinctual impulses of greed and self-aggrandizement.
Posted by: Mind | Oct 12, 2008 1:14:16 PM
Posted by: Jeff M. | Oct 12, 2008 1:03:13 PM
who/what are you referring to?
posts like: The biggest Ponzi scheme of all time and the true wackjobs/wingnuts/whatever come out and blame it on 'a few unethical mortgage officers' and 'liar borrowers'
Book title for someone:
In Fraud We Trust... The Greatest Ponzi Scheme of all Time
give me some credit in the acknowledgements
Posted by: Bob A | Oct 12, 2008 1:08:47 PM
?
b/c, if you are, take me up on my Offer:
disprove this: http://www.youtube.com/watch?v=4dpJL6ANnV0
and I'll give you U$D 10 000, as always, we'll clear through BR--just say the word.
Posted by: Mark E Hoffer | Oct 12, 2008 1:20:21 PM
Slightly off-topic:
What responsibility did the GSE's have to perform due diligence on the mortgage products they bought to see if the ratings agencies were correct in their evaluation?
a. a lot
b. a little
c. none, they were victims
I really don't know the answer, but a couple market fundamentalists brought this up to argue against such dysfunctional gov't sponsored entities altogether.
Posted by: Tony | Oct 12, 2008 1:25:47 PM
About a month ago in the FT, Christopher Caldwell attempted to re-characterize the arguments of the Palin wing of the GOP (not a wing anymore, but the fuselage) by claiming that the political fight between people with “feelings of disenfranchisement” (typified by Governor Palin and the religious right, the rural poor, uneducated etc. ) is really a class struggle fight between “democrats” and scientific “technocrats” who have deprived Palin et al of their democratic freedoms.
See Eric Idle's "right to have babies" routine in 'Life of Brian' to see someone re-in-acting Caldwell's goofy philosophy on the silver screen - complete with British accents:
http://www.youtube.com/watch?v=9nl3t6EcbvQ
Posted by: VennData | Oct 12, 2008 1:28:57 PM
@Mark E Hoffer: Nobody specific in particular. Any idealogue on the right left, middle or anywhere will do.
In my arguments with people I know, I've just noticed these folks STILL never back down or admit ANY error in judgment or action (or responsibility). They go flailing about for false explanations (e.g. CRA) and fighting to the bitter end and their ferocity (and lack of respect for pragmatic view points in the REAL world that we live in) only grows with each failed argument.
This is not directed at you - I respect your views and in a "perfect world", we would/should be a more libertarian "free" society, but it will never happen because the real "libertarians" are too marginalized to ever have any real influence(although charlatans like Greenspan are all too happy to use libertarian ideology to further their own agendas and the agendas of the powerful), and if they do, they'll usually be corrupted by this power and eventually game the system to consolidate power and uber-wealthy of the elite at all costs, thereby enriching him/herself in the process, while the system itself and masses are hoodwinked.
Posted by: Jeff M. | Oct 12, 2008 1:35:35 PM
