Project for Philosophical Evaluations of the Economy |
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A counterproductive initiative
Dialog with the Alter Ego on the so-called Volcker Rule, first drafted on Jan. 23, published on Jan. 27, 2010
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Question by Alter Ego of Noah denkt™ (AE): What does Noah denkt™ make of President Obama’s recent threat
to reenact a version of the Glass-Steagall legislation in order to bring banks back to reason?
Answer by Noah denkt™ (Nd): We understand that Mr. Obama wants to do something about the obscene bonus
system that banks don’t seem to be able to do away with. On a whole though, we believe that it is a
counterproductive move to force banks into selling off their high-risk trading operations.
AE: Why do you believe that?
Nd: Because a measure like this will not minimize the bail-out risk for governments. Instead it will stifle the growth
potential that the economy has, and it will further strengthen the already strong position that high risk players like
BlackRock hold in that economy.
AE: Why do you say that there is no reduction of the bail-out risk if banks are forced to spin off their proprietary
hedge fund and private equity operations?
Nd: Because these spun-off operations will eventually get so strong that their potential failure will equally pose a
systemic risk to the economy. In other words, if BlackRock were to be on the verge of bankruptcy now, the
government would just as well have to intervene to stop the whole thing from going belly-up.
AE: So there isn’t really anything that governments can do, to stop financial players from pursuing a reckless
profiteering strategy?
Nd: Well, the only thing they can do is to let them die, if they are about to die and bear the economic and social
pain that comes with that
AE: But that would be suicidal for any government to do! And what’s more it would even put the existence of
democracy at risk, at least as far as the European theater is concerned?
Nd: Correct. Therefore we would argue that the only country where such a let-die approach could be reasonably
enacted is the US. After all, this is the only true democratic country that there is on the face of the earth. And so it
would also be here where you would not have to fear that populist demagogues could turn its freedom upside
down.
AE: Jees, you are advocating very harsh measures here.
Nd: Yes, we know. But then again, human nature is pretty harsh too. And so it seems only reasonable to not shy
away from such harshness when having to combat the downside effects of human nature.
AE: The problem with this however is, that a lot of innocent people are made to suffer by such governmental
inaction!
Nd: Well, the truth is that no one ever is entirely innocent. It may be true that there are a lot of people who are
entirely stupid. But stupidity does not equal innocence.
AE: Let us be very clear here, your Alter Ego does not condone the position you are taking in this.
Nd: You don’t have to. But please also stop complaining when thing go wrong either way.
Dialog with the Alter Ego on the so-called Volcker Rule, first drafted on Jan. 23, published on Jan. 27, 2010
---------------------------------------------------------------------------------------------------------------------------------------
Question by Alter Ego of Noah denkt™ (AE): What does Noah denkt™ make of President Obama’s recent threat
to reenact a version of the Glass-Steagall legislation in order to bring banks back to reason?
Answer by Noah denkt™ (Nd): We understand that Mr. Obama wants to do something about the obscene bonus
system that banks don’t seem to be able to do away with. On a whole though, we believe that it is a
counterproductive move to force banks into selling off their high-risk trading operations.
AE: Why do you believe that?
Nd: Because a measure like this will not minimize the bail-out risk for governments. Instead it will stifle the growth
potential that the economy has, and it will further strengthen the already strong position that high risk players like
BlackRock hold in that economy.
AE: Why do you say that there is no reduction of the bail-out risk if banks are forced to spin off their proprietary
hedge fund and private equity operations?
Nd: Because these spun-off operations will eventually get so strong that their potential failure will equally pose a
systemic risk to the economy. In other words, if BlackRock were to be on the verge of bankruptcy now, the
government would just as well have to intervene to stop the whole thing from going belly-up.
AE: So there isn’t really anything that governments can do, to stop financial players from pursuing a reckless
profiteering strategy?
Nd: Well, the only thing they can do is to let them die, if they are about to die and bear the economic and social
pain that comes with that
AE: But that would be suicidal for any government to do! And what’s more it would even put the existence of
democracy at risk, at least as far as the European theater is concerned?
Nd: Correct. Therefore we would argue that the only country where such a let-die approach could be reasonably
enacted is the US. After all, this is the only true democratic country that there is on the face of the earth. And so it
would also be here where you would not have to fear that populist demagogues could turn its freedom upside
down.
AE: Jees, you are advocating very harsh measures here.
Nd: Yes, we know. But then again, human nature is pretty harsh too. And so it seems only reasonable to not shy
away from such harshness when having to combat the downside effects of human nature.
AE: The problem with this however is, that a lot of innocent people are made to suffer by such governmental
inaction!
Nd: Well, the truth is that no one ever is entirely innocent. It may be true that there are a lot of people who are
entirely stupid. But stupidity does not equal innocence.
AE: Let us be very clear here, your Alter Ego does not condone the position you are taking in this.
Nd: You don’t have to. But please also stop complaining when thing go wrong either way.
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