The betrayal of public trust which is a main topic of that post seems ordinarily to lead to re-establishment of public trust via government regulation. This happened in the case of the South Sea Bubble, the Crash of '29, and the abuses of which G.B.S. wrote. It's happening as government agencies work to mitigate the damage of the sub-prime loans crisis and it's happening in an outfall of that crisis: the near collapse of the two largest US mortgage organizations, Freddie and Fannie.
Steven Paulson, author of the piece on pin-stripe immorality I wrote about yesterday, has today a good summary of the F&F takeover. Notice that he makes connection to the New Deal policies of FDR. (There's an indirect connection here with the founding of the Greenbelt community in Maryland, part of the context of yesterday's post.) Notice also that he tells us market regulation is not only necessary to correct problems created by the workings of the market, but also that regulation is needed to prevent future crises of a like nature.
In Crisis, Paulson's Stunning Use of Federal PowerPaulson only implicitly notices something that's the subject of another post that caught my attention this morning: people do not generally respond well when some resource that has been scarce suddenly becomes abundant. In the case of the South Sea Bubble, the industrial expansion of he late 19th-century, the stock market expansion that ended in 1929, and other economic excesses, governments stepped in to correct abuses and restore order.
By Steven Pearlstein
Washington Post Staff Writer
Monday, September 8, 2008; Page A01
Fannie and then Freddie began promising Wall Street double-digit earnings growth, which required them to grow their balance sheets well beyond what was necessary to assure liquidity in the mortgage market. Instead of just buying mortgages, insuring them and selling them in packages to investors, they bought more of them for their own portfolios, using ever-increasing amounts of borrowed money. Buying their own securities was profitable, but it left them highly exposed if anything went really wrong with the housing market, which is exactly what has happened.
Not since the early days of the Roosevelt administration, at the depth of the Great Depression, has the government taken such a direct role in the workings of the financial system.
In the following blog post Chris Anderson writes about other sorts of over-abundance and their consequences:
The Long Tail; Clay Shirky on the weird things that happen when things suddenly become abundant.A commenter adds: "Now consider this from the perspective of the developing world and especially China/India. What happens when the majority of the population shifts from spending 24 hours a day just surviving to having spare cycles to do something else?"
It takes a generation or two to figure out how to properly use some resource that used to be scarce but is now abundant. [For example the resource of] time, which we got more of in the prosperous decades after the Second World War. For the first few generations, we chose to fill that time with television. Only now are we learning to fill it more productively, and to greater satisfaction. To use Clay's term, it took fifty years for us to learn how to tap the cognitive surplus that came after the five-day work week.
[Chris quotes Clay: Another example is the 18th-century rush of agricultural populations to cities. In that case] "the critical technology, for the early phase of the industrial revolution, was gin. The transformation from rural to urban life was so sudden, and so wrenching, that the only thing society could do to manage was to drink itself into a stupor for a generation. The stories from that era are amazing—there were gin pushcarts working their way through the streets of London.
"And it wasn't until society woke up from that collective bender that we actually started to get the institutional structures that we associate with the industrial revolution today. Things like public libraries and museums, increasingly broad education for children, elected leaders—a lot of things we like—didn't happen until having all of those people together stopped seeming like a crisis and started seeming like an asset."
[Chris says:] This is the same phenomena that I described earlier, using a computer science analogy rather than an economic one, as the "awesome power of spare cycles."
I find this very perceptive. We're seeing the consequences of that abundance with increasing frequency: huge increases in energy consumption, corresponding huge increases in pressure on the environment, acceleration of global warming, an agricultural crisis partly spawned by changes in the daily diet of Asians,.... And probably also an eventual shift in cultural dominance accompanying the shift in economic and political dominance from West to East.