The Jester and the Clown

For those of you who have been living under a rock these past few weeks, Jim Cramer and Jon Stewart had a bit of a tiff. A few weeks ago Jon Stewart decided to run a segment on the failed predictions of CNBC, culminating in the line, “If I’d only followed CNBC’s advice I’d have a million dollars today, provided I’d started with one hundred million dollars.” Stewart continued to play our nation’s jester when Cramer came to respond on the Daily Show--see for yourself—but his funniest joke isn’t anything he said: rather he made Cramer look like a clown. Pivotally in the interview, Stewart makes a distinction between two stock markets.

“One that has been sold to us as long term. Put your money in 401k’s. Put your money in pensions. Just put it there and leave it. Don’t worry about it. It’s all doing fine. Then there’s this other market – this real market that’s occurring in the back room, where giant piles of money are going in and out and people are trading them and it’s transactional and it’s fast. But it’s dangerous. It’s ethically dubious. And it hurts that long-term market… It feels like we are capitalizing your adventure.”

stewart-cramerCramer initially rebuffed Stewart’s comments saying, “He’s a comedian.” Yes he is. But those words cut to the core of the issue in the financial crisis, a crisis precipitated by a greedy few coaxing us into false sense of security in a system built to bankrupt and to exploit. And isn’t it fitting that a comedian was the one to call it out? Shakespeare’s fools were always the one character who actually knew what was going on: “The fool doth think he is wise, but the wise man knows himself to be a fool.” We often get so caught up within our narrow methodologies and presuppositions that we lose the ability to recognize blatant absurdities in front of our face. No one wanted to challenge the financial pundits as the crisis unfolded because they were the “experts.” They had a reason for everything. Sure, they were contradictory; sure, they didn't make logical sense; sure, they seemed just one step above Chicken Little. But the experts sure knew what Tier I capital is. With their demigod status in the public mythos firmly enshrined by their jargon argot and knowledge of the industry's secrets, the financial pundits pontificated and pronounced with impunity.

But their punditry blinded us to the reality: these financial wizards were really just a bunch of clowns. How else do you explain Jim Cramer tossing cows through his legs and pantsing CEOs? The problem in the financial market was that as these financial masters of the universe created more exotic derivatives and more promising instruments that reflected less and less of the actual economy or reality, it just became an increasingly perverted episode of Quants Gone Wild. So when the exuberance of capitalism, perfectly exemplified by Jim Cramer, worked within these structural imperfections of the financial market, the inevitable result were the catastrophic consequences catalyzed by the subprime mortgage market. Profit at any cost presupposes a perfect legal and regulatory framework to ensure that the market produces good and just results. The founder of modern day capitalism agrees:

“Smith viewed markets and capital as doing good work within their own sphere, but first, they required support from other institutions—including public services such as schools—and values other than pure profit seeking, and second, they needed restraint and correction by still other institutions—e.g., well-devised financial regulations and state assistance to the poor—for preventing instability, inequity, and injustice. If we were to look for a new approach to the organization of economic activity that included a pragmatic choice of a variety of public services and well-considered regulations, we would be following rather than departing from the agenda of reform that Smith outlined as he both defended and criticized capitalism.” (Amartya Sen, http://www.nybooks.com/articles/22490)

Greed is not always good. The ideology that says unfettered markets work best and that government should just get out of the way leads to these sorts of problematic outcomes. We get pretense and deceit rather than actual market transactions, corresponding to production and based on value (oh, and here’s Kramer explaining the wonder of these shenanigans). In this financial crisis, we got abstract investment instruments for the sake of abstract investment instruments--and for the sake of the banker uninterested in real value. So rather than one market, the market that we tinker with that presupposes perfect information, what we inevitably get is Stewart’s two markets: one for those who know what’s actually going on and another for the rest of us (Econ majors aside for the moment).

And John Stewart is absolutely right about whom to blame. There were people, people who knew what was going on, who understood the machinery of the market, and yet who did nothing. They deserve much of the blame. Certainly there is more than enough blame to go around, but it is absurd to say that Joe Homeowner is just as responsible as these masters of the universe. Joe Homeowner was stupid and irresponsible to buy a house that he couldn’t afford with credit he didn’t deserve, but he’s not responsible for this crisis. The housing market didn’t cause this crash. We don’t have a housing crisis right now; we have a national crisis. It is the shameless abuse of the trading machinery by the financial masters of the universe that deserves the blame for this catastrophe.

If we’re going to look into what caused this crisis and how we should proceed, we’re going to need to take a good hard look at what sort of capitalism we really have and the sort of capitalism (if any) we really need. We can no longer afford a dialogue of empty parables proclaiming the virtues of the market or the state. We need to think about what regulation and how regulation will actually be enforced rather than just loudly (and intellectually lazily) call for more regulation. We need more than to lynch AIG executives -– much more. We still haven’t reached the darkest depths of this financial and economic crisis, but we undoubtedly need to look even deeper into our collective economic soul and figure out what sort of system we need once we get out of this mess.