Fed cuts rates; crisis over?

Doug Henwood dhenwood at panix.com
Sat Oct 17 11:15:08 PDT 1998

Louis Proyect wrote:

>Don't be so defensive, Doug.

Defensive? Me? What are you talking about?!?!

>I think what snitgrl (?)

Kelley Crouse, in disguise.

>and I are perturbed
>by is this obdurate agnosticism on your part. Frankly, I can't remember a
>single issue of LBO where you went "apocalyptic" and I am a charter

One of the reasons I'm so cautious today is that I was burned by being too apocalyptic after the 1987 stock market crash. I also used to think that the Latin debt crisis was going to bring down the world financial system and/or lead to the debtors' political secession from the development regime. None of that happened and I rethought my positions. As I said in Wall Street:


Of course, we don't have Fisher deflations today; we have expensive bailouts, and not just in the U.S. Actually, the recent U.S. bank and S&L bailouts were rather modest in comparison to disasters elsewhere. Estimates are that the combined losses and rescue costs in the U.S. disaster were about 3% of a year's GDP - compared with 4% for Norway's bank crisis, 6% for Sweden's, 8% for Finland's (all from the late 1980s and early 1990s), and, the world champion, 17% for Spain's (which ran from 1977 to 1985). Altogether, about two-thirds of IMF member countries experienced some sort of credit disaster between 1980 and 1996. Such disasters may have been successfully contained, but that doesn't mean they're insignificant or rare. In fact, some analysts argue that the banking disasters of the last quarter-century are historically unprecedented in both frequency and size (Goldstein and Turner 1996).

There is an important exception to the rule that generalized collapses no longer happen. As Penny Ciancanelli (1992) nicely put it, during the debt crisis of the 1980s the First World banks got a Minsky bailout while the Third World suffered a Fisher deflation. Domestic banking crises in Third World countries over the last decade or two have been far more intense than in the First, with losses ranging from 10% to 25% of GDP. Those countries, however, were unable to mount the kinds of rescue operations seen in the North, and their economies have, in many cases, suffered depressions, sparked and propagated in the classic Fisher manner.

But the experience of successful First World bailouts shows that Marx (1981, p. 621) badly underestimated the power of the state when he said that crises could not be avoided by "allowing one bank, e.g. the Bank of England, to give all the swindlers the capital they lack in paper money and to buy all the depreciated commodities at their old nominal values." </quote>

>I am beginning to think it is your Yale education that won't
>let you express some kind of partisanship.

My classmates have no problem expressing their ruling class partisanship. I was toying with the idea of going to my 20th reunion, in 1995, until I read one of the entries in the class directory (they send one out every 5 years, to get us primed for "reuning," as they say). It was from a labor lawyer, who said he was representing management to promote the efficiency of the labor markets.

Aside from my embarrassment at being apocalyptic in the late 1980s, and my temperamental pessimism, I also think that a lot of left writing is achingly bad because it's so apocalyptic, moralizing, and exhortatory. Bourgeois reviewers still denounce my stuff as "loopy" and "repellent," so it's not like they can't figure out where I'm coming from.

>I'm glad I went to Bard College,
>what somebody called the little red whorehouse on the Hudson.

Joel Kovel told me his students at Bard love Horkheimer & Adorno's chapter on the culture industry, "Enlightenment as Mass Deception." Even if they don't agree with it, they engage it furiously. Are there any other colleges where that would happen (or where Joel would be occupying an Alger Hiss chair)?


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