Wednesday, June 25, 2008

Helmut Schmidt On The Financial Crisis

(image via the-americaninterest)

An interesting interview with former German Finance Minister and Chancellor Helmut Schmidt at a dinner at the German Ambassador’s residence. The topic is the global financial crisis. What is interesting is how Schmidt zeros in on "infectious greed," or, as we like to call it here, "thumoeideutic excess," as one of the culprits. It is not inconceiveable that excessive thumos is symptomatic of late stage Empires. That might explain why Christianity, a Western method of taming thumotic urges, followed the smouldering ruins of Ancient Rome. From The American Interest, July/August 2008:

"AI: What is the reason for the current crisis of the financial markets?

"Helmut: There are three reasons. First of all, there are these unregulated financial instruments ...The traders spend hundreds of millions of dollars on products, electronically and without any paper trail, that not even their bosses understand. There are scores of investment banks out there. They understand their jobs, but not much else. If one sells a product, others will follow suit and start selling off within seconds. That will obviously affect the stock price. That's how mass hysteria is created within a fairly limited group of people. This type of hysteria, in and of itself, is the second major danger.

"The third factor is what Alan Greenspan once termed 'infectious greed.' The bonus system invites greed. New York investment banks have showered their employees with yearly bonus payments worth about $38 billion. It was nothing but coincidence that the current crisis was triggered by a system that handed out mortgages to people not all of whom could be expected to pay them back. It might just as well have been the collapse of a major investment fund or a hedge fund or a private equity fund.

"AI: What type of medicine do you suggest for ailing markets.

"Helmut: There is no drug that will help immediately. In the long run, however, financial instruments will have to be regulated as if they were drugs. For immediate relief the Federal Reserve is creating liquidity of a magnitude that we have not seen before in world history."

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