Cityislander’s imaginative translation of “La nuit du 4 août” at the French end of this blog. Many thanks to him!
Exactly 220 years ago (the French Revolution), on the night of August 4th, 1789, the question certainly was not about systemic risk. Yet, on that very night, an event of systemic magnitude occurred: the French assembly ended the feudal system and its privileges.
Keeping this historic event in mind, we have to reflect on the fact that we have not yet fully grasped that when systemic risk became an issue in 2007, capitalism wasn’t just going through a rough patch. Rather, it had been mortally wounded. Our politically correct attempts to see green shoots in the economy and marvel at them epitomizes wishful thinking.
The old fashion way to save capitalism, the socialization of losses, proved insufficient, this time to absorb the sheer size of the systemic shock, only matched by the enormity of the debt binge that caused it over the past 35 years. Tax havens had allowed the wealthy to evade the IRS, leaving the middle class to pay for the bailouts. This time, however, the price tag is simply unaffordable.
Without a viable solution, we look the other way and comfort ourselves with the illusion that things will heal over time; a propaganda, that is generously fed by the establishment. Isolated havens of prosperity have emerged, the pitiful benefits of the purported trickle down economics behind the massive bailouts.
The less fortunate were left to face dire prospects on their own, while at the same time the available resources were given in priority to the few banks still standing, thereby confirming the oligarchy theory. Looking back, they seem to have been pulling the strings all along. Lehman Brothers, declared bankrupt on Sep 15 of last year, was a rival of “Government Sachs”. Wasn’t it meant to happen, then?
In the heydays of finance, competition was rife between banks, yet markets were deemed resilient. The high-jacking of capitalism by banks, however, eventually brought it to its knees. With the benefit of hindsight, we’d like to think that everything would get back to normal if only we got rid of the bad guys. Alas, our awakening comes after the fact. The goose that lay golden eggs is gone.
In spite of occasional rallies, under IV therapy by the government, Wall Street’s attempts to resurrect its glory are eventually deemed to failure and will only reflect the desperate attempts of its kings to stick to power.
When the new system takes over, we will not see it for what it is: the replacement of a broken system by a new one. Rather, we will clamor that reason won over a corrupt elite, that drowned in its own excesses.