The Inane Ramblings Of David Brooks

If David Brooks doesn’t have to listen to himself talk then why should we? This also applies to his writing. A recent opinion piece of his for The New York Times Two Cheers for Wall St. certainly shows that he pays no attention to his own writing. Otherwise, how can he possibly write things like this:

There is roughly a 100 percent chance that we’re going to spend much of this year talking about the subprime mortgage crisis, the financial markets and the worsening economy. The only question is which narrative is going to prevail, the Greed Narrative or the Ecology Narrative.

In the very first sentence he claims that he can see into the future. If the economy improves will we still be talking about “the worsening economy”? Also, I’m sure that in the year 2008 I will have more than one question. And even if I only had one question it would not be, “which narrative is going to prevail, the Greed Narrative or the Ecology Narrative”, it would be, “Why is George W. Bush still in the White House after he has screwed everything up so much?”

Mr. Brooks then goes on to say something that I happen to believe is true:

The Greed Narrative goes something like this: The financial markets are dominated by absurdly overpaid zillionaires. They invent complex financial instruments, like globally securitized subprime mortgages that few really understand. They dump these things onto the unsuspecting, sending destabilizing waves of money sloshing around the globe. Economies melt down. Regular people lose jobs and savings. Meanwhile, the financial insiders still get their obscene bonuses, rain or shine.

The morality of the Greed Narrative is straightforward. A small number of predators destabilize the economy and reap big bonuses. The financial system is fundamentally broken. Government should step in and control the malefactors of great wealth.

I don’t think he thinks this is true, however. He goes on to describe something he calls The Ecology Narrative:

The Ecology Narrative is different. It starts with the premise that investors and borrowers cooperate and compete in a complex ecosystem. Everyone seeks wealth while minimizing risk.

Sounds kind of Pollyannaish to me. Yes, investors and borrowers compete, but thinking that they cooperate sounds a little naive to me. Finance is a winner take all cut-throat game at the very least. Has he never seen traders in the pit?

Brooks says:

The United States has generally opted for financial innovation. This has worked out pretty well. The U.S. has enjoyed 25 years of strong economic growth, in part because capital has been efficiently allocated to companies that can use it well.

This has worked out pretty well for the rich, but not for everyone else. Has “capital been efficiently allocated to” people who have lost their jobs, their homes, their pensions, their healthcare over the last 25 years?

Financial instruments like adjustable-rate and subprime mortgages have allowed millions of people to get homes they could not otherwise purchase, and research shows that most of these tools have been used intelligently.

Yes, millions of people were able “to get homes.” Now millions of people are losing those homes. “...most of these tools have been used intelligently”? Does Brooks have his head in the sand? How can he possibly write this at a time of financial crisis that was caused by… oh wait a minute, it’ll come to me… ADJUSTABLE-RATE AND SUBPRIME MORTGAGES.

Hedge funds have proliferated to help investors manage risk. These things exist precisely because investors want to smooth out volatility. In the old days, a blow to, say, the Texas economy could have dried up lending in Texas, but now funds flow globally, and money from one part of the world can shore up weakness in another.

Mr. Brooks flunks Capitalism 101 if he thinks that the primary reason for hedge funds is to manage risk. Like any business the primary reason for its existence is to make money for its owner. And hedge funds are making some of their owners incredibly rich at the expense of others. In financial markets there are winners and losers, we don’t all win. Money is not created and money doesn’t vanish, it just goes to the winners. In the old days when banks were locally owned, mortgages stayed with the bank and were not sold many times over. In the old days when banks were locally owned, a bank failure did not threaten the ENTIRE world economy, just that one bank. It was like a built-in safety net of containment. Now we need foreign investors to come and rescue us from ourselves. Brooks thinks this is a good thing?

…time and again hedge funds have dampened market instability. If a currency, a company or a stock market starts to spiral downward, deep-pocketed funds, smelling bargains, will come in and stabilize its assets. If a company’s price is rising to unsustainable levels, contrarian funds bet against the hype.

Except for the time when the largest hedge fund of its time had to be bailed out by the Federal Reserve Bank of New York with $3.625 billion to avoid a total collapse in the financial markets. To David Brooks I say: “Those who cannot learn from history are doomed to repeat it.”

Then Brooks goes on to explain that financial innovation requires an “adolescence” and we all should just learn to live with it because in the end everything will just be hunky-dory. He doesn’t mention how much money this “adolescense” will cost us.

The lesson of the Ecology Narrative is that, in most cases, the market corrects itself.

Then why does the government always have to step in to appease Wall Street? Why can’t the market just correct itself?

The Ecology Narrative is not morally satisfying. I wouldn’t bet on its popularity as a backlash against Wall Street and finance sweeps across a recession-haunted country. But the Ecology Narrative has one thing going for it. It happens to be true.

This is how David Brooks closes his column. Let’s not do what is morally right. For what reason? I don’t know. Brooks probably doesn’t know either. The proof that the Ecology Narrative is true? If wishes were horses…

Perhaps David Brooks is one of the main reasons that the New York Times stock price has gone from around $50.00 to $15.00 over the last five years. Perhaps if the New York Times fired him…