Subprime Society

Forgive me for flagging this lede from a Turkish Daily News rundown of global markets’ response to the massive, coordinated bailout plans:

Hundreds of billions of dollars of taxpayer money flooding into the veins of the global financial system prove insufficient, as global markets continue their decline. Stock markets, including the Istanbul Stock Exchange, are hit hard, as the evaporation of worldwide equity value reaches $25 trillion.

Depressing, I know, but it’s that last part that caught my eye. When people talk about value evaporating, they have a tendency to confuse theoretical value with real value. But a decline in stock prices is not the same kind of loss as a fire that destroys a warehouse full of goods of equivalent dollar value.

Of course, that kind of observation isn’t going to win me any Nobel Prizes for economics. But what’s striking to me about the current financial crisis is how the massive, systemic failure to accurately assess the value of the financial derivatives of subprime loans (which I’ve described as an inflation of the value of American poverty) mirrors the ways in which we’re struggling to accurately assess the value of changes in other aspects of modern society.

Take the revolution in communications technology. With so much information so easily available, the challenge becomes how to distinguish the quality of what’s being reported. A similar argument could be developed for the impact of globalization, with its abundance of cheap consumer goods, and I’m sure there are other recent developments that could be fit into the argument.

Back in high school, I had a social studies and economics teacher by the name of E. Ira Marienhoff, who was something of a legend in NY, in part due to his repertoire of endlessly repeated aphorisms. One of his favorites, used to skewer liberal government spending, was, “There’s no such thing as a free lunch.”

The subprime crisis is a metaphor for a society that convinced itself it was paying nothing for what it consumed.

Not surprisingly, one of Mr. Marienhoff’s other famous adages was the Equine Paradox, known to three generations of NY high school students: “There’s always more horses’ asses than horses.” The challenge now is to distinguish one from the other.

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