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Greed is the Nature of the System

by Daniela Dahn, Karl Homann and Mark Engler Thursday, Nov. 13, 2008 at 4:52 AM

Politics was corrupted byt he economy and lost control to the economy. In the private enterprise system, there are too many incentives that oppose the public interest. When company pensions end, workers speculate. When high profits are the norm, companies speculate.


On False Scapegoats and our Responsibility in the Crisis

Interview with Author Daniela Dahn

[This interview published in: Frankfurter Rundschau, 10/27/2008 is translated from the German on the World Wide Web,]

Ms. Dahn, some see the end of turbo-capitalism in the current crisis. For others, it only amounts to a pause. What do you think?

Daniela Dahn: Where does evil turbo end and good capitalism begin? The impression now is that everything could be saved with a better international financial system. I doubt that. The financial speculators uncoupled from the real economy but not from our generally accepted way of life. They personify the culture that prevails. Greed is the nature and condition of existence of the system, not an excess. Nothing will change quickly in the principle of profit maximization.

Q: How can the state counter greed?

Dahn: The Swedes in the tradition of the Scandinavian model bailed out their banks. The state took over credit guarantees and established a stability fund. The banks had to pay a fee to the state. However bank shareholders were not denied dividends. As a penalty, the managers had to lower their salaries. They were shown that in truth they were not the powerful. Profit demands have to be adjusted downwards. Everything will remain the same if politics doesn’t courageously reflect about control over property.

Q: Do the shareholders have the main responsibility in the crash? Isn’t that a little too simplistic?

Dahn: Shareholders, managers and politicians are certainly the three main sinners. Still the blame must ultimately rest with politics. Politics was corrupted by the economy and lost control to the economy. Politics passed all the laws that led to the abyss. What it neglected to pass left a few tall obstacles in the way. Politicians can only act as the sovereign allows them. Seeking and appealing to individual scapegoats is hardly helpful now: I was not responsible; Alan Greenspan was responsible. For a long time, we knew this would happen. The influence of the individual citizen is often insufferably limited. But everyone talked into buying certificates in good faith that voted for the neoliberal parties instead of championing unions and rebelling bears a little responsibility.

Q: You have always criticized the privatization of public interests. Now we witness a countermovement. Governments give money for more influence on business decisions. Is this a first step in the right direction?

Dahn: I am skeptical because the bankers again essentially designed the rules of the game. Every nationalization is not a socialization. I have not seen any influence on real business decisions. The whole reflects a protection for bankers by citizens. Fictional money is washed by real money. We were told if we didn’t take this risk and give our money to the banks, we would have a hard time. We were practically taken hostage. If banks in the free enterprise way went into bankruptcy, we wouldn’t receive credits any more and then everything would break down. I cannot judge this. I fear no one else can judge this because interests instead of reason stand behind all answers.

Q: What must still happen if the prescription for a new social order after the crisis is not merely “more state”?

Dahn: I don’t have any prescription. Now is the time to question all certainties. What is wrong if we don’t become more indebted through uncovered credits? If worst comes to the worst, will the state promises be uncovered while the printing press starts up? What would be so bad if the banks remained without protection? All this is not trivial. Certainly, we must limit our consumption. The climate catastrophe has long told us this point was coming. When is this crucial if not now? Jobs will be lost without a radical reduction of working hours. If one brick is shifted, the whole inertia changes. That is unavoidable. In the private enterprise economic system, there are too many incentives that oppose public interest. The stock exchange stimulates policy and relies without reason on short-term profits. Prices soar when people are discharged and the remaining workers are exploited more severely. There are exchange losses through necessary long-term investments. Up to now, no one has had an answer to this basic problem. Without growth, the market economy dies of starvation. With growth, it suffocates.

Q: Does the crisis at least offer the chance of renegotiating the social pact between poor and rich?

Dahn: Crisis is always a chance that provokes great reflection. To get somewhere in the classical question of redistribution, we must ask again about spending priorities. In the US, the 0 billion for the banks produced a great shock. Three weeks before 2 billion was appropriated for armaments, warfare and the military-industrial complex without real debate as though the financial crisis only came from homebuilders and not from the wars.

Q: What will be the consequences on state credits for the UN goal of cutting in half the number of starving persons by 2015?

Dahn: Without the financial crisis, their number shamefully rose in the last eight years from 830 million to 923 million. The insight that the world system is unjust cannot prevail against powerful interests. If the humble of the earth cannot unite to a counterforce and form alliances like finance capital, they will fall by the wayside again. This demand is both old and unfulfilled.


Moral Hazard Problem

By Jens Tartler (Berlin)

The economic ethicist Karl Homann regards the financial crisis as a system problem, not a problem of personal lapses. In the FTD interview, the researcher from the University of Munich warns of “moralizing.”

[This interview from the Financial Times of Germany, 10/14/2008 is translated from the German on the World Wide Web,]

“All individual categories like egoism and greed are misleading. Individual culpability cannot be denied. But its punishment is a matter of the criminal law.”

Homann, an educated economist and theologian, did not want to gloss over excesses and management mistakes of bankers in the US, Great Britain and Germany. Certainly there were “individual abuses” with the Munich mortgage financier Hypo Real Estate. Reducing Hypo to “individual faults” is trivializing. The true causes are deeper.

Homann is a convinced market economist but not a market without restriction. Competition is a very efficient instrument, he says. But unbridled competition leads to the struggle of everyone against everyone else, as we know since Thomas Hobbes described it in 1851.”

What is now denounced as “greed” is inherent in the system. “Our whole prosperity was based on the pursuit of gain, on this greed. You cannot do anything else in competition because otherwise another would take you over,” Homann says.

This competition is very pronounced in the financial branch since no one can allow himself a delay. “When a new financial instrument is invented and one bank earns enormous money, another has to follow because of competition.”

Every community faces a tightrope walk between undesirable and positive effects of competition. Robbery, extortion and environmental pollution are not desirable, according to a general consensus. On the other hand, production innovations for customers could be seen as positive. However it is no longer clear which innovations benefit customers and which harm them in the case of the financial branch with its very complex products. “The crisis did not surprise me,” Homann says. “We have new instruments and techniques like the Internet. Competition will be ruinous in this unregulated space.”

The governments should have countered this much earlier. “When we fall on our noses, we first adjust the rules,” Homann laments. Politics cannot go from one extreme to another. “Simple regulations that facilitate innovations are best, not over-regulation.”

The only examples in Germany where regulations functioned from the start are the postal service and the creation of a competitive market for telecommunication services. However preliminary work was done there.

With the fast-moving financial branch, the regulating authority must watch the market development daily and prohibit harmful products. Every six months, the rules must be reviewed. “Ethics in the economy today is primarily an organization problem, not an individual problem.”

Homann sees the so-called moral hazard problem when private banks are bailed out with tax funds after speculating. According to economists, moral hazard is the phenomenon where market actors take excessive risk because they know they will not have to bear the risk in the claim. In the case of bank failures, Homann urges: “The culpable managers must disappear. Then they will think over their future conduct.”

Capitalism according to the US model has lost its splendor, in Homann’s view, through excessive speculation and the collapse of several banks. This has a “gratifying aspect. We now have the chance of countering the American accounting regulations. With our three-pillar banking system, we will do well.”


Mark Engler’s spot on BBC News on Obama’s Economic Mandate

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