,/OP PANIC 9 ! ,CITY -- ABOLI% CAPITALISM6 

,PEOPLE 3 

,AU?OR 3 ,IA9 ,MC,KAY 

,TEXT 3 

,:AT A BLOODY 9SANE WAY TO ORGANIZE AN ECONOMY4 ,:AT O!R CONCLUSION CAN BE DRAWN FROM ! PANIC ?AT IS SWEEP+ ! F9ANCIAL M>KETS8 ,/>T+ ) PROBLEMS 9 ! ,U,S H\S+ M>KET1 ! CR$IT CRUN* HAS SPREAD ACROSS ! WORLD4 ,A M]E SIX MON?S AGO ! *AIRMAN ( ! ,U,S ,F$]AL ,RES]VE ASS]T$ ?AT 0! IMPACT ON ! BROAD] ECONOMY & F9ANCIAL M>KETS ( ! PROBLEMS 9 ! SUB-PRIME M>KET SEEMS LIKELY TO BE CONTA9$40 ,! 9VE/ORS 9 ! /OCK M>KETS HAVE CONFIRM$ ?AT HE WAS WRONG4 ,FE>S ( PANIC >E 9 ! AIR4 

,! BUBBLE SO MANY D5I$ HAS BUR/4 ,9 ,AM]ICA1 = EXAMPLE1 ! ,WA%+TON ,PO/'S MA9 S\RCE ON ! H\S+ M>KET 9 ITS BUBBLE YE>S WAS ,DAVID ,L]EAH1 ! *IEF ECONOMI/ ) ! ,NATIONAL ,ASSOCIATION ( ,REALTORS & ! AU?OR ( ! #be BE/SELL]1 ,:Y ! ,H\S+ ,BOOM ,WILL ,NOT ,BU/ & ,H[ ,Y\ ,CAN ,PR(IT ,FROM ,IT4 ,REALTORS MAKE !IR MONEY SELL+1 Y\ GUESS$ IT1 H\SES & L&4 ,BUT1 !N AGA91 DUR+ ! #a#i#iS /OCK M>KET BUBBLE1 ! PRESS REPORT$ UNCRITICALLY SIMIL> ECONOMI/S :O CLAIM$ ?AT !RE WAS NO BUBBLE & /OCKS W\LD RISE =EV]4 ,CRITICS W]E IGNOR$ - EV5 AFT] EV5TS PROV$ !M RI<T4 

,! REASON :Y ECONOMI/S 7REPEAT$LY67 D5Y ! POSSIBILITY ( BUBBLES LIES 9 ! NEO-CLASSICAL MODEL ( ! ECONOMY1 :I* ASSUMES P]FECT KN[L$GE & P]FECT =ESI<T4 ,= /OCK M>KETS1 ?IS IDEOLOGY GOES BY ! NAME 0,EFFICI5T ,M>KET ,HYPO!SIS0 7,E,M,H7 ,!RE CAN BE NO BUBBLES BECAUSE1 BY DEF9ITION1 !Y CANNOT EXI/6 ,( C\RSE1 ! AWKW>D FACT ?AT BUBBLES HAVE ALWAYS EXI/$ IS GLOSS$ OV]1 SUPPLEM5T$ BY CLAIMS ?AT ?IS BOOM 7UNLIKE ! PREVI\S ONES7 IS NOT A BUBBLE BECAUSE ( SOME WOND]FUL NEW 9V5TION 7! MORE 0EXP]TS0 GO ON AB\T A NEV]-5D+ BOOM1 ! MORE WORRI$ Y\ %\LD GET - A CRA% IS ON ITS WAY674 

,ACCORD+ TO ,E,M,H1 9=MATION IS DISSEM9AT$ EQUALLY AMONG ALL M>KET P>TICIPANTS1 :O HOLD SIMIL> 9T]PRETATIONS ( ?AT 9=MATION & CAN GET ACCESS TO ALL ! CR$IT !Y NE$ AT ANY TIME AT ! SAME RATE4 ,?AT IS1 EV]YONE IS CONSID]$ TO BE ID5TICAL 9 T]MS ( :AT !Y KN[1 :AT !Y CAN GET & :AT !Y DO ) ?AT KN[L$GE & CA%4 ,?IS RESULTS 9 A !ORY :I* >GUES ?AT /OCK M>KETS ACCURATELY PRICE /OCKS ON ! BASIS ( !IR UNKN[N FUTURE E>N+S1 I4E4 ?AT !SE ID5TICAL EXPECTATIONS BY ID5TICAL 9VE/ORS >E CORRECT1 & SO 9VE/ORS >E ABLE TO CORRECTLY PR$ICT ! FUTURE4 ,YET IF EV]YONE HELD ID5TICAL OP9IONS !N !RE W\LD BE NO TRAD+ ( %>ES AS TRAD+ OBVI\SLY IMPLIES DIFF]5T OP9IONS ON H[ A /OCK WILL P]=M4 ,SIMIL>LY1 9 REALITY 9VE/ORS >E CR$IT RATION$1 ! RATE ( BORR[+ T5DS TO RISE AS ! AM\NT BORR[$ 9CREASES & ! BORR[+ RATE NORMALLY EXCE$S ! LEAD+ RATE4 ,! DEVELOP] ( ! !ORY WAS HONE/ 5\< TO /ATE ?AT ! 0CONSEQU5CE ( ACCOMMODAT+ SU* ASPECTS ( REALITY >E LIKELY TO BE DISA/R\S 9 T]MS ( ! USEFULNESS ( ! RESULT+ !ORY 444 ,! !ORY IS 9 A %AMBLES40 

,?US ! WORLD WAS TURN$ 9TO A S+LE P]SON SIMPLY TO PROVIDE A !ORY :I* %[$ ?AT /OCK M>KETS W]E 0EFFICI5T0 7I4E4 ACCURATELY REFLECT UNKN[N FUTURE E>N+S74 ,9 SPITE ( !SE SLI<T PROBLEMS1 ! !ORY WAS ACCEPT$ 9 ! MA9/REAM AS AN ACCURATE REFLECTION ( F9ANCE M>KETS4 ,:Y8 ,WELL1 ! IMPLICATIONS ( ?IS !ORY >E DEEPLY POLITICAL AS IT SUGGE/S ?AT F9ANCE M>KETS WILL NEV] EXP]I5CE BUBBLES & DEEP SLUMPS4 ,?AT ?IS CONTRADICTS ! WELL-KN[N HI/ORY ( ! /OCK M>KET WAS CONSID]$ UNIMPORTANT4 ,UNSURPRIS+LY1 0AS TIME W5T ON1 MORE & MORE DATA TURN$ UP :I* WAS NOT CONSI/5T )0 ! !ORY AS ! MODEL'S WORLD 0IS CLE>LY NOT \R WORLD40 ,IT 0CANNOT APPLY 9 A WORLD 9 :I* 9VE/ORS DIFF] 9 !IR EXPECTATIONS1 9 :I* ! FUTURE IS UNC]TA91 & 9 :I* BORR[+ IS RATION$40 ,IT 0%\LD NEV] HAVE BE5 GIV5 ANY CR$IBILITY -- YET 9/EAD IT BECAME AN >TICLE ( FAI? = ACADEMICS 9 F9ANCE1 & A COMMON BELIEF 9 ! COMM]CIAL WORLD ( F9ANCE40 7,/EVE ,KE51 ,DEBUNK+ ,ECONOMICS1 P4 #b#d#f1 P4 #b#c#d7 

,?IS !ORY IS AT ! ROOT ( ! >GUM5T ?AT F9ANCE M>KETS %\LD BE D]EGULAT$ & AS MANY FUNDS AS POSSIBLE 9VE/$ 9 !M4 ,:ILE ! !ORY MAY B5EFIT ! M9ORITY ( %>E HOLD]S :O [N ! BULK ( %>ES & HELP !M PRESSURIZE GOV]NM5T POLICY1 IT IS H>D TO SEE H[ IT B5EFITS ! RE/ ( SOCIETY4 ,ALT]NATIVE1 MORE REALI/IC !ORIES1 >GUE ?AT F9ANCE M>KETS %[ 5DOG5\S 9/ABILITY1 RESULT 9 BAD 9VE/M5T AS WELL AS R$UC+ ! OV]ALL LEVEL ( 9VE/M5T AS 9VE/ORS WILL NOT FUND 9VE/M5TS :I* >E NOT PR$ICT$ TO HAVE A SUFFICI5TLY HI< RATE ( RETURN4 ,ALL ( :I* HAS A L>GE & NEGATIVE IMPACT ON ! REAL ECONOMY4 

,9/EAD1 ! ECONOMIC PR(ESSION EMBRAC$ A HI<LY UNREAL ECONOMIC !ORY :I* HAS 5C\RAG$ ! WORLD TO 9DULGE 9 /OCK M>KET SPECULATION AS IT >GUES ?AT !Y DO NOT HAVE BUBBLES1 BOOMS OR BUR/S4 ,P]HAPS ?IS HAS TO DO ! IMPLICATIONS = ECONOMIC !ORY = ?IS F>CICAL ANALYSIS ( ! /OCK M>KET8 ,AS TWO ECONOMI/S PUT IT3 0,TO REJECT ! .<,E,M,H.> = ! :OLE /OCK M>KET 444 IMPLIES BROADLY ?AT PRODUCTION DECISIONS BAS$ ON /OCK PRICES WILL LEAD TO 9EFFICI5T CAPITAL ALLOCATIONS4 ,MORE G5]ALLY1 IF ! APPLICATION ( RATIONAL EXPECTATIONS !ORY TO ! VIRTUALLY 'IDEA' CONDITIONS PROVID$ BY ! /OCK M>KET FAILS1 !N :AT CONFID5CE CAN ECONOMI/S HAVE 9 ITS APPLICATION TO O!R >EAS ( ECONOMICS 444 80 7QUOT$ BY ,D\G ,H5WOOD1 ,WALL ,/REET1 P4 #a#f#a7 ,QUITE6 

,UNSURPRIS+1 :5 ! GO+ GETS T\< ! CAPITALI/S GET GO+ - TO ! /ATE1 ASK+ = HELP4 ,!RE IS A BITT] IRONY HE>+ CALLS = WELF>E = H$GE FUNDS FROM ! V]Y SAME PEOPLE :O USUALLY URGE ! /ATE GET \T ( ! WAY & LET M>KET =CES DET]M9E EV]Y?+4 ,JU/ AS IRONIC1 WE HAVE ! MILLIONAIRES ( ! ,CITY1 :O HABITUALLY ?REAT5 TO MOVE (F%ORE UNLESS !Y CAN BE LEFT ALONE TO MAXIMIZE PR(ITS1 N[ SEEK+ ! ,BRITI% TAXPAY] TO HELP !M \T4 ,BUT SU* IS ! NATURE ( CAPITALISM - M>KET DISCIPL9E = ! WORK+ CLASS1 WELF>E = ! RI*4 

,& ! C5TRAL BANKS WILL 9T]V5E1 UND] ! RHETORIC ( SAV+ MILLIONS ( 0ORD9>Y0 9VE/ORS & SAV+S4 ,APP>5TLY ! 9/ITUTIONS ( F9ANCE CAPITAL >E TOO IMPORTANT TO FALL - UNLIKE1 SAY1 COAL M9+1 %IP BUILD+1 & ! HO/ ( O!R 9DU/RIES ,?AT*]ISM DE/ROY$ 9 ITS ATTEMPT TO BREAK WORK+ CLASS RESI/ANCE4 ,BUT1 ( C\RSE1 WORK]S 9 ?OSE 9DU/RIES W]E UNLIKELY TO VOTE ,TORY1 NOR CONTRIBUTE MILLIONS TO ITS C(F]S4 

,ULTIMATELY1 /OCK M>KETS >E A WAY = ! V]Y RI* AS A CLASS TO [N AN ECONOMY'S PRODUCTIVE CAPITAL /OCK AS A :OLE1 !Y >E A S\RCE ( POLITICAL P[] & A WAY TO HAVE 9FLU5CE OV] GOV]NM5T POLICY4 ,!Y HAVE LITTLE POSITIVE IMPACT ON ! REAL ECONOMY 7BEYOND TRANSF]R+ & CONC5TRAT+ WEAL? FROM ! WORK+ CLASS TO ! RUL+ CLASS1 :I* IS V]Y POSITIVE = ! LATT]674 ,:ILE SUPPORT]S ( CAPITALISM CLAIM ?AT /OCK EX*ANGES MOBILIZE FUNDS = BUS9ESS1 9 FACT BETWE5 #aieb & #aiig AB\T #i#b.0 ( 9VE/M5T WAS PAID = BY FIRMS' [N 9T]NAL FUNDS & SO 0! /OCK M>KET CONTRIBUTES VIRTUALLY NO?+ TO ! F9ANC+ ( \TSIDE 9VE/M5T40 ,EV5 NEW /OCK (F]+S ONLY ACC\NT$ = #d.0 ( NON-F9ANCIAL CORPORATIONS CAPITAL EXP5DITURES4 ,WORSE1 0! SIGNALS EMITT$ BY ! /OCK M>KET >E EI!R IRRELEVANT OR H>MFUL TO REAL ECONOMIC ACTIVITY1 & ?AT ! /OCK M>KET ITSELF C\NTS LITTLE OR NO?+ AS A S\RCE ( F9ANCE4 ,%>EHOLD]S 444 HAVE NO USEFUL ROLE40 7,H5WOOD1 P4 #g#b1 P4 #b#i#b7 ,ULTIMATELY1 9VE/ORS >E NOT 9 A POSITION TO ASSESS ! QUALITY ( ! ASSETS ON A F9ANCIAL 9/ITUTION'S BALANCE %EET4 ,9 FACT1 MO/ PEOPLE DON'T EV5 KN[ :AT ?OSE ASSETS >E & ?IS PRODUCES S]I\S NEGATIVE EFFECTS ON ! REAL ECONOMY4 

,AS ,H5WOOD NOTES1 !RE 0>E S]I\S COMMUNICATION PROBLEMS BETWE5 MANAG]S & %>EHOLD]S40 ,?IS IS BECAUSE 0.<E.>V5 IF P>TICIPANTS >E AW>E ( AN UPW>D BIAS TO E>N+S E/IMATES .<( COMPANIES.>1 & EV5 IF !Y CORRECT = IT1 MANAG]S W\LD /ILL HAVE AN 9C5TIVE TO TRY TO FOOL ! M>KET4 ,IF Y\ TELL ! TRU?1 Y\R ACCURATE E/IMATE WILL BE M>K$ D[N BY A SKEPTICAL M>KET4 ,SO1 IT'S 5TIRELY RATIONAL = MANAG]S TO BOO/ PR(ITS 9 ! %ORT T]M1 EI!R ?R\< ACC\NT+ GIMMICKRY OR BY MAK+ ONLY 9VE/M5TS ) QUICK PAYBACKS40 ,SO1 MANAG]S 0FAC+ A M>KET .<! /OCK M>KET.> ?AT IS FAM\S = ITS PREF]5CE = QUICK PR(ITS TODAY RA!R ?AN PATI5T LONG-T]M GR[? HAVE LITTLE *OICE BUT TO DO ITS BIDD+4 ,O!RWISE1 !IR /OCK WILL BE M>K$ D[N1 & ! FIRM RIPE = TAKEOV]40 ,:ILE 0.<F.>IRMS & ECONOMIES CAN'T GET RI*] BY />V+ !MSELVES0 /OCK M>KET 9VE/ORS 0CAN GET RI*] :5 ! COMPANIES !Y [N GO HUNGRY--AT LEA/ 9 ! %ORT T]M4 ,AS = ! LONG T]M1 WELL1 ?AT'S SOMEONE ELSE'S PROBLEM ! WEEK AFT] NEXT40 7P4 #a#g#a7 

,IRONICALLY1 ?IS SITUATION HAS A P>ALLEL ) ,/AL9I/ C5TRAL PLANN+4 ,UND] ?AT SY/EM MANAG] ( ,/ATE WORKPLACES HAD AN 9C5TIVE TO LIE AB\T !IR CAPACITY TO ! PLANN+ BUREAUCRACY4 ,! PLANN] W\LD1 9 TURN1 ASSUME HI<] CAPACITY1 SO H>M+ HONE/ MANAG]S & 5C\RAG+ !M TO LIE4 ,?IS1 ( C\RSE1 HAD A S]I\SLY BAD IMPACT ON ! ECONOMY4 ,UNSURPRIS+LY1 ! SIMIL> EFFECTS CAUS$ BY CAPITAL M>KETS ON ECONOMIES SUBJECT TO !M AS JU/ AS BAD1 D[NPLAY+ LONG T]M ISSUES & 9VE/M5T 9 FAVOR ( %ORT T]M PR(ITS = ! FEW4 ,& IT H>DLY NE$S TO BE /AT$ ?AT CAPITALISM RESULTS 9 PRODUCTION BE+ SKEW$ AWAY FROM WORK+ CLASS NE$S & ?AT ! 0EFFICI5CY0 ( M>KET ALLOCATION IS HI<LY SUSPECT4 

,:AT N[8 ,WILL ! PANIC RESULT 9 A CRA%8 ,AS ONE ( ! BETT] ECONOMI/S ( ! LA/ C5TURY1 ,JOHN ,K5NE? ,GALBRAI?1 ONCE WROTE ) REG>DS ! ,GREAT ,DEPRESSION3 0?R\<\T ! #a#i#cS ! F9ANCIAL LEAD]%IP 9 ! ,UNIT$ ,/ATES & ! POLITICAL LEAD]%IP ALL JO9$ 9 ONE WORD1 ONE PHRASE4 ',! FUNDAM5TALS >E S\ND4' ,?AT WAS1 ,I SAY1 REPEAT$ & REPEAT$4 ,AD NAUSEAM4 ,BUT ! FUNDAM5TALS >E S\ND4 ,ONE HE>S ?AT AGA9 ON OCCASION TODAY 444 ,& MY LA/ WORD IS - :5EV] ANYBODY HE>S IT SAID ?AT ! FUNDAM5TALS >E S\ND1 Y\ %\LD HAVE A SLI<T S5SE ( UNEASE40 ,BUT1 !N1 HE TRI$ TO ANALYZE CAPITALISM AS IT IS RA!R ?AN :AT IT %\LD BE ACCORD+ TO ! TEXTBOOKS 7& WAS PILLORI$ = IT BY ! TRUE BELIEV]S74 

,WILL !RE BE A DEPRESSION8 ,?AT IS ALWAYS LIKELY1 P>TICUL>LY IF ! GOV]NM5TS ( ! WORLD TAKE ! RHETORIC ( ! FREE-M>KET CAPITALI/S S]I\SLY4 ,YET ! ROLE ( ! /ATE IS MU* L>G] ?AN 9 ! #a#i#bS1 /ABILIZ+ AGGREGATE DEM&4 ,IT IS MORE ?AN WILL+ TO SOLVE F9ANCIAL WOES BY ?R[+ 7\R67 MONEY AT !M4 ,BUT ! M>KET IS UNPR$ICTABLE & ! FUTURE IS UNKN[N4 ,! CURR5T PANIC MAY SPREAD & BUR/ ! ,U,K H\S+ BUBBLE1 IMPACT+ BADLY ON CONSUM] SP5D+4 ,S9CE ! 5D ( SOCIAL ,KEYNESIANISM 9 ! #a#i#hS1 CAPITALISM HAS BE5 DEP5D5T ON BUBBLES1 MILIT>Y SP5D+ & P]SONAL DEBT TO GIVE ! APPE>ANCE ( DYNAMISM 79 ?IS S5SE1 ,KEYNESIAN DEM& MANAGEM5T HAS BE5 PRIVATIZ$74 ,PR(ITS HAVE BE5 HI< & ! WORK+ CLASS DOES NOT SEEM TO BE ?REAT5+ PR(IT M>G9S BY OBVI\S RESI/ANCE AT ! PO9T ( PRODUCTION 7P]SONAL DEBTS1 AFT] ALL1 HAVE TO BE PAID - ANO!R B5EFIT ( PRIVATIZ+ DEM& MANAGEM5T ALONG ) ! HI< 9T]E/ RATES674 

,:ILE TRY+ TO PR$ICT ! FUTURE IS A SURE WAY TO MAKE A FOOL ( Y\RSELF1 P>TICUL>LY AS IT W\LD AM\NT TO ! BANALITY ( SAY+ !RE WILL BE A RECESSION OR NOT4 ,! WELF>E /ATE = ! RI* C\LD FAIL AS LOTS ( EASY CR$IT HAS RESULT$ 9 A LEVEL ( DEBTS :I* MAY BECOME UNS]VICEABLE :ILE PRODUCTIVITY GR[? HAS BECOME SLUGGI%4 ,ANO!R POSSIBILITY IS ?AT CAPITALISM WILL /AGG] ON1 ) ! PANIC REC$+ 7= ! TIME BE+7 ON ! BACK ( \R MONEY ! /ATE H&S \T TO ?OSE :O LIKE TO BELITTLE ! WELF>E /ATE = ! MANY4 ,EI!R WAY1 AS LONG AS ! RI* >E GETT+ RI*] ! 0EXP]TS0 WILL REPEAT !IR USUAL MANTRAS ON H[ WOND]FUL ! ECONOMY IS DO+ 7?IS BE+ ! /&>D - BUT UNSPOK5 - DEF9ITION ( :AT CON/ITUTIONS A GOOD ECONOMY7 & ! FOLLY ( 0SOCIALISM0 7= ANYONE BUT ! RUL+ CLASS74 

,TWO ?+S >E SURE4 ,FIR/1 ! CURR5T SPATE ( PANIC %[S H[ IRRATIONAL CAPITALISM IS4 ,/ATE AID & REGULATION WILL NOT SOLVE ! PROBLEMS IT HABITUALLY CAUSES1 ONLY ITS ABOLITION WILL4 ,IT C\LD BE >GU$ ?AT ! /OCK M>KET IS NECESS>Y = 09DIVIDUAL LIB]TY0 7ALWAYS ID5TIFI$ ) CAPITALISM7 & SO IT W\LD BE WRONG TO ABOLI% IT4 ,?IS K9D ( >GUM5T C\LD1 P]HAPS1 MAKE S5SE IF IT W]E NOT = ! FACT ?AT ! RE/ ( US HAVE TO PAY ! CO/S = ITS SPECULATION BAS$ ON IGNORANCE4 ,! F9ANCIAL SY/EM HAS IMPLICATIONS = ! REAL ECONOMY & REAL PEOPLE4 ,TIME TO GET RID ( IT6 

,SECONDLY1 AN>*ISM WILL NOT COME AB\T VIA AN ECONOMIC CRISIS BUT ONLY BY ! DIRECT ACTION ( ?OSE EXPLOIT$ & OPPRESS$ BY IT4 ,ONLY BY TAK+ 9VE/M5T DECISIONS AWAY FROM 0EXP]TS0 & PLAC+ IT 9 ! H&S ( ORD9>Y PEOPLE WILL CURR5T G5]ATIONS BE ABLE TO 9VE/ ACCORD+ TO !IR1 & FUTURE G5]ATIONS'1 SELF-9T]E/4 ,IT IS H>DLY 9 \R 9T]E/ TO HAVE AN 9/ITUTION :OSE AIM IS TO MAKE ! WEAL?Y EV5 WEAL?I] & ON :OSE :IMS >E DEP5D5T ! LIVES ( MILLIONS ( PEOPLE4 

,FROM 3 ,!,AN>*I/,LIBR>Y4ORG4 

,*RONOLOGY 3 
,FEBRU>Y #a#a1 #bba 3 ,/OP PANIC 9 ! ,CITY -- ABOLI% CAPITALISM6 -- ,ADD$4 
,JANU>Y #g1 #bbb 3 ,/OP PANIC 9 ! ,CITY -- ABOLI% CAPITALISM6 -- ,UPDAT$4 

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