Commentary on Political Economy

Saturday, 17 April 2021

THE SHIP OF FINANCIAL FOOLS

 In his latest quarterly newsletter, David Einhorn laments the calamitously indolent and indeed derelict inaction and insouciance of asset-market regulators in the face of what he labels “the quasi-anarchy” of investment decisions on the part of investors old and new, individual as well as institutional. What is interesting about Einhorn’s alarm-raising warning is that it goes one level up from the usual admonitions about the growing incongruity of Wall Street valuations and their realistic relation to the actual command of productive activity - what is widely known as “Main Street”. By referring to anarchy as the gauge by which to judge and assess the sustainability of market asset valuations, Einhorn is effectively warning the regulatory authorities, who seem contemptibly impervious to the evident dangers welling up in financial markets from all angles, about the fact that investment decisions are now made without any reference to economic “values” relating to the essential economic parameters of cost and demand, but rather with regard to mere momentum or even “sentiment” ; and that, worse still, this sentiment has no relation whatsoever to “rational expectations” or even to “animal spirits” . Instead, this sentiment is based utterly and solely on outlandish signals coming from the most irrational corners of social media and entirely irresponsible “influencers” who do not even pretend, in turn, to base their influence on anything remotely based on facts or reality of any description.

The impending doom and imminent catastrophe of these developments is compounded by the fundamental economic reality that the anarchically psychopathic behaviour of investors now rests on a credit pyramid enlarged macroscopically by the largest private and public indebtedness and monetary expansion ever experienced in the entire history of capitalism. In short, not only do we have a repeat of the Black Tulip Bubble, but now this bubble is sitting on the infernal powder-keg of a historically unprecedented credit pyramid of fictitious capital due to collapse at any moment...And rather than intervening to defuse this explosive situation, regulatory, financial and monetary authorities, through indolence or timidity or fear of the extreme consequences, do precisely nothing apart from uttering either commonplaces or banalities and offering placebos at best. God save us all...save us from tomorrow!



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