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degree to which an economy is centralized vs decentralized
Started as decentralized agrarian economy-- farmers, trade groups selling industrial goods
Railroads, steel mills-- economy became more centralized because indivs. couldn't take on such big enterprises.
Theory that entire economy would be centralized.
Now it's mixed- some things are more centralized, some more decentralized.
When things are centralized, when we cede control to someone else... is that control exercised on a case by case basis,
one dimension is whether and organization is top down or bottom up
another is whether decisions are made based on rules that are mechanistics.
Steve Jobs and Henry Ford were top down, but not mechanistic.
rules created by human beings, rules based on statistical models-- latter don't work
What has happened to finance in last 20-30 years this happened
Went from a fairly decentralized bottom up system to a centralized one that was not case by case judgement to one based on ceding of control to statistical rules.
Used to be mortgage approval would be based on individual judgment on person.... (10 in)
We've moved to a top down mechanistic entity that makes the decision. there's no human that decides whether you or I get a mortgage or not.
ROB What was the problem with that that led to the housing crash?
All decisions are based on a handful of people building models. If these models are wrong, the whole system comes crashing down.
That can happen if lending officers make decisions, but there are many lending officers and so, it doesn't affect the whole system.
People learn to game models... they figure out there are six or seven variables they can play with..."let me see how they can game the system." More prudent people get priced out of the market.
When you have a system that is top down, based on these mechanistic models attract investors and money and those that require more work.
It's too much work to get involved with lending money to small businesses-- let's crank up lending to the housing sector.
One thing that mechanization allows you to do is to build very large businesses. Cars...
Also a dangerous thing because the people running these businesses don't k now what's going on underneat them. As the financial technology got.... (16) became more consolidated... a
Loans were robotically made. Repossessions are robotically done.
You sent your mortgage check to a data processing machine.
The same data processing machine has the responsibility for foreclosures, but they don't have the staff. Itis illegal to serve a foreclosure notice on someone unless the person signs an affidavit that they are familiar with the facts of the case. SO there are people signing 500 or more of these a day, saying they are familiar.
It's a symptom of the same disease-- of the fact that there were no humans at the other end who held the mortgage, and that the organizations were huge--- JP Morgan has 100 trillion in securities.
200-300 trillion in nominal derivative exposures held by five banks.
Mechanization and top down concentration.
Ending Glass Steagel was sort of an exclamation mark.
By 1990 Glass Steagel was for all practical purposes gone.
Is banking system more like computers, where there is not much need for regulation or like automobiles, where regulation is needed to prevent deaths.
When you get to things like derivatives, where they are so complex that even people who work with them cannot.
There are laws that make some cars not street legal-- these cars can be raced in formula one-- you can take them off the road, build your own racetrack... then you can have cars that are not allowed on the road, but, if they want to create their own little racetrack somewhere else, without taxpayer guarantees and want to create their own racetrack.
It undermines the fundamental legitimacy of capitalism. Capitalism makes some people incredibly wealthy, but they do it by benefitting others with more value than they have achieved.
The two guys from google are worth billions, but they've created greater values for others.
But financial people have become wealthy without benefitting others, while being subsidized by the public.
Subsidizing a $200 trillion industry has no public interest-- so I say take away that subsidy.
Rob: What is the subsidy and how do we take it away?
don't back financial orgs that engage in derivatives and the like.
Regulations existed in 1950's-- were wiped out by 1000 cuts.
Example-- trucking-- okay to deregulate pricing so trucking companies, but not safety, so trucking companies can decide on brake safety.
New finance reform went in the opposite direction
Need much narrower focus, much simpler rules.
In 1880s railroads pretty much owned the legislatures of the states-- in 30 years, they were broken up-- populist movements, automobiles... we do have a system where change is possible.
People no longer trust the experts to tell us what the right thing to do is.
There are large parts of the financially centralized
First and crucial step is to break up banks and limit banking to basic banking.
The dehumanization of finance took place in part because my colleagues inthe academy created these fantastic models.
Centralization of banking and it's dehumanization went hand in hand.
1835 law passed by NY legislature-- each bank was individually chartered-- you are chartered to do this that and the other and to do nothing else-- just three or four things. .
Say you can do basic lending-- the sort that can be understood by a person of average training and intelligence and nothing else. YOu cannot engage in loans that the average person will not understand.
As yet, there is not an understanding for the need for such a change.
banking acts of 1933 and 1935 about 33 pages long.
Proposals of the Obama admin were indistinguishable from the proposals of the Bush admin in the last years of office. There's a lack of understanding and a lack of courage.
POliticians are overwhelmed by the complexity...
Economists have theories in the head where judgment doesn't really matter. They deal with an economy that is stagnant where nothing changes-- not dead, but not growing, not evolving, growing changing.
ROB: The connection economy?
The need for conversations-- broad conversations increases with the development of new technologies.
biodiversity and capitalism
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