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Greenspan's principal-agent problem

Former Fed chairman Alan Greenspan testified in Congress yesterday on his contributions to the current financial crisis. To the surprise of virtually everyone, he admitted fault. House Oversight Committee chairman Henry Waxman basically told him that he was making decisions ideologically and that his ideology was inadequate; Greenspan admitted it was true.

“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Mr. Greenspan said. Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.” Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said. “Absolutely, precisely,” Mr. Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

This is flabbergasting, most of all Greenspan's claim that he believed that the "self-interest of organizations" would protect shareholders. It's almost as if he'd never heard of the principal-agent problem. Bankers make big bonuses when they take big risks and increase revenue; those risks are in the interests of their bonuses, not in the shareholders' long-term interests. And what's more, shareholders had even less idea of what was happening on trading floors with respect to derivatives and securitizations and the whole alphabet soup of financial arcana. Management was making bets with shareholder's equity. Incentives were misaligned. It was only a matter of time before the whole system melted down. But this isn't the failure of the "free market," at least how your average free-market ideologue would understand it. Dean Baker explains how Greenspan's testimony makes him a faux Randian. Ayn Rand would say be as greedy as possible and let shareholders look out for themselves, if they can. And the fee market ideologue would say those who fail, fail; they don't get bailed out. But that is not what was happening on Wall Street, which is not the "free market". It's not free because the government and taxpayers were tacitly paying for it all along:

The banks were able to get access to vast amounts of capital because everyone had faith in the "too big to fail" doctrine. In other words, all the people who lent Bear Stearns, Lehman, AIG, Goldman and the rest money felt secure because they thought the government would come to the rescue at the end of the day if the hotshots messed up big time.

With the exception of Lehman Brothers, these folks were right. The Wall Street hotshots were gambling not only with their shareholders' money, but they could also count on the security blanket of a government bailout if they really got into trouble. In other words, they were gambling with the taxpayers' money also.

This is important because the Wall Street hotshots didn't have and don't want a free market. They want to be able to take big risks with other people's money, both their shareholders and the taxpayers.

The point, as always, is that talk of "free markets" is a disguise for trying to slant the markets in your favor. The same goes for "spreading the wealth," as Will Wilkinosn explains: "democratic politics just is a wealth-spreading exercise, and there’s no avoiding it. If you’re gonna pick sides, you’re just picking your favorite redistributive poison."

Judging by what has happened to income distributions over the past eight years, Republicans want to spread it up, concentrate it in the hands of the established and already well-connected. Democrats -- I hope -- intend to spread it around.

From genre-busting electronic music to new highs in the ever-evolving R&B scene, from hip-hop and Americana to rock and pop, 2017's music scenes bestowed an embarrassment of riches upon us.


60. White Hills - Stop Mute Defeat (Thrill Jockey)

White Hills epic '80s callback Stop Mute Defeat is a determined march against encroaching imperial darkness; their eyes boring into the shadows for danger but they're aware that blinding lights can kill and distort truth. From "Overlord's" dark stomp casting nets for totalitarian warnings to "Attack Mode", which roars in with the tribal certainty that we can survive the madness if we keep our wits, the record is a true and timely win for Dave W. and Ego Sensation. Martin Bisi and the poster band's mysterious but relevant cool make a great team and deliver one of their least psych yet most mind destroying records to date. Much like the first time you heard Joy Division or early Pigface, for example, you'll experience being startled at first before becoming addicted to the band's unique microcosm of dystopia that is simultaneously corrupting and seducing your ears. - Morgan Y. Evans

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The year in song reflected the state of the world around us. Here are the 70 songs that spoke to us this year.

70. The Horrors - "Machine"

On their fifth album V, the Horrors expand on the bright, psychedelic territory they explored with Luminous, anchoring the ten new tracks with retro synths and guitar fuzz freakouts. "Machine" is the delicious outlier and the most vitriolic cut on the record, with Faris Badwan belting out accusations to the song's subject, who may even be us. The concept of alienation is nothing new, but here the Brits incorporate a beautiful metaphor of an insect trapped in amber as an illustration of the human caught within modernity. Whether our trappings are technological, psychological, or something else entirely makes the statement all the more chilling. - Tristan Kneschke

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Culture

Net Neutrality and the Music Ecosystem: Defending the Last Mile

Still from Whiplash (2014) (Photo by Daniel McFadden - © Courtesy of Sundance Institute) (IMDB)

"...when the history books get written about this era, they'll show that the music community recognized the potential impacts and were strong leaders." An interview with Kevin Erickson of Future of Music Coalition.

Last week, the musician Phil Elverum, a.k.a. Mount Eerie, celebrated the fact that his album A Crow Looked at Me had been ranked #3 on the New York Times' Best of 2017 list. You might expect that high praise from the prestigious newspaper would result in a significant spike in album sales. In a tweet, Elverum divulged that since making the list, he'd sold…six. Six copies.

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Under the lens of cultural and historical context, as well as understanding the reflective nature of popular culture, it's hard not to read this film as a cautionary tale about the limitations of isolationism.

I recently spoke to a class full of students about Plato's "Allegory of the Cave". Actually, I mentioned Plato's "Allegory of the Cave" by prefacing that I understood the likelihood that no one had read it. Fortunately, two students had, which brought mild temporary relief. In an effort to close the gap of understanding (perhaps more a canyon or uncanny valley) I made the popular quick comparison between Plato's often cited work and the Wachowski siblings' cinema spectacle, The Matrix. What I didn't anticipate in that moment was complete and utter dissociation observable in collective wide-eyed stares. Example by comparison lost. Not a single student in a class of undergraduates had partaken of The Matrix in all its Dystopic future shock and CGI kung fu technobabble philosophy. My muted response in that moment: Whoa!

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Books

'The Art of Confession' Ties Together Threads of Performance

Allen Ginsberg and Robert Lowell at St. Mark's Church in New York City, 23 February 1977

Scholar Christopher Grobe crafts a series of individually satisfying case studies, then shows the strong threads between confessional poetry, performance art, and reality television, with stops along the way.

Tracing a thread from Robert Lowell to reality TV seems like an ominous task, and it is one that Christopher Grobe tackles by laying out several intertwining threads. The history of an idea, like confession, is only linear when we want to create a sensible structure, the "one damn thing after the next" that is the standing critique of creating historical accounts. The organization Grobe employs helps sensemaking.

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