Let it crash? The US and European Financial Crises

I originally posted this to another blog 2011/09/30. I have corrected some spelling and style issues but otherwise the content is the same and I still stand by it.

Here is a summary from NY Times. The German parliament, apparently not supported by the german people, has decided to approve the bailout expansion for indebted European countries. Luckily there are some countries left that opposes this.

I won’t pretend to understand much of international economy but what I like to think that I understand at some level is how systems work, and that some events can have unanticipated effects. There are two main reasons why I think that the other Euro countries should not throw money on this problem:

(1) Capitalism don’t work without accountability. There must be consequences to bad behaviour if the system is to self-regulate itself. It seems that there are opinions that capitalism is to blame for the current situation but the main problem is that governments haven’t made sure to hold people and organizations accountable for their actions. By lack of transparency, for instance by allowing weird and incomprehensible practices to persist in the US, and by letting the Greek government bullshitting its way through the Euro cooperation. And by letting every bank and corrupt government and people know that whatever they do they will be bailed out.

(2) Stock markets, and I guess complex socio-politico-financial systems, may behave like self-organized critical systems. Complexity builds up over time and is relieved through small crashes, decreasing complexity and causing new structures. However, the natural avalances can be stopped by government interventions. But what happens then is that complexity builds up even more, to the point that the collapse becomes catastrophic requiring even more artificial interventions. In my view that is what has happened now over time. In 2008 the collapse should have been allowed. Banks and businesses should have been held accountable and been allowed to crash. Complexity could have been decreased and new, more resilient structures could have been built up.

Instead the natural crash was stopped through artificial means, by increased US debt and money printing. And in Greece there have been similar ways to hinder a necessary collapse. Stop pumping funds into systems that are obviously flawed and allow them to crash sooner rather than later and let’s build something better instead. A more accountable capitalist system with a lower level of complexity and tensions.

I don’t have time to understand all the details of this mess, or check the validity of the self-organized criticality application above. But this isn’t academic research, its my opinion, and I have a feeling I’m on to something (along with the probably tens of thousands of other people out there with similar opinions that know more about this than I do).

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