James Grant on the confidence game

James Grant in the WSJ:

"Not only can't you predict them, but you can't even recognize them after they've swollen to grotesque maturity. "

In this they were wrong, but it is still a question if the Fed will be allowed to slow growth when people are still making money on a theory that things are about to sour.

"Artificially low interest rates, imposed by the Federal Reserve itself, were one cause of the trouble."

This is much easier to see in hindsight.

"But it was a drug on the market for years before. "

Yes, but blaming the Fed is like blaming the dealer, and you need to decide whether you want to attack supply or demand.

"Perhaps the world has gone so far down the path of socialized finance that there's no turning back."

This won't happen.

"For a start, the Fed might foreswear the Greenspan-inspired conceit that it can put the economy back together again after a debt bomb explodes."

Fair enough, as long as the public and politicians and investors are not expecting it to and investing as if it will.

"And the opportunities? For the first time in a long time, stocks, tradable bank loans and mortgages are becoming cheap. The bear market is truly a value restoration project."

This is true.

Interesting article. It's true, but also the same-old-same-old, nothing new here.

You are missing your métier, Rod, which is the human angle to this crisis. For example, examine this article by Charles Moore:

Looking back...a form of social order which was dying. Job, saving, marriage, sucking up to potential lender: we were made to prove that we could be trusted in order to gain the privileges that trust brings. In a word, we were made respectable. As hard times return, could respectability return, too? Should it? Ever since the Romantic movement began more than 200 years ago, no concept has taken harder knocks from great minds. Respectability has been seen as life-denying, repressive, hypocritical, and very, very boring.

Anyway, this angle on the financial crisis is your forte, and practically nobody is doing it. The real truth, that we know in our hearts: the present crisis has it's roots in cultural decline (just like the Depression of yore) resulting from from family decline and liberal cultural values. We all know the truth, yet hide our faces because we want the party to last as long as possible.

I've been reading Family and Civilization by Zimmerman (thanks for this recommendation) and it all ties together in ways that very few media people can get.

Pyrrho and mdavid,

I agree with the premise of the respectability piece, but only partially.

We must not romanticize this genteel "respectability" that Moore mentions. It was torn down in the sixties because it was ossified, irreparably intermixed with bigotry and sexual hypocrisy, and overly puritanical.

However, I will agree that perhaps the sixties got rid of the baby along with the bathwater. I also hope that this notion of "respectability" comes back, but a 21st century version of it. I find the seeds of a new respectability in the punk-rock DIY (do it yourself) movement. DIY is naturally a leftist phenomenon - but its crunchy-leftist, minimal debt, low-impact living, Michael Pollan style food reform, community and family centered, and most importantly concerned with responsible child bearing (two parents of whatever gender, but responsible parenting is a must - my generation has been sufficiently burned by divorce that we recognize the need for stable families.)

I'm still holding out hope for a crunchy left-right alliance. If only we had a more sensible political system, these two factions could perhaps form some sort of block (Greens and Christian Democrats - something like that?), but we're stuck with two giant incomprehensible big-tent parties.