It will be no surprise to anyone that I judge Francis Cianfrocca to be in the top rank of commentators on the American crisis. Without him I would be flying blind in this thing. But note well, my friends who affirm Capitalism, that only a fool would imagine that his enthusiasm for the free enterprise system is anything but deep and abiding. He is a defender of the free market. It may be easy enough to dismiss the ravings of a couple of brassbound Distributists like me and Maximos; it will be another challenge entirely to blow off the hard truths that Francis delivers from the actual world of Capitalism.
But more than the supreme challenge he delivers to the defenders of plutocracy from the Right, Francis just writes brilliantly. I am not alone in having attempted unsuccessfully to persuade him to write a book. He says he has too much business to do, too much company to build, too much enterprise to accomplish. America needs such men more than ever. Our Socialists simply do not understand that their dreams no less than ours are doomed if the private sector can never again grow robustly.
So folks ought to listen to Francis for a variety of compelling reasons.
I used to be a happy businessman. Then I discovered that politics was totally messing up my life, so I took the poison and got into politics. Now I’m discovering that policies promulgated by economists are totally messing up my life, so I’m taking more poison and learning economics.
Now that could be a fine opening to a great polemic against the failures of the discipline of economics, which lost its way when it became undisciplined — or rather all too disciplined, but under the wrong rubric of human thought. Economics began to emulate the hard precision, rigidity and above all the predictive pretentions, of the physical sciences; and it went off the rails. The pretentions remain. Francis: “It’s still all about the attempt to produce a set of equations that can provide uncontroversial determinants for economic policy.”
Naturally he writes cogently on more technical stuff:
In fact, an extraordinary realignment is now under way in the market for US Treasury securities. Today, the 10-year note traded to yield as little as 2.56%. Less than three weeks ago, the note yielded 3%. Back in mid-May when the euro-crisis was throwing sand in the gears, the note was around 3.60%. In April, when the stock market touched its high for the year, the 10-year yield on some days was above 4%.
And I clearly remember the mood at the beginning of this year, when the talk was all about a rocket-propelled global recovery as manufacturing output and exports roared forward on Obama stimulus dollars. Back then, the talk was of a 10-year note yielding north of 5%. Instead, as the economic outlook has darkened, the note is plunging toward 2%.
Keep in mind that we’re talking about extremely large amounts of money here. The 10-year is only one point along the Treasury yield curve. There is outstanding issuance all the way out to 30 years. US Treasury debt is the largest, most liquid asset class in the world. When prices for these assets rise strongly enough to push the 10-year yield down from 4% to 2.56%, we’re talking about the movement of hundreds of billions of dollars. And then there is a far larger market for swaps and other derivatives riding on top of the end-user bond market. And all this movement has taken place in barely four months!
That was on Aug. 16th.
Next, consider the savage wit of this send-up of what we might call the Geithner Charade:
Tim Geithner is hosting a “listening session” today with housing industry execs and other interested parties, regarding the future of Fannie Mae and Freddie Mac. Let me help you translate what’s being said.
Geither: “It’s not tenable to leave in place the system we have today.”
Translation: “We have our work cut out for us to keep in place the system we have today.”
Geithner: “We will not support returning Fannie and Freddie to the role they played before conservatorship, where they took market share from private competitors while enjoying the perception of government support.”
Translation: “We will allow Fannie and Freddie to continue enjoying government support, and we’ll make everyone feel better about it by extending more or less the same government support to private competitors.”
[. . .]
Geithner: “We will not support a return to the system where private gains are subsidized by taxpayer losses.”
Translation: “We’ll keep plowing 10 billion taxpayer dollars per quarter into both Fannie and Freddie, but we’ll feel really awful about it.”
See. That’s good stuff. Read it all.
But what all real defenders of the free market need to hear is this hard medicine:
There’s got to be something important about the fact that, at least pre-crisis, the financial industry generated about 20% of the revenues of the S&P 500, but about 40% of its earnings. This industry is making way too much money. It’s like a parasitic tax, and I mean that literally. Just like government taxes, the finance tax puts you on the wrong side of the compound-interest equation, so you’re making less economic progress as time passes than you should.
Parasitic tax — why, don’t we have an older, more antique-sounding word for that?
Or again, from a different view, more technical but still loaded with implications, this essay must be read in full.
But the simple truth is that everything Francis writes is worth reading. I don’t say he’s never wrong — even Homer nods — but I do say that his patience with my ignorance and presumption shows the heart of a teacher. And as our world seems ruled these days by a bizarre scheme of probability distribution, a technocratic regime where wealth is conjured out of changes in hundreths of points of interest yield on debt securities, a teacher whose mind has experience with that sort of alchemy is a valuable ally in the struggle for understanding.
Finally, to the readers who are Social Democrats. Oh yes, we have them, folks. Here is a polemic you need to read and absorb. There are forces at work beyond the power of political extortion and cajolery to change. It seems to me that over the last two weeks are so, the American Left has really grown bitter and feckless in banging its head against these hard facts. American households are desperate to repair their balance sheets, just like so many companies; that Keynesian economics is skeptical, hostile, and finally punitive toward savings, will have little influence beyond what is pernicious and perverse on the plain pulverizing fact that Americans are going to be saving until their finances are restored.