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Friday, December 19, 2008

Louis Rukeyser and real wealth

Krugman’s column today stirs up recollections. Remember “Wall Street Week” and Louis Rukeyser? With his flowing longish gray hair, impeccable suits and highly understated wit, he looked like someone whose likeness should be on $1000 dollar bill. His set was an elegant simulation of a home library for someone very, very wealthy. You could almost feel the pillars of Wall Street as the symbol of American greatness. His guests from the American investment community looked right at home. It was just so, so. . . .classy, so completely trustworthy.

Then for awhile, we had Jeff Greenfield, once a journalistic rebel who skewered the establishment for The Village Voice, groveling before the high-tech entrepreneurial wizards – the AOL guy who became a zillionaire selling nothing to Time-Warner, Scott McNeely from Sun and the like -- as starry-eyed MBA students in the audience looked on in rapt admiration. It was the business version of "The Actor's Studio." With those stocks flying a price-earnings ratio of 10,000/1 -- actually of infinity, because half the time there were losing money -- who could question the wisdom behind such success?

Both were PBS, weren’t they? Might that say something about the real leanings of public broadcasting? Remember when it was “liberal” to watch PBS and listen to NPR?

It was so 80s and 90s, wasn’t it? Now we see Wall Street exposed as a collection of charlatans, the lowest of the low, simply stealing your money, using Ivy League educations to become the shoddiest of businessmen (as Krugman says, it’s almost always a he), making , junk dealers, and used car and door-to-door magazine subscription salespeople look like Titans of honor in the business community? Many of those MBA students at Greenfield's interviews who thought they were going into investment banking to help find the next Microsoft would up bundling mortgage-backed securities for even more insane profits and bonuses.

We also see money exposed for what it is: a bunch of numbers on paper that people will accept gives us certain legal rights, and that we have all collectively decided will buy X of something I can touch or feel one day, and the next day, because we found out so many of those charlatans are, in fact, charlatans, and, therefore, we can’t believe a damn word of what they told us, will buy only X minus Y of the same thing – and maybe the day after that will buy only X minus Y minus Z because the President-elect appointed someone unfamiliar and not from New York to some key economic post and “the market” didn’t like that. The wealth in a real estate market inflated by a bubble was perfectly real to anyone who sold property for cash before the bubble burst, but it was unreal for someone who held onto it.

The economy is a bunch of air that expands and contracts according to how everyone collectively feels. I think of an accordion: it gets bigger when people trust that those pieces of paper mean what they say, and especially when they are confident they will be able to continue to collect more pieces of paper with numbers on them. If the confidence is modest and well-grounded in reality, the wealth represented by that air is real wealth. When it gets overly excited, overconfidence sets in and a bubble happens. Where does econometrics fit into that nebulous reality?

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