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Ekonomi 03 (2020) 15–64 Journal of Ekonomi 03 (2020) 15–64 Ekonomi journal homepage: https://dergipark.org.tr/ekonomi Greenspan bubbles and the emergence of intangible asset manager capitalism of attention merchants aTunç Özelli aNew York Institute of Technology, New York City, New York, United States. ARTICLE INFO ABSTRACT Keywords: The text exposes the main insights acquired after LEHMAN BROTHERS’ (LBHI) autopsy, and shows how the Asset manager capitalism autopsy revealed the flaws of orthodox NEOCLASSICAL ECONOMIC THEORY hacked from NEWTONIAN Managerial capitalism PHYSICS, in explaining and predicting the catastrophic events of the near economic history, and suggests Attention merchant’s capitalism perspectives of understanding the role of Alan Greenspan’s monetary policy of the United States (1987-2006) Greenspan in the emergence of unimpeded global dominance of plutocratic intangible economy of ASSET MANAGER CAPITALISM that simultaneously produced a decade long secular stagnation in the rich world with global sharp steady increases in inequality of wealth and income distribution before, during and after the 2008 financial crisis. It attempts to show how continuing disequilibria between spending and saving within and between major economies, and a return to a multipolar world with similarities to the unstable conditions of pre-First World War have emerged as the main threats to the global economy. A brief history of the transition from MANAGERIAL CAPITALISM of nation states of the post-World War II institutionalized with the BRETTON WOODS AGREEMENT, to global ASSET MANAGER CAPITALISM, is presented to enlighten CHIMERICA’s evolution (China+America), and President Trump’s attempts to dismember CHIMERICA by promoting the emergence of a bipolar world to replace it with - TECHNOLOGY COLD WAR by weaponized post-WTO global logistics interdependence. The globally interdependent techno- sphere is shown as an enabled outcome of the implementation of WASHINGTON CONCENSUS of Anglo- American ASSET MANAGER CAPITALISM, that survived a comatose near death experience in 2007-2008 to emerge entrenched and consolidated for President Trump’s Trade Wars. The major warriors and battlegrounds of THE TECHNOLOGY COLD WAR are identified. Whether the next crisis will be another collapse of the global financial and economic system, or whether it will take the form of political or even military conflict, is impossible to say. Neither, seems, inevitable. The text shows how GAIA THEORY sheds new light on economic growth, how fuzzy logic affects the national accounts, how accounting systems over-value the assets of publicly traded multinational companies balance sheets, and how network theory reveals the value of relationships, and argues that the economy needs to be viewed as a complex, chaotic system, as scientists view nature, not as an equilibrium seeking NEWTONIAN construct. 1.MISE EN SCENE In the self-regulating banking system, put in place with GRAMM-LEACH- at some future date. Such promises can be based on personal relations, or they BLILEY FINACIAL SERVICES MODERNIZATION ACT that with President can be framed as binding legal commitments. Cloaking them in the modules of Clinton’s signature in 1999 repealed GLASS-STEAGALL BANKING ACT OF 1933 code of capital turns them into financial assets that are attractive for investors. supported by FED’s CHAIRMAN, Alan Greenspan’s enthusiastic lobbying, more Property and collateral law establish priority rights; trust and corporate law than 95% of money that are in the hands of the public are created by the private partition assets and shield them from too many creditors; and bankruptcy law banking sector consists of bank deposits, and in the absence of a state-issued can be designed to give some debt minters a head start over others, even if they debt-free money, money needed for an economy to function, has to be borrowed never contracted or paid a premium for it. Debt, the private money that has from the banking sector, and hence the lender of last resort, the Central Bank. fueled capitalism since its inception, is coded in law and ultimately relies on the As L. Randall Wray explains in MODERN MONEY: A PRIMER ON state to back it up. States should realize this and keep the inflation of private MACROECONOMICS FOR SOVEREIGN MONETARY SYSTEMS (Wray, 2012) that money under control, because the more they bend to the will of private debt money is loaned into existence on the condition that it will be paid back with minters in boom times, the more money will be on the hook when it turns out interest. In other word, money is created in such a way that its very existence that the economy cannot sustain the debt burden they created.”(Pistor, 2019 pushes the economy to grow. Money created by fractional reserve banking is p.109), and she adds, “They are all coded in law and exist only in claims that are not neutral with respect to growth. It is a growth pusher. For all those loans to carefully crafted in private, not in public law, but private law rests ultimately on be paid back with interest the borrower must make the money grow by a rate at state power; without the modules of the code of capital, these instruments least as high as the rate of interest. In addition to pushing growth, fractional would not even exist.”(Pistor, 2019) “Fundamentally, capital is made from two reserve banking reinforces both booms and busts, making the economy more ingredients: an asset, and the legal code. unstable than it would be with a more constant money supply controlled by the With the right legal coding .. assets can be turned into capital and thereby state as public service. Banks do not create legal tender; only governments can increase its propensity to create wealth for its holder(s) (Pistor, 2019). The legal do that. But banks do create debt and customary means of payment. devices used for coding ..assets … are contract law, property rights, collateral “Reforms after the 2008 crisis in the United States, the United Kingdom, and law, trust, corporate, and bankruptcy law.” (Pistor, 2019). “Global capital exists the European Union have tackled the safety of banks, but they have put few if and thrives without a global state or a global law. The explanation for this is any brakes on the drive to mint private money.” writes Katharina Pistor in THE that law has become portable; it is possible to code assets in the modules of one CODE OF CAPITAL: HOW LAW CREATES WEALTH AND INEQUALITY (Pistor, legal system and still have them respected and enforced by courts and 2019) “When it comes to debt markets, the mantra of free markets is flatly regulators of another country. In this way, a single domestic system could wrong. The question is not even about regulation or de-regulation. At heart, all sustain global capitalism; in practice there are two that dominate it, English and these assets (private money) are simple IOUs- promises to pay a certain amount New York State law.” (Pistor, 2019). ∗ Corresponding author. E-mail address: [email protected] (T. Özelli). Received: 03 January 2020; Received in revised from 17 February 2020; Accepted 15 March 2020 15 Özelli Journal of Ekonomi 03 (2020) 15–64 After the implosion of NASDAQ’s dot.com bubble in March 2000 that the Fragmented capital markets and their high frequency and algorithmic trading GREENSPAN PUT was instrumental in inflating, Greenspan kept the benchmark are a growing reality in Europe as well as parts of Asia. In this hyper-fast price for money below 2% for too long at the beginning of 21st century, and thus fragmented global marketplace, algorithms battle algorithms for trading enabled the residential real estate bubbles in the United States and in different dominance, preferential trading execution, and most sophisticated trading scales in various parts of the world, and in 2007 the real estate bubble collapsed supercomputers deal not only in securities but increasingly across assets in the United States classes, including futures, fixed income, currencies, and commodities, and ushering in a full blown global financial crisis in 2008, and that led to massive across hundreds of markets and dozens of countries. GLOBAL ALGORITHMIC bailouts of the global financial system by their central banks and by their CAPITAL MARKETS: HIGH FREQUENCY TRADING, DARK POOLS, AND governments. REGULATORY CHALLENGES (Oxford University Press, 2019), edited by Walter During the 19 years (1987-2006) Alan Greenspan was at the helm of Mattli shows how frenzied activity of traders on the trading floors of New York, monetary policy, at every opportunity he had to address the law makers at the London and Chicago has been replaced by algorithmic trading and CAPITOL HILL, he lectured them on how unimpeded competitive markets supercomputers in gigantic data centers connected by proprietary fiber optics deliver optimal welfare, and that the financial institutions which create money, and microwaves became extraordinarily complex and opaque measured in and through which money is allocated, have no independent effect on the real milliseconds and microseconds beyond human perception. At the end of World equilibrium of the economy, but are only acting on behalf of well-informed War II, the average holding period for a stock was 4 years. By 2000, it was 8 sovereign consumers. Meanwhile, during his reign at unprecedented numbers months. By 2008, it was 2 months. By 2011 it was 22 seconds. Wall Street apparatchiks rewarded each other never before seen bonuses for Gregory Zuckerman in THE MAN WHO SOLVED THE MARKET: HOW JIM the profits they made from NASDAQ’s dot.com bubble Greenspan called SIMONS LAUNCHED THE QUANT REVOLUTION (Zuckerman, 2019) claims that “irrational exuberance”, and “irrational exuberance” jump-started the “quant investors had emerged as the dominant players in the finance business. intangible economy. “In December 1990, the technology component of the S&P As of early 2019, they represent close to a third of all stock-market trades, a was only 6.5%; by March 2000 it was over 34%.
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