Kevin Drum is puzzled by default panic:
If we run out of money, the federal government will stop paying some of its bills. That’s bad, and it will quite likely have a negative effect on the economy. Corporations are right to be apprehensive about this.
But that’s all that will happen. Treasury bonds will continue to roll over and interest payments will continue to be made. That means there’s no reason to sell Treasurys; no reason they can’t continue to be used as collateral; no reason that access to capital should dry up; and no reason that companies will need more cash.
At least, that’s how it seems to me. What am I missing here? I feel like I must be an idiot or something. Is the answer something so obvious that no one ever mentions it, or something so arcane that it never gets explained in lay terms? Or is everyone else crazy? Or what?
I have a rather cynical “or what” to offer in response, which is this: Contrary to the last few decades of Wall Street propaganda, the people who run these things just aren’t all that bright. They’re every bit as stupid and gullible as the general public, maybe even a bit more so.
I mean, look at the last couple of decades of financial history: int he late 1990′s, we had the tech bubble, where the geniuses on Wall Street managed to convince themselves that companies with no income and no obvious way to generate income were worth vast sums of money. Only, not so much.
Then we had the housing bubble, where they managed to convince themselves that there was absolutely no risk inherent in loaning large sums of money to people with no ability to pay it back. Only, not so much.
In the wake of the housing bubble popping, we had the opposite problem: for a while, nobody would lend any money to anybody, because they were suddenly convinced that everything was insanely risky, on the basis of about as much evidence as their previous convictions that garbage loans were rock-solid and that every college dropout who knew a few HTML tags was a genius who deserved a few million in venture capital.
At some point, we collectively need to face up to the fact that the financial wizards of the world are basically indistinguishable from any randomly chosen pack of idiots. The fact that they use lots of math to convince themselves of blindingly stupid things doesn’t make them any smarter than any of the rest of us. It just makes them differently stupid.
William F. Buckley famously said that he’d rather be ruled by the first hundred names in the Boston phone book than the Harvard faculty, and over the last fifteen years, I’ve become convinced that the same is true of the business world generally. If you marooned all the CEO’s and financial analysts in the country on an island somewhere, and filled their jobs with randomly chosen members of the public, I doubt you’d see much of a difference in the functioning (or lack thereof) of the economy. I suspect you could probably replace most of the bond rating agencies with chimpanzees without producing any significant effects.
Decades of self-serving books and op-eds and worshipful media treatments have tried to convince everyone that the people running major corporations and Wall Street investment houses are somehow better than the rest of us– smarter and more savvy, with some deep insight into the way the world works. Which is why, when they do things that make no sense at all, we waste lots of time scratching our heads and trying to find some angle on the situation that makes their actions look reasonable.
In the end, though, I’ve come to think that when people on Wall Street do something that seems to make no sense at all, that’s because it makes no sense at all. Because, collectively, they’re a pack of idiots, and just as prone to being dumb, skittish, or gullible as anybody else.
Which would be fine, except they command vastly more resources than anybody else, so when they do something blindingly stupid, they break the entire world economy. Which is, ultimately, why they should be taxed and regulated to within an inch of their life, because while setting idiots free to do whatever they like with vast sums of money will sometimes pay off, when they go wrong, they wreck everything.