TOXIC DEBT, LIAR LOANS, AND SECURITIZED HUMAN BEINGS: THE PANIC OF 1837 AND THE FATE OF SLAVERY by Edward E. Baptist
Early in the last decade, an Ayn Rand disciple named Alan Greenspan, who had been trusted with the U.S. government’s powers for regulating the financial economy, stated his faith in the ability of that economy to maintain its own stability: “Recent regulatory reform coupled with innovative technologies has spawned rapidly growing markets for, among other products, asset-backed securities, collateral loan obligations, and credit derivative default swaps. These increasingly complex financial instruments have contributed, especially over the recent stressful period, to the development of a far more flexible, efficient, and hence resilient financial system than existed just a quarter-century ago.”
At the beginning of this decade, in the wake of the failure of Greenspan’s faith to prevent the eclipse of one economic order of things, Robert Solow, another towering figure in the economics profession, reflected on Greenspan’s credo and voiced his suspicion that the financialization of the U.S. economy over the last quarter-century created not “real,” but fictitious wealth: “Flexible maybe, resilient apparently not, but how about efficient? How much do all those exotic securities, and the institutions that create them, buy them, and sell them, actually contribute to the ‘real’ economy that provides us with goods and services, now and for the future?”
Solow’s distinction between the “real” economy and the “exotic” realm of securitized debts like mortgage bonds, credit default swaps, toxic debt, and zombie banks is not uniquely his. As a widespread assumption—a persistent distinction in our thought between “real” and “fictive” money, wealth, or productivity—it may be one factor that accounts for the reluctance of many historians to delve into financial dynamics when seeking to account for “Hard Times.” Reflexively, we analyze such dynamics with the tools of the linguistic turn, and so spend our time demonstrating that the fictions on which economic actors build their worlds are, in fact, fictional. (Most historians are also reluctant—maybe even unprepared—to work with numbers.) But when collective euphoria, financial innovation, and astonishing disproportions of power mix together, what bubbles into being is anything but mere vapor. We can minimize its weight by calling it fiction, but we do so only at grave risk to our understanding of what happened and why. For in such financial exchanges we see not only the generation and transfer of real wealth—that is, real effects in the social and political world—but also that such transfers can incorporate great violence and disruption for some as the causes of great profit for others.
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