[Peace-discuss] Whew. That's over. Now, what have we learned?

[C. G. Estabrook]

[Capitalism has a crisis, and the putative Left doesn't notice, according to the 
business press.  And they would have known... --CGE]


	Hedge Funds, Historians Are Winners of Recession
	2009-09-21
	Commentary by Matthew Lynn

Sept. 22 (Bloomberg) -- That's it, then. The global recession is over. At least 
that's what Federal Reserve Chairman Ben Bernanke says.

Answering questions last week, the world's most powerful central banker said the 
U.S. recession was "very likely over at this point." Much the same story is 
being played out in the rest of the world, with the German, French and even U.K. 
economies gradually recovering from their own slumps.

And yet the biggest shock to the global financial system since the 1930s won't 
just leave us with a legacy of lost output and higher unemployment. The 
recession will reshape the way we think about the economy for a generation. Over 
time, we will see that the credit crunch caused shifts of power and influence 
between industries, professions and countries.

So who are the winners and losers from the recession? Here are five places to 
start: Historians have triumphed over economists; hedge funds over bankers; 
Germany over Britain; the right over the left; and the frugal over the spendthrift.


One: Historians won out over economists. No single group of professionals took a 
worse battering during the economic slump than economists. Not even bankers. A 
science that has disappeared up a mathematical dead end couldn't see the crisis 
coming, couldn't explain it to anyone once it broke, and couldn't come up with a 
way forward after it happened.

Instead, people turned to lessons of history to make sense of it all. Niall 
Ferguson, a history professor at Harvard University in Cambridge, Massachusetts, 
is now listened to on economic issues. Likewise Nassim Taleb, a professor of 
risk engineering whose book "The Black Swan" dipped into the history of rare, 
high-impact events to describe how we didn't see this storm brewing. At this 
rate, investment banks will be building small, dusty libraries in the basement, 
and filling them with in-house historians. It will be a long time before 
economists are listened to again.


Two: Hedge funds over bankers. If Lehman Brothers Holdings Inc. had a dollar for 
every time someone warned that hedge funds would bring the financial system to 
its knees, the bank wouldn't have gone bust. While hedge funds took plenty of 
criticism, and are still facing calls or more regulation, the simple fact 
remains that they didn't blow up the way many predicted. It was the mainstream 
banks that caused the crisis. That will influence regulators and investors for 
many years. Whatever people say now, it's the banks that will face more 
scrutiny, not hedge funds. The result? The lightly regulated, cash-rich hedge 
funds will grow in importance, while the tightly controlled, capital- 
constrained banks stagnate.


Three: Germany over Britain. For much of the past decade, the fast-growing U.K. 
was gaining on Germany for the role of Europe's most influential nation. Almost 
20 years after reunification, fears of a resurgent Germany turned out to be 
baseless. It was Britain, with its financial center, that was emerging as the 
leading European nation. The credit crunch will throw that into reverse. The 
U.K. is condemned to a decade of struggling with a fiscal mess, while Germany 
should bounce back quickly from the recession with an export-led recovery.


Four: The right over the left. The credit crunch was probably the perfect moment 
for left-wing, anti-capitalist and anti-globalization movements to make their 
mark. After all, if this wasn't a failure of capitalism, it is hard to imagine 
what might be. Vladimir Lenin would have led the overthrow of a dozen 
governments presented with an opportunity like this. But his heirs on the left 
failed to advance any cogent arguments. Nor did they develop any alternatives to 
free-market, finance-led capitalism. The plate was empty, but the 
anti-globalization movement failed to step up to it.

The result? The left looks like it is running on empty tanks. Center-right 
parties will remain in power, as in Germany or France [and the US --CGE], or 
recapture it, as in Britain. And it will stay that way for a long time.


Five: Frugality over extravagance: The nub of the credit crunch was an attempt 
to load more and more debt onto people -- mainly in the U.S. and U.K. -- whose 
real wages were stagnant or growing very modestly. That will be thrown into 
reverse, and for the next decade, people will be paying down debt rather than 
accumulating it. House prices will be subdued as finance remains scarce, and 
household budgets will be tight. The result will be that companies will thrive 
if they offer value, drive down costs, and make themselves the lowest-cost 
supplier. Anything that smacks of luxury will suffer. Think about McDonald's 
Corp. triumphing over Starbucks Corp. -- and then multiply that effect a 
thousand times over.


The Great Depression of the 1930s dominated the way people thought about the 
economy for the next 50 years. The great recession of 2008 and 2009 may not have 
such a long-lasting impact. But in those five ways, it will dominate policy for 
at least a decade.

(Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.)