Tuesday, June 30, 2009

The Rise And Fall of Finance

In 1979 I had the great good fortune to see the Metropolitan Opera production of "The Rise and Fall of The City of Mahagonny", the political opera by Kurt Weill and Bertolt Brecht that was written back in 1930 - at another time of severe financial trouble around the world.

Since the work is a nightmarish vision of capitalist greed and the power of money, the Met's performance was essentially its premiere in the US, with Teresa Stratas giving a memorable performance as Jenny the opportunistic harlot. Wall Streeters loved it (it takes one to know one, eh?).

Mahagonny's Primary Industry At Work

The final scene depicting the city's destruction by fire has stayed with me ever since. And the opera's title has come in handy several times, particularly when referring to the cyclical and repetitive nature of greed in human history.

Thus, today's title and chart below (click to enlarge). It shows debt of the financial sector as a percentage of all debt outstanding in the U.S. (currently $17 trillion out of a total $53 trillion of debt).

Financial Debt (Data: FRB Z1)

The Rise of Finance, also known in this blog as The Tail That Wags The Dog, can thus be clearly observed in the spectacular rise of financial sector debt as a percentage of total debt. From an inconsequential 1.9% in 1950, it rose inexorably in following years to reach an astonishing 32% today. The importance of finance to our economy and society has risen commensurately - to the great detriment of both, as has now become obvious.

Why and how did we allow a business sector which relies almost entirely on greed and animal spirits to become so powerful within our national ethos? How are we going to stop and quickly reverse this patently destructive process?

Could it be that The Crisis could be a cleansing deluge, wiping away the wretched excesses of finance-as-painted-harlot and restoring her to the back alleys, where she so clearly belongs?

Yes, it could. But not before we stop viewing finance as an industry worthy of being bailed out at every turn of the road and belonging at every street corner, besides. Enough is enough, already..


  1. So financial debt is even larger than the national debt of the federal government (currently at $11 Trillion). I find it interesting that the financial pundits don't ever discuss that salient fact.

    When I watched I.O.U.S.A., they never mentioned this fact, and led viewers to believe that the largest debt was government debt. The purveyor of the movie suggested that the only answer was to cut "entitlement spending" (i.e. Social Security and Medicare).

    This puts that argument in a whole new perspective.

    By the way, I hope you can say something about the California (government) debt crisis.

  2. Again, great post.....

    These references that you incorporate to convey these abstract concepts, enlighten your readers. They are in fact, "inconvenient truths", that can not be dismissed outright or without significant compromise on the part of opposing views.

    Reason, is the Achilles heal of modern finance.

    Best regards,


  3. The California debt crisis is a hair-trigger about to be pulled that will result in another round of derivatives meltdowns.

    From what I understand, a large group of bond holders have hedged their holding, via CDS's, for perhaps 50 to 100 times their bonds. They stand to make billions on a California default.

    In fact they are actively trying to lobby against real reform so as to insure their big CDS bet pays off.


    With this type of utter corruption there is no hope for America.

    Joe M.

  4. With this type of utter corruption there is no hope for America.

    I think there is. It is precisely the gaming of the system and the looting by the insiders that in time will cause real reforms to happen.

    The present system is unsustainable anyway because it requires permanent, exponential growth.

    So, the more abuse, the better!

  5. yeah there's a lot of hope when our best bet is to allow the current system to run full bore so it will destroy itself quicker. what if it doesn't self destruct, but instead manages to wrangle enough power to consume all it needs (sky high taxes on everything, think cap and trade) for survival? what then?

    oh and by the way, it will all occur at a gut wrenchingly slow pace so that we will all become accustom to it until one day we will wake up and realize our founding fathers actions were in vain, that the majority of humans not only don't mind being controlled but in fact may prefer it.

  6. Support the National ID card.

    Why do all these Fox News watching types think a national ID is socialist?

    Answer: because Fox News backers will no longer be able to hire illegal Mexicans left, right, and center.

    A national ID is the ONLY way to close down illegal hiring and protect the US working middle class and allow for wage inflation to catch up with asset inflation.

    Wage inflation is the ONLY way out of the current mess.

    Illegal Mexicans and Chinese manufacturing put 80% of the downward pressure on wages which is the TRUE CAUSE of the asset bubbles.

    Asset bubbles are NOT bubbles if wages also inflation as they have done in the past.

    This time around assets inflation, wages stay lowed, and profits for a few soared to absurd levels.

    The few are no trying to keep the game going through Fox News anti-American scumbag propaganda.

  7. Okie, an insightful observation- thanks.

  8. Good old Bertolt Brecht. He would have found our present situation of interest. In the meantime what we need is a revolution, and to quote the aforesaid,

    "You can't have a revolution without walking on the grass."

    In the meantime, Joe is spot on about CA.

    I think we also have to remember that the financial sector has contributed (like no one else ever has) to the government debt. Folks we live in a kleptocracy, no better, but far worse than a banana republic.

  9. healthful survey....
    it shows that the present system cannot be sustained anyway because it requires steady , healthful growth.

  10. Indeed "ID card" anonymous post has a point, the scam consisted of inflating assets while holding wages and consumer products prices low (through made in China.. the myth of globalization, should be called Corporatization). What's needed now is the opposite one would guess.

  11. I love the way you express the current situation with Brecht and Weill.
    Some things never change, huh ?
    About that Protestant work ethic...
    Yeah, the financial industry is busy whoring and pimping. Some people get all huffed up over sex, but when money is involved, it just looks DIFFERENT to them, doesn't it ?
    Good point, OkieLawyer. That was an interesting tidbit.
    And to the different anonymi who post on this blog, I am definitely AGAINST any kind of US/THEM thinking. It is reductionist, and we cannot afford reductionist thinking.

  12. The Banks must be restrained, and the financial system reformed and balance restored, before there can be a sustainable economic recovery.

  13. Hell,

    Sorry if this question is a bit dense, but could you break down "financial sector" debt to explain what it includes?

    Also, could you contrast this with other types of debt to help create a clearer understanding?