Cracking the 'priesthood' of people who speak money

Today’s New York Times story on Argentina’s apparent financial default isn’t likely to make anyone more fond of hedge fund firms, except maybe those who, like the fund’s manager, tend to valorize the “rights of creditors.” The lead:

The hedge fund firm of billionaire Paul E. Singer has about 300 employees, yet it has managed to force Argentina, a nation of 41 million people, into a position where it now has to contemplate a humbling surrender.

Presented that way, the development seems an example of what Pope Francis had in mind when he used the term “savage capitalism” during a visit to a soup kitchen last year, and in fact, it’s exactly how Jubilee USA president Eric LeCompte characterizes it: “When Pope Francis has used the term savage capitalism he refers to a group of extreme actors who profit from exploitation of the poor. I can’t think of a more appropriate example than the actions of the vulture hedge funds and Argentina.” 

Imagery and metaphor are inevitable in accounts of crises like these, precisely because they can be useful in beginning to understand details that can otherwise be confounding. More from the Times story:

The campaign against Argentina shows how driven and deep-pocketed hedge funds can sometimes wield influence outside of the markets they bet in … While Mr. Singer’s firm has yet to collect any money from Argentina, some debt market experts say that the battle may already have shifted the balance of power toward creditors in the enormous debt markets that countries regularly tap to fund their deficits. Countries in crisis may now find it harder to gain relief from creditors after defaulting on their debt, they assert.

“We’ve had a lot of bombs being thrown around the world, and this is America throwing a bomb into the global economic system,” said Joseph E. Stiglitz, the economist and professor at Columbia University. “We don’t know how big the explosion will be — and it’s not just about Argentina.”

Battles, bombs, and explosions. That Elliott, a small New York firm generally unknown outside financial circles, can wield such power over a distant sovereign nation says much about its arsenal: It manages more than $25 billion in assets, an amount accrued through returns of 14% a year since 1977. By that measure, Elliott easily meets, if not embodies, the definition of a successful fund. And why might it be so successful? Perhaps because a hedge fund isn’t a “hedge” in the way that term might suggest—and in fact once was used, even in finance.

Today’s hedge fund, as explained by John Lanchester in the current New Yorker, is 

a lightly regulated pool of private capital, one that is almost always doing something exotic—because if it weren’t exotic the investors could benefit from the investment strategy much more cheaply somewhere else. There will be a “secret sauce” of some sort, usually a complicated set of mathematical algorithms meant to insure better returns than the market in general delivers.

Hedge funds defend the fact that they’re so lightly regulated on the ground that access to them is restricted to people who know what they’re doing and can afford to lose their money.

It’s a concise and helpful explanation of the current function and “purpose” of hedge funds, and as such it helps moves us past the "beginning" of understanding such things. But that's exaclty Lanchester's larger and more important aim: the current world of finance has spawned a language of its own, so complex and specific, that he wants more people to learn it. The language’s chief characteristic is what Lanchester calls “reversification.” Thus are “securities” anything but secure, “austerity” not a way of living simply but a mechanism for cutting services, and “credit” debt:

These are all examples of how the process of innovation, experimentation, and progress in the techniques of finance has been brought to bear on language, so that words no longer mean what they once did. It is not a process intended to deceive, but … it confines knowledge to a priesthood—the priesthood of people who can speak money.

Helpfully running through Lanchester’s piece is a reasonableness that makes his prescription go down much more easily. No villains or vultures, but a general manner of appealing to common sense: “A shared language doesn’t imply a shared viewpoint,” he writes, yet that doesn't undermine the urgency of his case:

Low tax rates, a smaller state, a business-friendly climate, free markets in international trade, rising levels of inequality and an ever-bigger gap between the rich, especially the super-rich, and the rest—supposedly, these are just the facts of economic life if you want your economy to grow and your society to become richer. Many people are eager to tell us that there is no alternative to the existing economic order, that we have to accept things as they are. That isn’t true.

If you don’t agree with the priesthood of money-talkers on regulatory and economic policy, you should nonetheless have the ability to converse with them in the first place. After all, Lanchester reminds us, “incomprehension is a form of consent”:

If we allow ourselves not to understand this language, we are signing off on the way the world works today—in particular, we are signing off on the prospect of an ever-widening gap between the rich and everyone else....

The entire thing deserves reading.

Dominic Preziosi is Commonweal’s editor. Follow him on Twitter.

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