Thus, [in 2006] derivatives trading – mostly futures contracts on interest rates, foreign currencies, Treasury bonds, etc had reached a level of $1,200 trillion, $1.2 quadrillion, a year. By comparison, U.S. GDP in 2006 was $12.456 trillion.
Indeed, this week "trillion" has become a common reference. How big is the market in credit default swaps? We hear reports in the tens of trillions. Government action valued in the hundreds of billions seems puny by comparison. Welcome to the world of financialization.
I raise this to ask my usual kind of question; in this case: what would Mencius think of all of this?
Given what finance has become, I think Mencius would say that it is fundamentally immoral. He would very much understand the frustration of pundits like Floyd Norris, who wrote in yesterday's NYT:
Lehman did not measure up because its chief executive, Richard S. Fuld Jr., simply was not reckless enough as he ran Lehman into the ground.
Had he had the foresight to make a lot more bad bets in the derivatives market, the government would have feared financial chaos and might have nationalized Lehman, just as it nationalized A.I.G., Fannie Mae and Freddie Mac. Or it would have subsidized a takeover, as it did for Bear Stearns.
Or, Ann Woolner, writing for Bloomberg:
The real kick in the teeth is that the executives who inflicted all this financial pain, who forced unprecedented government takeovers, walk away with hundreds of millions of dollars. It's up to us -- innocent little us -- to dig into our pockets, into our futures and into our children's futures to fix their spectacular errors.
Mencius, while holding individuals responsible for their personal decisions, would want to also remind us that the broader social and political context that creates such powerful incentives to single-mindedly pursue profit must also be subject to critique. It is not simply some number of individuals who took advantage of circumstances to enrich themselves in ways that ultimately hurt others. Rather, it is the the more general veneration of the profit motive that lies at the heart of the matter. It is our culture and politics, which celebrate or even worships profit that must be called out. This is from the very first passage of Mencius, he says:
"Don't talk about profit," said Mencius. "It's Humanity and Duty that matter. Emperors say 'how can I profit my nation?' Lords say 'How can I profit my house?' And everyone else says 'How can I profit myself?' Then everyone high and low is scrambling for profit, pitching the nation into grave danger." (1.1)
Its a systemic problem. Everyone gets caught up in profit and everything goes to hell. Of course, for Mencius, the solution must come at the level of the individual: each must look into his or her heart and make a commitment to resist the temptations of profit. And that might be harder to do in the context of financiailzation, where profit is increasingly detached from "real" life, yet also thoroughly dominates and defines "real" life. In finance, traders chase derivative advantages, removed from original sources. Real human values are lost in the blur of the derivative, the epiphenominal, the unoriginal. Indeed, the derivative comes to be a stand-in for the original: the rational utility maximizer of homo economus is mistaken for humanity. Or, as Mencius says:
If you cultivate wealth, you give up Humanity. If you cultivate Humanity, you give up wealth.
In the era of financialization, to say you will give up wealth or profit sounds like a fool's errand. But, if Mencius is right, to not give up wealth is to lose something fundamental.