The quote isn’t supposed to define financial crisis. It’s claiming that a financial crisis isn’t called a crisis if the people who lose money are unpopular.
Though I read the link and still don’t know what people Matt’s thinking of.
When someone says “Something is called an X when it has properties P, Q, and R”, they need not be endorsing the definition. They might simply be saying (with more or less cynical exaggeration) “This is how the term gets used in practice”. Like when someone says that a language is a dialect with an army, or that a freedom fighter is a terrorist the speaker approves of.
I paraphrase Mike Levine’s comment, in its context, thus: “If you look at how politicians and newspapers and the like use the term ‘financial crisis’, you will find that the point at which those words start getting used is the point at which someone is owed money they aren’t going to get, and the powers that be find it unacceptable for them not to get it. From this cynical perspective we can see what’s going on with these proposed new rules about banks: the idea is to make it clearer what sorts of debt the government can be expected to make sure gets paid back, and crucially what sorts it can’t, in the hope that future bank failures will be less likely to be classified as financial crises.”
I haven’t looked at how the term “financial crisis” actually gets used carefully enough to know whether Matt Levine’s description is defensible (as it stands, or as a deliberate overstatement for cynical effect). Perhaps it isn’t. But the right criterion to judge it by isn’t whether it offers a good definition of “financial crisis”, but by whether it offers a good description of the (perhaps very bad) way in which that term actually gets used.
Like when someone says that a language is a dialect with an army, or that a freedom fighter is a terrorist the speaker approves of.
Yes, I got a whiff of the “when a prole loses everything no one cares, when a fat cat gets pinched it’s a crisis” flavour in the quote, but didn’t bring it up since it was just a whiff and nothing conclusive.
I don’t mind Matt Levine saying all these things in his column. But I don’t see how it is a rationality quote and the smell of class struggle certainly doesn’t help here.
Loosely speaking, what is meant by a “financial crisis” is that someone borrows money from someone else and can’t pay it back, and it is socially or politically unacceptable that the people who loaned the money not get their money back. That last part is crucial: If someone borrows money and can’t pay it back, and the lender loses money and no one else cares, then that’s just capitalism, not a crisis.
Puerto Rico’s Slide
So part of the trouble in Puerto Rico—which borrowed a lot of money and can’t pay it back—is figuring out how sympathetic the lenders are. The hedge funds telling Puerto Rico to close schools to pay them back: not hugely sympathetic. But the individual retirees, in Puerto Rico and elsewhere, who bought Puerto Rican municipal bonds because they were tax-free and supposedly safe, might be more appealing.
The quote isn’t supposed to define financial crisis. It’s claiming that a financial crisis isn’t called a crisis if the people who lose money are unpopular.
Though I read the link and still don’t know what people Matt’s thinking of.
It sure looks like it’s trying to.
Unpopular? That’s an even worse way to try to define a financial crisis.
When someone says “Something is called an X when it has properties P, Q, and R”, they need not be endorsing the definition. They might simply be saying (with more or less cynical exaggeration) “This is how the term gets used in practice”. Like when someone says that a language is a dialect with an army, or that a freedom fighter is a terrorist the speaker approves of.
I paraphrase Mike Levine’s comment, in its context, thus: “If you look at how politicians and newspapers and the like use the term ‘financial crisis’, you will find that the point at which those words start getting used is the point at which someone is owed money they aren’t going to get, and the powers that be find it unacceptable for them not to get it. From this cynical perspective we can see what’s going on with these proposed new rules about banks: the idea is to make it clearer what sorts of debt the government can be expected to make sure gets paid back, and crucially what sorts it can’t, in the hope that future bank failures will be less likely to be classified as financial crises.”
I haven’t looked at how the term “financial crisis” actually gets used carefully enough to know whether Matt Levine’s description is defensible (as it stands, or as a deliberate overstatement for cynical effect). Perhaps it isn’t. But the right criterion to judge it by isn’t whether it offers a good definition of “financial crisis”, but by whether it offers a good description of the (perhaps very bad) way in which that term actually gets used.
Yes, I got a whiff of the “when a prole loses everything no one cares, when a fat cat gets pinched it’s a crisis” flavour in the quote, but didn’t bring it up since it was just a whiff and nothing conclusive.
I don’t mind Matt Levine saying all these things in his column. But I don’t see how it is a rationality quote and the smell of class struggle certainly doesn’t help here.
Oh, I completely agree that it doesn’t seem at all like a rationality quote.
The original source is more explicit:
Puerto Rico’s Slide