The one-hoss shay

by John Q on March 15, 2008

The Fed’s bailout of Wall Street investment bank Bear Stearns has, unsurprisingly, been discussed in terms of the domino theory. A more appropriate metaphor is The Wonderful One-Hoss Shay . This was a carriage constructed on the theory that a system always fails at its weakest spot.

he way t’ fix it, uz I maintain, Is only jest T’ make that place uz strong uz the rest”.

On the Fed’s current approach, the system is unbreakable, provided that “too big to fail” protection is extended to every significant firm in the system. The result of this protection is that the kind of crisis where the failure of one firm leads to a cascade of failures elsewhere is prevented. But then

First a shiver, and then a thrill, Then something decidedly like a spill,– And the parson was sitting upon a rock, At half-past nine by the meet’n’-house clock,– Just the hour of the Earthquake shock!

–What do you think the parson found, When he got up and stared around? The poor old chaise in a heap or mound, As if it had been to the mill and ground! You see, of course, if you ‘re not a dunce, How it went to pieces all at once,– All at once, and nothing first,– Just as bubbles do when they burst.



greensmile 03.15.08 at 9:14 pm

“too big to fail” is just a code phrase for “taxpayers will bear any actual bills that come due”
or perhaps “no moment of failure will be identifiable…the enterprise will just gradually fade to insignificance.”


almostinfamous 03.16.08 at 7:33 am

i dont understand what these people have against nationalization.

if you’re footing the bill, you might as well get something out of it, right?


John Emerson 03.16.08 at 11:07 am

Haven’t read “The One-Hoss Shay” since middle school 50 years ago, when it was already long obsolete. It seems to have become a usable teaching metaphor since then, as science has caught up with it. Like “for want of a nail….”


John Emerson 03.16.08 at 11:12 am

“You see, of course, if you ‘re not a dunce, How it went to pieces all at once,– All at once, and nothing first,– Just as bubbles do when they burst.”


jj 03.16.08 at 3:46 pm

The Fed bailed out the banks yesterday?



Here in the States the current preoccupation concerns the jeremiads of Jeremiah Wright.

Stay tuned for the next exciting episode…


A. Y. Mous 03.16.08 at 4:31 pm

Can’t blame them though.

After all, the whole world is bending over backwards to make sure the US does not fail, ” ‘cos it just is too big to fail. ”

I say, collapse.

That’s the sound of 5 billion people heaving a sigh of sad relief.


dmm 03.16.08 at 5:09 pm

That’s the sound of 5 billion people heaving a sigh of sad relief.

Right, because the other 5 billion would be so much better off with a collapsed U.S. economy…


roger 03.16.08 at 7:50 pm

The neo-liberal paradox is being embodied, once again, before our eyes. The first Chicago Boyz nation, Pinochet’s Chile, went through the same hypertrophied boom and bust cycle. A period of bubble prosperity is succeeded by a period of deep ‘recession.’ During the recession, the people who did not prosper during the bubble, i.e., the majority of the population, has shifted onto its back the debts accumulated by the wealthy to hold their party. This is exactly what happened when, in 1982, the IMF, the huge partisan of privatization, suddenly turned around and demanded that the Chilean government take responsibility for the huge outstanding debts racked up by its new private sector. The government, of course, responded with its bracing rhetoric of individual responsibility. The IMF and World Bank responded by closing Chile’s credit lines. The government then responded by stuffing the individual responsibility crap, nationalizing the debt, which entailed nationalizing most of the economy, and agreeing to pay it off – in other words, the debt was spread over the people of Chile.

As we know, Bush’s fave guy on Social Security was one of the guys who advised Pinochet on privatizing social security there. It is one of the odder forms of class warfare that conservative/fascist governments usually start out as big privatizers, struggling against the communist threat, but somewhere down the business cycle – when the rich get into a panic – they turn into the most radical nationalizers. Let’s see how far the Bush people go.


A. Y. Mous 03.17.08 at 5:27 am

dmm, define better off.

Yet, I still hold that whatever your definition may be, as long as it is not predicated on that “great American dream” and all that it entails, yes, those 5 billion people will be better off.

Sad? Yes. Relief? Too bloody right, yes. This has been going for too bloody long.


dmm 03.17.08 at 3:21 pm

a.y. mous,

The way we always define “better off”–i.e. being able to live longer, healthier, happier lives. And yes, that means being able to purchase products that make our lives easier and more enjoyable. You might not consider a life with a car better than a life without a car, but there are hundreds of milions of people in China and India who would disagree.

If the U.S. economy just up and disappeared one day, leaving a vacuum in its wake, there is no question that many of the gains in living standards and wealth in most of Asia would be rolled back. Like it or not, the U.S. economy still provides much of the impetus for growth and production in the rest of the world.

Granted there would be countries where the passing would be hardly noticed, such as those deeply mired in poverty. But every person, in every developed country, from Europe to Asia would be made significantly worse off.

Who knows, maybe the rest of the world will have a great awakening and decide to live lives full of sustainable consumption and in harmony with the earth. I doubt it. Human nature is pretty simple. It is not just Americans who want “more, more, more.”


richard 03.17.08 at 5:02 pm

I realise this is not the intention of the post, but is there room for an informed or at least thoughtful discussion of the role of the US economy worldwide and the potential results of its collapse, which would consider both ‘developed’ economic actors, e.g. in Europe and Japan, and ‘developing’ ones, e.g. in China, or Malaysia?
I can see that financial services in Britain would suffer a great deal and might find very little positive about such a collapse, while the elites that control the garment industry in Malaysia would be devastated. I wonder if the net effect on Malaysian garment workers would be positive or negative, and if they’d have to pass through a devastatingly negative period (of starvation) to reap eventual, potential positive benefits. Comments such as A. Y. Mous’ and dmm’s seem to outline opposite sides on such questions, but the questions themselves and terms of the opposition are not clear, at least to me.


A. Y. Mous 03.18.08 at 5:25 am

dmm, Richard,

For the record, I am of the new developing/recently-developed/holy-crap-gottta-develop-haven’t-got-a-choice-have-we? societies. “Liberalization” has made me quite comfortable, thank you. But, I owe no allegiance to any European or American values. I don’t have to.

True, I find it nice to indulge in the consumerism that dmm alludes to. No offence. But can do without. Tough. But doable. Nice to have, though.

Should the U. S. of A. collapse. As I said, very sad. Markets take a hit. Propped governments fall. The debt equity parity ratio will embiggen the macro flux of the global economy thereby commodotizing the product spectrum which will reduce the mean median of the spatial spread of wealth that will increase the standardised deviation of the deviant quality of living. Blah blah blah. Now, is that good or bad? I don’t know. Hey! I am that epitome of the American dream, “the consummate consumer” and I don’t like it . Well educated Timberites will give you the specifics.

However, I find it not too wrong for a society that is hell bent on “My right to the inviolate rights of man” without so much as a how-do-you-do to the “Non negotiable duties to man”, to collapse. And in true American fashion, those who scream the former actually make Armstrong’s inadvertent grammatical miscommunication in reverse.

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