The Looting Class

Gretchen Morgenson has a good piece based on newly released documents concerning the single greatest crime committed by the looting class in the past two years, the bailout of Wall Street with the taxpayer payout of a hundred cents on the dollar for AIG's worthless derivatives. Morgenson writes:

The documents also indicate that regulators ignored recommendations from their own advisers to force the banks to accept losses on their A.I.G. deals and instead paid the banks in full for the contracts. That decision, say critics of the A.I.G. bailout, has cost taxpayers billions of extra dollars in payments to the banks. It also contrasts with the hard line the White House took in 2008 when it forced Chrysler’s lenders to take losses when the government bailed out the auto giant.

But the best part of the piece is not only did Wall Street get the backdoor bailout:

When the government began rescuing it from collapse in the fall of 2008 with what has become a $182 billion lifeline, A.I.G. was required to forfeit its right to sue several banks — including Goldman, Société Générale, Deutsche Bank and Merrill Lynch — over any irregularities with most of the mortgage securities it insured in the precrisis years.

Any irregularities, that is more appropriately fraud, which was and remains rampant across the system. Fraud is the main criminal device of the looting class. Yves Smith digs deeper into the crime scene and its perpetrators. It's essential to understand that many in government are not simply colluding with the looting class, but are full fledged members. Chris Whalen at IRA has a good piece on Public Enemy #1, Robert Rubin, writing:

Reasonable people might call Robert Rubin the chief architect of the financial crisis and also of Wall Street's grand strategy to minimize the political damage from the subprime crisis. From his mismanagement of the U.S. Treasury's dollar policy in the mid-1990s to his bailout for Mexico (for Goldman Sachs and other Wall Street dealers), to the rescue of Citigroup and AIG in 2008, Rubin has met or exceeded the most demanding expectations for duplicity from our public servants.

Nearly two decades after first migrating to Washington, he apparently is still calling the shots of U.S. financial and economic policy with the full support of President Barrack Obama. Working through his favorite marionettes, Treasury Secretary Tim Geithner and Economic Policy Czar Larry Summers, most recently Rubin managed the defense of Wall Street following the great crisis.

The fleecing of the public by the looting class has now become a matter of general public policy. The looting class' transference of much of the private losses, that is fraud, onto the public books, now ransoms the entire economy for full payment. In an excellent piece(tx jesse), a Professor Hossein-zadeh at Drake University writes:

"Never before has so much debt been imposed on so many people by so few financial operatives--operatives who work from Wall Street, the largest casino in history, and a handful of its junior counterparts around the world, especially Europe.

External sovereign debt, as well as occasional default on such debt, is not unprecedented . What is rather unique in the case of the current global sovereign debt is that it is largely private debt billed as public debt; that is, debt that was accumulated by financial speculators and, then, offloaded onto governments to be paid by taxpayers as national debt. Having thus bailed out the insolvent banksters, many governments have now become insolvent or nearly insolvent themselves, and are asking the public to skimp on their bread and butter in order to service the debt that is not their responsibility.

After transferring trillions of dollars of bad debt or toxic assets from the books of financial speculators to those of governments, global financial moguls, their representatives in the State apparatus and corporate media are now blaming social spending (in effect, the people) as responsible for debt and deficit!

This debt is illegitimate and needs to be repudiated. Pouring more money into an economy that has a criminal financial system is no solution, and it doesn't matter how much you spend, the economy will be moribund. The greatest crimes are those committed in full public view, grandiosity is their cover. People simply cannot conceive of criminal activity on such a scale. Such has been our looting class' quarter-century crime spree, climaxing with the collapse of the global economy and the massive swapping of private loss onto the public books. The looting class is private public partnership headquartered on Wall Street and the Fed, but with affiliations across the banking system and government. They will in the end only be stopped by a concerted effort of the American people to reclaim both their government and control of their economic destiny. The looting class needs to be to brought to justice.

politics

Caddell has a good piece about South Carolina as future, which should be enough to get anyone's attention. The people turned whole scale against the South Carolina "good ole boy" political class in the primary elections:

To those of us who live in South Carolina nothing has better captured the spirit of the state than the state’s former Attorney General James Petigru’s reaction upon hearing of South Carolina’s secession from the Union: "South Carolina is too small for a republic and too large for an insane asylum.” So these recent political happenings beg the question – is this just South Carolina having another crazy moment or is it giving us a window into an emerging grassroots political revolt in America? Could it be that South Carolina is again leading a secession – this time a secession of the main stream of the American people from their establishment political class?

This offers the foundation of the politics of the future, a dropping of labels and inanity, a recognition the system is broken, and the status quo cannot endure. This allows the beginning of a political conversation of the American people, disinter-mediating the Media and the political class, on how we begin reforming our political economy. "Spare no incumbent" is a fine slogan for November's election, yet at very best only a very small first step.

Next, one must ask, what's with Russ Feingold? I guess he's the quintessential exception that proves the rule. He even allows some romanticizing of the Senate as an institution, "Russ Feingold is what a Senator is supposed to be." Feingold announced he won't vote for the garbage Democrats are shilling as finance reform stating:

“As I have indicated for some time now, my test for the financial regulatory reform bill is whether it will prevent another crisis. The conference committee’s proposal fails that test and for that reason I will not vote to advance it. During debate on the bill, I supported several efforts to break up ‘too big to fail’ Wall Street banks and restore the proven safeguards established after the Great Depression separating Main Street banks from big Wall Street firms, among other issues. Unfortunately, these crucial reforms were rejected. While there are some positive provisions in the final measure, the lack of strong reforms is clear confirmation that Wall Street lobbyists and their allies in Washington continue to wield significant influence on the process.”

My my, that certainly puts a crimp in the Democrats' November strategy of bottling swill as reform elixir. A man like that deserves to be saved, give to Senator Feingold.

Finally, on creating a real reform politics, here's some good thinking(tx oildrum):

"The generation that has experienced more peace, freedom, leisure time, education, medicine, travel, movies, mobile phones and messages than any generation in history is lapping up gloom at every opportunity." If we are living in Ridley's world of "rational optimism", why are we hearing a rising chorus of concern from learned scientists, philosophers, academics and authors who are warning us of impending disaster? The palpable sense of foreboding doesn't match the affluence and success of our time.

...affluence is an enemy -- the more we have, the more we can lose. This attachment is the bane of being rich. Much seems to beget the quest for more, until we spend all our time and effort getting, protecting and worrying. Leisure is consumed by busyness and contentment by anxiety. "Those who know when enough is enough," advised the old Taoist sages, "will always have enough." Maybe in our cultural evolution we have been striving for the wrong kinds of riches.

Success, it seems, is more complicated than affluence. So, at a subconscious level, perhaps we are aware that we are living beyond sustainability and beyond happiness, that we are being stuffed to death and starved to death at the same time. Those who take the time for honest reflection may be discovering that our prosperity is more outer and material than inner and satisfying, that we are living in an illusion of constructed optimism designed and perpetuated by an economic system whose sole function is to create need and promote consumerism.

So we should not be surprised if some thoughtful people are awakening to a cultural malaise that is a combination of "habituation and amnesia", a poignant phrase recently used in Newsweek (May 17/10) to describe our propensity for collectively forgetting the consequences of our behaviour -- in this particular case, our dependence on oil. The unfolding environmental catastrophe in the Gulf of Mexico is now poisoning more than an ocean and its shorelines. It is rapidly becoming a sobering symbol of a structural flaw in the way we are living on our planet.

On the Problem of Disciples

Now as he went on his way, he approached Damascus, and suddenly a light from heaven flashed around him. And falling to the ground he heard a voice saying to him, "Saul, Saul, why are you persecuting me?" Acts of the Apostles 9:3&4

Disciples have long been a problematic lot. Blame it on Paul maybe, for one wonders how you can possibly square his teachings with those of the Christ. His head may have hit the road to Damascus a little too hard, or you might blame it on all his wandering with the Greeks. And why not? The Greeks have a lot to answer for, remember, the Greeks were the first of the great schools of Eastern thought to infect the Romans. A century after having conquered Greece, many Romans were lamenting the decadence of "eastern" thoughts and ways. Cato would complain bitterly that Romans had adopted the Greek practice of sitting at the assembly and theater -- a people do not conquer the known world sitting on their rumps! A century later, Paul wandered the old Greek cities, picking up lord knows what, well, one thing for sure, too much Platonism. Such is the problem of disciples.

In our day, some of the most problematic disciples are those of John Maynard Keynes. Thinking they uphold the teachings of their master, the "neo-Keynesians" increasingly threaten to destroy Mr. Keynes' valuable legacy. The biggest problem for the neo-Keynesians is this is not the 1930s, the world, particularly the United States is a far different place. It is simply irrefutable fact that over the last several decades, growth rates in the US, "old" Europe, and Japan have lessened compared to the decades immediately following World War II. These economies are not going to simply grow out of more and more debt. More importantly, the massive debt accrued in the last couple decades pointed to tremendous underlying structural problems, and this cannot be ignored, in fact addressing them are the essential solutions.

In the cries of the neo-Keynesians there is far too little critique of what got us to this point. Let's take jobs as a good example. Amongst the most prestigious neo-Keynesians, those who write, appear, or are quoted in our illustrious newspapers and television shows, advocate the need to create jobs. Many are the same people, who at the time capitulating to the neo-liberalism of the past several decades, were silent, or actively advocated the deindustrialization of America and the creation of low paying servant jobs across the American landscape. Are these the new jobs they now want to create? If so, who advocates the harsher hair-shirt brothers and sisters, the neo-liberal budget cutters, or the neo-Keynesian advocates of jobs at any wage and perpetual debt?

The dirty, little, not so secret foundation of corporate globalization was simple labor arbitrage, searching the globe for ever cheaper labor, and then selling back into the increasingly hollowed out industrial economies for greater profit. Many of the neo-Keynesians of the last three decades were cheerleaders for corporate globalization, while once the so-called party of Keynes, the Democrats under the leadership of the Clintons et al, paved the way for Chinese goods and the creation of the United States of Walmart. How many good paying jobs and small business were lost without a peep from those now crying for more debt and jobs? Instead of Chinese tariffs wouldn't a better response be the breaking up of Walmart into ten thousand pieces?

Corporate globalization as labor arbitrage was always only a short-term profit maker. It would eventually lose out to rising wages in the new industrial nations and the eventual collapse of the old consumer societies under the weight of debt. But more importantly, the seeking of labor arbitrage across the planet, was really an attempt to keep a step in front of automation. As Marshall McLuhan stated four decades ago, "When the circuit learns your job, what are you going to do?" We are now at the point when even the cheapest of labor, particularly when adding the increasing cost of oil for transport, will have a difficult time competing with automation -- in short, the end of the industrial economy as we know it.

Keynes to his great credit, from the publishing of his Economic Consequences of the Peace, which first gave him renown and then ten years later in Economic Possibilities of Our Grandchildren, talked about industrial capitalism being a short transitory phase of human history, that in the not too distant future would be transcended. Unfortunately, his disciples enshrined or more accurately enchained humanity to industrial capital models. In the 1930, Economic Possibilities of Our Grandchildren, Keynes thought, with the caveats of war and population growth, people a century later would have at most a fifteen-hour work week, in hindsight, underestimating the cultural strength of industrial capital. However, he did not worship this culture, but bore it a grudging respect, unlike his disciples, whose chants of "more debt" and "more jobs" are hollowed devotionals to a dead epistemology, holding few solutions to the challenges before us.

Poli Poli

Even in our sleep, pain which cannot forget
falls drop by drop upon the heart,
until, in our own despair, against our will,
comes wisdom, through the awful grace of God. -- Aeschylus

Poli poli is a refrain you hear endlessly climbing the sublimely beautiful Mt. Kilimanjaro. It is Swahili for slowly slowly, though once you're above eighteen thousand feet, you no longer need to hear it. In the last cold dark hours before dawn, as your lungs achingly search for an ever thinning supply of oxygen, it takes all one's concentration to put one foot in front of the other. Poli poli is no longer friendly advice, it is your entire reality. Two years into our changed global economy, there's no better way to describe things than poli poli. Slowly slowly is coming the recognition that things are not going back to where they were. Poli poli will people realize that whether Keynsian solutions or Freidmanite, the economy is will be stagnant at best. Poli poli a new politics will evolve to meet the new situation. And poli poli will this new politics engage the necessary fundamental economic restructuring.

In response to the popping of the most massive global financial bubble in history, we've seen unprecedented massive monetary and fiscal responses. Yet, these responses have not in anyway dealt with, nor will they, the tremendous underlying imbalances that were both a cause and result of the financial bubble. It is becoming increasingly obvious, it will take ever greater amounts of monetary and fiscal stimulus to just keep the economy stagnant, and worse, keep us indebted to the past. How long can this be continued? That is unclear. One thing for certain, the monetary madness has transferred much of the bubble into global currencies, and like all bubbles it will eventually pop. The continuing and increasing manipulation of global currencies values as a solution, only makes clear the bankruptcy of much of our economic thinking, over time only adding to the instability of the situation.

The whipping boy for currency manipulation as pseudo-solution is the Chinese Renminbi, allowing the Chinese to take over the Fed's position of moving global markets with byzantine proclamations. Most everyone believes the Renminbi is going to rise, but that is a very uncertain bet, and continued stagnation of US, Japan, and Europe could force the Chinese to fight fire with fire, by devaluing the Renminbi. After all, unified devaluation is what Depression era scholar Ben Bernanke concluded as a solution, and he's been trying the best he can to implement. But the real point isn't who devalues or who raises currency values, it's the growing problems of a massively unstable global currency environment. Remember, the wise men of the 1930s, who failed to find solutions manipulating their currencies, became the wiser men of the 40s, instituting Bretton Woods as way to insure currency stability.

The FT has a good piece reminding how currency manipulation has tremendous unforeseen and unintended consequences with a lesson from 1930s China:

The 1934 Silver Purchase Act, passed under relentless political pressure from an alliance of silver producers, banker-bashers and inflation proponents, obliged the US Treasury to buy up the metal and boost its price. The practice wreaked havoc on the Chinese currency, which was tied to silver – long treasured in the country, even though there was no indigenous supply. Chinese silver stocks were smuggled out of the country and sold abroad, reducing the money supply and triggering deflation, credit contraction and a slump.

It's hard to see how the Chinese raising the value of Renminbi today would create any different results, helping the Chinese join the West in stagnation. What happens after the wise men realize currency manipulation is no solution? They go to tariffs, and then just as predictably war. Here in the US, leading the charge for tariffs are two of Wall Street's and our mega-corporations' biggest lackeys, Chuck Schumer and Paul Krugman. Nevermind tariffs are completely against what they preached, advocated and acted upon over the last couple decades during the de-industrialization of America and their shilling for corporate globalization.

I'll propose two other solutions. First, I don't have much use for Harry Reid, but give to Mr. Reid in order to keep Chuck Schumer from being Senate Majority Leader, that, or vote the Reps to control of the Senate. Even better, people of New York show a little responsibility for the republic and vote Chuckie out.

Secondly, doesn't it just fill you with the uncontrollable war lust of the valkyries to hear the effete Mr. Krugman cry it is time to "get tough with the Chinese." I have a better solution Paul. I know the great mathematicians of economics find it inconvenient to figure in their equations the economic value of the American military, nonetheless, it is substantial. Let's offer the Chinese a deal. The US only gets, at most, 15% of our oil from the Persian Gulf, yet it has cost us trillions over the last couple decades to "secure" this supply. Let's tell the Chinese they need to take this burden of "securing the Gulf" off our hands, hell, I'd bet they'd even pay us a couple hundred billion a year to do so. Plus, we get to cut our military budget freeing up another several hundred billion a year. Such an economic deal, right?

Poli poli.

It's Not the 1930s!

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil. -- John Maynard Keynes

As "old" Europe totters on the brink of insolvency, the dead thinking of our modern economic scholastics pervades the political atmosphere to both a degree and detriment as thick and stifling as the Gulf oil slick. The classical school of our economic scholastics states, "If you're insolvent, you must cut spending. You must pay the piper." They are answered from the other side of the cathedral by the self-proclaimed followers of Mr. Keynes, the great classical economic heretic, who scream, "No, the way out of insolvency is to spend more, the government will insure all debt." Neither side seems aware the vaults of the roof of their great cathedral rain down on their heads and the walls crumble. Their beliefs and dogmas from the 19th and 20th centuries offer little practical guidance for world of the 21st. Unfortunately, that doesn't stop them from fouling the collective political nous, influencing our own generation of madmen in authority.

From almost the beginning, the greatest problem of economics has been its craving for legitimacy as a science, instead of as a system of political values. Birthed at the end of the Enlightenment, when it was in extreme bad taste to found systems of power based on theology, economics looked to science, which again and again has proved as problematic as any theology for rationalizing systems of power. The classical economics of the 19th century, most specifically the doctrine of laissez-faire, came directly out of the Enlightenment, a continuation of the loosening of the shackles of feudal society begun several centuries before with the Renaissance. At the end of the 18th and beginning of the 19th centuries, the political economy bonds of feudalism remained substantial across Europe. So, as industrial society began to flourish, a doctrine of laissez-faire, of keeping the state away, was logical. Although in reality, as Polanyi clearly documents in The Great Transformation, the state actually played an integral role helping institute the industrial era, and contrary to zealous belief, promoting the doctrine of laissez-faire itself.

The dogma and myths of laissez-faire dominated economic thought for over a century. In the depths of the 1930s global depression, Keynes great practical heresy was to proclaim the state did indeed have a necessary and active role to play in the economy. Keynes wrote in The General Theory:

Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world...

Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.

Keynes' radicalism, as so often the case, was simply common sense. Hitting deeper into the established dogma of industrial capital economics, Keynes shattered the notion of "natural" market equilibrium, using the persistent problem of mass unemployment of the mid-30s as refutation. Keynes wrote:

THE outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.

By 1935, when, Keynes wrote these words, the world had been in a pronounced period of deflation for almost a decade. Money and debt had undergone massive destruction accompanied by tremendous industrial and agriculture over-capacity. Keynes' solution was simple, the government should step-in and in various ways provide employment and money. It was a common sense solution for a still young industrial society.

The classical economists of the 19th century were writing for their times, just as Mr. Keynes was writing very much for his. In the 19th century, industrialization was just beginning, while wide-spread in the US, Japan, and parts of Europe by the 1930s, it still had a great deal to grow. However, the world of 2010 is far different from the world of the 1930s. The US, Japan, and Western Europe are completely mature industrial societies. This is causing great problems for economic theorists, who insist on using industrial thinking, values, and institutions for problems that are non-industrial in nature, and most importantly, will not respond to the industrial elixir of infinite growth. Unlike his modern disciples, Mr. Keynes, eighty-years ago broached the growth problem in his Economic Possibilities of Our Grandchildren, though rightfully noting, it wasn't a challenge of his time, but for the future.

In the mature industrial West, including Japan, we're not going to solve our great political economy conundrum by simply spending more money and creating more jobs. We have chronic and unhealthy structural problems needing to be addressed. One of the most important structural maleficence, particularly for the Unite States, is the development of the massive service, or more accurately and detrimentally, "servants" economy. The highest priest of classical economics, Adam Smith, stated in The Wealth of Nations:

"Thus the labor of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master's profit. The labor of a menial servant, on the contrary, adds to the value of nothing. A man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants."

For the last four decades, under the dogma of industrial market capitalism, the US deindustrialized its economy, destroying the manufacturer, and populating the economy with a vast multitude of menial servants. How was this possible? One word -- debt -- in fact, outside of war, one of the greatest and most rapid indenturings of a population in human history. The problems of debt, and call it post-industrial political economy, will not lend themselves well to Keynes' 1930s solutions. Particularly, the rise of the servants economy has proved Keynes wrong on an essential point. Keynes wrote at the end of The General Theory:

I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution.

The shifting of the American economy from a manufacture to a servants economy over the past several decades exploded debt, resulting in a new and almost universal domination by the rentier class. New categories of rent have been created that even a mind as imaginative as Mr. Keynes' couldn't have conceived. Most despicably, in what must have Mr. Keynes spinning violently in his grave, the state intervention in the economy over the last couple years has been overwhelming to bailout the rentier class and their bad debt, further indenturing the multitude to perpetual servitude. We don't need more debt, we need to destroy much of the bad debt, thus freeing the economy. We need the disappearance of the rentier class, allowing the necessary sea-change. It is time for new ideas to loose the malevolent grip of vested interests.

Coming Soon to a Country Near You

Hey man did you see that
His body hit the street with such beautiful thud
I wonder what that dude was sayin
Or was he just lost in the flood

The LAT has an important story on Greece, starting off well, then unfortunately blathering into the pure propaganda of our Ponzi finance and mega-corporate elite. The story states:

Many Greeks say this generation is the first in decades that faces fewer jobs at lower pay, leading to a declining standard of living and less upward mobility than their parents enjoyed.

Even before the crisis came to a head this spring, economists estimated that about a quarter of this generation of Greeks was unemployed.

"Parents dream of their children becoming doctors or lawyers, so they made a lot of sacrifices for education," said Paulina Lampsa, international secretary for the ruling Panhellenic Socialist Movement party. "Now they have a lot of degrees but no jobs."

It's a predicament that spans the continent, a quiet underside to the perception of stability and growth brought by the creation of the European Union. In Italy, unemployment among the young is comparable to that in Greece, and the figure in Spain tops 40%. Even Britain and Germany are logging significant struggles against a similar rising tide.

The story then talks of protests against the IMF and the new austerity measures, but becomes complete drivel halfway through, blaming all Greece's problems on....wait for it...the Commies -- ho ho ho -- sort of like the early '90s when the Reps were still blaming all US problems on Jimmy Carter. The piece then advocates how the economic dog food now being sold to the Greeks by their financial masters is good for them, and hopefully, it will get them off their lazy Mediterranean asses.

The piece has a call for entrepreneurship, which is OK, we certainly need it, but it reminded me of Thomas Friedman's inane piece in the NYT last week stating the same thing. Here's the problem with a generation of "entrepreneurs", the Western economy is more centralized than any point in history, and not by the Commies, but the corporate capitalists. In the US, when the six biggest banks and the Fortune 500 control the vast majority of the American economy, and the political process, thus codifying their control, there's not a lot of entrepreneurial room, unless you want to go to jail.

The second problem with this notion of Generation Entrepreneur is the Western economy is not, nor does it need to grow at the rates it did in the past, the simple fact is it's physically impossible. What a a new generation of entrepreneurs has to do is redistribute existing wealth, that is redesign our society not based on industrial growth, but on sustainable design. The easiest example of this is our energy system. In evolving from our current fossil fuel system, we're not talking about adding to, or growing, we need to replace, which means the existing fossil fuel companies such as BP, Total, and Edison lose. Also understand, this is not simply a move from fuels but from established energy, transportation, and community practices and infrastructures, all of which have completely entrenched control of the political process.

There's a final barrier to a Generation Entrepreneur, and by no means the least significant -- debt, thus the control of the economy by our parasitical financial class. Here's a chart that says it all(tx credit writedowns):

"Morning in America" began the burying of the American economy under a mountain of debt, giving Wall Street unfettered control of the American economy, which they bled profusely for their own profit. Also take note, especially you so-called Keynesians, in the three decades preceding our three decades debt binge, the American economy grew faster with less debt. Wall Street's financial innovations have been completely worthless for the real economy, though despicably profitable for them. We're not going to change our economy until we release it from its debt shackles.

We're not going to have a generation of entrepreneurs without a corresponding political economy reformation. A reformation that destroys Ponzi debt and takes power away from Wall Street, our mega-corporations, and DC. The thinking, technologies, and institutions that got us into this problem are of little use in getting us out. Instead of Generation Entrepreneur, we need Generation Citizen.

The Continuing Collapse of Ponzi Finance and the Real Economy

FUNDAMENTAL BASIS OF A CULTURE OF TRADERS. -- We have now an opportunity of watching the manifold growth of the culture of a society of which commerce is the soul, just as personal rivalry was the soul of culture among the ancient Greeks, and war, conquest, and law among the ancient Romans. The tradesman is able to value everything without producing it, and to value it according to the requirements of the consumer rather than his own personal needs. "How many and what class of people will consume this?" is his question of questions. Hence, he instinctively and incessantly employs this mode of valuation and applies it to everything, including the productions of art and science, and of thinkers, scholars, artists, statesmen, nations, political parties, and even entire ages: with respect to everything produced or created he inquires into the supply and demand in order to estimate for himself the value of a thing. This, when once it has been made the principle of an entire culture, worked out to its most minute and subtle details, and imposed upon every kind of will and knowledge, this is what you men of the coming century will be proud of -- if the prophets of the commercial classes are right in putting that century into your possession! But I have little belief in these prophets. -- F. Nietzsche

Ponzi schemes are at their basis fraud, with no connection to any real value. They are exclusively money operations in need of endless streams of new money to prop-up the fraud. Once new money dries up, or a small number of people withdraw their investment, the entire scheme is in danger of collapse. While our global financial system is not entirely a Ponzi scheme, it has vast elements which are. Many of the financial innovations of the past several decades were simply money operations, making money on money two or three levels removed from any connection to the real economy. The Ponzi aspects of the system require ever more new money, or liquidity, endangering the entire system with collapse once the liquidity dries up.

Starting in the summer of 2007, liquidity began to dry up. By the fall of 2008 it had reached crisis stage, not simply damaging the Ponzi aspects of the system, but the real economy aspects too. The initial stage of the Ponzi collapse was met several ways. First, the banks and Wall Street did take some losses, but not nearly enough. Secondly, and importantly, one of the smallest elements, was the implementation of the TARP. Next was the the massive extend and pretend effort, that remains in place, allowing the banks not to account the great losses they still hold on their books, in addition to the great transference of losses onto the public ledger through the Fed and GSE's(see Gretchen Morgenson's excellent piece on Fannie and Freddie). Finally, was the Fed's massive dumping of liquidity into the system with special programs, and most importantly, its zero interest rate policies.

For a time, all these efforts arrested the collapse of the Great Global Ponzi Finance Con. The American taxpayer, worker, and saver becoming the last pigeon, allowing, funnily enough, the return to the game of so-called "sophisticated" investors. Unfortunately, the Ponzi aspect of the system remained intact, waiting to collapse with a new drying up of liquidity, seemingly now well under way in Europe. Despite the Euro bailout and the Fed's opening of "swaps", cheaply lending more of your money to "Old Europe", rates are rising and the European Central Bank is increasingly the major short-term lender, providing liquidity of last resort. Call all this saving Ponzi Finance 2.0.

To show how increasingly ludicrous this can all quickly become, financial speculator Bob Janjuah calls for the Fed to provide ten-trillion more in liquidity! That's just a joke and should be considered exactly that, especially as Mr. Janjuah prophesizes from atop the great pile of financial garbage that is the Royal Bank of Scotland, which to date has received more bailout money than any other bank in the world. That's Failure with a capital F, thus begging the question what happened to the tight-fisted noble Scots? Obviously the answer is brought down from centuries of occupation, first of bloody English barbarism, and then, and much worse, contemporary English effeteness.

The only solution is to call and end to the Ponzi scheme and that means a massive destruction of Ponzi debt. Make no mistake, that will cause a little sacrifice everywhere, but it is the only real solution and necessary to free the economy so that it can restructure for the 21st century, ending the even greater Ponzi thinking of infinite growth on a finite planet. Yves Smith has a nice piece on the necessity of our beginning to tackle this thinking. When you talk about the culture of traders, our industrial economists whether they're Keynes on one side, Friedman the other, and Krugman et al lost hopelessly in the middle, they all agree on the doctrine of Ponzi growth, and that is species' suicide. We need to restructure our culture to consume less and produce less. Just as we evolved from an agrarian society to an industrial society, we must now evolve to a design society. We need to spend more time figuring out how to do better with less stuff, understanding in doing so, we can all have better lives.

subsidies and democracy

credo quia absurdum est

The IEA has put out a study stating global fossil fuel subsidies amount to almost $600 billion a year. I guarantee that's vastly, vastly under counted, but it's an improvement over ten years ago when I was working in the energy world. At that time, there was one study from the late 90s, from the IMF if I remember correctly, that estimated fossil fuel subsidies around $200 billion. It was pretty much the only one. The renewable energy industry, who I was working with, was dead in the water. Their existence completely dependent on subsidies, and of course, it being the pinnacle of America's Friedmanite, Randian, Greenspanian, free marketeer era, the renewable industry spent most of it's time trying to convince they would eventually strive in the "free-market". Most subsidies for fossil fuels are so baked-in the system to be unrecognizable as such, to broach the topic of the existence of fossil fuel subsidies in established energy circles was to be considered absurd, and that folks is real power.

Much of our economic thinking today is simply a rationalizing of the existing power of our mega-corporations, centralized government, and just as importantly, though far less understood, entrenched technologies. Larry Goodwyn made an excellent point in the The Populist Moment:

A far more permanent and thus far more desirable solution to the task of achieving domestic tranquillity is cultural -- the creation of mass modes of thought that literally make the need for major additional social changes difficult for the mass of the population to imagine. When and if achieved, these conforming modes of thought and conduct constitute the new culture itself. The ultimate victory is nailed into place, therefore, only when the population has been persuaded to define all conceivable political activity within the limits of existing custom. Such a society can genuinely be described as “stable.” Thenceforth, protest will pose no ultimate threat because the protesters will necessarily conceive of their options as being so limited that even should they be successful, the resulting “reforms” will not alter significantly the inherited modes of power and privilege.

This of course is power's greatest trick, and by no means necessarily illegitimate, but essential for any sort of continuous structure of power. However, putting aside the question of legitimacy, there comes a time when many of the "conforming modes of thought and conduct" constituting the culture of power are no longer viable. The contradictions between ruling cultural doctrine and reality become not simply unsustainable, but in fact detrimental. For our society, if present unaccounted subsidies in our society were actually accounted, it would be obviously apparent they are both unsustainable and detrimental.

Two of the easiest examples of unaccounted subsidies would be for fossil fuels and of course the financial sector. In the past two years, we have watched the complete failure of the banking and financial sectors, so called "free-markets", and then seen the greatest continuous subsidized bailout in history, making the financial sector close to worthless in valuing anything. At present, we continue as if nothing failed. The fossil fuel subsidies are problematic on so many levels to be mind-numbing. I'll choose one, China. The subsidizing of oil has created a Chinese economic structure that is simply not sustainable, just as the oil soaked United States economy. Culture can warp reality for awhile, but not endlessly.

Counter to the propaganda of our meeska-mouska-free marketeers, subsidies can be perfectly fine, you do however need to account for them. Subsidies can be ways in which political economy influences the society's direction, meaning you need a healthy politics for this to function well. Today, the culture created by centralized corporate and government power is not only unaccountable, but failing spectacularly. We need to fix our markets and our government, starting with some honest accounting.

the rain in spain

The only question with Greece was when things would spill over to the rest of Europe and beyond, and the answer is pretty quickly. Spain has been hit hard by the financial meltdown, with unemployment over 20%. They had a "robust" real estate run-up leading into the crisis, yet due to an extensive extend and pretend program the banks seemed little impacted. Last week however, there were a series of bank consolidations and an announcement from the Bank of Spain that balance sheet cleaning needed to be quickened:

In a proposal published late Wednesday, the central bank said it wants Spanish lenders to set aside provisions for the full value of each bad loan one year after it has soured. Banks currently have to provision gradually over a period of between two and six years, depending on the quality of the underlying collateral. It also upped provisioning requirements for real-estate assets lenders hold on their balance sheets.

Friday, Fitch, take it for what it's worth, announced a downgrading of Spanish debt and the Euro continued its decline, so it goes. Doug Noland, who has been better than most on the ramifications of our financial bubbles states:

Did the Greek debt crisis pierce the Global Government Finance Bubble - akin to the subprime collapse dooming the Wall Street/mortgage finance Bubble? I don't believe there's room for a middle ground here - no "muddle through" - it's boom or back to bust. Well, I believe finance has tightened and this tightening will not prove fleeting. The global Bubble has been pierced, a result of Greece - although the catalyst could have as easily been developments in the US or China.

So, place you're bets.

Meanwhile, in reaction, the insolvency of Western politics grows deeper. Iceland has been very hard hit by financial crisis and offered a healthy reaction a few months back when they rejected the governments call to pay-off all the banks debts. Unfortunately, the reasoning behind this vote must now be held suspect. In what can be called nothing short of a total rejection of established politics, the people of Reykjavik voted-in a comedic protest party to lead the city, which means while disgusted with established parties, they're still not taking the situation seriously. It is the sarcastic reaction of wealth, a politics of privilege. It reminds me of how the Emperor Caligula, having so much contempt for Roman politics, appointed his horse to the senate. At some point, we will need to get serious about change and reform, it's obvious we're not there, yet.