Aneology___A New Isomorphic Logic

“Consider what effects that might conceivably have practical bearings you conceive the objects of your (best possible liberty)conception to have. Then, your conception of those effects is the whole of your conception of the (best and highest possible)object(a priori arithmetic liberty).” The pragmatic maxim, C.S. Peirce plus my bolded additions...

The Isomorphic Gates of Perception

“His maxim will be this: ...The elements of every concept enter into logical thought at the gate of perception and make their exit at the gate of purposive action; and whatever cannot show its passports at both those two gates is to be arrested as unauthorized by reason. " Charles Sanders Peirce

P=NP Incomplete___The Maximal Triadic Axiomatic Truths, And Un-Truths

"To develop the skill of correct thinking is in the first place to learn what you have to disregard. In order to go on, you have to know what to leave out; this is the essence of effective thinking." Kurt Godel
"Time and space are modes in which we think and not conditions in which we live." Albert Einstein
"A priori arithmetic is the greatest philosophy knowable to humanity."
“There exists no mind or machine, sufficiently powerful, to process finity and infinity, simultaneously!”___Proofs below…
“The highest probability, of the highest possibility, is the only possibility.”

Tri-Chronic Dimensional Geometric Logic, and Tri-Chronic Spatial Perception…

“Logic is rooted in the social principle.” Charles Sanders Peirce

“No man can communicate the smallest item of information to his brother-man unless they have … common familiar knowledge; where the word `familiar’ refers less to how well the object is known than the manner of knowing … Of course, two endless series of knowings are involved.” C.S. Peirce

A warning from Paul Krugman of what should be blindingly obvious (but is not obvious to many experts)

Fabius Maximus | Jan 8, 2009

NEW, March 4, RISK AND UNCERTAINTY IN ECONOMICS, By Paul Davidson, Editor, Journal of Post Keynesian Economics
New, Feb. 24, High Noon: Geithner v. The American Oligarchs
New, Feb. 15 IMF official says the world’s advanced nations are already in a depression, by Fabius Maximus
New, Jan. 30 The Economic Mind of Charles Sanders Peirce, by James R. Wible
New, Jan. 30 A Situation Report About The Global Economy, As The Flames Break Thru The Firewalls, by Fabius Maximus
New, Jan. 28 The Debt-Deflation Theory of Great Depressions, by Irving Fisher
New Some thoughts about the economy of mid-21st century America, by Fabius Maximus
New Economics is not a morality tale, by Fabius Maximus
New The Economic Crisis and the Crisis in Economics, by Simon Johnson

Pluto asks here: “what does Fabius think of Paul Krugman’s article in the NYT?”

Here is the article he mentions: “Fighting Off Depression“, Paul Krugman, op-ed in the New York Times, 4 January 2009 — Excerpt:

“If we don’t act swiftly and boldly,” declared President-elect Barack Obama in his latest weekly address, “we could see a much deeper economic downturn that could lead to double-digit unemployment.” If you ask me, he was understating the case.

The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.

… Here’s my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it’s only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy - well, you can see where this is going.

It’s not a bad article, as a statement of the by-now blindingly obvious (about which Krugman has repeatedly warned). Readers of this site knew this several months ago. Here are excerpts from posts on the FM site, which new readers might find of interest.

The US economy at Defcon 2, 11 March 2008 {Note: we did almost nothing}:

As a result of #1 (deleveraging}, our financial fabric is ripping. Weak links have been breaking one by one over the past year or so. As each link breaks, there is more stress on the remaining links. The tear is getting longer and wider due to several positive feedback loops. In general, everybody’s (households’, businesses’, investors’ and creditors’) tolerance for risk decreases, and the inevitable reactions slow the economy.

… Massive government intervention must occur soon, or the eventual cost of mitigation will rise several fold. The current tools of fiscal and monetary stimulus plus mild intervention (the “super SIV’ and “Hope Now” plans) are grossly inadequate to the scale of the problem. But this downturn may be evolution in action, the consequences of our past actions. If so, what damage will the government do attempting to prevent the inevitable?

A solution to our financial crisis, 25 September 2008 {Note: we did almost nothing}:

The policy response of our leaders has been inadequate, up to and including the Paulson Plan. Their actions have been incremental and reactive in nature. While each step has been larger than its predecessor, all have been reactions to the past dimension of the crisis — not the future. That is, our leaders have been “behind the curve.”

Paulson and Bernanke have taken actions that would have been effective if applied 2 or 3 quarters earlier. Borrowing a metaphor from emergency medicine, they have squandered the “golden hour“, since the crisis started with the collapse of the mortgage brokers in December 2006.

Correcting this flawed procedure is the first step. Doing so at this late date will require immediate and drastic actions. The severe effects of the recession — now affecting the developed nations, perhaps soon the entire world — will soon be felt, further destabilizing the economy and the financial system.

Recommendations (click links for more information about each)

Stabilize the financial system. (first aid)
Stabilize the economy. (emergency medicine)
Arrange long-term financing for steps #1 and #2 with our foreign creditors. (finance the treatment)
The last opportunity for effective action before disaster strikes, 3 October 2008 {Note: we did almost nothing}:

The end of the post-WWII debt supercycle started with the collapse of the mortgage brokers in December 2006. Since then the government has made aprox 15 initiatives to stop the deterioration of our financial system. The super SIV, 3.25% in cuts to the federal funds rate, FHA Secure, Hope Now, a $120 billion tax rebate, massive expansion of access to the Fed’s discount “window”, TAF auction, TSLF, PDCF, the Bear Stearns bailout, the nationalization of the GSE’s and AIG … and now the TARP (aka the Paulson Plan). Don’t bother looking up the acronyms, they will all soon be forgotten.

All too small, too late. Incremental and reactive, responding to critical problems of last month — irrelevant to the current situation. This is a recipe for disaster. Like in the US 1929-1933 and Japan 1989-1996 — delaying the necessary large-scale response until the problem was no longer manageable.

Now the US financial system is seizing up. The machinery remains, but the gears no longer turn. Most of you have no idea to what I am referring, but you will learn over the next few weeks. To use a bad medical analogy, the financial system has had a cardiac arrest.

The new President will need new solutions for the economic crisis, 9 October 2008:

However, we must prepare for the possibility that the economy will be in a severe recession — or even depression — when the new President takes office in January. A depression does not mean like the 1930’s — the Great Depression. There is a large gap — usually ignored by analysts — between the severe post-WWII recessions (1973-75 and 1980-82) and the horror of the 1930’s. The frequent depressions of the late 1800’s lie in that gap, and for various technical reasons we may now be experiencing one of those.

… The new President must be prepared to immediately take action after inauguration. There is no time for the usual drill: search for staff, redecorate the Oval Office, have meet-and-greets so the new officials get to know each other, schedule meetings to formulate a plan and build support. The damage to the economy will be terrible by that time these things are completed, and (worst case) the economy still might be sliding downwards. Also, any plans will require time for Congressional approval and implementation, and plus lag times until results appear.

Then there is is the bad news. The conventional solutions which the new Administration could easily put into effect — fiscal and monetary stimuli, plus devaluation of the dollar to stimulate exports — probably will not work (in the sense of sparking a recovery of the economy). Let’s defer the reasons why until a later post, and consider the implications.

… These are {recommendations for President Obama} to do, not arranged in a sequential order. … We do not know if these things are even possible, esp (2). An unprecedented crisis requires extraordinary responses.

Status report on the financial crisis: we’re at a critical point in time, 10 October 2008 {Note: we did almost nothing}:

An economic downturn has 3 stages, each with a different goal.

First Aid — Stabilize the financial system to avoid a depression. {UPDATE: TOO LATE; WE MISSED THIS WINDOW}
Treatment — apply fiscal and monetary stimuli to mitigate suffering during the recession and get a global recovery in 2010.
Recovery — restructuring and reforms to prepare for the expansion after 2010, and the new world beyond that.
Yes, 2010 is the earliest reasonable date for a recovery IMO from the most severe global downturn since WWII. Policy errors could length the downturn, of course.

The economy is in shock. The effects of this will soon become visible, 11 October 2008 {Note: we did almost nothing}:

This is like Cardiogenic shock, caused by the failure of the heart to pump effectively. The US economy went into cardiac arrest early last week, as the flow of money (the blood” of the economy) slowed due to a near-collapse of the financial system (its “heart”, but not its soul). If not restarted, the economy will slide into a depression (GDP decline of 10% or more) in a few weeks (perhaps months).

The coming collapse in business spending - made visible today, 15 October 2008:

Smart managers react quickly and strongly to changed conditions. Unfortunately, when those conditions are a systemic event visible and affecting everyone their actions re-enforce the event. Positive feedback. This creates much of the business cycle’s volatility, the big swings. The “dampeners” of Keynesian economics, contra-cyclical monetary and fiscal policy, fight these in order to maintain equilibrium.

The US economy must go to Defcon 1, 13 November 2008 {Note: we did almost nothing}:

Summary: We are on the brink of an economic disaster like nothing since the 1930’s. Here is a sketches (nothing more), of guesses as to what we can look forward to. While the past guesses on this site have proven accurate, these might prove too pessimistic. Or too optimistic.

… {After the financial crisis} the effects ripple from the virtual economy (financial markets) to the real economy. Americans have reduced their spending. Hundreds of companies around the world have announced falling revenue — and responded with cutbacks in employment and capital expenditures. Tens of thousands are doing the same, but outside the media spotlight. Most of this will hit in the early months of 2009. We must move the US to Defcon One, a war-like mobilization of resources.

Situation report: global economy, December 2008, 19 December 2008:

Viewpoints about the crisis have coalesced into three camps.

The “normal global recession” camp. Just another cycle, US GDP down perhaps -3% peak to trough.
The “worst recession since the 1930’s” camp. A bad scene, but the world’s governments are now on the job. Fiscal and monetary policy will do the job, again. US GDP down 5% or so. See this example.
The “worse than worst” scenario. Government policy might not work — or it might work but only with long lags. Uncertainty rules; the outcome is unknowable.
Those in the first two camps believe that the worst of the crisis has passed in that its course now runs in familiar channels. The small minority in the third camp believes that the world has changed. The post-WWII is ending.

A Thinker For Our Times, Keynes...

National Security Alert

By Robert Skidelsky

Global leaders are once again reminding themselves of the insights of the Cambridge academic who helped relaunch the world economy after the Second World War. He deserves to ride again, writes his biographer Robert Skidelsky

Keynes, as portrayed by Low in the New Statesman of 28 October 1933; reproduced with permission of Solo Syndication

John Maynard Keynes has been restored to life. Rusty Keynesian tools – larger budget deficits, tax cuts, accelerated spending programmes and other “economic stimuli” – have been brought back into use the world over to cut off the slide into depression. And they will do the job, if not next year, the year after. But the first Keynesian revolution was not about a rescue operation. Its purpose was to explain how shipwreck might occur; in short, to provide a theoretical basis for better navigation and for steering in seas that were bound to be choppy. Yet, even while the rescue operation is going on, we need to look critically at the economic theory that takes his name.

In his great work The General Theory of Employment, In terest and Money, written during the Great Depression of the 1930s, Keynes said of his ideas that they were "extremely simple, and should be obvious". Market economies were in herently volatile, owing to un certainty about future events being inescapable. Booms were liable to lead to catastrophic collapses followed by long periods of stagnation. Governments had a vital role to play in stabilising market economies. If they did not, the undoubted benefit of markets would be lost and political space would open up for extremists who would offer to solve economic problems by abolishing both markets and liberty. This, in a nutshell, was the Keynesian "political economy".

These ideas were a challenge to the dominant economic models of the day which held that, in the absence of noxious government interference, market economies were naturally stable at full employment. Trading in all markets would always take place at the "right" prices - prices that would "clear the market". This being so, booms and slumps, and prolonged unemployment, could not be generated by the market system itself. If they did happen, it was due to "external shocks". There were many attempts to explain the Great Depression of the 1930s along these lines - as a result of the dislocations of the First World War, of the growth of trade union power to prevent wages falling, and so on. But Keynes rightly regarded such explanations as self-serving. The Great Depression started in the United States, not in war-torn Europe, and in the most lightly regulated, most self-contained, and least unionised, market economy of the world. What were the "external shocks" that caused the Dow Jones Index to fall from 1,000 to 40 between 1929 and 1932, American output to drop by 20 per cent and unemployment to rise to 25 million?

He set out to save capitalism, a system he did not much admire, because he thought it the best hope for the future of civilisation

We can ask exactly the same question today as the world economy slides downwards. The present economic crisis has been generated by a banking system that had been extensively deregulated and in a flexible, largely non-unionised, economy. Indeed, the American capitalism of the past 15 years strongly resembles the capitalism of the 1920s in general character. To Keynes, it seemed obvious that large instabilities were inherent in market processes themselves.

John Maynard Keynes was a product of Cambridge civilisation at its most fertile. He was born in 1883 into an academic family, and his circle included not just the most famous philosophers of the day – G E Moore, Bertrand Russell and Ludwig Wittgenstein – but also that exotic offshoot of Cambridge, the Bloomsbury Group, a commune of writers and painters with whom he formed his closest friendships. Keynes was caught up in the intellectual ferment and sexual awakening that marked the passage from Victorian to Edwardian England. At the same time, he had a highly practical bent: he was a supreme example of what Alasdair MacIntyre calls “the aesthete manager”, who partitions his life between the pleasures of the mind and the senses and the management of public affairs. After the First World War, Keynes set out to save a capitalist system he did not particularly admire. He did so because he thought it was the best guarantor of the possibility of civilisation. But he was always quite clear that the pursuit of wealth was a means, not an end. He did not much admire economics, either, hoping that some day economists would become as useful as dentists.

All of this made him, as his wife put it, "more than an economist". In fact, he was the most brilliant non-economist who ever applied himself to the study of economics. In this lay both his greatness and his vulnerability. He imposed himself on his profession by a series of profound insights into human behaviour which fitted the turbulence of his times. But these were never - could never be - properly integrated into the core of his discipline, which spewed them out as soon as it conveniently could. He died of heart failure in 1946, having worked himself to death in the service of his country.

The economic theory of Keynes's day, which precluded boom-bust sequences, seemed patently contrary to experience, yet its foundations were so deep-dug, its defences so secure, its reasoning so compelling, that it took Keynes three big books - including a two-volume Treatise on Money - to see how it might be cracked. His attempt to do so was the most heroic intellectual enterprise of the 20th century. It was nothing less than the attempt to overturn the dominant economic paradigm dating from Adam Smith and David Ricardo.

He finally said what he wanted to say in the preface to The General Theory: "A monetary economy, we shall find, is one in which changing views about the future are capable of in fluencing the quantity of employment and not merely its direction." In that pregnant sentence is the whole of the Keynesian revolution.

Keynes's understanding about how economies work was rooted in his theory of knowledge. The future was unknowable: so disaster was always possible. Keynes did not believe that the future was wholly unknowable. Not only can we calculate the probability of winning the Lottery, but we can forecast with tolerable accuracy the price movements of consumer goods over a short period. Yet we "simply do not know" what the price of oil will be in ten, or even five, years' time. Investments which promised returns "at a comparatively distant, and sometimes an indefinitely distant, date" were acts of faith, gambles on the unknown. And in that fact lay the possibility of huge mistakes.

Classical economists could not deny the possibility of unpredictable events. Inventions are by their nature unpredictable, especially as to timing, and many business cycle theorists saw them as generating boom-bust cycles. But mainstream economics, nevertheless, "abstracted" from such disturbances. The technique by which it did so is fascinatingly brought out in an argument about economic method between two 19th-century economists, which Keynes cited as a fork in the road. In 1817, Ricardo wrote to his friend Thomas Malthus: "It appears to me that one great cause of our differences . . . is that you have always in your mind the immediate and temporary effects of particular changes, whereas I put these immediate and temporary effects quite aside, and fix my whole attention on the permanent state of things which will result from them."

To this, Malthus replied: "I certainly am disposed to refer frequently to things as they are, as the only way of making one's writing practically useful to society . . . Besides I really do think that the progress of society consists of irregular movements, and that to omit the consideration of causes which for eight or ten years will give a great stimulus to production and population or a great check to them is to omit the causes of the wealth and poverty of nations . . ."

Keynes sided with Malthus. He regarded the timeless equilibrium method pioneered by Ricardo as the great wrong turning in economics. It was surely the Ricardo-Malthus exchange he had in mind when writing his best-known aphorism: "But this long run is a misleading guide to affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."

Ricardo may have thought of the "long run" as the length of time it took storms to disperse. But under the influence of mathematics, economists abandoned the notion of time itself, and therefore of the distinction between the long run and the short run. By Keynes's time, "risks", as he put it, "were supposed to be capable of an exact actuarial computation". If all risks could be measured they could be known in advance. So the future could be reduced to the same epistemological status as the present. Prices would always reflect objective probabilities. This amounted to saying that unregulated market economies would generally be extremely stable. Only very clever people, equipped with adequate mathematics, could believe in anything quite so absurd. Under the influence of this theory, governments withdrew from active management and regulation of economic life: it was the age of laissez-faire.

Keynes commented: "The extraordinary achievement of the classical theory was to overcome the beliefs of the 'natural man' and, at the same time, to be wrong." It was wrong because it "attempts to apply highly precise and mathematical methods to material which is itself much too vague to support such treatment".

Keynes did not believe that "natural man" was irrational. The question he asked was: how do we, as rational investors, behave when we - unlike economists - know that the future is uncertain, or, in economist-speak, know that we are "informationally deprived"? His answer was that we adopt certain "conventions": we assume that the future will be more like the past than experience would justify, that existing opinion as expressed in current prices correctly sums up future prospects, and we copy what everyone else is doing. (As he once put it: "Bankers prefer to be ruined in a conventional way.") But any view of the future based on "so flimsy a foundation" is liable to "sudden and violent changes" when the news changes. "The practice of calmness and immobility, of certainty and security suddenly breaks down. New fears and hopes will, without warning, take charge of human conduct . . . the market will be subject to waves of optimistic and pessimistic sentiment, which are unreasoning yet in a sense legitimate where no solid basis exists for a reasonable calculation."

But what is rational for individuals is catastrophic for the economy. Subnormal activity is possible because, in times of crisis, money carries a liquidity premium. This increased "propensity to hoard" is decisive in preventing a quick enough fall in interest rates. The mainstream economics of Keynes's day viewed the interest rate (more accurately, the structure of interest rates) as the price that balances the overall supply of saving with the demand for investment. If the desire to save more went up, interest rates would automatically fall; if the desire to save fell, they would rise. This continual balancing act was what made the market economy self-adjusting. Keynes, on the other hand, saw the interest rate as the "premium" for parting with money. Pessimistic views of the future would raise the price for parting with money, even though the supply of saving was increasing and the demand for investment was falling. Keynes's "liquidity preference theory of the rate of interest" was the main reason he gave for his claim that market economies were not automatically self-correcting. Uncertainty was what ruined the classical scheme.

The same uncertainty made monetary policy a dubious agent of recovery. Even a "cheap money" policy by the central bank might not be enough to halt the slide into depression if the public's desire to hoard money was going up at the same time. Even if you provide the water, you can't force a horse to drink. This was Keynes's main argument for the use of fiscal policy to fight a depression. There is only one sure way to get an increase in spending in the face of falling confidence and that is for the government to spend the money itself.

This, in essence, was the Keynesian revolution. Keynesian economics dominated policymaking in the 25 years or so after the Second World War. The free-market ideologists gave this period such a bad press, that we forget how successful it was. Even slow-growing Britain chugged along at between 2 and 3 per cent per capita income growth from 1950-73 without serious interruptions, and the rest of the world, developed and developing, grew quite a bit faster. But an intellectual/ideological rebellion against Keynesian economics was gathering force. It finally got its chance to restore economics to its old tramlines with the rise of inflation from the late 1960s onwards - something which had less to do with Keynesian policy than with the Vietnam War. The truth was that "scientific" economics could not live with the idea of an unpredictable world. So, rather than admit that it could not be a "hard" science like physics, it set out to abolish uncertainty.

The "new" classical economists hit on a weak spot in Keynesian theory. The view that a large part of the future was unknowable seemed to leave out learning from experience or making efficient use of available information. Rational agents went on making the same mistakes. It seemed more reasonable to assume that recurrent events would initiate a learning process, causing agents to be less often surprised by events. This would make economies more stable.

The attack on Keynes's "uncertain" expectations developed from the 1960s onwards, from the "adaptive" expectations of Milton Friedman to the "rational" expectations of Robert Lucas and others. The development of Bayesian statistics and Bayesian decision-theory suggested that agents can always be modelled as having prior probability distributions over events - distributions that are updated by evidence.

Today, the idea of radical uncertainty, though ardently championed by “post-Keynesians” such as Paul Davidson, has little currency in mainstream economics; however, it is supported by financiers of an intellectual bent such as George Soros. As a result, uncertainty once more became “risk”, and risk can always be managed, measured, hedged and spread. This underlies the “efficient market hypothesis” – the idea that all share options can be correctly priced. Its acceptance explains the explosion of leveraged finance since the 1980s. The efficient market hypothesis has a further implication. If the market always prices financial assets correctly, the “real” economy – the one involved in the production of goods and non-financial services – will be as stable as the financial sector. Keynes’s idea that “changing views about the future are capable of influencing the quantity of employment” became a discarded heresy.

And yet the questions remain. Is the present crisis a once-in-a-lifetime event, against which it would be as absurd to guard as an earthquake, or is it an ever-present possibility? Do large "surprises" get instantly diffused through the price system or do their effects linger on like toxic waste, preventing full recovery? There are also questions about the present system that Keynes hardly considered. For instance: are some structures of the economy more conducive to macroeconomic stability than others?

This is the terrain of Karl Marx and the underconsump tionist theorists. There is a long tradition, recently revived, which argues that the more unequal the distribution of income, the more unstable an economy will be. Certainly globalisation has shifted GDP shares from wages to profits. In the underconsumptionist tradition, this leads to overinvestment. The explosion of debt finance can be interpreted as a way of postponing the "crisis of realisation".

Keynes did not have a complete answer to the problems we are facing once again. But, like all great thinkers, he leaves us with ideas which compel us to rethink our situation. In the long run, he deserves to ride again.

Lord Skidelsky is the author of "John Maynard Keynes" (three volumes), published in hardback by Macmillan

A Memo of Sound Advise...

New Dec. 04, National Security Alert
#3___The Republic Destroying Democracy, Fix…
New Dec. 12, Top Broker Accused of $50 Billion Fraud
New Dec. 11, The World Credit Crisis: A Simple Introduction Part I
New Dec. 09, Do Blame The Quants, by Pablo Triana Portela
New Dec. 08, Macroeconomic Policy and the Current Depression--Posner
New Dec. 05, What Would Keynes Have Done?
New Dec. 01, What to Do, by Paul Krugman
New Dec. 01, Deficits and the Future, by Paul Krugman
New Dec. 01, Finally, System-Risk Insurance
New Nov. 30, Global Liquidity & Capital Flows – Grand Illusions, by Satyajit Das

Here's a certified mailed letter to Obama. It was returned with a note, "Due to security, Not accepting mail". Now, how is this supposed to be an open administration of people participation, when I haven't been able to receive any response of any transmission forms, for over six months? Something's drastically wrong here. Hey Obama, can't you afford to hire someone, anyone, to open or answer your letters and e-mails...?

Lloyd Gillespie
lloyd.gillespie@gmail.com
207-701-____

Obama for America
P.O. Box 8102
Chicago, IL 60680
(866) 675-2008

Hon. President Elect Barack Obama,

Congratulations, congratulations a thousand times over. You’ve shown the nation how to see common sense, once again___Thank You… You’ve made the nation realize real change is necessary, and desired___No-one could have achieved more… The nation has realized “Markets are more than profits”___They must have a proper law mechanics… You’ve alerted her to the fact, “Markets can not be supported by drastically imbalanced currencies”___They require balanced PPP’s(purchasing price parities)___Globally… You’ve further alerted her to the fact, “Markets can not function, while tax havens gobble and hoard profits”___This must be changed. You’ve also alerted her to the fact, “Markets cease functioning when a nation out-sources its jobs”___This must be rectified… Further still, you’ve alerted her to the fact, “Markets cease functioning when free-trade meets its limit of cheap labor”___This is a law of free-trade limits, i.e., “You can only free-trade, until cheaper labor out-trades you”…

You now have the awesome responsibility of “Market-Maker In Chief”, along with “Commander In Chief”… I mention this to you with no small sense of seriousness, as you will need the key, and proper, economic and financial advisers, to deal with the seriousness of what’s to come. I’m not writing this for my own personal interests, as I only wish to offer a few very important academic names, I’ve been following for years. I personally know these people have correctly forward forecasted the present economy, as I have also, since the early `90’s. They have credentials, which I do not, as I’m a polymath autodidact___that’s beside the point. Of all the economic advisors, presently employed/advising you, none have the proper “Market-Maker” academic intelligence the present job requires, or will require. I know them all, and have tried to influence a few, in the Clinton Administration, in the `90’s, about the ever-increasing global transactions’ bubble, then forming, with no success___The truth I warned them of, is now known by all. If they didn’t act then, why should we expect them to act, correctly, now?

As number one economic advisor/Czar, it should be America’s premier academic “Market-Maker” economist, Dr. Paul Davidson, from the University of Tennesee: http://econ.bus.utk.edu/davidson.html Subordinate to Paul Davidson should be Jane D’Arista: http://www.fmcenter.org/site/pp.asp?c=8fLGJTOyHpE&b=246644 and Chris Whalen: http://www.rgemonitor.com/us-monitor/254213 They should be the head micro/macro financial/monetary architecture economists, as the rest of the world has already stated their desire of a new “Bretton Woods II”. These are America’s foremost, truly Democratic, thinkers on the “BW II International Financial Architecture”. A secondary subordinate team should be made up of Nouriel Roubini: http://www.rgemonitor.com/index.php and Marshall Auerback: http://www.jpri.org/publications/critiques/index.html as they also correctly predicted most every move the present market has taken, over the last five years. I know them to be factually true and accurate, and I trust them, as should you. I have nothing vested in any of these names___I just know them to be who you need to succeed, and only they will do, as to their specific intelligences/informations/knowledges, as relates to what I know our nation, and the world, will absolutely require___Global derivatives’ mechanics absolutely requires the above people’s extensive knowledge of...

I trust you Mr. Pres. Elect Barack Obama, as I can clearly see your heart guides your intellect, to the true analytical middle ground judgment necessary, to lead us out of this mess. I have simply offered you the compulsory, complimentary, bottom-up/top-down economic help, I know you will absolutely need…

Please approach your present team carefully, with this information, as many will be rather jealous and angry, at outside names being suggested. Some of them know who I am also, as we’ve directly corresponded. I, myself, look for nothing but the proper people placement, as per above. Of course, the choice is yours, but I know, not vetting these names, would be a grave error…

Thanks for your time,
Life-time economic investigator,
Lloyd Gillespie, age 63
http://macromouse.blogspot.com/

p.s.
If possible, these names should attend the Nov. 15, D.C. Conference, if you could make that possible, as this meeting will only be the first of many required, on into your administration, most likely culminating in a months’ long conference, as did the first BW I, in 1944. Many of my ideas, backing/supporting you and your ideas/goals, are listed at: http://theawakeningoftheamericamind.blogspot.com/ and on my Obama Blog at: http://my.barackobama.com/page/community/post/lloydgillespie/gGxkcm

White House Summit on Financial Markets and the World Economy

New Nov 21, National Security Alert #2___The Epistemology of Ecolo-Techno-Political-Economic Morality…
New Nov 26, Desperate Measures by Desperate Policy Makers in Desperate Times: the Fed Moves to Radically Unorthodox Policies as Economy Is in Free Fall and Stag-Deflation Deepens
New Nov 25, Global Financial System – Calling for the Plumber!
New Nov 24, What Barack Obama Needs to Know About Tim Geithner, the AIG Fiasco and Citigroup Link
New Nov 22, The Deadly Dirty D-Words: “Deflation”, “Debt Deflation” and “Defaults”. And How Central Banks Will Have to Resort to “Crazy” Policies as We Have Reached Such Bermuda Triangle of a “Liquidity Trap”
New Nov 20, Advance Preview of "America's Defense Meltdown"
New Nov 17, Despite Treasury issuance, the U.S. debt-to-gdp ratio of 360% may be topping out, by D.Holt
New Nov 16, National Security Alert #1___The Epistemology of Economics…
New Nov 16, Fabius Maximus The US economy must go to Defcon 1 and Link
New Nov 15, The Meeting of No Meeting White House Fact Sheet: Agreements of G-20 Summit, Especially read the comments section...
New Nov 14, A most important post by Paul Davidson Reforming the World's International Money LINK
New Nov 12, The G20 Role In The Current Financial Crisis
New Nov 12, The Dismal Outlook for the US and Global Economy and the Financial Markets
Addition: "We interrupt regular programming to announce that the United States of America has defaulted"

Dear Colleague:

Henry Liu and I have written a brief note (see below) to the Heads of State who will be meeting on November 15, 2008 to discuss the international implications of the current financial Crisis . Henry believes that he will be able to get the ASIA TIMES to print it on Monday, November 10, 2008 as a Headline piece. The Asia Times is a global on line publication with a web visibility of over 2,000,000 daily of highly educated readership world wide, beating Bloomberg.com, WSJ.com, MSNBC.com., according to Marketleap.com. Presumably, other publications may also publish it in the EU. Perhaps among all our friends, we can recruit a public relation professional to help. Even Keynes needed Felix Frankfurter to introduce him to FDR.

Our note is as follows:

Open Letter to All Political Leaders attending the November 15 White
House Summit on Financial Markets and the World Economy

The Winter of 2007-2008 will prove to be the winter of economic
discontent and the beginning of the end of the belief that unfettered
global financial markets spread risk and promoted economic efficiency,
growth, and prosperity. For more than three decades mainstream
economists have preached, and politicians accepted, the myth of the
efficiency of markets, while burying any thoughts of John Maynard
Keynes's analysis of interconnection of financial markets and the
international payments system.

Those who do not study the lessons of history are bound to repeat its
errors. Economists forgot the events of the world-wide Great Depression
that followed the collapse of the unfettered U.S. financial markets that
were associated with the "Roaring Twenties" prosperity. Now history has
repeated itself with the deregulation of financial markets and banking
operations that occurred at the same time as the prosperity of recent
years that climaxed in 2008 with the Greatest Financial Market Crisis
since the Great Depression.

The U.S. sub prime mortgage problem that started in 2007 developed from
a small blip on the economic radar screen to a situation that has caused
the collapse of financial markets and threatened the viability of
financial institutions world wide as the contagion spread quickly via
the existing international payments system. If we are to prevent a
global Great Depression, it is time to restore Keynes's vision of how
the international payments system should work to permit each country to
promote a national full employment policy without having to fear balance
of payments problems or financial events that occur in other countries
from infecting the domestic banking and financial system.

Another Great Depression can be avoided if world leaders would
reconsider John Maynard Keynes's analytical system that contributed the
golden age of the first quarter century after World War II. The
undersigned have advocated for years a new financial architecture based
on an updated 21st century version of the Keynes Plan proposed at
Bretton Woods.

This new financial architecture will create (1) a new global monetary
regime that exists without currency hegemony, (2) global trade
relationships that support rather than retard domestic development and
(3) a global economic environment that induces each nation to promote
full employment and rising wages for its labor force.

Paul Davidson Editor, Journal of Post Keynesian Economics
Henry C.K. Liu, Visiting Professor of Global Development, Department of Economics, University of Missouri and Chairman of a New York based private investment group.

We hope you will be sympathetic to our message If you agree we invite you to support our message Let us know by sending both Henry and I an email saying you agree give us your name, title, and affiliation.

our email addresses are Paul Davidson: pdavidson@utk.edu
Henry C.K. Liu hliu@mindspring.com

White House Summit on Financial Markets and the World Economy...

New Nov. 6, Credit Swap Disclosure Obscures True Financial Risk(beware-the $596 trillion is actually total BIS global transactions turnover figure)
New Nov. 6, The Economic Mess and Financial Disaster that Obama Will Inherit, by Nouriel Roubini
New Nov. 3, The Bank Bailouts Are Very Well Intended, But Where Is All The Money Going To Come From?, by Edward Hugh
NEW Nov. 2, Two, two-trillionaires, by Brad Setser
NEW Oct. 31, The U.S. Will Experience a Severe Recession; thus a Large Fiscal Policy Stimulus is Necessary to Dampen the Severity of this Economic Contraction, by Nouriel Roubini
NEW Oct. 30, Fed Chairmen and Presidents: Roundtable with Roger Kubarych and Richard Whalen, by Chris Whalen Important
NEW Oct. 29, The Coming Deflation Scare
NEW Oct. 29, Debt-deflation and the future of the American Economy, by Karol Gellert___because she's important to understand.
NEW Oct. 29, The Gold-Dollar System: Conditions of equilibrium and the price of gold, by Milton Gilbert___because he's important to understand.
NEW Oct. 28, America must lead a rescue of emerging economies, by George Soros
Here's an important note to the world leaders, meeting in D.C. in November...

Dear Colleague:

Henry Liu and I have written a brief note (see below) to the Heads of State who will be meeting on November 15, 2008 to discuss the international implications of the current financial Crisis . Henry believes that he will be able to get the ASIA TIMES to print it on Monday, November 10, 2008 as a Headline piece. The Asia Times is a global on line publication with a web visibility of over 2,000,000 daily of highly educated readership world wide, beating Bloomberg.com, WSJ.com, MSNBC.com., according to Marketleap.com. Presumably, other publications may also publish it in the EU. Perhaps among all our friends, we can recruit a public relation professional to help. Even Keynes needed Felix Frankfurter to introduce him to FDR.


Our note is as follows: To be published Nov. 10...

JOHN MAYNARD KEYNES
(Palgrave/Macmillan, London and New York, 2007) ISBN# 978-1-4039-9623-7 indicate

'Davidson convincingly shows how Keynes's radical assault on classical economic theory was undermined by mainstream interpreters anxious to make his doctrines politically acceptable. Keynes's own ‘general theory' is compellingly explained; its obfuscators attacked with Davidson's familiar panache.’ - Lord Skidelsky, author of John Maynard Keynes 1883-1946: Economist, Philosopher, Statesman author of the 3 volume biography of Keynes.

'This could be the best one-volume treatment of Keynes's economics since Keynes himself. Clear, logical and faithful, Paul Davidson introduces the real Keynes to a new generation. And do we ever need him.' - James K. Galbraith, The University of Texas at Austin and Levy Economic Institute

'Global imbalances, the unshackling of capital, the precarious state of modern capitalism: rarely has the world of economics been in more need of the thoughts of John Maynard Keynes. Although Keynes is no longer with us, this book is the next best thing. Paul Davidson is the leading expert on Keynes and Keynesianism and his book should be read by anybody who wants to understand the world as it is, rather than as the economic text books say it ought to be.' - Larry Elliott, Economics Editor, The Guardian

‘Paul Davidson's fascinating, encyclopaedic book captures the drama of the appearance of the General Theory, illuminates the controversies still surrounding it, and passionately defends Keynes's radical innovations in economic theory and policy. It is high time for economists and policymakers to go back to Keynes's own words, whose power Davidson so effectively articulates.’ - Peter L. Bernstein ,President of Peter L. Bernstein, Inc., and author of the best selling book Against the Gods: The Remarkable Story of Risk and the book Capital Ideas Evolving

Will The "Shadow Banking System" Collapse The Real Banking System...? BUSTED...!!!

Evaluating Toxic Assets – And Where Do We Go Next, by Paul Davidson
NEW Oct. 27,, Media's Missing Intelligent Economists...
NEW Oct. 13, The Entire Global Market Law System Is Broken___Throwing Good Money After Bad Law Makes No Sense…!
NEW Oct. 12, Is The World Mature Enough To Handle “Free Money Print” Governments…?, by L.A.Gillespie
NEW Oct. 11, A Crash Course In Economics, by Chris Martenson
NEW Oct. 10, Let's Take The Higher Road, by L.A.Gillespie
New Oct. 9, Alert: Nouriel Roubini: The world is at severe risk of a global systemic financial meltdown and a severe global depression.
New Oct. 8, Revisiting my February paper “The Risk of a Systemic Financial Meltdown: The 12 Steps to Financial Disaster”…And Some New Policy Recommendations to Avoid the Meltdown, by Nouriel Roubini
New Oct. 7, Radical Policy Steps Necessary to Avoid a Systemic Meltdown: Interview with the Council on Foreign Relations, by Nouriel Roubini
New Oct. 6, The Fed keeps on wasting time while the mother of all bank runs is underway, by Nouriel Roubini
Financial Crisis: Worst Yet To Come; Audio file, 1hr. 10min.

Answer___Economic in-efficiency. Here's my latest projection. Due to the fact the "Shadow Banking System" equals the size of the real banking system, and it's collapsing world-wide fast, the collapse will be exponential in true speed and damage, due to its true size, and the pressure it will put on real economies. This mess seems to be expanding far faster than I and other economists had any idea, just how fast isn't exact science, but looks bad, real bad. Automobile industry?___Down! How bad is it going to get?___Worse than we can even imagine, due to absolute political stupidity. More efficient cars?___Un-economical, plus political ineptitude. Just read Roubini's newest projections: http://macromouse.blogspot.com/ Oct. 3, Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs, by Nouriel Roubini It's rather complex, but really describes the global mess. He predicted this some three years ago, as did I some five years ago. I also predicted the 1997 crash, but at the time thought it would be severe enough to take out the entire system___It wasn't, but this one certainly looks big enough to take down the entire global system, as most all nation's are having banks and corporations fail, or on the verge of failing. Ireland already nationalized its entire nation's finances. England is on the verge. Both Russia and China's stock markets have lost 50% plus value. The only way out for the remaining nations, in the end, is absolute nationalization of the entire financial systems, until we can truly rebuild the new regulatory systems needed. Just realize, we can rebuild them, no matter how bad it gets. It's just the "political time" it will take___That's the real problem and question, as politicians haven't yet realized how severe our problem truly is...

We await the awakening of the politicians of all nations. How bad it'll have to get to wake them is anyone's guess...

Here's Roubini's quote from my macromouse post:

"The suggested policy actions are extreme and radical but the times and conditions in financial markets and the corporate sector are also extreme. Thus, to avoid another Great Depression radical and unorthodox policy action needs to be taken now both in the US and in other advanced economies as the credit crisis and liquidity crisis is now becoming virulent even in Europe and other advanced economies. This credit crisis is both a crisis of confidence and illiquidity and a crisis of credit and solvency. But while the insolvent institutions should go bust we have now reached a point where many financial institutions and now non financial firms may become insolvent because of pure illiquidity; and this would lead to an extremely severe economic contraction similar to an economic depression rather than a mild recession. At this point the US, the advanced economies (and now likely even some emerging market economies) will experience an ugly recession and an ugly financial and banking crisis regardless of what we do from now on. What radical policy action can only do is preventing what will now be an ugly and nasty two-year recession and financial crisis from turning into a systemic meltdown and a decade long economic depression. The financial and economic conditions are extreme; thus extreme policy action is needed now to save the global economy from an ugly depression."

A Bailout We Don't Need

Although this article was published on my birthday, I'm only now publishing, because I've been so busy. I was 63 years old, and graduated in 1963. So, I like Sept. 25, 2008___that's neat. Anyway, Galbraith's ideas are here put forth, along with this article, by Dr. Paul Davidson, in the accompanying pdf___sensible ideas for addressing our financial mess. These fundamentals must be addressed first, in any viable financial assistance plan... (continued below in James Galbraith piece)

Oct. 3, Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs, by Nouriel Roubini

"The suggested policy actions are extreme and radical but the times and conditions in financial markets and the corporate sector are also extreme. Thus, to avoid another Great Depression radical and unorthodox policy action needs to be taken now both in the US and in other advanced economies as the credit crisis and liquidity crisis is now becoming virulent even in Europe and other advanced economies. This credit crisis is both a crisis of confidence and illiquidity and a crisis of credit and solvency. But while the insolvent institutions should go bust we have now reached a point where many financial institutions and now non financial firms may become insolvent because of pure illiquidity; and this would lead to an extremely severe economic contraction similar to an economic depression rather than a mild recession. At this point the US, the advanced economies (and now likely even some emerging market economies) will experience an ugly recession and an ugly financial and banking crisis regardless of what we do from now on. What radical policy action can only do is preventing what will now be an ugly and nasty two-year recession and financial crisis from turning into a systemic meltdown and a decade long economic depression. The financial and economic conditions are extreme; thus extreme policy action is needed now to save the global economy from an ugly depression."

New Oct. 2, A quick guide to the “Emergency Economic Stabilization Act of 2008″, by Fabius Maximus


By James K. Galbraith
Thursday, September 25, 2008
How To Solve The U.S. Housing Problem and Avoid A Recession: A Revived HOLC and RTC
"The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too"
$596 Trillion Derivatives Exposure___BIS

The over-the-counter (OTC) derivatives market showed relatively steady growth in the second half of 2007, amid the turmoil in global financial markets. Notional amounts of all categories of OTC contracts rose by 15% to $596 trillion at the end of December (Table 1), following a 24% increase in the first half of the year.1 Growth remained particularly strong in the credit segment, where the notional amounts of outstanding credit default swaps (CDSs) increased by 36% to $58 trillion. Expansion in the foreign exchange, interest rate and commodities segments was also relatively robust, recording double digit growth rates, while the equity segment showed a negative growth rate.

Now that all five big investment banks -- Bear Stearns, Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley -- have disappeared or morphed into regular banks, a question arises.

Is this bailout still necessary?

The point of the bailout is to buy assets that are illiquid but not worthless. But regular banks hold assets like that all the time. They're called "loans."

With banks, runs occur only when depositors panic, because they fear the loan book is bad. Deposit insurance takes care of that. So why not eliminate the pointless $100,000 cap on federal deposit insurance and go take inventory? If a bank is solvent, money market funds would flow in, eliminating the need to insure those separately. If it isn't, the FDIC has the bridge bank facility to take care of that.

Next, put half a trillion dollars into the Federal Deposit Insurance Corp. fund -- a cosmetic gesture -- and as much money into that agency and the FBI as is needed for examiners, auditors and investigators. Keep $200 billion or more in reserve, so the Treasury can recapitalize banks by buying preferred shares if necessary -- as Warren Buffett did this week with Goldman Sachs. Review the situation in three months, when Congress comes back. Hedge funds should be left on their own. You can't save everyone, and those investors aren't poor.

With this solution, the systemic financial threat should go away. Does that mean the economy would quickly recover? No. Sadly, it does not. Two vast economic problems will confront the next president immediately. First, the underlying housing crisis: There are too many houses out there, too many vacant or unsold, too many homeowners underwater. Credit will not start to flow, as some suggest, simply because the crisis is contained. There have to be borrowers, and there has to be collateral. There won't be enough.

In Texas, recovery from the 1980s oil bust took seven years and the pull of strong national economic growth. The present slump is national, and it can't be cured that way. But it could be resolved in three years, rather than 10, by a new Home Owners Loan Corp., which would rewrite mortgages, manage rental conversions and decide when vacant, degraded properties should be demolished. Set it up like a draft board in each community, under federal guidelines, and get to work.

The second great crisis is in state and local government. Just Tuesday, New York Mayor Michael Bloomberg announced $1.5 billion in public spending cuts. The scenario is playing out everywhere: Schools, fire departments, police stations, parks, libraries and water projects are getting the ax, while essential maintenance gets deferred and important capital projects don't get built. This is pernicious when unemployment is rising and when we have all the real resources we need to preserve services and expand public investment. It's also unnecessary.

What to do? Reenact Richard Nixon's great idea: federal revenue sharing. States and localities should get the funds to plug their revenue gaps and maintain real public spending, per capita, for the next three to five years. Also, enact the National Infrastructure Bank, making bond revenue available in a revolving fund for capital improvements. There is work to do. There are people to do it. Bring them together. What could be easier or more sensible?

Here's another problem: the wealth loss to near-retirees and the elderly from a declining stock market as things shake out. How about taking care of this, with rough justice, through a supplement to Social Security? If you need a revenue source, impose a turnover tax on stocks.

Next, let's think about what the next upswing should try to achieve and how it should be powered. If the 1960s were about raising baby boomers and the '90s about technology, what should the '10s and '20s be about? It's obvious: energy and climate change. That's where the present great unmet needs are.

So, let's use the next few years to plan, mapping out a program of energy conservation, reconstruction and renewable power. Let's get the public sector and the universities working on it. And let's prepare the private sector so that when the credit crunch finally ends, we'll have the firms, the labs, the standards and the talent in place, ready to go.

Some will ask if we can afford it. To see the answer, don't look at budget projections. Just look at interest rates. Last week, in the panic, the federal government could fund itself, short term, for free. It could have raised money for 30 years and paid less than 4 percent. That's far less than it cost back in 2000.

No country in this situation is broke, or insolvent, or even in much trouble. For once, Wall Street's own markets speak the truth. The financially challenged customer isn't Uncle Sam. He's up on Wall Street, where deregulation, greed and fraud ran wild.

James K. Galbraith is the author of "The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too."

Plunder___Danny Schechter

NEWIs Purchasing $700 billion of Toxic Assets the Best Way to Recapitalize the Financial System? No! It is Rather a Disgrace and Rip-Off Benefitting only the Shareholders and Unsecured Creditors of Banks by Nouriel Roubini
Sept. 28, Emergency Economic Stabilization Act of 2008
NEW Sept. 29, The US and global financial crisis is becoming much more severe in spite of the Treasury rescue plan. The risk of a total systemic meltdown is now as high as ever...by Nouriel Roubini
Reviewing Danny Schechter's "Plunder"
Contributed by Stephen Lendman on Thu, 2008-09-18 14:31.
In sections: United States Economics/Trade
Reviewing Danny Schechter's "Plunder: Investigating Our Economic Calamity and the Subprime Scandal" - by Stephen Lendman

Nouriel Roubini___The Shadow Banking System Is Unravelling
World Economic Forum
Let's Take A Higher Road...
Sept. 23, William Greider___"Goldman Sachs Socialism"
Sept. 26, China banks told to halt lending to US banks-SCMP
Sept. 27, Last Friday’s Debate___The Irresponsibility Twins...
Sept. 28, Obama___The Perfect Unification Storm___A True Patriot


Danny Schechter is a media activist, critic, independent filmmaker, TV producer as well as an author of 10 books and lecturer on media issues. Some call him "The News Dissector," and that's the name of his popular blog on media issues. He's also co-founder of Media Channel.org. It covers the "political, cultural and social impacts of the media," and provides information unavailable in the mainstream.

Schechter's books include Media Wars; Embedded - Weapons of Mass Deception; The Death of Media; The More You Watch The Less You Know; and his newest and subject of this review, Plunder. Subtitled: Investigating Our Economic Calamity and the Subprime Scandal, Schechter examines the fallout from the current economic and financial crisis. What the mainstream media (MSM) suppresses:

-- decades of wealth transfers to the rich;

-- the economy in recession;

-- the result of multiple imploding bubbles: housing, mortgage finance, and an alphabet soup of SDOs, SIVs, SPVs, and a whole menu of levered-up, high-risk securitized assets amounting to financial alchemy; largely outright fraud;

-- the risk things may worsen;

-- from drowning in debt and speculative excess;

-- bankrupt by some measures;

-- huge amounts of corruption;

-- government hiding how bad it is; complicit in it as well;

-- over one million homeowners foreclosed since summer 2007;

-- another million are 90 days past due on payments; foreclosures about to go out on them;

-- three million more potentially in coming months with up to five million total at risk over the next few years in the worst housing crisis since the Great Depression and too little government help provided too late;

-- rising unemployment;

-- failing banks;

-- rising inflation; and

-- consumers maxed out on credit and strapped by indebtedness the way Schechter portrayed them in his 2006 film titled "In Debt We Trust."

Schechter's book is timely, important, and frightening. He does a masterful job deconstructing a complicated subject. One covered up in the mainstream. Its dark side papered over suppressed.

Schechter explains it fully and clearly for lay readers to understand. It's essential they do it because it touches everyone. No one knows how bad it may get, but the current crisis has legs. The worst of it may be ahead, and before it ends millions may feel it painfully. "Plunder" provides ammunition. A blueprint of what's unfolding. Explaining that government help won't be forthcoming, so we're responsible for making the best of a very bad situation.

It begins with understanding the scandalous dilemma unfolding. The complicity of government and Wall Street behind it. The dominant media promoting it. What author Kevin Phillips calls the "rise of big finance" and "global crisis of American capitalism;" "Frankenstein finance;" and a problem so potentially grave that "there may no longer be a plausible way out."

Schechter calls it "financialization" to describe "the kind of control (a Credit and Loan Complex) exert(s) over society every bit as insidious as the Military-Industrial Complex." Made up of Wall Street; big banks; an array of finance, credit card and related companies preying on middle-America and the poor and transferring enormous wealth to the rich. A regulatory environment allowing it. Creating an open field for fraud. Taking full advantage because so-called "watchdogs" are part of the problem. The administration and Federal Reserve as well. The entire power structure allied against working people. A shameful and potentially disastrous situation as a result.

Schechter envisions a different future and dedicates his book to one "free of debt and a world where markets serve the public interest." Light years from what "Credit Card Nation" author Robert Manning writes in the Preface:

-- industrial employment ravaged by neoliberal "free trade" and corporate outsourcing;

-- malls replacing factories as the economy's engine;

-- declining wages in the face of soaring expenses;

-- most families dependent on credit to survive;

-- the calamitous effects of banking deregulation;

-- a corrupted "symbiotic financial-industrial complex" called "financialization;"

-- a new Gilded Age exalting greed;

-- turning consumers into debt slaves; and

-- making the country "perilously dependent" on foreign capital sources for economic security.

Schechter continues in his prologue:

-- sinking markets from a "full-blown credit/debt crisis;"

-- "waves of layoffs," bankruptcies and foreclosures;

-- distorted media coverage on causes and solutions;

-- fear that the worst is ahead;

-- the infectious effect of the spreading "subprime crisis;"

-- trillions of dollars being lost;

-- millions of homeowners at risk; millions of working people also;

-- a Ponzi scheme writ large; the bigger they are, the harder they implode; what PIMCO's Managing Director and economist Paul McCulley calls a "Minsky Moment" that derives from economist Hyman Minsky's analysis; the unwinding of excess exuberance; deflating euphoria; proving market bubbles always burst, and their downward momentum is far more severe and faster than their upside; and

-- a "calculated crime" putting America and the global economy at risk; Schechter says "This is an angry book (because) so many of us are in denial or unaware of the importance of economic forces in shaping our future;" he also rails at his colleagues who've done "such a poor job reporting on the run-up to this disaster."

Schechter chronicles what happened. The threat of depression. Alerting people to the possibility. Highlighting concern about the victims. Challenging the media and chastising their ignoring and distorting the story. Telling us that "democracy must have an economic underpinning and a commitment to fairness." Offering ways to achieve it. Explain how debt restructured the economy and created "a burden that many will never crawl out of." Exposing "shameless profiteers" and calling for an investigation of their crimes and prosecution. Asking for debt relief for Americans. "Urging citizens to get involved and (demand) politicians respond." Getting upset and aroused enough to act.

"It's the Economy Stupid," according to Schechter in his introduction, and, of course, it always is but especially when times are hard. What Senator Chris Dodd calls "a 50-state Katrina," but these waters are rising and uncertainty remains on whether something far more calamitous is coming.

Corruption is pervasive. The public uneasy but largely uninformed. The worst of what's going on is hidden. A vast shady network of "interconnected institutions working through highly legalized and poorly understood systems." Moving unimaginable sums around the world in seconds. Seducing people into the most outrageous schemes involving unrepayable debt. Then having to borrow more to service amounts already unaffordable. Heading for what money manager Jeremy Grantham calls a "slow motion trainwreck"- the inevitability that bubbles always burst. His advice in the current environment. What he calls the "first truly global bubble:" hunker down and "take as little risk as possible" because "I for one am officially scared."

The Origins of the Scandal

When it began, "subprime lending" wasn't a term in common usage, let alone understood outside financial circles. One of its late 1990s originators was Obama campaign finance chairperson Penny Pritzker when she served on the Board of the failed family-owned Hinsdale, IL Superior Bank. It cost the FDIC $700 million and depositors another $65 million, while Pritzker made millions on predatory lending now called "subprime" mortgage schemes. One definition is as follows: "the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history." Another in the recent environment was to force-feed them to the largest number of homebuying prospects possible.

There's lots of them, and predatory lenders took full advantage until things erupted into scandal, and the economy headed south. Only then did regulators take notice and decide to investigate - into how "banks, credit rating firms, and lenders value and disclose complex mortgage-backed securities." Three areas specifically, according to Reuters: "the securitization process, the origination process and the retail area." Also insider trading, a common illegal practice that's rarely caught or even looked for. However, the scope of the investigation would be narrow, and its aim was "deterrence." Of what, asked Schechter, now that the horse is out of the barn, and investors and mortgage holders are left holding the bag?

When it's too late to matter, they agree, along with critics, that "inadequate disclosure (or lack of transparency) was at the root of the problem." According to a Senate report, it began in 1997 when house prices began appreciating and registered a 124% gain by 2006. Housing was driving the economy with seven million subprime mortgage loans. Business boomed. Underwriting standards deteriorated, while banks and other lenders invented new ways to make money - "fast" and easy.

In the 1980s, state usury rate ceilings were lifted, creating a whole new market for people who previously couldn't qualify. At higher interest rates, fees, and other add-ons they did. Most borrowers got so-called "2/28" and "3/27" hybrid adjustable rate mortgages (ARMs). They originated with low fixed "teaser" rates, good for a two-year period. Afterwards, they're reset semi-annually based on an interest-rate benchmark, or the current going rate. For many holders, payments soared 30% and became unaffordable, and by 2004, 90% of subprime loans were these type ARMs. It was well-known in the industry that "these borrowers (are) most likely to default or become delinquent (and) face foreclosure." The idea was to cash in and let holders take the pain.

Here's how the scheme worked. "So-called 'intermediaries,' unregulated and often unscrupulous mortgage brokers, hustled their way into the housing market" and took over. Using a range of tactics, including "deceptive advertising to block-to-block solicitations to get people to buy and sell, always promising more than they (could) deliver."

So-called "birddogs" were used to get prospects, and all kinds of practices were employed - "abusive, illegal and predatory." They pushed, "enticed...seduced (even) threatened." According to the Joint Economic Report, "For 2006, Inside Mortgage Finance estimates that 63.3% of all subprime originations came through brokers....19.4% through retail channels (and) 17.4% through correspondent lenders....broker share increas(ed steadily) from 2003 through 2006." These companies aren't regulated and pretty much operate freely. By 2005, the percent of securitized subprime mortgages reached "a peak value of more than 81%...."

Housing sales were on a roll, and so was Wall Street, quick to see a lucrative new income stream and ready to cash in. "Now they could make fees originating loans and even more money selling the paper into (the) secondary market, where mortgages could be securitized and sold again for even more money as investments."

The Finmanac financial blog explained its origination:

-- when Solomon Brothers launched Mortgage-Based Securities (MBS) in the 1980s - "bonds with bundles of mortgages, bought from bank lenders, as collateral;"

-- they used a "special purpose vehicle known as Collateralized Mortgage Obligation (CMO);"

-- monthly installments were used to pay interest; and

-- others were quick to cash in on the scheme.

The secondary market became a marriage between "the most reputable financial organizations and the sleaziest grass-roots operators. As is often the case, sleaze moved upwards" because the potential profits were huge but so are the risks.

"Since anyone can originate a loan and sell it to the Investment Banks (to package and sell as MBS), it tempts originators (to write) risky loans (without) worry(ing) about payback(s):"

-- slicing MBS into tranches by risk profile handles the problem;

-- so does having different maturity dates;

-- they're rated by S & P, Fitch and other agencies for legitimacy;

-- hedge and some pension funds bought the most risky paper;

-- risks were discounted because the potential returns were huge as long as economic conditions stayed sound and/or markets continued to rise; and

-- it always helps to have friendly Fed chairmen like Alan Greenspan fueling bubbles.

At the height of the 2000 one he said: "Lofty equity prices have reduced the cost of capital. The result has been a veritable explosion of (high-tech) spending (and) I see nothing to suggest that these opportunities will peter out anytime soon." A week later the Nasdaq peaked. Dropped 78% to its bottom. The S & P 500 49%, and retail investors lost out while Greenspan was busy engineering another bubble now unwinding at the cost of trillions of dollars, millions of people hurt, and the "Maestro" assuming none of the blame.

Economist Anna Schwartz said otherwise and called the Federal Reserve the main cause of today's trouble. She told The Sunday Telegraph: "There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for." The US Treasury also as one of its senior officials warned subprime lenders about it but was ignored. Even worse, despite state efforts to ban predatory practices, the Bush administration blocked attempts to curtail them and bears major responsibility.

Schechter refers to "an unholy trinity of private players, Wall street firms, and non-regulating regulators" who saw a way to profit hugely. Do it with shady practices, and thus partner in a "criminal conspiracy" to rip off millions of working Americans. "It was the largest robbery in history - not a bank heist but a heist by banks."

The Real Capital of America (and the World)

Wall Street, of course - a city with "a history of causing disasters from its earliest days." Succeeding ones keep getting bigger, but unaffected most often are the powerful banks and investment houses. "Masters of the universe," according to author Tom Wolfe. Well insulated in their luxury board rooms with power, incomes and privileges afforded royalty. Treated like them also in a culture that "rewards clever and devious strategies" within or outside the law. No one is guilty unless caught. Rarely ever does it happen, and when it does the penalties are inconsequential compared to enormous ill-gotten gains. Incentive enough for players to invent new schemes, and they do.

This time, however, they may have been too smart by half. They overreached and are themselves hurt by the fallout. Some won't survive. Bear Stearns and Lehman Brothers already. Others barely hanging on. Merrill Lynch forced to sell out cheap to Bank of America. The Fed bailing out AIG, and it's anyone's guess who or what's next or if the worst is yet to come. When trouble first surfaced, "only a handful of writers and analysts" understood what was going on - chickens coming home to roost, "a crime in progress, a white collar crime wave" involving trillions of dollars, from working people to the rich. The Wall Street crowd. Mortgage brokers, banks and investment houses, rating agencies and appraisers who overvalued homes for higher fees. Well-designed schemes to let the devil take the hindmost, and they are but so are the perpetrators. Schechter is right calling this "a big story - one of the biggest" and from which "consumers and citizens" have to learn how to cope. It won't be easy.

The Unspoken Context

Crime writ large, and in early 2008 the FBI announced 14 unnamed mortgage companies were being investigated. Ones engaged in predatory lending. That may have deliberately steered customers to more expensive loans and concealed hidden payments and fees. In some cases unfairly jacked up for even higher profits. Targeting the most vulnerable. A 2008 Inner City Press/Fair Finance Watch study confirmed these practices. It called mortgage brokers "the wild, wild west of Capitalism."

Shadowy operators using aggressive, unethical marketing in ghetto and low-income neighborhoods. Making phone solicitations. Door-to-door canvassing. Posing as debt consolidation experts with home improvement schemes and foreclosure "rescue" services. Merchants of sleaze cornering victims and entrapping them in unrepayable debt. Criminal fraud involving respectable bankers as well. Willing to engage in dirty practices because the profits were so tempting and the market so huge. Too big to pass up so it wasn't.

From 2004 to 2006, Collateralized Debt Obligations (CDOs) mushroomed from $157 billion to $559 billion, and 10 investment banks underwrote 70% of $486 billion in 2006 securitizations. Players made millions and top executives far more. A gravy train, and collectively in 2006, at the cycle's peak, the big banks earned $130 billion. It looked like more ahead, and their schemes were perfectly legal in an unregulated environment permitting them. They still are short of future regulatory reform that may or may not come but never will be close to what's needed. Not when both parties embrace a pro-corporate agenda and won't allow it.

The Charleston Observer published a flow chart on how predatory lending typically works:

-- low income, minority and the elderly are targets;

-- loan originators contact and high-pressure them to sign up;

-- brokers arrange loans between targets and lenders;

-- appraisers inflate property values for higher fees and new business;

-- lenders may "bundle" new loans to sell off to other institutions; and

-- Wall Street sits atop this enormous pyramid; in the "catbird seat;" orchestrating the process; and redistributing millions of loan bundles into pools to back up investments worldwide.

Borrowers have no idea how they're being used and set up to be scammed by future mortgage resets. Unaffordable so that millions will lose everything in foreclosure. "Where are the prosecutors," asks Schechter? A Congressional probe. Indictments to go after the guilty. Faint hope along with any chance for redress for victims. No chance either for most people to understand an "opaque and unregulated global financial system" with obscure terminology, according to economist Nouriel Roubini. A highly levered "financial monster that eventually leads to uncertainty, panic, market seizure, liquidity crunch, systemic risk and economic hard landing."

In spring 2006, over a year before things began unravelling, Schechter wrote about inadequate and deceptive media coverage in an article titled "Investigating the Nation's Exploding Credit Squeeze." He examined losers and winners and suggested concrete approaches for responsible reporting:

-- doing it regularly and truthfully about a serious growing problem;

-- identifying the key corporate institutions involved;

-- spotlighting how special interests and lobbyists influence Congress for favorable policies and deregulation;

-- credit card companies also and how their ad dollars affect media coverage of their practices;

-- predatory lending methods in poor neighborhoods; crimes committed against vulnerable working people;

-- what people can do to fight back; and

-- getting people involved at state and local levels; enlisting attorney generals to file class action lawsuits; and pressuring key legislators.

Strong material but the response was "tepid" as well as to a follow-up email campaign with tens of thousands of requests for more media coverage of a vital national issue - well before the crisis hit and a public spotlight might have cooled it. Big Media prefer a sanitized world of market "ups and downs" and one-sided Wall Street and Washington views - unrelated to the real world, what affects most people, and it got Schechter to ask: "where's the outrage?"

Chronicling the Implosion, 2007

In his blogs, newsletters, and articles, Schechter "tracked the evolution of the crisis by week" - a story still evolving about "an economy that is....still unraveling," It began in July 2007 when Dusseldorf-based IKB surprised markets with a profit warning. It set off sharp falls in other German bank shares, and ended up with IKB needing $11.8 billion in bailout aid to survive. Cracks also began showing up in the multi-trillion dollar US securitization markets. They created a crisis for two Bear Stearns (BS) hedge funds. Like IKB, they were heavily into subprime mortgages, highly levered, and it forced BS to sell out to JP Morgan Chase for pennies on the dollar.

Things then began spreading, and it was soon apparent the trouble was systemic, growing, and could touch down wherever outsized risks were taken. According to Business Week, what began as subprime now affected other kinds of debt as well and far more seriously than originally thought. Involving "real money" and danger, "the kind that terrifies bankers and the elite."

The Dow Average topped out in early October and headed down while government jawboning and Fed interest rate cuts and huge liquidity injections didn't help. They still haven't as markets remain volatile, and no one for sure knows what's coming. So jitters remain high and with good reason. The economy is far from healthy. Contagion is spreading offshore. Unemployment is rising. So are foreclosures. Inflation also, and hundreds of billions of bailout dollars haven't helped.

None of this should have happened, and warning signs should have been heeded early on. Schechter chronicled it daily as events unfolded and explained that things were pretty bad and getting worse. Bankers were debating how to handle record losses. Desperation and even panic began surfacing. And America's debt crunch became a personal crisis for millions.

His book reviewed events as they unfolded:

-- jawboning after Wall Street and bankers began reacting and "blaming everybody but themselves;"

-- pundits then "calling for higher standards of transparency;"

-- bailouts involving real money in the hundreds of billions; first the Fed, then major central banks around the world;

-- the result: very little; continued panic; more lending companies imploded; 247 up to April 2008;

-- then interest rate cuts and still no relief; mortgage rates rose as banks are reluctant to lend and want higher returns when they do; after the government's Fannie and Freddie takeover, 30-year fixed-rates fell from 6.26% to 5.88%, but with the economy weak and consumers strapped it's not clear how much this will help, at least in the short term;

-- multi-billions in writedowns continue, likely more coming ahead, and "bear in mind," Schechter observes: "the banks created these problems by lowering their standards and working in collusion with the alchemists at the rating agencies that turned their junk into gold." And government regulators looked the other way and let it happen.

Throughout the crisis, real analysis and understanding was missing - like the 50 million "Missing Americans" Bill Moyers profiled on PBS. The ones Michael Harrington called "The Other America" in which he documented the country's poverty and influenced policy debate in Washington as a result. Today's victims are largely above the poverty line but just barely with two wage-earners and one or both having multiple (low-paying) jobs. They became predatory lending targets, but practically nothing is being done to help them. Billions for the perpetrators. Lip service only for the vulnerable.

What Happens Now?

Crucial to understand is that the current economic crisis "is an outgrowth of the very corporatist policies that will haunt this country for decades." Plus our costly wars. "Obscenely high levels of corruption," and many other characteristics of a nation off its moorings and in trouble. This one in "the quicksand of debt and delusion." Proving unfettered capitalism doesn't work. At a time Business Week magazine suggested "an irresistible force (is) meet(ing) an immovable object." The force is the economy and object an unrepayable wall of debt.

Despite billions of Fed-injected liquidity, the crisis persists and may be worsening. No one knows for sure or how or when it will end. Trillions have been lost. More still to come. Serious talk about a depression. The middle class is shrinking. People are entrapped by debt. Worldwide respect for the country plummeted, and 81% of the public believes things are headed in the wrong direction. Banks are failing. Real estate hit the wall, and in February the Economist magazine wrote that "The world had a weekend to save it from collapsing."

Contagion is spreading everywhere affecting Wall Street, large and smaller banks, investment firms, insurance companies, hedge funds, non-bank lenders, and the greater economy dependent on them. Experts believe fixing things could take years and would require a vast overhaul of a clearly failed system. Establishing workable regulation. Reinstating Glass-Steagall to separate commercial from investment banks. Curbing speculation, and ending the whole range of predatory lending practices. Under a two-party duopoly, chances for that are practically nil.

Debt As A Global Issue

For better or worse, a global economic system interlocks nations and markets. When the US catches cold, pneumonia threatens the world, and it shows in what the Vigilant Investor website reported: that in one week months back the Fed, ECB, and Japanese and Australian central banks injected $458 billion into the markets "to allow the big players to avoid selling off otherwise healthy assets to cover for heavy losses related to the unfolding housing debacle in the US, led over the cliff by subprimes." And in America, the combination of credit card and other debt remains a ticking time bomb some see as another eventual bubble to burst.

They're worried about what author Kevin Phillips calls "a house of cards" built on "reckless finance." And longtime Wall Street economist Henry Kaufman blames years of irresponsible federal banking for "allowing the expansion of credit in huge magnitudes" and calling today's crisis a "global calamity." Former Fed director of monetary affairs and its policy-making panel secretary, Vincent Reinhart, compares today to "the great contraction" of the 1930s and "the great inflation of the 1970s."

Little of this gets media attention or is addressed in political discourse. Never mind huge structural problems, an economy in crisis, millions in duress, and barely a sign of remedial help coming for the vulnerable. As conditions worsen "when will the American people realize how badly they have been had and turn on the plunderers," asks Schechter? The politicians and regulators also who allowed it.

How did it happen:

-- "warnings were ignored;" for example from Bruce Marks, the Neighborhood Assistance Corporation of America (NACA) CEO; in 2000, he testified before Congress and warned about Fannie Mae and Freddie Mac engaging in predatory subprime lending; all for naught;

-- "the (Alan Greenspan) Fed encourag(ing) the securitization of mortgages calling it 'financial innovation;' " and

-- "Wall Street firms ignor(ing) worries (from) their own risk managers (and engaging in) shadowy underground banking....They made a fortune - until they didn't."

Hundreds of small players have been indicted but only a few symbolic "truly fat cats" and none of the fattest. The way it always is.

Last Words

Capitalism is characterized by economic ups and downs, speculative frenzies, and panics. But, as Schechter observes, "Few have posed such a serious threat to the entire financial system, (yet most media) coverage has been relegated to not widely read business sections (and) the fortunes of CEOs and business enterprises, not citizens, consumers and most of all homeowners" who've lost or may lose their homes and livelihoods.

Even worse, "many newspapers and TV outlets were complicit." They got huge amounts of ad revenue (often deceptive) from "shady mortgage lenders and credit card companies that encouraged readers and viewers to accept more debt. Some major newspapers are connected with local real estate syndicates and get kickbacks from sales tied to their extensive advertising of homes for sale." Worse still is that coverage (once it began) "may have missed the truly criminal aspects of this crisis" even though there's plenty of evidence around and the FBI is currently investigating 14 mortgage companies.

Overall reporting largely supports business and hesitates being critical. It builds confidence instead, stays upbeat, generates more heat than light, and engages in what Schechter calls "Investotainment" as their specialty. Well layered with deception and boosterism as well.

They ignored victims dating back to the 1990s and even warnings from people like David Walker, the Comptroller of the Currency (OCC) and Government Accounting Office (GEO) head. For years, he was a voice in the wilderness about our growing debt burden that could lead to a sudden collapse and threaten national security. The National Association of Business Economists as well saying: "The combined threat of subprime loan defaults and excessive indebtedness has supplanted terrorism and the Middle East as the biggest short-term threat to the US economy."

And John Kenneth Galbraith in his 1961 classic, "The Great Crash 1929," now prophetic: "The fact was that American enterprise in the twenties had opened its hospitable arms to an exceptional number of promoters, grafters, swindlers, impostors, and frauds. This, in the long history of such activities, was a kind of flood tide of corporate larceny."

Writer Mike Whitney updates it in one of his commentaries saying: "The financial system has been handed over to scam-artists and fraudsters who've created a multi-trillion dollar inverted pyramid of shaky, hyper-inflated, subprime slop that they've sold around the world, with the tacit support of the ratings agencies and the US political establishment."

The story has legs. Banks are in serious trouble. By mid-summer, seven had failed, others since, and many dozens more are at risk. Worldwide as well as contagion spreads everywhere. Huge write-downs have been taken. Unknown amounts more may follow. The Fed has injected over $900 billion to stabilize things with little idea if it will. Then add in lost homes, lender foreclosure costs, falling property prices, equity losses, multiple deflating bubbles, and hundreds of billions for wars and debt service, and the picture is grim, frightening, and according to some experts in the early innings.

Consider a recent "truly stunning but not widely reported" Bank of America study on current "Credit Crisis" losses - $7.7 trillion dollars in equity value globally since the October market peak. Affecting nations everywhere, B of A called it "one of the most vicious (crises) in financial history." Investor George Soros calls it a "systemic crisis," the result of "easy credit, financial innovation and contagion." And economist Ludwig von Misses once said: "There is no means of avoiding the final collapse of a boom brought on by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

Schechter concludes by adding: "Bubbles are rarely foreseen (or want to be seen), as investors scramble into opportunities delivering high returns....self-interest and money-making are the real drivers in the world of finance." They also drive politics, and now at a time of crisis, it's "hard to believe that as the house of cards comes tumbling down, there seems to be a trifecta of failure. The government is unwilling to act decisively. The Congress prevaricates. And the media (engages in) boosterism" and keeps the public uninformed "at the very time when exposure might have stopped these practices before they became too deep and/or expensive to 'fix.' "

Little wonder 81% of the public believes the country is headed in the wrong direction. George Bush's approval rating fluctuates from the low to high 20s. And the July Rasmussen Reports gave Congress its lowest ever rating at 9% with only 2% of respondents calling its performance excellent. Imagine future poll numbers if the economy crashes, millions more become unemployed, lose their homes, and hundreds of billions keep being spent on fruitless wars by whomever becomes president and whichever party controls Washington. Imagine also how people affected will respond or should.

Stephen Lendman is a Research Associate of the Centre for Research on Globalization. He lives in Chicago and can be reached at: lendmanstephen@sbcglobal.net.

Also visit his blog site at www.sjlendman.blogspot.com and listen to The Global Research News Hour on www.RepublicBroadcasting.org Mondays from 11AM - 1PM US Central time for cutting-edge discussions with distinguished guests. All programs are archived for easy listening.


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