The Tag Teams: Geithner & Summers vs. Krugman & Stiglitz

Tim Geithner's and Larry Summers' and careers and personal wealth benefited from the recent derivatives bubble. They are up to their armpits — again, career-wise — in support of the bank bailout plan. They are connected, you might say ... in several dimensions.

On the other hand, Paul Krugman and Joseph Stiglitz, Nobel Prize-winning economists, say the bank bailout plan is not so hot.

Krugman writes in his column America the Tarnished in The New York Times:

In an article in the current issue of The Atlantic, Mr. Johnson, who served as the chief economist at the I.M.F. and is now a professor at M.I.T., declares that America’s current difficulties are “shockingly reminiscent” of crises in places like Russia and Argentina — including the key role played by crony capitalists.

In America as in the third world, he writes, “elite business interests — financiers, in the case of the U.S. — played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive.”

Stiglitz is quoted in Stiglitz Says Ties to Wall Street Doom Bank Rescue in Bloomberg.com::

All the ingredients they have so far are weak, and there are several missing ingredients,” Stiglitz said in an interview yesterday. The people who designed the plans are “either in the pocket of the banks or they’re incompetent.

If it's tag teams, Geithner & Summers vs. Krugman & Stiglitz, we know who should win ... but in wrestling, you go by the script ...

Let me put it this way ...

Let me give you an example to explain my view of money or "financial instruments".

I have end stage renal disease and I am being evaluated for a kidney transplant. In the evaluation process — looking forward — they told me that if I had a volunteer kidney donor who was not a good tissue match for me, I could participate in a multiparty transplant group where my volunteer would give her/his kidney to someone else and the other person's volunteer would give her/his kidney to me. This could involve as many participants as could be efficiently — in medical terms — handled.

Let's call the agreement between the parties a "transplant agreement" or "transplant instrument". It is quite obvious that the agreement is only worth more than the paper it is printed on IF there are enough kidneys to go around. And if — for example — twice as many agreements come in play as available kidneys because transplant hospitals "sold" more transplant agreements in the short term simply because they could earn a huge profit from selling the transplant agreements ... and then a need for kidneys from individuals holding transplant agreements exceeded the number of actual kidneys available ... Dah! The market would collapse, wouldn't it?

The same is true of money or "financial instruments". They make the exchange of diverse items in multifaceted transactions over time and distance possible ... but only if I am able to get something I want for a price I am willing to pay when I want it ... for the money I have ... unless I can borrow some ...

The Obama (Geithner?) bank bailout plan ... is a swindle

In today's Op Ed piece published March 31st in The New York Times, Obama’s Ersatz Capitalism, Joseph E. Stiglitz lays out the the problem with the Obama (Geithner?) bank bailout plan. It's a swindle of taxpayer money to benefit the banks that helped get us into this mess.

And when we start thinking about the government coordinating the auction of banks' toxic assets ... for the purpose of recapitalizing the banks ... so they can start lending ... so we can start borrowing and spending? What's wrong with this picture?

Geithner seems to believe these toxic assets have real value, and by getting them priced "realistically" it will put the financial system back on its feet.

He probably hasn't visited many ghost towns where the buildings are still standing because they are worth less than the cost of their demolition.

Financial gurus lose sight of the fact that money and other financial instruments have no value in themselves. Their value derives from adding efficiency in making transactions in the market between seemingly diverse elements, including the guarantee of future events ... allowing us to pay for something such as a home or auto over its use life, instead of up front. (However ... when you start paying double-digit interest on groceries bought on a credit card, or lose the means — a job — for making the payments ... dah!)

At the end of the day — as in, "at the end of the bubble" — if there aren't other real goods or services to put up to back up whatever financial instruments are in play ... well, golly gee whiz ... why DO bubbles keep happening? And aren't we watching the Obama financial team repeating the basic "borrow to invest more than we will ever be able to repay (or get back)" of the bubble syndrome?

The new bailout for banks ...

So ... let me get this straight ...

We package these toxic assets ... and put them up for bid ... in an auction where the bidders only have to put up 15% of their winning bid? And the government will match the private money of the bidders dollar for dollar, up to 15%? And the government will loan up to 85% of the purchase price — the winning bid — in a non-recourse loan? (Isn't that one that doesn't have to be paid back?) And this is supposed to provide a market to properly value these assets? Are you kidding me?

A nonrecourse debt or non-recourse debt or nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. If the property is insufficient to cover the outstanding loan balance (for example, if real estate prices have dropped), the lender is simply paid out the difference. Thus, non-recourse debt is typically limited to 80% or 90% loan-to-value ratios, so that the property itself provides "overcollateralization" of the loan. The purpose of non-recourse debt is to require lenders to underwrite their loans on a sustainable and prudent basis since the lender is in the first-loss position with these loans, not the borrower.

wikipedia.com

B-b-bu-but the government is simply going to underwrite whatever the winning bid/purchase price is. How is that sustainable or prudent?

In this auction the only thing determining the bid will be what 15% dollar amount are the banks willing to lose to gain the 85% remainder? Gee, I wonder.

See, the banks are going to get paid off at 100% of the purchase price. Now, if a bank loaned the 15% for the private equity in this deal to some type of limited liability company that used the toxic asset to balance whatever liability it carries on their books ... then if the LLC goes belly up when the toxic asset defaults ... well, all the bank would lose is its 15% ... and if Bank A loans the 15% to X LLC that purchases the toxic assets from Bank B, and Bank B loans the 15% to Y LLC that purchases the toxic assets from Bank A ... so it all looks impartial ...

Are you kidding me?

And Geithner or Bernake or Summers are going to coordinate this for the banks?

Are you kidding me?!

Oh ... and check this out: http://www.msnbc.msn.com/id/3036789/#29875591

Variations on a Ponzi theme

Harvard economist Kenneth S. Rogoff, who with Carmen M. Reinhart of the University of Maryland has analyzed 800 years of banking crises. “You can study all the financial crises, and there is a common pattern, that the faster you mark down the assets in the financial system and recapitalize the banks,” the sooner the economy recovers, he says. “As long as you leave the banking system sick, you’re not going to have sustained growth.”

Macroegonomics by Virginia Postrel, an Atlantic contributing editor

There you have it. The financial gurus create the illusion of wealth with variations of Ponzi schemes and other manipulations of the velocity of money and leverage aka borrowing against assets until the bubble they are blowing up can no longer be sustained by the market value of the underlying goods and services we actually need and want ... and the whole thing explodes, forcing the pricing of these goods and services at real market value ... what people are really willing to pay for them outside the illusion of increased value created by the financial schemers aka bankers.

It isn't so much about curing the banks, as it is about getting their excessive illusory wealth wrung out of the money supply, and returning money to its useful place of facilitating the exchange of goods and services that do have value ... their real market value.

Anyone who still thinks the cure is to get the banks to start lending again for the purchase of this generation of goods and services rather than the production of the next generation of goods and services that will in turn create demand ... is out of their ever-loving mind.

Obama picked the wrong players for his economic team

Hey, of course the coach has to take responsibility for the team ... but if you're losing with the players on the floor, shouldn't you be thinking about making some substitutions? Or, is this the best you can do? And what does that say about you?

As Frank Rich writes in his NY Times OpEd column, Has a ‘Katrina Moment’ Arrived?:

"We must have governance to match the message."

We have a ways to go before we reach bottom ...

Together with other Fed programs, the aim is to lower borrowing costs for consumers, businesses and the government. More borrowing and spending, in turn, would bolster the impact of the fiscal stimulus package passed in February.

Unfortunately, there is no guarantee that this will work. With unemployment rising, debt loads high and household wealth falling, consumers may be reluctant to resume spending anytime soon, no matter how low rates and prices go. And even if consumers and businesses want to borrow, banks — stung by their own losses — may not be willing to lend.

The Fed Does Battle, Again
The New York Times Editorial
Published: March 20, 2009

Is the Fed crazy? Borrowing and spending what we borrowed got us into this mess. Somehow the financial sector brilliant idiots still think that their pieces of paper actually create wealth ... and not the illusion of wealth ... the bubble.

Until folks are working at jobs that actually create wealth — the goods and services that have value in a transparent and well-regulated market (everyone uses the same weights and measures, for instance) — and are paid a fair return for their labor — the mental and physical effort used in creating that wealth with its historical investment — there is not going to be a turn around.

And as we are still losing jobs faster than we are creating them ... we still have a ways to go before we hit bottom.

Is Obama's credibility now DOA?

If Secretary of the Treasury Timothy Geithner and Larry Summers, Director of the White House's National Economic Council for President Barack Obama, aren't gone in 60 days then the credibility of Barack Obama's presidency is permanently DOA ... before the end of the initial 100 days of his presidency.

IMHO ...

A few things about us ...

Let's get a few things straight.

We are a tribal animal. How do I (we) know that? We cannot survive as an individual nor as a family. With a solitary human being the future is obvious. The future ends in that person's death. With a family we now know that the gene pool is not robust enough to perpetuate the species.

We are a hunting animal. I would suggest that the biological basis of our human society is caught up in the alpha person leading the hunt ... and then fairly dividing the spoils of the hunt according to tribe's "rules".

Those tribal rules that increased the success of tribal activity led to a more successful tribe.

America's political genius was giving everyone in the hunt a fair reward out of the spoils of the hunt ... the counterpoint to slavery and indentured servitude.

No matter how complex things seem to get, they really stay pretty simple ... if you pay attention.

The lesson of these United States of America is simple

The lesson of these United States of America is simple. Reward the individual fairly out of the material wealth his/her labor creates and the dynamism created in the agrregate of individual motivation within our society will create (created) the greatest society known to the human race.

Some thoughts on the subject ...

Material wealth for human beings is produced by the mental and physical effort of human beings.

The mental and physical effort of human beings is what we define as labor.

The primary economic concern of a just society is the fair distribution of material wealth for the labor that created it.

If in a given society the material wealth contained in the assets of production — the land, buildings, and equipment — becomes more and more centralized in their ownership among fewer and fewer individuals, creating a classification of stored wealth separated from the labor that produced those assets, then that society is no longer just in relationship to a fair distribution of material wealth based on the labor that produced that wealth.

And ... if the centralized accumulation of the assets of production attenuates the fair distribution of material wealth, then the dynamism of our society will also be diminished.

Dah!

On labor, liberty, and the common good

Defining "Labor" as the aggregate of human effort — physical and mental — that produces something of value ... then ... what is wrong with "Labor" that we withhold our labor as human effort from ourselves when the larger economy in which we live and work cannot employ us? "Labor" needs to form something like a "collaborative labor corporation" to employ Labor when the larger economy doesn't ... for whatever reason. Why do we only work to create wealth for others, and consider this — a form of slavery — the primary legitimate or substantive economic structure to use in harnessing the wealth creating potential of human effort? Isn't time we learned from communities like the Amish and the Mormons on how to generate wealth for the common good?

I propose that we explore the development of economic organizing structures that I call "collaborative labor corporations" (CLC) — both profit-making and nonprofit — to create the economic environment where everyone able and willing to work can find work that creates value for which they are fairly rewarded.

All wealth has been produced by human effort — our labor, physical and mental.

That is the underlying fact of any economy.

Human labor is the synergy of our creative imaginations — ideas — and the physical ability to produce the concrete embodiment — products — of our ideas in the time and space continuum of our reality.

The machines and energy that we use to replicate the products of our ideas are also products of human labor. Energy is our product in the sense of our inventing ways to harness it to our directed use.

The organizations, tribes, natons, societies cultures that maximize the output of human labor, the integration of our creative imaginations — think cerebral cortex — and our physical ability — think hands with thumbs — will win the economic race, not as a zero-sum game, but as a collaborative engagement.

The American ideal is (was?) to reward individual effort fairly, relative to the wealth that person's effort creates, regardless of the social status of the individual. Our collective effort then creates our progress. Whenever our progress is guided by liberty in individual choice in a well-regulated market that maximizes the efficiency in transactions derived from trust and transparency, the American economy outpaces anything else known to us and we benefit — not equally, but collectively — if each of us is rewarded for his or her labor fairly. The maximization of human labor collectively is due to the maximization of motivation individually. That is the basic tenet supporting freedom and fairness.

What I call the British Imperialist Model (BIM ... and it's adherents, BIM-bos) is built on the concept that human labor produces wealth for an elite class of individuals who are then free to create the progress of the world. However, when this elite class is allowed to impose its sense of entitlement — its greed — on a society, extracting the wealth of labor to its own purposes — what worked in a feudal society or a slave-based society for some period of time— in a modern economy cycles through boom and bust. Its limitations in maximizing human labor collectively and, hence, the creation of wealth are obvious. However, because it maximizes the wealth of the elite for a time, if they usurp economic power through strategies like the creation of the Federal Reserve Bank, they can and will use their economic power to impose their model.

The only antidote to BIM is democracy, wherein the people can gain a countervailing political power to an elite's economic power. However, democracy devolved into mob rule is the precursor of socioeconomic chaos by being able to disrupt orderly markets.

Again the U.S. has created the most rational form of government yet known to us with the constitutionally guaranteed rights of the individual in a form of federal government with its power divided between the three branches — executive, legislative and judicial — with additional checks and balances in the conduct of elections to elective office.

Addendum: The key to getting us out of the current economic mess the BIM-bos have gotten us into, is not to get the banks working, but to get the American people working. With Americans at work we will once again benefit from the tremendous wealth creation of our human labor. The mantra should be: Every person willing and able to work will be given a job to do, a job that creates value in a market economy.

And this time, let's make sure that those who create the wealth through their human labor, get their fair share of the wealth they help create.

And finally, it is the responsibility of the larger society to actively pursue fairness in the distribution of the wealth our human labor creates. AND it is the responsibility of the individual to participate in the larger society in determining that distribution BUT TO ALSO creatively explore ways to contribute his or her individual human labor to the benefit of the common good.

The reward follows labor. Where we might withhold our human labor from a given organization, we have no right to withhold it from our communiy. We can clean the common areas in our neighborhood. We can volunteer at our local church, synagogue, temple, mosque, food bank or homeless shelter. Whatever we can do to improve the socioeconomic environment benefits the common good of our community. It is only when those of us who are able to perform human labor don't, that we go downhill.

Our mantra requires us to participate in providing work for each and every individual whereby that individual can perform his or her human labor to the benefit of the common good of our community. We then must participate is providing a fair reward for the human labor thus performed. However, the fact that there is a lag at times between performance and receiving the reward, should not deter us from doing the work. We are, after all, embedded in our community, and our human labor benefits our community. It gives us the dignity of doing our part for the common good.

The bailout is a bust!

With a "$2.9 trillion gap between what the economy could produce and what it will actually produce. And $800 billion, while it sounds like a lot of money, isn’t nearly enough to bridge that chasm." -Paul Krugman, Failure to Rise, Published: February 12, 2009, NY Times OpEd.

Then David Brooks chimes in with: "Between 1990 and 2007, the total mortgage debt held by Americans rose from $2.5 trillion to $10.5 trillion." -The Worst-Case Scenario, Published: February 12, 2009, NY Times OpEd. That's $8 Trillion we have to absorb.

What the hell is going on?!

Do the Republicans also believe the bailout is a bust and are positioning themselves to be the political party of "I told you so!"?

And we wonder why the Taliban are willing to destroy the tranquility of their nation for an ideological belief?

THE TALIBAN WING OF THE REPUBLICAN PARTY.... From time to time in recent years, liberals have identified the "Taliban wing" of the Republican Party -- those conservatives who reject church-state separation, taking marching orders from James Dobson, and wonder why the government doesn't do more to promote and endorse their vision of Christianity.

The phrase is generally considered offensive by most Republicans, and it's easy to understand why. Indeed, no U.S. political contingent wants to be compared to the Taliban.

It came as something of a surprise, then, to see a leading House Republican make the comparison unprompted.

Frustrated by a lack of bipartisan outreach from House Democratic leaders, Rep. Pete Sessions (R-TX), chairman of the National Republican Congressional Committee, said House Republicans -- who voted unanimously last week against the economic plan pushed by President Obama and House Speaker Nancy Pelosi -- will pitch a "positive, loyal opposition" to the proposal. The group, he added, should also "understand insurgency" in implementing efforts to offer alternatives.

"Insurgency, we understand perhaps a little bit more because of the Taliban," Sessions said during a meeting yesterday with Hotline editors. "And that is that they went about systematically understanding how to disrupt and change a person's entire processes. And these Taliban -- I'm not trying to say the Republican Party is the Taliban. No, that's not what we're saying. I'm saying an example of how you go about [sic] is to change a person from their messaging to their operations to their frontline message. And we need to understand that insurgency may be required when the other side, the House leadership, does not follow the same commands, which we entered the game with."

He added that if Democrats don't give the minority party more "options or opportunities," Republicans "will then become an insurgency."

- Political Animal
by Steve Benen and Featuring Hilzoy,
February 5, 2009
WashingtonMonthly

Geithner is the fox in the henhouse!

From today's — Tuesday, February 10 — NY Times front page:

Geithner Said to Have Prevailed on the Bailout
By STEPHEN LABATON and EDMUND L. ANDREWS
Published: February 9, 2009
WASHINGTON— The Obama administration’s new plan to bail out the nation’s banks was fashioned after a spirited internal debate that pitted the Treasury secretary, Timothy F. Geithner, against some of the president’s top political hands.
In the end, Mr. Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to the president, according to administration and Congressional officials.

Mr. Geithner, who will announce the broad outlines of the plan on Tuesday, successfully fought against more severe limits on executive pay for companies receiving government aid.

He resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe out shareholders at institutions receiving aid.

Because of the internal debate, some of the most contentious issues remain unresolved.

That says it all about the Obama team. They are in the control of the global financier mindset that got us into this economic mess.

Brilliant idiots like Secretary Geithner —running the Federal Reserve Bank of New York while we descended into economic chaos — value their financial acumen over the worth of a tool and die maker ... to the detriment of our modern economy.

It isn't the Republicans we the people have to worry about. They were defeated soundly in the last election. It's the global financial gurus embedded in the Obama administration ... and obviously calling the shots. Do I see feathers in Geithner's smile?

Obama is screwing up the recovery bigtime

It's all over but the shouting. (See What the hell is going on?! below.)

Why? It's simple. Frank Rich lays it out in black and white in his column today, Slumdogs Unite!:

The new president who vowed to change Washington’s culture will have to fight much harder to keep from being co-opted by it instead. There are simply too many major players in the Obama team who are either alumni of the financial bubble’s insiders’ club or of the somnambulant governmental establishment that presided over the catastrophe.

-Frank Rich
Slumdogs Unite!
Ny Times OpEd
Sunday, February 8, 2009

This is going to get ugly ... all because the major players are beholden to the global financial model that got us into this mess in the first place.

Note: I call this the British Imperialism Model or BIM ... and folks like Geithner, Summners, and Rubin (and their ilk) BIM-bos. (See The Republican's plantation mentality ... below.)

Monday, Feb 9, update: Paul Krugman writes in today's column on the NY Times OpEd page, The Destructive Center :

So has Mr. Obama learned from this experience? Early indications aren’t good.

For rather than acknowledge the failure of his political strategy and the damage to his economic strategy, the president tried to put a postpartisan happy face on the whole thing. “Democrats and Republicans came together in the Senate and responded appropriately to the urgency this moment demands,” he declared on Saturday, and “the scale and scope of this plan is right.”

No, they didn’t, and no, it isn’t.

Religion as the ground for growing the individual

Some background first ... I attend the West Village Salon Conversation Group. Last Tuesday — the discussion was about the selfishness of being unselfish — to paraphrase from my point of view.

During the discussion two of the members brought up two examples of how small individual contributions to the collective good can keep a "community" functioning for the benefit of the individual. One example was theoretical. The other was a concrete example. Though the concrete example came second in the discussion, I will start with it first.

The coffee serving area at the woman's office was in constant disarray until she set up the "rule" that each person do at least one housekeeping chore whenever they entered the coffee serving area: clean the coffeemaker, make coffee, put any trash in the wastebasket, empty the wastebasket, wipe down the serving area, etc.

They haven't had a problem since.

In the second example, the salon member told how a friend of his — a graduate student in complex systems at a West Coast university — had built a model relating to the mess of dirty dishes that accumulated in the kitchen sink in the students' living area.

In his model he worked out how often each person would have to clean up a given number of extra dishes than their own, to keep the area clean.

As these examples were laid out, I had an epiphany. This was the core value of religion: giving us the rules to keep a community not only from descending into chaos, but establishing the "ground" out of which the individual grows a productive life.

Even as we get our sustenance from our community — the ground of our existence — we have to fertilize/nurture — give back to — the ground. Our basic set of rules not for only giving back but for our expectations of receiving is our religion.

Is a basic rule of the Christian to give without consideration of receiving something in return directly in the reciprocity of the transaction? That I should not give to the powerful and wealthy, expecting favor, but give to "the least of these", as in "Verily I say unto you, Inasmuch as ye have done [it] unto one of the least of these my brethren, ye have done [it] unto me." -Matthew 25:45 KJV

I think it a basic rule. It is why I call myself a Christian existentialist.

I believe life itself has established an order in the cosmos that dictates that nurturing the ground out of which I grow benefits me in ways that are not — necessarily — directly related to my immediate act. Is this not also the concept of karma?

This concept completes the mind wrap that we expect the reward from our "God", so it is a selfish act.

In this we define ourselves by whom or what we believe to be our "God".

After thought: Those who believe the sole pursuit of self-interest brings the greatest collective good have chosen greed as their "God". Existence repeatedly proves them wrong. It is a short-term illusion.

The Republican's plantation mentality ...

A plantation mentality has taken hold in the Republican Party. It is all about keeping labor costs low. Slave wages (like having a mule) are best, and indentured servitude is next. Note: Is it any wonder the GOP has such a strong base among Southern whites?

This is the carry-over of the British Imperialist Model (BIM) with Lords of Castles and their fiefdoms as the optimum socioeconomic arrangement ... thereby allowing an elite to focus on enriching the culture ... supported in their efforts by the masses producing the wealth the parasitic elite (bim-bos?) feed on.

The American model is the antithesis of both this — the BIM — and the communist model where the "state" dictates the distribution of wealth. We hold to the right of the individual on an equal opportunity basis to receive a fair return for his/her contribution to producing the wealth of our socioeconomic arrangement that includes a basic safety-net for all. We understand this to be the energy/motivation behind our — the greatest ever known to the human race — richly productive economy.

For some reason the currant crop of Republican leaders simply doesn't get it. I think it is because they are caught up in the Biblical model of God rewarding the righteous, so if they have been rewarded then it is their divine right to keep it ... no matter how they got it.

What the hell is going on?!

We all know what we have to do to turn this economy around for the United States. WWII showed us.

Get on a "war" footing and rebuild our infrastructure and start building the next generation of energy producing technology. And just like "weaponry", keep improving it.

But we are not doing it, are we. Why? In my humble opinion, it is because our closet elitists — the British-American Imperialists and their lackeys — are still trying desperately to emasculate labor, reducing wages to the cost of keeping a mule alive: water, food, harness, stall, and medical care for breeding stock.

These greedy one-world bastards — of the lord in the castle surrounded by their doting indentured servants ilk, whose concept of the optimum society is an elite supported in their lifestyle by the labor of an underclass — were orchestrating their version of globalization when their economic house of cards aka Ponzi scheme came crashing down.

Whereas the American ideal — IMHO — is that of equal opportunity and fairness in distributing the wealth we all help create.

The British-American Imperialists — my label — are now desperately trying to stave off the return of fair wages for labor which would mark the end of their one world dreams. They are willing to sacrifice the future of our nation on the alter of their insane lust for power and wealth.

Addendum 8:40 AM Monday, February 16, 2009:

If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.

Since nothing like that is on the table, or seems likely to get on the table any time soon, it will take years for families and firms to work off the debt they ran up so blithely. The odds are that the legacy of our time of illusion — our decade at Bernie’s — will be a long, painful slump.

— NY Times Op-Ed Column
Decade at Bernie’s
By PAUL KRUGMAN
Published: February 15, 2009

Is Hamas Israel's foster child?

I cannot remain silent about Israel's disproportionate response to Hamas in Gaza. NY Times columnist Nicholas Kristof writes a column in today's paper that we all should read and ponder ... and then we should respond in some manner.

The Gaza Boomerang
By NICHOLAS D. KRISTOF
Published: January 7, 2009
NY Times
http://www.nytimes.com/2009/01/08/opinion/08kristof.html

At a time when Israel is bombing Gaza to try to smash Hamas, it’s worth remembering that Israel itself helped nurture Hamas.

When Hamas was founded in 1987, Israel was mostly concerned with Yasser Arafat’s Fatah movement and figured that a religious Palestinian organization would help undermine Fatah. Israel calculated that all those Muslim fundamentalists would spend their time praying in the mosques, so it cracked down on Fatah and allowed Hamas to rise as a counterforce.

Art as transcendental resonance ...

I believe all art forms have the potential to create transcendental resonance out of the dissonance of my isolation ... an isolation "produced" by my having sought identity in things I own rather than in relationships within my community of extended family and friends ...

I use my writing ... plus reading poetry aloud ... to merge my consciousness into the transcendental.

What do I mean by that: "merge my consciousness into the transcendental"?

I turn off my mind's ongoing discussion with itself and let it explore its depths as deep as the art will take me. My awareness comes out of the biological existence of my life-form ... and its biological evolution ... a connectedness stretching back to the dawn of life. I have a sensitivity to the variations of my environment ... going back eons. Words are a late arrival in my mind ... in evolution time.

Walking among Henry Moore's large sculptures in the New York Botanical Gardens this fall ... I experienced connectedness with the transcendental nature of the cosmos ... I 'knew' that the expression of human existence was fashioning ongoingness with unity expressed as love out of the chaos of integral systems interacting randomly.

Others express similar experiences with music ... and — in my opinion and from my childhood experiences from going to church regularly — music is recognized as deepening the spiritual experience ... which to me is feeling or sensing connectedness to the transcendental nature of the cosmos ... in the moment ... now ... turning off my mind's ongoing discussion with itself ... thus — philosophically — completing the concept.

Posted By: hglindquist I 'knew' that the expression of human existence was fashioning ongoingness with unity expressed as love out of the chaos of integral systems interacting randomly.

Let me explain my pov ... for those who may be new to some of these concepts.

Death and decay fertilizes new life in a myriad of life-forms from microscopic bacteria to giant sequoia, which in turn feed numerous small animals ... and this food chain thriving on a planet bathed in a daily cycle of sunlight ... creating wind and rain as well as energizing life ... everything in its own definable "system" ... that in a chaotic mix of periodic, random, and randomly periodic interaction with other systems ... produced/produces the environment in which we evolved/evolve and now live ... amidst a gigantic universe of known systems contained in the cosmos of everything.

We humans "make sense" of our environment in order to live ... we learn how to feed and take care of ourselves ... and to nurture our children, our offspring ... the next generation ... to whom we feel a strong bond of love ... love being the desire that we want positive outcomes for the object of our love ... (thus hate is wanting negative outcomes for those we hate) ... as we try to anticipate the future, first as seasons and cycles ... to now where we know that our sun will someday expand and consume our planet ...

I believe the strongest bond of love is between parents and their children. Love is what guarantees the survival of the next generation. Therefore, love is a "glue" of the transcendental character of the cosmos ... a positive expression of ongoingness within the cosmos. Without it, the strong parent would prey upon the weaker child whenever the going got rough ... as we see in some other life-forms ... it is the emergence of love that allows us to exist with hope of a future for our life-form continuing to expand our understanding of our environment ... out into the universe ... giving us a chance at surviving beyond the existence of earth as an environment.

Now ... a couple of things ... it doesn't matter to an existentialist — myself — whether or not the cosmos had/has a purpose in the emergence of love. Love has emerged out of existence ... much as awareness has emerged out of existence. What matters is whether or not we BELIEVE the cosmos has purpose independent of existence ... which for many is the belief in God. I do not believe the cosmos has purpose outside of its existence.

And at another level, it seems that the "tribe" is the smallest social unit that can guarantee the survival of the human species ... because of the need for a gene pool sufficiently varied to provide healthy offspring ... which interjects the dimensions of social boundaries ... and the evolved sense of loyalty to one's own tribe versus the tribe on the other side of the river or mountain or whatever separates us.

I believe over the eons of evolution we evolved the capacity to intuitively recognize our "tribe" and feel an emotional bond with members. My hypothesis is that it is the loss of active engagement of these emotions when we become "non-tribal" that creates the sense of ennui requiring constant stimulation in so many modern young people. This ennui is compounded when our emotional bonding for identity becomes connected to things we own rather than relationships with other ... because we do not get the emotional "feedback" necessary to have the "climax" of engagement ... except from our dogs ... which, in fact, goes a long way toward proving my point.

Art provides a transcendental resonance that engages otherwise "unconnected" emotions in a satisfying and fulfilling real experience.

Notes:

- Details of my trip to the New York Botanical Garden are at Henry Moore sculptures at The New York Botanical Garden.

- The first part of this post was first written as a comment in the End of Life Issues blog on Maplewood Online.

Blinded by greed, it's as bad as it looks

Secretary Paulson — as the iconic reference to the Bush 43 administration's attitude to the global financial services sector — apparently believes that sector's theft of the wealth ... that had been created by a thriving industrial sector in the U.S. ... and then converting it into monetary instruments ... was actually creating a new pot of gold.

These folks are so blinded by their own greed, it is more than scary ... it's what's happening.

The whole damn economy is a Ponzi Scheme!

Getting the new round of suckers (the taxpayers) to pay off the previous suckers ... that's the definition of a Ponzi Scheme ... for chrissakes!

Secretary Paulson is just shoveling our money into the hole ...

And "the adults" in this crowd are working their butts off to get the money to him on the edge of the hole ... so he can shovel faster.

That's for the global financial services sector ...

For our industrial base that actually creates jobs that produce things of value ... well ... that's a whole other scenario, isn't it?

Bernie Madoff: the butcher with his thumb on the scale

The title says it all.

If you don't know who Bernie Madoff is, google his name.

Do you still think there is any such thing as "free" markets or "free" trade? All that means is that the person or company (which is really still a person making the decisions) doesn't have to pay for the harm they do ... if they can escape before the collapse ... or the effects of their actions become apparent.

Transparency fostering trust is the cornerstone of an efficient market economy ... not the freedom to pursue greed.

Dah!

The Axis of Evil: the South and the German & Japan Auto Companies

I heard it first on Morning Joe on MSNBC today: the Axis of Evil is the South and the German & Japan Auto Companies. The historical irony of this is breathtaking.

The unemployed of the South fled to the industrial north to help build the American industrial miracle that played a major role in defeating Germany and Japan in WWII. Now The South is allying itself with the German and Japanese auto companies to defeat the industrial base of the North: the American auto companies. Good grief!

The ideology of the South is that labor is the province of servants (slaves?), and it is supported by their Biblical beliefs regarding their God rewarding those "He" favors with wealth, and true believers are not to question those "He" places in authority over others.

This fits the global financial services sector's concept that wages for labor should equal those of a mule: water, hay, harness, stall, and medical care for breeding stock.

We have abandoned reason for this?

The American worker is NOT the problem!

The American worker with rights is the solution to producing goods and services that have value in a transparent, trustworthy, and efficient market economy.

Not the imperialist model with the Lord of the castle commanding obedience while paying a mule's wages of water, hay, harness, straw, stall, and medical care for breeding stock ... that is the global financial services sector's goal for the working class ... believing they are doing workers a favor by raising more workers of the world out of starvation wages while they lower the American working class into poverty. This is their idea of fairness ... using the wealth created by the American industrial miracle to make money and credit into instruments of oppression.

The American industrial miracle was based in a large part by the individual worker being able to call "Foul!" ... if melamine were ever added to baby formula. Or if re-enforcing steel wasn't manufactured to standard, or concrete ... or ... or ... because the American worker had rights.

We became known for quality ... and unless others were able to emulate that standard of quality, American products reigned supreme.

Now we have our business leaders importing children's toys covered with lead paint.

"Free" trade? "Free" market? I guess that means the business leaders don't have to pay for the healthcare of the children their products harm.

The language of art ... or ... the art of language.

Some initial thoughts ...

Over the eons of human development we replaced our feelings and emotions as a primary means of communication with the words and syntax of language.

We simply have to watch the higher forms of animals to see ourselves in that now distant evolutionary past ... but not so distant that we no longer communicate with feelings and emotions ... and that is a problem, isn't it?

The problem, of course, is what to do with the emotional reaction or feeling that is triggered by some event, that in turn triggers a desire to respond in some way when we are telling ourselves the reactive act is inappropriate in the particular situation, such as:

The smell of food when we are hungry, and lunch time is at noon ... so we are stuck at our desks for some period of time.

The anger we feel when we are cutoff in traffic by some inconsiderate driver ... especially while experiencing the frustration of heavy, slow traffic ... and, of course, not everyone stays rational ... hence the all too common occurance of what is now labeled "road rage". But many if not most of us stuff or repress the natural feeling of anger.

And we are constantly suppressing sexual feelings in the face of a seemingly endless stream of sexual signals designed to attract our attention ... and we now know that many if not most of us are in state of repressed sexual frustration much if not most of the time.

But — where Freud went wrong, or so my layperson's opinion tells me — it isn't just sexual repression that complicates our psyche, it is the constant repression of most feelings and emotional reactions that gives rise to our neuroses ... and the sense of estrangement from ourselves, our humanity.

When we are unable to complete the action triggered by our emotion, we separate our emotion from our response ... we split ... we divide ... our self, and become an estranged observer of our own life. For some there is even a fear of wholeness, a fear of the desire to act, and following through.

Which brings us to art ... as the means whereby we re-integrate ourselves with our feelings and emotions ... as the key to the lock binding our chains of repression.

With the coming of language, comes the need for art ... to integrate our psyches with the primal world from which we arose, and if from which we are separated entirely, we descend into madness.

David Gregory is ... well ... safe enough for Meet the Press ... don't you think?

"You have to ask why" ... dah!

At least one person appears to understand the problem:

“You can’t just say, ‘Credit isn’t moving through the system,’ ” she [Elizabeth Warren, head of the Congressional oversight panel] said in her first public comments since being named to the panel. “You have to ask why.”

...

In that spirit, she promised that Congress would get the panel’s first report on Dec. 10, “laying out the central questions that Treasury should be addressing as it spends the taxpayers’ money.”

Meetings with Treasury officials so far have made her question whether they understand that “household financial health is profoundly tied to the economic health of the nation,” she said. “You cannot repair this economy if you can’t repair those families, and I’m not sure the people directing the bailout see that as their job.”

In her view, the government should be trying to create more reliable customers for those banks by shoring up the fragile finances of the millions of American families that could not save, borrow or spend even if their banks were flush with capital.

“Any effective policy has to start with the households,” she said. “Years of flat wages, low savings and high debt have left America’s households extremely vulnerable.”

Bailout Monitor Sees Lack of a Coherent Plan
By DIANA B. HENRIQUES
Published: December 1, 2008
NY Times

Also from the article:

A Harvard law school professor and a consumer bankruptcy expert, Ms. Warren was named by Senate Majority Leader Harry Reid to the new five-member panel, created as part of the $700 billion Troubled Asset Relief Program, known as TARP, enacted in October. She was elected chairwoman at the group’s first meeting last Wednesday.

Hold on, Barack ... this is change?

Don't mean to be disrespectful or nuthin' in addressing the President-elect as Barack ... but ...

The Rubin claque as the economic recovery team? Wasn't it these folks who greased the skids?

And Bob Gates extended as Secretary of Defense? Wasn't he the guy who was able to extend the war in Iraq when folks here at home started thinking impeachment?

AND — whew! — Holder? You're joking, right? The guy who was so close to Bill Clinton that he didn't have a problem with the Rich pardon?

There's more, like Arizona Governor Napolitano who has her own issues on immigration.

But the capper is Senator Hillary Clinton as Secretary of State. Anybody remember what Barack said about her in the primaries?

And this is supposed to be change?

We are whom we tell ourselves we are ... if we believe it

We are whom we tell ourselves we are ... if we believe it.

There are simple realities that some try to make complex so they can interpret them to us and advance their status in whatever pecking order they are operating. Of course, if they control the game we are playing, then it's their rules we play by.

Simple reality No. 1: On the basis of what we have learned to this point about physics, chemistry, and biology, we are animals. That explains a lot all in itself.

Simple reality No. 2: Our life-form as an animal existed both genealogically and personally before/prior to our becoming aware/conscious of existence.

Simple reality No. 3: We have evolved over the millennia of human existence a narrative of our existence that is general to whatever culture in which we exist and specific to our particular group or tribe. For most of us on planet earth our religion is our narrative.

Simple reality No. 4: We are taught that narrative as we become aware of our existence and have no reason to doubt it in our childhood.

Now those simple realities should go a long way in explaining things. And if we believe what we have learned, we order our own lives according to the narrative we have been taught.

Next thought ... if you are with me to this point.

We can re-order our lives by changing the narrative of our existence.

This is the power of Nietzsche's idea, "Self-configuration through language became a passion for Nietzsche." -pg 55, Nietzsche: A Philosophical Biography by Rüdiger Safranski, translated by Shelley Frisch.

Simple reality No. 5: We are different from other animals in the multidimensional character of our imaginations that lets us wander mentally forward and backward in time, and spatially in 3-dimensions. We can create — bring into existence — both objects and narratives from our thoughts and — what is even more — plant them anywhere in our minds, let alone on the planet.

Leaders get the followers they deserve

What is this bullshit about people getting the leaders they deserve as if it is somehow the troops in the trenches fault when the battle is lost?

Why aren't we saying leaders get the followers they deserve? That's reality.

If you go around saying, "We'll make it easy for you. All you have to do is go shopping. Trust us." What do you expect?

The question becomes, Can a real leader ever be popular? or When can a real leader be popular?

When we are staring into the abyss? Perhaps that is when a people, a culture is tested.

And maybe it is a rhythm of gaining strength in the struggle in the face of a crisis, followed by the weakening from good times, easily maintained.

In any case, leaders who do not want the responsibility of leadership, shouldn't opt to lead.

They're joking, aren't they? 800 Billion?

Secretary Paulson announced yesterday — Tuesday, November 25 — a new plan to pump billions into the consumer credit and home mortgage markets. What he didn't announce was how the consumer and home owner would pay back the money he wanted them to borrow. This is the umpteenth iteration of the same-old, same-old ... or am I missing something?

First off, I keep reading that this credit bubble was in the neighborhood of $50 trillion ... and that we have now thrown around $8 trillion at it. Seems like we have a ways to go. And, just to be up front, I happen to believe the first step in getting there is an honest appraisal of these numbers ... and who is holding what ... or at least receipts for who is getting the money ... all the way down the chain ... or is it going to be like taking those pallets of Benjamins — 100 dollar bills USD, for the slower folks — into the Iraq desert and leaving 'em for the camels or whatever?

It's like the stories that these guys didn't allow for falling home values in their economic models ... before home values started to fall ... because — apparently — home values had never fallen before ... dah! what WERE they thinking?! Guess these New York bankers never heard of "redlining" ... maybe it was too Chicago or something. Chicago bankers had a business model based on failing neighborhoods where home values would deteriorate over time.

Real estate agents used the concepts surrounding redlining to invent their own model of profiting from churning property sales: blockbusting. This is where they would get whites fearful of the influx of blacks into their neighborhoods, to sell at a reduced price. The real estate agents would then resale at a greatly inflated price to the black families who otherwise could not buy a home.

But back to the $800 billion ... Paulson's kidding if he thinks this is going to turn things around. Let's see, we are at $8 trillion +/- and counting on the $50 trillion +/- bubble that is deflating ... we have another $42 trillion +/- to go.

Lots of luck, folks.

Corporate capitalism is still a young puppy ...

Folks, corporate capitalism is still a young puppy as far as these things go, kind of running around and knocking things over.

Remember Ike and the Federal Highway Program? He learned from the things FDR tried and pretty much got it right. Our streets and highways ignited the auto industry out of the industrial base grown in WWII. (Weren't those muscle cars something else?) Then Kennedy came along and gave us the Man on the Moon project which became the ground out of which grew so many new products and industries that it still boggles the mind. (Start thinking of what our global financial gurus have sent offshore ... and somebody wants to continue enabling the neocons in the GOP? Are you kidding me?)

Out of 50's amd 60's we began to learn how government and business could work together to produce a free middle class.

(No, I haven't forgotten the Korean and Vietnam Wars, and they have to be dealt with economically speaking at some point.)

Trouble is ... there is a fly in the ointment ... which we are just now beginning to realize as "Dr." Greenspan said, "a flaw" in his thinking.

And it is so simple it is mind-boggling.

Because the corporation is treated in law as a separate entity, the individual corporate officers can pump all of the corporation's profits into their private pockets without penalty ... except in regulated businesses.

And with the MBA mantra of the pursuit of self-interest as the highest free market value, individuals have been conspiring to keep certain high short-term profit businesses unregulated as long as possible in order to enrich themselves ... individually. Long-term consequences be damned ... they are the corporation as a separate entity's problem.

By 2006 Depfa was the largest buyer of last resort in the world, standing behind $2.9 billion of bonds issued that year alone. It backed a $200 million bond issued by the M.T.A.

But as Depfa grew, it became more reliant on enormous short-term loans to finance its operations. Those loans cost less, and thus helped the bank achieve higher profits, but only when times were good. Indeed, some employees were worried about that debt.

But Mr. Bruckermann plowed ahead, and it paid off. In 2007, even as the global economy was softening, Mr. Bruckermann persuaded one of Germany’s biggest lenders, Hypo Real Estate, to purchase Depfa for $7.8 billion. Mr. Bruckermann’s cut was more than $150 million. He left the company to grow oranges on his Spanish estate.

From Midwest to M.T.A., Pain From Global Gamble

By CHARLES DUHIGG and CARTER DOUGHERTY
Published: November 1, 2008
Print edition: November 2, 2008
NY Times

It's greed ... pure and simple greed.

Who would have ever thought? Certainly not an Ayn Rand disciple like "Dr." Greenspan.

We'd better start training that puppy. And the current GOP is not likely to do it.

As an existentialist ...

As an existentialist I adhere to the idea that my highest calling is to break free of the narrative of existence ingrained in my psyche, and altered by my conscious interaction with life's experiences. Existence both biologically and culturally preceded my awareness ... and I came into being assuming the reality of my environment.

That is not being naive, that is the ground out of which I came ... and being able to examine it for what it is becomes the individual's brave journey into the future ... never for one's self alone, but for those who follow also ... even though most around us fear what we reveal about ourselves and try to shut us up.

Note: A thought written to an emerging friend. -ncs

Experts without a clue?!!!

The morning's -- Saturday, October 25 -- Star-Ledger headline read "Market panic leaves experts without a clue".

Without a clue? Are these brilliant idiots kidding us?

The United States while continuing to consume -- what? 25%? -- a large share of the world's products, sold offshore it's industrial base to make the products necessary for exchange in a functioning market where goods and services with value (others want what we produce) are traded. (Please note that the pieces of paper such as money and instruments of debt increase the market's efficiency thereby adding value BUT only in relationsip to REAL goods and services. If you are only exchanging the pieces of paper ... well, what can I say?)

Note: "According to the International Monetary Fund, the U.S. GDP of $13.8 trillion constitutes over 25.5% of the gross world product at market exchange rates and over 19% of the gross world product at purchasing power parity (PPP)."

-wikipedia.com

So we -- the U.S. -- can no longer sustain our consumption of the share of world's goods and services we have been consuming ...BECAUSE we no longer produce good and services the world wants!!! Dah!!! That is, we don't produce enough to pay for what we have been buying.

And you don't think that is going to take a serious realignment of the global economy? Until we once again get back in balance?

And this is hard to understand? I think someone needs to go back and read that book about learning everything we need to know in kindergarten.

On patents and the role of good government in markets

I am always somewhat amused when folks talk about "the government" as something outside ourselves. I view "government" as a way of our ordering the overarching collective -- the "state" -- of which we are members. Wasn't it a Republican president -- Abraham Lincoln -- who penned and then spoke the words "... "this nation, under God, shall have a new birth of freedom--and that government of the people, by the people, for the people, shall not perish from the earth"?

Let's take an economic example, the issuing of patents ... and explore the idea a wee bit.

Market concepts inform us that unless society develops some way to reward new ideas, there isn't much incentive to come up with them ... because -- as in the case of the wheel AND the printing press -- as soon as it is invented, the item can be replicated by anyone with the ability to do so ... and that level of ability was not a very high hurdle in the scheme of human ability.

History tells us that after the creation of government -enforced patent rights in Western Europe in the 18th century, economic growth based on new technologies took off.

The problem fallible humans face is that "more" government regulation is not synonymous with "better" government regulation. So how do we improve government? Certainly we now know that we shouldn't let anti-government ideologues of limited intelligence appoint "Heckuva Job Brownie" to head FEMA ... don't we?

The new economics - Post X

Well ... some folks are thinking right now, maybe we should rethink some of these economic things ...

Kind of like, maybe gravity isn't all there is to Physics ... even though gravity is part of it. Kind of like Adam Smith is soooooooooooooo Newtonian.

I mean after Katrina shouldn't we have realized that we didn't have the concept of what we can expect from each other nailed down? Is national security (our military) the only thing we socialize adequately? (No, I am not saying we should run everything like the military, but can't we stop and think a little ... stuff ain't going so good, y'know?)

And yes, there is a real problem with the type of collectivizing that leads to the gulag ... but there is also the real problem of a so-called freedom that let's the rich get richer until we wind up on banana republic plantations. Folks used to understand the concept of "the butcher's thumb on the scales".

The old economics led the global financial gurus to believe they were modern alchemists who had actually discovered how to transmute lead into gold ... printing pieces of paper with complex functions that gave them real value ... aka instruments of debt and their derivatives ...

Anything could be "borrowed against" and then the document of the loan had the value of the amount borrowed. The more you could get other folks to borrow, the more value was created.

You mean, you didn't have to worry about the value of whatever it was that was borrowed against? Hell no! Just buy another piece of paper called a credit default swap (CDS) that was insurance that the other piece of paper, the instrument of debt, would have value no matter what.

But I digress ...

Back to the new economics ...

A house retains its real value if it is maintained in a neighborhood of maintained houses ... (staggers the imagination, doesn't it?)

If I let my house deteriorate, my house is not the only one that loses value.

Who then pays for the loss of value in my neighbors houses?

What if the "bank" repossesses my house for whatever reason AND the abandoned house starts to deteriorate AND the cumulative loss to the houses in the neighborhood is always greater than the loss in value of the abandoned house ...

And what if maintaining the now abandoned house would have cost far less than the either the loss in value of an abandoned house OR the cumulative loss in value in the neighborhood ...

Now, it seems rational to me that there should be some form of REAL VALUE insurance to kick in to protect the neighborhood homeowners ... so, would their forming a cooperative to provide themselves that kind of insurance be "socialism"?, or only if they did it through their government? And what if it is done after the fact, after the neighborhood homeowners realize it is cheaper to maintain the abandoned house? Is it socialism for them to cooperate on reducing their losses?

Farmers in the midwest formed cooperatives to bring electricity to areas not served by the "private" sector ... was/is that socialism?

Just asking.

From NPQ, the New Perspectives Quarterly:

Free Markets and the End of History

NPQ | In the end, your ideas have triumphed over Marx and Keynes. Is this, then, the end of the road for economic thought? Is there anything more to say than free markets are the most efficient way to organize a society? Is it the “end of history,” as Francis Fukuyama put it?

Milton Friedman | ... "Free markets" is a very general term. There are all sorts of problems that will emerge. Free markets work best when the transaction between two individuals affects only those individuals. But that isn't the fact. The fact is that, most often, a transaction between you and me affects a third party. That is the source of all problems for government. That is the source of all pollution problems, of the inequality problem. There are some good economists like Gary Becker and Bob Lucas who are working on these issues. This reality ensures that the end of history will never come.

http://www.digitalnpq.org/archive/2006_winter/friedman.html

Interpretation: Because transactions using the medium of money ALWAYS affect a third party, there is no such thing as a "free" or "unfettered" market in terms of the customary definition of the economic term. The reason for this is the clear fact that all costs incurred in the production and distribution of goods and services are not paid for out of the monetary selling price of the goods and services ... only the reimbursement of "ownership" costs ... so what is "free" about free markets is their being free of the costs they incur to others than the legally defined owners of the goods and services for sale--sellers and buyers.

We are entering a new age of economics

The world has already entered a new age of economics ... and simply hasn't brought the "science" of it up to date.

We need to rethink a few things ... for instance does leveraged asset ownership simply keep extending the asset owners out over the cliff until they fall? ... because the strength of an asset being held up by an instrument of debt as an anti-gravity device is reverse to the leverage involved?

In rethinking economics, the first concept we need to nail down, is the "I, thou" relationship, don't you think? What is our responsibility to others, and theirs to us? Like, when is it every person for him or herself? And when is it that we watch each other's backs? I mean, Katrina and New Orleans and now the global economic meltdown with

First, we need a market where goods and services of real value (others want or need them) are produced and then exchanged or consumed as efficiently as possilbe.

Second, we need to pay ALL the costs of producing these goods and services out of the profits earned by selling/exchanging the goods in services in the market.

Third, we need to sustain our communities as renewable resources for our future,

The current economic meltdown under the warping of the old economics will demand a review of what when wrong ... and I dare say some new concepts will emerge.

Put the Invisible Hand behind us

Let's put this "Invisible Hand" to rest once and for all.

What some call the Invisible Hand is the creative imagination of the human being that invents ... everything from the spear, fire, the wheel, stories, medicine, math ... a narrative of our existence ... to steam engines, electricity, wireless, space stations, the internet, books, plays, movies, heart transplants, ... biology, chemistry, physics ... psychology, sociology ... beyond my ordering of the jumble of "products" pouring forth from the minds of humans.

The "spirit" of America -- the collective energy of individual motivation -- is providing each and every individual human being the opportunity to get a fair share of his or her inventiveness in applying his or her effort -- their being able to direct their own effort, mental and physical -- to "earning" a living, providing the needs of living. Unleashing this spirit produced the greatest country for the common man AND the greatest country itself, that the world has ever known.

The radical change of moving away from slavery and indentured servitude -- where the benefits of individual effort accrue to someone else -- to individual autonomy in our economic lives -- and to all areas of our lives (did it start with the Protestant belief of the individual's direct connection with God?) -- has transformed the nature of government and all other forms of human endeavor.

In one sense, the human narrative of existence can be described as an expanding balloon. The interior is our history, the exterior is our future, and our experience of now is the skin ... it's elasticity, our inventiveness.

I would suggest that a primary role of government is to foster the creative imagination of the individual human being, thereby blowing into and expanding the balloon of human experience.

Credit bailout: Adding quicksand to the quicksand pool

It is incredible that intelligent people think that extending credit is going to pull us out of the "credit quicksand" in which we are sinking. "Hell yes, dump another load of quicksand in that pool of quicksand, big guy."

In a market economy, wealth is being able to produce goods and services that have real value ... goods and services that OTHER folks want so they will exchange THEIR goods and services for ours. That's what gives these goods and services value.

In a "free" nation (you know, "liberty and justice for all", "life, liberty, and the pursuit of happiness") labor is paid a fair share of the wealth it helps create, building a strong middle class and the strongest of all possible nations -- this I believe, and I also believed we proved it in and following WWII.

Credit and money have no intrinsic value EXCEPT the value of adding efficiency to the transactions of exchanging goods and services that do have intrinsic/real value. AND that is based on trust between the parties to the transactions that they will honor the value of the instruments of debt (credit) and money used in the transaction.

Even an idiot can see where this is leading.

When we failed to hold our leaders feet to the fire -- even though the American people tried mightily by deluging Congress with emails and phone calls -- and get them to enact a jobs stimulus program building infrastructure that adds real value to a mature economy like ours (and HAS to be produced collectively either as a private consortium or government program), thereby keeping us from sinking deeper into the credit quicksand.

And to have the Republicans who have the awesome example of President Eisenhower and his federal highway program as a gigantic monument to prosperity looming in the background, come up with a $700 Billion blank check extension of credit as a solution ... was so absurd it, it was unfathomable by we the people.

Notes:

First, I do not believe in a "free market" (as a macro concept). There is no such thing, not even hypothetically.

Second, markets emerged out of a world filled with natural resources already here and religious beliefs, hence the "Invisible Hand' bs. As these natural resources have been wedded to the creative imagination/inventiveness of the human mind, a whole new world has emerged ... a world that now requires the human creative imagination to take it to each new level.

It used to be the opening of new trade routes to new cultures and war that give us new products. Now it is programs like going to the moon and the internet -- which are extensions of military/national security initiatives -- which open new "resource" horizons for creating new goods and services that others want ... and therefore add real value in a market economy.

It is our faith in our creative imagination when given the opportunity for inventiveness that should guide us ... ESPECIALLY us, a nation born out of the creative courage of a man sailing west into the unknown ... looking for new trade routes ...

Finally, it is only in an unfettered market that you learn what people want ... but that is a different concept then this "Invisible Hand" crap that is so outdated that we should be laughing. Yes, Newton described why an apple falls from a tree ... but we are a ways beyond that these days in understanding the dynamics of our universe. Likewise should we be beyond Adam Smith.

In my opinion ...

Posted by hglindquist on 10/05/08 at 8:38PM

Ah, folks ... I have a little egg on my face right about now. Just found out from 60 Minutes that the math for slicing and dicing the subpirmes was done by Physicists ...

Well ... my guess is that some economist most likely told 'em that home prices had never decreased in value since the recovery from the Great Depression.

You can see how that would screw up a function, can't you? ;-)

The meltdown: Thelma & Louise, Part II

Nobody put a gun to the heads of these global financial gurus to invent virtually unfunded credit default swaps (CDS, aka default insurance), sell them ($60 Trillion+ dollars worth?) to foreign investors along with the sliced and diced instruments of debt, and take their humongous fees and bonuses upfront ... fees that fed the campaigns of the politicians of both major parties who would rewrite the laws and regulations to accelerate the greed frenzy ... while steering the whole shebang so far out over the ledge that it was Thelma & Louise, Part II.

All the while telling some poor dumb bastard, "You can be part of nirvana by buying a house and having it go up in value." (Which the "brilliant" gurus actually believed as shown by their failure to adequately fund the CDS's.)

You know, economics is the only "discipline" (it ain't no science yet) that uses antiquated principles ... well, besides religion ... Thomas Hobbes and Adam Smith are soooooooo Newtonian ...

But things are a-changing ... this meltdown is getting folks to say, "What WERE we thinking?!"

Did you happen to read This Economy Does Not Compute By Mark Buchanan, on the October 1, 2008, OpEd page of the NY Times?

http://www.nytimes.com/2008/10/01/opinion/01buchanan.html

From the column:

"For example, an agent model being developed by the Yale economist John Geanakoplos, along with two physicists, Doyne Farmer and Stephan Thurner, looks at how the level of credit in a market can influence its overall stability."

Notes:

Nobody around here is blaming Bush 43 personally ... that I know of. We -- in the general sense -- acknowledge he's too dumb to be culpable.

Here's some wisdom that HAS stood the test of time:

For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows. - 1 Timothy 6:10, New Testament, KJV, blueletterbible.org

http://www.blueletterbible.org/kjv/1Ti/1Ti006.html#10

And regarding the fair share for labor:

For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? - 1 Corinthians 9:9, New Testament, KJV, blueletterbible.org

http://www.blueletterbible.org/kjv/1Cr/1Cr009.html#9

Keeping the Paulson-Bernanke bailout plan simple ...

A couple of things ... to help keep things simple on the $700 Billion Paulson-Bernanke bailout plan:

The bailout is the Wall Street/Beltway Gang holding a gun to the head of average hard-working citizens and saying give me your money or else. The gun and the "or else", of course, are all the calamity that will befall the average person if we don't turn over the money ... loss of jobs; loss of home, student, car loans; etc.

Well ... guess what? ... us folks were holding a gun on them ... "You're going with us, you bastards. And we'll see who can work their way out of this. 'Cuz if you think you can just keep robbing us blind, you got another think coming. We're ALREADY losing our jobs, our homes ... "

Hoo boy!, Americans still have grit!!! God, I love my country!

Next ... these so-called economic geniuses keep saying what they did to get us here is too complicated for common folks to understand. Well, it ain't. It's really quite simple. In fact it so simple that once you realize how simple it is, you (if you haven't understood it before) are going to be really, really pi$$ed off.

It's a concept called "leverage". And it's called that because it can be described as a pry-bar or teeter-totter ... using force on one end of a lever or plank to match the force on the other.

OK, let's think of the back-yard teeter-totter where you place a long plank over a drum or something in the "center" as the "fulcrum". If you have done this in the past with your kids, you know an adult can teeter with a child by giving the child "more plank" on his/her side of the fulcrum. That adds to their "leverage" to lift you easily. It also means the adult can hold them up when they are far out on their end of the plank ... and the more plank the adult gives the child, the lighter the child has to be to hold up a particular adult.

Now, say there was a rule that you the maximum multiply of plank you could put on the child's side was "adult side times 12". This was a safety rule, because if the adult had a heart attack and fell off, the child wouldn't be injured or even killed by their fall at their end.

Now, say the teeter-totter manufacturer came up with an anti-gravity braking device that countered gravity on the child's side so -- the manufacturer said -- no matter what happened on the adult's side, the child was safe ... even to a multiple of say, "adult side times 35". (And that put the child pretty damn high ... as they say ... What a feeling!)

Wow! Joy and celebration all around ... even little, little kids could teeter-totter with the adults! And even sickly adults could now teeter-totter with the little kids. So what if anyone they fell off? ... on either side? ... the system would NEVER crash! (So read the anit-gravity braking device manufacturer's sales brochure.)

And if you combined healthy adults with sickly adults on the adult side ... the system worked even better for sickly adults. (Now we were really rolling!)

That is until too many sickly adults started losing weight at the SAME time, then the system got overloaded in a hurry ... BECAUSE there WAS a flaw in the anti-gravity braking device system: each individual teeter-totter was hooked up to a central playground machine that could only handle a limited number of teeter-totters at a time ... and anybody with half a brain would have see the overload starting from the edge of the playground. Shouldn't they have screamed immediately: "STOP TEETER-TOTTERING!" ... BEFORE everyone crashed? (Just asking ... but I digress ... as is my wont)

The basic question in the design of this anit-gravity braking device system was (should have been?) "What would happen if the sickly adults started losing more weight than the anti-gravity braking device system could handle at any given time?" BECAUSE the plan was to allow sickly adults to teeter-totter, so the question SHOULD have been obvious ... don't you think?

Don't you think any playground supervisor would have asked that question? AND asked for proof from the anti-gravity braking device system manufacturer? Unless of course, the supervisor was being paid off.

The average American citizen can smell a pay-off (a rat?) from a mile off. Even if the Wall Street/Beltway Gang kept saying it was too complicated for us ordinary folks to understand. (Yeah, and I have a bridge to sell you ... [That bridge thinger takes on a whole new level of meaning ... don't you think?])

OK, the "adult side" of the teeter-totter is the bundled loan package of healthy and sickly instruments of debt. The "child side" is a combination of the "child" -- the investment bank or whatever -- and the "extended blank" -- the money borrowed by the "child" to help hold up the adult side.

In the Balance Sheet equation of Assets = Liabilites + Capital (aka Owner Equity), or also expressed as Capital = Assets - Liabilities, equation, the "adult side" is the Assets, the "child" is the Capital, and the "extended plank" is the Liabilities.

The "anti-gravity braking device" is the credit default swap designed to pay for the instrument of debt in case of default ... cover any loss.

No one had to know what is inside the "anti-gravity braking device" ... they just had to have proof that it would work. Kind of like any other brake ...

Unless ... like I said ... someone was being paid off to look the other way ...

Also like I say, doesn't take a genius to figure THAT out.

What's wrong with this picture?

Another thing ... what is this about having to do something, anything before Congress goes on vacation? What's wrong with their staying in session until they get it right this time ... like the rest of have to when a crisis hits us.

This whole scenario is so absurd ... we are facing the equivalent of an economic Pearl Harbor -- according to a number of credible authorities -- and the US Senate passes a pork laden Paulson-Bernanke bailout plan so they can go home as early as possible?

What's wrong with this picture?!

On reversing the meltdown ...

There is only one strategy that will reverse the meltdown ... in my opinion ... and the sooner we get there, the better.

It is following Ireland's lead (as I understand it anecdotally) and put the full faith and credit of the United States behind our banks and their issuing of debt -- at least home mortgages. Something like the way the FDIC works ... with adequate regulation ... and having ENOUGH fees to pay for any losses ... AND an experience rating system so banks that make faulty loans are charged higher fees.

Our home mortgages are the strength of our communities, hence an underlying pillar of our nation. And the combined economic strength is more than enough to recover from the greed of Wall Street ... without paying those criminals one more penny in bailout money.

Now the caveats/disclaimers: I do not think it will be as simple as that ... but I am writing in the bloggosphere trying to provoke thought ... to encourage tossing anything related to Secretary Paulson's bailout plan on the dung heap and then working something out around the Ireland plan.

I will be emailing my Congressperson, the Honorable Donald Payne, and asking him to vote "NO" on this bailout bill, noting that I have strong opinions on it.

It is un-American to cave with a gun to our heads.

Let's see if we have the grit to get this right.

A Napolean-like retreat out of the Middle East?

It is becoming obvious that the problem with the economic meltdown is the foreign investors who were told their investments in these instruments were safe because they were backed up by credit default swaps types of debt insurance ... which is now a huge "oops!"

If there is a run on that stuff ... by those people ...

Whew! Americans would have to start growing their own vegetables, darning their socks, walking to the store ...

We would not be able to drive to the mall and go shopping like before!

That might be seen as funny ... but a collapse of our economy might also leave our military forces stranded in the Middle East ... anybody remember reading about Napoleon's retreat out of Russia?

No wonder Secretary Paulson went on bended knee in front of House Speaker Pelosi ...

The $700 Billion bailout - Part II

I don't think we know yet whether this is a bailout or a blip on the slide into banana republicanism ... there is a lot more we should be finding out ... like ...

According to Time Magazine the world economy is annualized around $54 Trillion ...

According to Bloomberg News the credit default swap (CDS) industry is around $62 Trillion ...

And the way I am beginning to understand is that a CDS is what allows a financial institution to carry a questionable instrument of debt -- such as subprime mortgages and bundled credit card debt -- on its books at full asset value ... (even when that instrument of debt is about to go in the tank ... because the CDS is supposed to pay off on default)

So ... if CDS's start going south ... as in what happened to AIG ... then the world has to revalue the instruments of debt they carry on their books as assets ...

So ... the perfect example is Lehman Bros. ... as I understand it ... it was leveraged at 35 times its capital ... see, assets = liabilities + capital ... so say you have $36 Billion in assets then you have $35 Billion in liabilities (what you have borrowed -- from creditors -- to combine with you put in as capital to buy the assets) plus the $1 Billion in capital -- your own money -- (this is an example, of course, the amounts are representative)

So ... the value of the assets goes south by 5% or .5 X $36 Billion = $1.8 Billion ... this means you now owe your creditors $ 800 Million ... which is a manageable amount in terms of getting new capital ...

But what if the assets start going south by 10-20-25% ... or like what is happening now: 50-75-100%? and everybody's assets are going south at the same time?

And what if this then also triggers a collapse of the CDS industry?

Don't we have to have some idea of what the CDS industry is insuring if we are going to figure out whether the $700 Billion is a bailout or a blip?

These geniuses keep saying these are "derivatives" that are too complicated to understand ... I don't think so, IF they are forms of insurance for questionable instruments of debt.

I think the gurus don't want to explain them to us because it would scare the bejabbers out of the rest of us and they wouldn't have a snowball's chance in hell of getting the money they think they need to escape the collapse.

But I could be wrong ...

Upon reflection ...

Let me tell you when I realized the size of the $62 Trillion credit default swap industry relative to the $54 Trillion annualized world economy ... I took a deep breath.

I believe Secretary Paulson and Chairman Bernanke are playing Col. Jessup: "You can't handle the truth!"

We need a whole lot more honest information.

The $700 billion bailout ... are they kidding us?

With this proposal, Paulson has abandoned hope of holding financial-sector players responsible for their mortgage disaster and is instead intent on distributing those losses to taxpayers. The problem is, it's not clear what the government is buying or what the ultimate price tag will be. -JRacioppi, NJVoices

Right on target, Joe!

And not only that ... we have yet to find out what is hidden in the $62 Trillion credit default swaps (amount per Bloomberg news today) ... up from $900 Billion in 2001 (can you BELIEVE it?!)

Repeating myself, you have hit the nail on the head ... this is a scheme for taxpayers to bail out the global financial sector players who got us into this mess ... and I would add: apparently before the $62 Trillion credit default swaps debacle hits the skids ...

Listening to Paulson and Bernanke this morning ... I could feel a chill creep over me. These two are dissembling (the kindest thing I can say) ... and to me it seems obvious.

I sent the following email to the Senator Dodd's Senate Banking (...) Committee:

Two things:

1. It seems to me that Secretary Paulson and Chairman Bernanke are using people's fears over their retirement funds and mortgages to hide the problems in the $62 Trillion credit default swap industry (amount per Bloomberg news today).

2. I couldn't believe my ears when I heard Chairman Bernanke say we couldn't limit executive pay because they then might not participate in the bailout, letting their companies fail instead.

These two are the problem ... looking to them for a solution is leting the fox guard the hen house.

Let me see if I understand these credit default swaps (CDS) ...

They are a form of insurance ... highly profitable to the issuers up to now ... depending how the rate of default ... which was calculated as relatively manageable ... up to now ... when the sub-prime mortgages went in the tank ... meaning that sub-prime default's could bring down the whole $62 Trillion CDS thing ...

See ... the brilliant global financial sector mathematicians calculated the default risk as manageable with big payouts to the "insurance" salespersons ... so they took their fees upfront ...

oops!

So ... the REAL problem seems to be that if the mortgages go south ... they exceed the CDS inndustry rate of default and the $62 Trillion CDS industry goes south right behind it ... now THAT is going to be exciting!

Will the $700 Billion stem the southward flow? I don't think anyone knows for sure.

Anyhow that's how I would look at it ...

What's more ...

It seems obvious that the reason that Secretary Paulson and Chairman Bernanke want unrestricted flexibility in the use of the $700 Billion is that they do not KNOW where the money needs to go to stave off the collapse of the $62 Trillion CDS industry ...

Now THAT would explain their urgency and fear ...

The problem then becomes of their not being up front with us or Congress ... apparently because "they know what is best for us" and "we can't handle the truth."

And without transparency we don't know if this will work.

So what they are really telling us -- in my opinion -- is that if the plan is not approved, the $62 Trilllion CDS industry will in all likelihood fail ... and if it is approved, we don't know whether it will fail or not.

And Paulson and Bernanke want us to trust them?!

OK, that being said ... let's take another look at the credit default swaps (CDS) ... because from my pov, unless we get a handle on the risk involved in these things we don't know whether the the $700 Billion bailout will work or not ...

See, apparently CDS's were sold as insurance without the "experience" analyses of rates of disability, morbidity, mortality, fertility and other contingencies as in the forms of insurance with which we are more familiar. The actuaries (specialized mathematicians) used SOMETHING to calculate the rates for selling CDS's. The Senate banking committee looking into this mess should be asking for the THAT information ... to determine just how big a scam has been perped by the global financial sector gurus.

I would suggest that they based the rates on a guess with an eye toward how much they could generate in fees and bonuses, and NOT on anything real ... and if that can be proved, isn't it fraud? or shouldn't it be?

I mean, if you paid life insurance to an insurance company only to find out the company was going bankrupt because it had not set aside enough to pay off your policy ... but had paid its salespersons and executives high salaries, fees, and bonuses ... and then asked your heirs to take out a loan to pay off your policy?

And somebody actually thought this was a good idea? ANY kind of idea except bad?!