Tuesday, March 11, 2008
The economic problem is really a crisis of dishonesty. The problem is that our system is built on a house of cards, divorced from what is true, what is tangible and what is real.
What do I mean?
Well, according to the FBI, mortgage fraud is the fastest-growing white-collar crime in America. While certainly not the sole cause of the subprime mortgage crisis, it is likely one of the causes, as unscrupulous brokers talked unwitting people into buying houses they couldn't afford.
The government has also been using dishonest, short-term fixes to try to whitewash the extent of the economic problems instead of doing something to actually fix them. This makes things look better in the short-run, but damages the economy in the long-run.
And the U.S. government has been hiding and manipulating economic indicators for many years. It stopped reporting the size of the money supply in 2006. The government has also spun the economic data, manipulated the economic indicators, and otherwise manipulated the market and the economy. What's wrong with that? Well, consumers have had an unrealistic view of the economy, and have therefore made bad decisions based on false or hidden information.
Of course, the government has tried to hide the weakness in the economy by devaluing the dollar. But the chickens are coming home to roost: gaming the system only works for so long.
And then there's the "derivatives bubble". The "what?", you ask. Don't worry, you're not alone in your confusion:
"not only [world's richest man] Warren Buffett, but Bond King Bill Gross, our Fed Chairman Ben Bernanke, the Treasury Secretary Henry Paulson and the rest of America's leaders can't 'figure out'" the derivatives market.Basically, the $516 trillion dollar derivatives market doesn't trade in real goods or real services, but abstract ideas and pieces of paper several steps removed from the real goods or services. The problem is that neither the buyers of sellers of derivatives have placed a value on the books of their trades. Indeed, they can't, because no one really knows what a lot of these abstract psuedo-investments are worth: they're so many steps removed from a tangible good or service, and have been re-packaged with a bunch of other derivatives, that even the large banks which hold large amounts of derivatives don't really know what they're holding in their hands.
As one writer put it:
"It’s all smoke and mirrors. The financial system has decoupled from the productive elements of the economy and is now beginning to show disturbing signs of instability."The world economy is poised to experience the worst financial crash in history because, according to Dow Jones' MarketWatch, the derivatives market dwarfs the real market for goods and services, and because the huge derivatives market is essentially an unregulated black market. In other words, the black market trading in half-truths, and can't-be-verified statements, and backroom deals dwarfs the market based on goods and services which free market capitalism is supposed to be all about, and may take down the latter.
And the flimflam derivatives salesmen all over the world, and the institutional buyers who have tried to stay in the green by buying derivatives (like wealthy Orange County, California, which went bankrupt after investing in derivatives), have been guilty of installing and enabling dishonest governments that lie, cheat and steal, not to mention bombing and exploiting poorer countries with abundant natural resources. In other words, the banks and other huge institutional investors which have been the largest players in the derivatives market have also been the ones propping up dishonest governments and fascist-wannabes worldwide.
Dishonesty is the poisoned tree. The economic crisis is its fruit. We will not be able to get out of the downturn until people are willing to stand up and demand that our economy be based on truth.