“Our System Became A Ponzi Scheme”

[girl gone mad]

This may have been posted already. The headline looked familiar, but a search came up empty. I apologize if it's a dupe. I don't think I need to add a comment. My opinion mirrors Fishman's.

http://themoderatevoice.com/28103/our-system-became-a-ponzi-scheme/">“Our System Became A Ponzi Scheme”
by Mikkel Fishman, http://themoderatevoice.com">The Moderate Voice

Bill Moyers has an interview with William Black, the lead regulator that cleaned up the S&L debacle, where Black is adamant that our current problems are due to corruption or at least willful neglect that amounts to fraud on a systemic level. This highlights why I’m not optimistic about the future; it’s not a matter of simply restoring confidence or stimulating the economy to stop a downturn, it’s that a bulk (if not the majority) of our financial “wealth” is based on pure lies. I make that outstanding claim by looking at the amount of leverage in the system, where 8-10x leverage is the historical range and we’re still around 16-17x (down from 20x). Europe is even worse as it is at 30x. With the amount of outright fraud and incredibly idiotic risks that were taken, it’s possible that we’ll have to fall to the lower end of that range, or perhaps even down to 6-7x in order to flush the system out enough to start over.

Black points out that the people in charge now — whether it’s the CEOs or government officials — are in charge precisely because they aided, profited and now have an interest in covering up the true nature of what’s going on. As he says about Geithner and other Treasury officials, “They all were promoted because they failed, not because they had succeeded.”

Black further points out that this crisis was generated because of a decline in morals and standards, both within finance and the government’s relationship to it. He said that during S&L they found that 10% of the institutions became corrupt, and wondered why most didn’t, as the money was so easy and the results were so guaranteed. He concludes, “So, far more than law or by F.B.I. agents, it’s our integrity that often prevents the greatest abuses. And what we had in this crisis, instead of the Savings and Loan, is the most elite institutions in America engaging or facilitating fraud.”

In other words, I have long been worried about this happening by looking at the raw numbers and seeing that they don’t add up, and economists are arguing over which policies will have the best chance of making the ledgers balance, but the most important roadblock is probably the people in charge. This echoes Simon Johnson’s point exactly. The people that have gotten us into this mess, some of them making hundreds of millions, are still in charge because they are corrupted both legally and morally. They have convinced our politicians that if the Truth were exposed then the system would collapse, and the only thing that is holding it up now are Lies. That statement sounds like the most paranoid ravings of conspiracy theorists, yet it comes directly from the mouths and pens of the most senior and experienced regulators in the world. That is the position we find ourselves in.

Black concludes that we can move forward only by exposing the reality of the situation, replacing the people involved that have new morals, and realizing our losses…otherwise we will stagnate while those that are responsible continue to leech and steal from the system. He sums up my views that I’ve had the last couple of years that I was trying to explain to Dorian why I thought that unbridled optimism would hurt us greatly and that we shouldn’t take pleasure in our (IMO temporary) slowing of the decline.

“There’s a saying that we took great comfort in. It’s actually by the Dutch, who were fighting this impossible war for independence against what was then the most powerful nation in the world, Spain. And their motto was, “It is not necessary to hope in order to persevere.”

Or in other words, an optimalist would recognize that our financial system is rotten to the core, that we must clear it away and it will be very painful, but that we have the resources to recover and reach new heights as long as our political process will allow us.

http://themoderatevoice.com/28103/our-system-became-a-ponzi-scheme/">More...

[Pharaoh]

1. Capitalism is just

A ponzi scheme............

[Po_d Mainiac]

3. That's pure Horseshit!

But we need to get back to the basics of Capitalism..........honest compensation for honest work/deeds.

All economic systems breakdown when greed and deception are allowed to change/manipulate those basic tenets

[IrateCitizen]

4. Capitalism has never been about "honest compensation" for...

... "honest work/deeds." It has always been about privileging those with access to surplus capital over those that do not.

The interesting thing about capitalism that differentiates it from other systems that came before it, is that every time there is a crisis capitalism must re-invent itself (as in the Great Depression and again in response to the stagflation of the 1970s). And when it re-emerges from that reinvention, it refers to the result as the "true capitalism".

"All economic systems breakdown when greed and deception are allowed to change/manipulate those basic tenets"

Often moreso societies break down to a degree. A breakdown in economic activity is merely a symptom of the problems within the society itself.

[Hawkowl]

5. Capitalism is fatally broken

Capitalism is based on one simple tenet: "Greed is good". The whole system is premised that if everyone is as greedy as possible, somehow all this aggregate greed will result in the optimal solution for society. The magical "invisible hand" of Adam Smith's capitalism is pure horseshit. Precisely because each individual is not valued equally, and that a mere handful of greedy bastards gets more votes (voting is with the pocketbook) than every other person on the planet added together. Why should the greatest criminals and their families, those with the least regard for humanity and its morals, control the economic destiny of this country? Especially, given their history of incompetence and abuse? It is a fundamentally flawed system that will go the way of mercantilism, feudalism, and communism.

[Po_d Mainiac]

7. Free and fair capitalist markets does not mean unfettered markets! n/t

[pa28]

2. And yet we're still papering over the problem instead of attacking the fundamental cause.

The bright side of this crisis is an opportunity to reconcile all the imbalances and excesses that have threatened the system. Unfortunately, to do so before circumstances force us into yet another round of emergency action is going to take political will. The longer we avoid making an honest assesment of the damage the more expensive it will become and we need to go there eventually if we're going to have a healthy recovery IMO.

Here's Peter Schiff today with a similar comment on the mark to market changes. "Let's play pretend".

http://peterschiffblog.blogspot.com/2009/04/latest-article-lets-play-pretend.html

(Yes, he's a libertarian but worth paying attention to)

[upi402]

6. Capitalism fails unless balanced by unions

it has failed. The media propagandized workers to vote against their own best interests. Get ready for it to hit the fan folks. 'mericuns are spoiled, delusional, and well armed.