This week's theme is "the positives" in our current situation, and the positive
here is this: we can place the sources of our problems in the proper contexts.
Those bent on "manufacturing consent" must first de-contextualize reality so the
targets of the propaganda are shaken free from any mooring to reality. Then the propaganda
invokes fight-or-flight emotions (fear) or triggers the defense of some base
So rather than accept the propaganda "explanation" of the bailout and accept our
elected official's bleating excuses for their consent, we can understand the
reality operating beneath the sludge of the Mainstream Media's parroted
Imaginary Worth, Empire of Debt: How Modern Finance Created Its Own Downfall
How did we get here? The current global financial unraveling and meltdown has brought
us face-to-face with a stark and uncomfortable truth: with all its reassuring
numbers, our financial system is a human system, based on human frailties and desires,
resting almost completely upon imaginary notions of worth.
Historical financial innovations have led us piece by piece into a phase shift
from ownership of real assets to control of concocted wealth that no longer has
a credible authoritative connection to productivity, life needs, or the day-to-day
requirements of commerce.
From the bartering of material goods and services,
to the convenient exchange of dollars no longer backed by anything but faith, to
"creative" financial vehicles that leverage essentially symbolic wealth to an
infinite degree, we have progressively departed from the foundation of what was
once considered financial worth—the competent stakeholdership, ownership, and
stewardship of real property involving labor, earnings, investment, risk, reward,
In other words, we’ve reached the "asymptote," the mathematical limit whereby even
an infinite increase in concocted value produces no growth of worth on the real level.
We are now caught in a circle of absurdity-- lending and borrowing derived from
credit derived from collateral derived from inflated assets derived from future
returns derived from “marked to model” value derived from unlimited growth and ability
to pay. This last assumption is not only wrong but could never be right. The
pyramid scheme has reached its limit. Finite goods cannot play out in infinite terms.
The problem comes from a reverse engineering of the world, amid global capital
premises designed to extract, exploit, and concentrate wealth through the
maximization of profits, profits, which have become increasingly dependent on
maximum short-term competitive returns. This has accelerated the saturation
of the global economic system. Much like a biological cancer single-mindedly
programmed to take over the body, rogue financial instruments and players have
mindlessly aimed for growth at all costs. Faced with the limits of growth to
real wealth, the financial system has manufactured what has been called a "shadow
banking system" that creates "value" out of whole cloth by simply assigning and
exchanging it. This has culminated in a 70 trillion dollar market for credit
default "swaps" (CDSs), an unregulated insurance, which is the subject of the
In the following essays I also point to several basic natural laws of systems, that
were simply ignored or overridden in the greed-driven frenzy to manufacture growth:
Infinite growth is impossible in
a finite system. One can be very creative about
assigning worth and developing unlimited growth in assigned worth, but real worth
remains constrained to its moorings—can it create quality of life, can it feed,
shelter, and clothe, can it produce clean air and water, can it create lasting
fulfillment? Even the magic of percentages and myths about "houses always going
up in value" assume unlimited growth in environmental and financial systems with
limits. Infinite growth premises are demonstrably false in finite systems. What
they really seem communicate is, “Let the next generation deal with the consequences
as long as I get my maximum returns now.” Infinite growth can happen in non-finite
systems, and I indicate some of those possibly pro-social non-finite systems of
exchange in my last essay.
There is no such real thing as
"externalized" liability in a global system. As with the exploitation of natural
resources, there is always a cost to any action, which seeks to extract value.
Someone has to pay the price. The more interconnected a system, the more readily
and strongly that price will turn up to affect all the players including the initial
Finance systems need to be straightforward
and transparent. This one would seem a no-brainer, but objectively speaking
non-transparency has been a very large part of late capitalism, aiding concentration
of wealth and enabling the unfair and sometimes illegal benefit of some players at
the expense of others. This isn’t just about something obvious like insider trading.
Corporations have started shell companies to hide off-the-balance deficits. As
explained in these essays, financial institutions marked their assets "to (their
own) model" without fully revealing their assumptions. Rating agencies assessed
junk as AAA, facilitating the sale of that junk to pension funds, who were only
interested in secure investments. All this was hidden behind so-called "complexity"
(a mantra repeated brainlessly in the media), a Rube Goldberg device of financial
levers whose sole real purpose was to hide unscrupulous and unreasonable practices.
Debts are not assets. As I explain in
the following articles, buying debt can appear to be a good investment on paper,
but this rests on ability to pay. When debts are so constructed to create
unreasonable re-payment (fast accelerating interest and principal payments rapidly
outstripping the equity of collateral) they will fail.
Monopolies and concentrations of wealth
ruin economies by binding up the flow of goods and services and freezing exchange.
Healthy systems both natural and financial depend upon high diversity and exchange
among distinct entities each offering something of real value. This is why a rain
forest is considered a very rich system—many niches, many species all participate
in the web of life.
This is why Henry Ford said he needed to make his wages high
enough and his cars cheap enough for his own workers to buy them. This is why a
large middle class is the bedrock of a functioning democracy. As I mentioned in
the following essays, debt instruments had the effect of swallowing the normal
citizen and worker’s paycheck paralyzing his or her ability to spend after the
borrowing value of his or her assets (i.e. houses) were tapped out. This has been
exacerbated in America by declining real wages, non-compensated increased productivity,
and outsourced jobs. This has been further demonstrated by banks’ unwillingness to
lend to each other. When the flow of money stops, financial systems seize up.
Without regulation and actual risk
involving real consequences the financial system and its leaders will run wild.
This one would again seem to be obvious, yet this law was ignored as well. Myths
about the superiority of a market based on greed and acquisition to regulate itself
don’t make any sense even on the face. Yet the world system, and in particular the
American system driven by neo-conservative ideology, hailed deregulation as the
triumph of "freedom."
Chief executive officers of large corporations could take
huge risks for their companies and reap hundreds of millions of dollars of salaries,
or completely run their companies into the ground as those risks came home to roost
and get "only" tens of millions of dollars of golden parachutes. Reckless behavior
is guaranteed if it is rewarded more than prudent, intelligent behavior in an
economic system. From an acquisition standpoint, this is individually "rational"
behavior, even though it is unhealthy and irrational from a system standpoint.
The question might be asked, "Why were all these very simple and obvious maxims
ignored? What were people thinking?" I think much of it centers around the
fact that people’s education and identity still has its roots in a long-past
industrial age. People still tend to make their meaning and choices based upon
largely myopic, compartmentalized, and stratified knowledge. Even well educated
people rarely look deeply into the big picture and to whether their particular
perceptions, assumptions, and knowledge reasonably fit with other parts of a system.
Generally, if we can make some money, feed our families, and have some fun, we
don’t really care what the system is doing. Now we are invited to engage
bigger-picture thinking as a necessity in our day-to-day life.
I confess that I am not a financial wizard. I have a Ph.D. in philosophy of
education (with an emphasis in cultural studies and psychology) with a natural
sciences and math undergraduate background. This has allowed me to gain the tools
to look at systems and the specialized skills to examine the various parts of systems.
Natural sciences helped me apprehend existing systems, both natural and human.
Psychology helped me to investigate motive. Philosophy helped me to question
assumptions and test "common sense" thinking. Cultural studies helped me understand
context. Math helped me check the actual numbers and formulas that financial
systems were using. It is my small hope that these essays can help revive a liberal,
integrated, imaginative, and critical examination and creation of the world
Thank you, Zeus. Please read the entires series of essays below.
(all essays by Zeus Yiamouyiannis, Ph.D., copyright 2008)
Part I: A 70 Trillion Dollar Counterfeiting Ring
(Zeus Y., September 23, 2008)
According to several sources the market for so-called "credit default
swaps" last year alone was nearly equal to the total global GDP,
around 70 trillion dollars by some estimates. Yet these derivatives
have no discernible "origin" or value.
Part II: How the Credit Default Swap Scam Works
(Zeus Y., October 13, 2008)
Instead of asking the obvious, complex, and obscuring question, "What value
DO they have?”, one should ask the elegant and simple question, "What value COULD
they have?" Even a cursory examination would seem to indicate that the answer
is either zero or less-than-zero.
Part III: Credit Default Swaps Create Less-Than-Zero Value
(Zeus Y., October 13, 2008)
Now, how can a supposed "asset" like credit default swaps have a “less-than-zero”
(negative) value. First, credit default swaps were insuring debt. Debt is not an
asset as I explained in previous essays, but a liability. Mistake number one was
to confuse asset and liability.
Part IV: There Is Ultimately No Gaming the System: When the Micro Crash Reflects the Macro Crash
(Zeus Y., September 29, 2008)
The proposed 700 billion dollar bailout cannot really “work” from a system level.
I know it’s real intention is to cover the butts of Wall Street investors, but you
have the same problem in macro that homeowners have in micro. Nobody knows what
homes are worth right now, so buyers are sitting it out. It isn’t about restricted
credit (even though that is a factor). It isn’t about being too cash strapped to
make a down payment (though that too is a factor). It’s about not wanting to be
suckered into buying something that may still be overpriced.
Sarah Palin, Queen of the Red party. The lyrics helpfully pop up for your reading
"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
--An anonymous comment about CHS posted on another blog.
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