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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. All the fundamentals indicate that houses have quite a bit further to dip to reach the historical mean, so that hesitation is perfectly well-founded.
Now Paulson wants to put up 700 billion dollars in sucker money to keep propping up assets that have no discernible value, and gall upon gall, is openly talking about his banking pals getting fees for managing the government’s purchase and management using this money. (These people never quit. It’s really mentally sick.) It is almost unbelievable how much these blind rats do not get it. You cannot have a financial SYSTEM that works like this, where certain people through byzantine humbuggery extract all the capital in a system for their own profit and leave nothing to others. Money needs to circulate. That’s why having a huge middle class in democratic economies is so successful and wealthy inequality is so damaging.
However, we also have large amounts of homeowners now who have tapped (ATMed) the illusory equity created by massively increased home “values” (created by cheap money and a fraudulence-driven demand for home-buying) , in a mirror action of the “big boy” traders and managers who siphoned off huge amounts of money in transaction and management fees. As I noted in a previous post, with the credit default swap market alone amounting to 70 TRILLION dollars, a one to two-percent fee on those transactions would yield over a trillion dollars of extracted capital. You would almost have to have homeowners and hedge fund managers put back in the money that they took out. Homeowners have spent it (like good “patriotic” Americans), and hedge fund managers have hidden it or lost part of it into worthless vehicles (which they are trying to recover using the U.S. taxpayer as a conned “mark.”)
Homeowners largely cannot give this money back and wealthy people will not, because they do not want to lose money. The liquidity problem, I suspect, comes from the world’s financial elite being unwilling to take their money out of hiding and to disclose (for financial and criminal prosecution reasons) what “instruments” they have concocted to suck in other people’s money. They want someone else to take the fall and to escape accountability.
However, U.S. taxpayers have negative savings. So 700 billion dollar injection of “cash” is itself an illusion. It’s just more debt added to the ledger, but one backed by a supposedly historically secure economic system. (But for the last 30 years the American economy itself has been based on the illusion of debt-as-asset. Where is the productivity?)
We would have to raise taxes and extract that money from people’s actual paychecks for it to be real and that would cause a huge downturn in consumer spending and ruin the economy, given its present model, another way. This is why taxing the heck out of people who made an crooked profit out of this mess makes sense, both the assets and the income and the transactions themselves. You want to make illusory instruments and extract value, we’ll tax you a quarter percent to make the transaction and 30% of your take and so much percent a year to have them lying around. That would stop a lot of the thievery right there. Make a real-term consequence to a phony asset, and you’ll find a lot of people stop this creative accounting, because they don’t have even a fraction of the cash necessary to do their crooked business. There is not doubt in my mind that large corporations, many of whom pay no taxes, used these same illusory instruments to concoct losses (which they are allowed to deduct) to escape paying their fair tax share to society.
But presently we are at a standstill with no real way out, except together, if we recognize and treat this all truly as a system. I see the necessity of massive debt forgiveness becoming a reality. You can’t move when your debt swallows your entire paycheck, and that is what has been done on a grand level. Since much of this debt is based on fraud, it would not just be an act of altruism. I see the necessity of the world’s economies switching to a more qualitative and non-material basis of worth and well-being.
Environmentally, financially, and spiritually we can’t continue to simply materially grow and consume. We need to invest real money and commitment into developing non-scarce, non-polluting assets that have intrinsic (rather than simply instrumental) worth and actually increase in value the more they are shared. I see education and learning as possible goods that fit this criteria. Intercultural exchange of music, language, and appreciation might be another. Lastly, I think we will need huge investments in infrastructure and ingenuity, including communication networks social media, alternative energy, and so forth. These will both enhance the ability to develop non-scarce, non-material goods, but also allow for a physical renaissance in which scarcity is transformed into abundance.
It is possible, and many people are already making the move. It will be interesting to see if the present crisis contributes or detracts from the shift.
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