By Bob Goodwin, a medical device entrepreneur
Yves here. Bob’s post highlights a shift in attitudes that is entirely logical and is the inevitable result of financial firms, taking an increasingly predatory posture toward their customers. Borrowers are responding in kind, by taking a cold-blooded and legalistic look at their agreements with lenders.
Banks may find themselves hoist on their own petard, and the larger implications are even more significant. A calculating, contract-driven mindset eats away at the foundations of commerce. When I was young, it was possible to deal with most clients on a handshake (I’d still write the arrangements up, but it was mainly a device for confirming that we had heard each other correctly). Now pretty much every one I know has very carefully crafted agreements precisely because if things stray outside the bounds initially contemplated, it is much less likely that the party on the other side of the table will try to reach a middle of the ground resolution. It is now the norm that parties to a contract will try to exploit ambiguous or unforeseen situations to their advantage.
An erosion of trust leads to much greater contracting and dispute-resolution costs, a de facto tax on all commerce. As I discuss in ECONNED at greater length, it’s prohibitively costly and time consuming to negotiate agreements that contemplate every scenario (although banks increasingly endeavor to do that when they can dictate terms; credit card agreements that were one page in 1980 are now a full 30 pages when all the attachments are included).
I very much look forward to reader comments. From Bob Goodwin:
What we are experiencing is called the global credit crisis for a reason. There is too much debt in the world. More and more economists are talking about the threat of a deflationary crisis ahead. What does this mean for you? Well, if you have a house that is under water, or more debt than you can reasonably hope to repay, your best options may be the unthinkable. But it really should not be unthinkable to default on a loan or even to declare bankruptcy. Don’t stop reading. It is really a good option for many, it is moral, legal and good for the country. It is also become very common. You and your children will look back in a generation with pride.
In small amounts, debt is good. Home ownership is only possible for the young with mortgages, and many college degrees are partially supported with student loans. Working capital for growing businesses allow for inventory and distribution expenses. Lenders benefit as well: high interest rates are paid to pensioners on their life savings.
When debt exceeds a certain level it becomes a cancer on society. Easy credit fuels speculation which triggers bubbles. These bubbles lead to a temporary lift in apparent wealth, which increases economic activity beyond its sustainable level. But eventually more and more debt triggers economic decline with the inevitable glut of goods produced by an overheated economy.
What people are discovering too late is that their debt is not repayable. Ever. They once had a hope they could wait out their bad times. This is true of many homeowners, many businesses and many governmental bodies. The “great unwind” is going to be deflationary. Prices and salaries will decline, jobs will become more scarce, and debt will continue to increase.
The earlier you pull the rip cord the better off you will be later. In many states mortgage loans are non-recourse. Never make another mortgage payment. Turn over the keys after foreclosure. You will lose all of your down payment, but the lender can never get another penny from you. Your credit score will fall. But you do not want any more credit. Right? If you are trying to quit crack, how would feel about your pusher reducing your crack score? Stay off credit for a few years, and they will take you back with open arms.
There should no longer be any moral question about whether it is wrong to walk away from debt legally. The advent of limited liability corporations and the legal ‘personhood’ of corporate shells have allowed business to create one sided bets for years, and they happily walk away when the tide shifts. This is the calculus of 21st century finance, and you are a bit player in this game.
But it is the macro effects of a large transfer of wealth from creditors to debtors that interests me the most. I am not talking about ‘redistributive change’ in a liberal political sense. Creditors are not all bad, and debtors are not all good. There is a terrible corrosive force that excess debt has on societies. Ken Rogoff and Carmen Reinhart have written an excellent book on the subject “This time is different”, and suffice it to say the outcome for societies can be a generation of high unemployment and low economic growth. No serious economist challenges this data. However there is a lot of debate about what to do about it.
The current administration is implementing a policy of recapitalizing the banks (whose assets are still worth far less than their own debts) by lending them money through the Fed for nothing and borrowing back the money through the treasury for a lot more. This is called transferring debt from the banks to the government. But government debt has the same drag on societies in the long run, they can just hold their breath longer.
In the end deft default always occurs in these situations. The debts cannot be paid by the combined debtors in a society. The default may occur when inflation destroys the value of the debt over time. Or the default may occur with the eventual death of the debtor. Or the debt is discharged legally.
The longer this process takes, the more damage occurs to the society. There are strange incentives that a person has when their debt is unpayable. Why would you try to earn more? The more you earn the more debt you pay. But you cannot earn enough to get out of debt. So you stop trying. If you owe too much on your house, you might decide you have nothing more to lose on your house. So you will simply decide to wait it out. You will minimize the repairs and improvements on the house, rent the house out to frat boys and hope for the best.
The banks are great examples of distorted incentives. They have sucked up a $1T of government money. They are still paying huge bonuses. They are not lending to businesses in need. Distorted incentives indeed.
In the ancient days the Christian nations would have a debt Jubilee every 30 years. It sounds like a party because it was. Debts were forgiven en-masse when societies became constipated with debt.
The economy will continue to stagnate, and unemployment will increase. Asset values will continue to decrease until the defaults begin. When the rot is finally purged from our system, the great American wealth machine will start anew. It is time to party like its 1454. Start your own personal debt jubilee.
Update: A revised version of this post appears at Max Gardiner’s blog.
118 comments
Comments are closed.
Wouldn’t debt jubilee destroy the “reality” of money. As soon as all my debt is forgiven what is to stop me from borrowing unsustainably more, demanding another jubilee in a few years. As far as I remember Christianity also considered lending a sin, and there used to be debtor’s prisons. Why don’t we bring debtor prisons together with jubilees.
In my humble view, the country suffers from a lack of imagination and unwillingness or inability to reinvent itself. For a 100 years, the thing to do – the good life- was to drive a car and trade with one another in houses and paper. Now, oil is expensive, trading got to the point where houses are for the most part shoddy overpriced drywall boxes. Time to re-invent yourselves. If we take the green energy talk that came from the present administration last year as an attempt at re-invention, the attempt miserably fail. We want and wait to go back to driving cars and trading houses. Even the giant oil spill does not seem to be convincing anyone of the need to change. But change we must.
J-C Trichet, 12 March 2010:
” Financial crises have been a recurrent feature of human history. Let me take you back over two millennia in Europe to see how the great historian Tacitus described the financial crisis that hit the Roman Empire in the year 33 AD. In the Annales, he wrote:
“The destruction of private wealth precipitated the fall of rank and reputation. At last, the emperor interposed his aid by distributing throughout the banks a hundred million sesterces, and allowing freedom to borrow without interest for three years, provided the borrower gave security to the State in land to double the amount. Credit was thus restored, and gradually private lenders were found.”
Replace “emperor” with “governments and central banks”, “sesterces” with “dollars” or “euro”, “security” with “collateral”: this two thousand year old quotation could sound surprisingly familiar.”
Concerning Jubilee, this was a recurrent problem for ancient Rome. For example, the Republic was divided between Democrats and Conservatives, the first trying to support redistribution of wealth and debt forgiveness, the second supporting the respect of law and property.
During the struggle, each party became more prone to accept the alliance of extremist and adventurers, riots evolved into revolts, extraordinary powers evolved into dictatorships, and then there was the civil war which leaded to the fall of the Republic.
And from whence did the good emperor obtain those sesterces?
Which city on the frontier of the Eastern Empire had rendered such plunder?
For the ancients were not really big on “investing”,: they tended to pile their gold high in fortified ccompounds.
What gold the Emperor had, was plundered by the :egions from others- for Roman Citizens were exempt from all tax, IIRC.
Exactly, and now we’re literally plundering the earth -Gulf of Mexico- in a futile effort to deny reaching the limits to growth. There are no more peripheries to profitably conquer.
I think I know the answer to this.
In the ancient time, The coinage is the money. The precious metal is exactly the wealth one has. The best the emperor can do is to debase the precious metal content.
Until we invent “paper money” It is merely a symbol, accounting purposes. Not actual wealth. However we continue to pretend these paper are actual wealth instead of mere accounting method and symbols.
And the magician finds out they can fake, fudge and multiply these symbols as long as people believe these paper money is actual wealth, instead of magical wishful thinking.
Sooner or later the peasants will refuse to accept these funny money and want their precious metal coin back. That’s when thing get dicey.
And what happened to the Roman Empire?
It lasted a lot longer than the US has been around. The Roman republic lasted about 500 years, and the Roman empire also lasted roughly 500 years.
Things were different one-hundred years ago. There was plenty of open land out-west (of course, the Indians didn’t count) where we could send our malcontents. If things got bad, we could “re-invent ourselves” out-west.
All gone now. The melting pot is now pressurizing (not boiling) in its own juices.
Americans are a culture of isolation. Even the concept of solving problems with government is alien to most of them (unless the problem is kicking foreign ass, of course, that’s a fun national activity).
It’s gonna get interesting to watch what happens as the peasants get more and more pissed off with no functional democratic institutions to direct them (the peasantry) to a-common-good (how funny that sounds in America now – the common good).
IF a Jubilee occurs, does that mean that the debt owed to me by the bank which has my savings on deposit is wiped out?
Jubilee sounded fun until I thought about that.
Orignially the debt jubilee was a law in Israel in the Old Testament. The procedure was as follows:
A person impoverished due to whatever circumstances and thus had to sell the land that was allotted to his family as permanent property. He and his family would then get back the land in the year of jubilee (reccuring every 50 years), because it was Gods inheritance given to His people. The reasoning behind that is that the people where Gods people and were not to be put into slavery by anyone.
Today we do not have permanent property but rather live in a quasi feudal system that is governed by finance. So we do not enjoy economically the freedom that the Isrealites had due to their relationship with God.
So you are right: your deposits be gone. But is that the true wealth we have? If not, where is it and whom does it belong? If we can identify that, then we can discuss a true distribution of wealth. Maybe we have to rediscover the notion that peoples dignity and with it also some kind of permanent economic property (maybe land?) derive from God as a birth right.
The Romans considered land to be well bought if it produced its own grains and vegetables, had orchards and water: in fine, that the Land could pay for itself, by its productions alleviate the need of the Proprietor to engege in monetary commerce for her necessities – that is, alleviate the need for cash, to pay for ongoing supply.
Do we Moderns consider our real estate in the same light?
That by its productions, we may live?
On the contrary: suburban US real estate seems more the right to undertake to pay in the future a long series of never-to-end cash payments for utilities, if not mortgage interest.
In other words, Rome was apples, we are oranges.
The opportunity to benefit being stripped away in the quasi-Feudal system that is causing its own systemic break-down. Of course people that run it are and will attempt to preserve it at all costs. That includes taking populations to war.
Centralization and decentralization and an ever repeating cycle of consolidation is part of our destiny. The world is now in a decentralizing phase.
“World orders” will always fail when the stick is used instead of the carrot. The elites will always have to have the consent of those governed or be deposed. The titans of the elites having fleeced the common man on a global basis are now tearing into each other. War is now directly in front of us. It will be a bitter-sweet jubilee, we all will be starting from scratch afterward.
You still have your money in a bank????Wow, I thought everyone blogging agreed to walk totally away from banks..
When debt exceeds a certain level it becomes a cancer on society.
Is it at all possible to prevent this from happening cyclically within the current paradigm? Debt is how private money-creation entities makes profits, and the more they make the better, by definition. Furthermore, there must always be economic growth generally, which not only means increasing credit extention on the part of banks et al, but also on the consumption side on the part of the consumers, who demand increasing amounts of credit as time goes on. Indeed, every component of the economy is systemically driven to grow in the current paradigm. So while the system itself is cancerous by design, how can any particular component of it not be?
The banks are great examples of distorted incentives.
Exactly. Banks exist in a system which drives them towards “distortion”, since the ‘Every Man For Himself-Invisible Hand’ combo can affect no other long term outcome. Until we have dealt with the underlying motivations and incentives inherent in this system of perpetual growth, and subsequently how money works and money-creation is done, this cycle will repeat in this pattern – though with different bells and whistles – until the ecosystem can no longer play along. In that sense default, though morally defensible, is no cure. It is merely one reaction to a general state of cancerous decay.
“Is it at all possible to prevent this from happening cyclically within the current paradigm?”
Paging Dr. Minsky!
I think the answer is that governments and central banks have to look at the total level of indebtedness and start to tighten credit when it gets too high. Politically that is extremely difficult, but I see no alternative.
Steve Keen has written a lot about this and there are eerie parallels in the aggregate debt situation between the Great Depression and now.
Why?
By what process does austerity produce economic activity?
I think austerity is a red herring, wrapped up in the dogma that money is a store of value. What we need is a new money, and a new economics which has sustainability, not growth, plus a new profit structure — in which profit is measured in terms of literacy, societal and environmental health, quality of education etc. — at its very core. Until we have gone through the debate and pain that bring to fruition this new way, any and all debate couched in the current paradigm of financial austerity and profligacy is redundant. In my opinion MMT is a strong beginning, but the real discussion has yet to begin.
aet,
Where did I say anything about austerity? In the short run tightening credit means a reduction in economic activity because so many activities are credit dependent. But in the longer run debt is about apportionment – who gets what and when. Ultimately prosperity based on excessive debt is unsustainable because you can’t expand debt (measured as %/GDP) indefinitely without eventually (ala Minsky) reaching a point where your economy becomes unstable. As the current meltdown shows, the effects of that are worse than any minor credit tightening.
In the last ten years people and businesses have acquired debt at a dramatic rate. One possibility is that the Fed shouldn’t have kept rates so low for so long. Another, maybe more important, is that mortgages and mortgage derived products (RMBS, CDO, CDS) should have been better regulated. It was a game where the risk was hidden. It’s fun until the music stops.
My view is, it is not necessarily the debt, by itself, that is the problem. Rather, its buildup is a side effect of over-ebullient asset valuations that encouraged overconsumption – i.e., consumption not sustainable by longer-term fundamentals. Repair of credit markets requires that the debt not be reneged, but resumption of demand requires that it be reneged.
If a lot of people take up Goodwin’s advice, the government will likely try to keep the financial sector whole, perhaps until we are all sunk. That will be a situation much worse than our current malaise. Imagine the panic if the realization hit that neither the government nor the Fed had any further means of ‘saving’ us and that prayer was the only recourse.
Sounds like we have psychological problem too.
Lets see…
Free money (debt) which I can pay back in cheaper future dollars (inflation). Political promises about the future (lies) which can be paid for by the next generation (suckers). And the ever present very smart amoral scumbags (nobility class) ruling over-all (purchasing political influence).
Yes indeed, we need a new (choose one) money|economic system|planet. Nope, ya need a new human brain. Ain’t gonna happen.
To change the paradigm, the foundation of management itself must be examined. Our current management foundation is a pyramid (3D). Mankind must reach a circular management foundation (5D). Perhaps we will see it after this next epic fail on a global basis.
I believe that default is the only answer. I gravely resent making the bond holders of banks whole at the expense of everyone in the society. Modern bankruptcy laws functioned as a jubilee, and were incredibly important to maintaining the incentives we want as a society because of that.
But the “bankruptcy reform” enacted recently, as capture of the government has proceeded apace, changed that. Instead of seeing increasing bankruptcy and its strategic use as a sign that something was out of whack, they just made it less beneficial to the poor debt slaves who need bankruptcy to undertake it. They truly started saddling people with more and more different kinds of debt in perpetuity.
I agree with the spirit of this post. I doubt that a jubilee is really feasible – instead, we need to roll up our sleeves and do the hard work of revaluing what we honestly have to fit reality. A serious part of the problem is the vast and unproductive misallocation of resources over the past 25 years, which desperately needs to be remedied. But instead, I see the same vampires planning to live eternally on the blood of the productive economy without ever having to do anything in return FOR the productive economy. Everything is now a strip mine.
I don’t particularly see a good way out, but I agree that default by the individual (natural individual) is moral and necessary in many cases.
I gravely resent making the bond holders of banks…escape the reality. Bond holders of banks should and will take some haircut…70% or more or may be will be wiped out….So what ? And who are these bond holders mainly ? Mom and Pop ? Mainly not…
Do banks AND banks holders have to be rescued forever at the expense of the common goods AND democracy ?
Agreed – they are just transferring tax revenues from poorer to richer. It ought to go straight into income support and housing for the homeless.
Hate to be that guy, but care to estimate what % of tax revenues were paid by the top 10% of earners for the last decade or so?
The rich are essentially bailing out the rich here. The rest of society just wants to complain about it “taxpayer dollars” being spent doing so that were never theirs to begin with.
Yea right. We can’t pay social welfare because we have to bail ourselves out.
Sounds like a great way to escape social responsibility to me.
John Doe,
By your logic, repealing the Emancipation Proclamation would restore complete progressivity to our tax code. Slaves pay no income tax at all! But the put-upon aristocracy, however, would then pay an even greater share of total taxes—thus only adding to the rich man’s burden.
More seriously, the share of total (not just income) taxes falls dsiproportionately on lower earners when sales taxes, myriad service, gas, and utilitiy taxes are tallied. These and high payroll taxes (SS) apply to all or most of the income of lower earners versus a small fraction of that for top earners. Removing the cap on payroll taxes, so that all income was taxed at the same percentage, as Obama promised to put on the table, would ensure much fairer taxation.
According to WealthforCommonGood.org, a group of business executives, entrepreneurs, physicians and other affluent people (Incl. William Gates, Sr.), we have a regressive trend in taxation.”
“Between 1960 and 2004, the top 0.1 percent of U.S. taxpayers — who earn an average of $7.1 million per year — have seen the share of their income paid in total federal taxes drop from 60 to 33.6 percent.”
“Between 1955 and 2007, the top 400 income-earners have seen the share of their income they pay in federal income tax fall from 51.2 percent to 16.6 percent.”
“In 1960, the middle 20 percent of U.S. taxpayers paid 15.9 percent of their incomes in total income, payroll and other federal taxes. Today, this segment pays 16.1 percent of their incomes in federal income taxes alone.
“Tax cuts for the wealthy between 2001-08 cost the U.S. Treasury $700 billion.” [hmmm, that number sounds familiar]
“The middle 20 percent of U.S. taxpayers in 2007 paid 9.4 percent of their incomes in state and local taxes.”
“The top 1 percent of U.S. taxpayers in 2007 paid 5.2 percent of their incomes in state state and local taxes.
The tax rate on capital gains, which rose as high as 39.8 percent in 1977, is today 15 percent.”
“Why do these numbers matter? Because, apart from simple fairness, tax policy has perhaps the most direct impact on what government can and can’t do. And clearly we’re asking it to do a lot these days.”
What I also think this article you have re-printed doesn’t state is there are quite a few homeowners who have been winning in the court system when they hire an attorney with enough brains to go after the banks for fraud upon the court. I have had oodles of lawyers vying for my “case” which is already secure with one of the “lawyers who get it.” Any lawyer promising to help you with a modification is working for the banks. Hire one who tells you that the banks can be sued for fraud and you have hit pay dirt.
“And who are these bond holders mainly ? Mom and Pop ? Mainly not…”
No, but indirectly many Mom and Pops are – unbeknownst to them – holders of those bank bonds as their community bank with their savings deposits, their 401k, pension fund, insurance fund may hold those bank bonds.
Imagine your house on fire, and your fire insurance company saying “sorry, no pay out, as we have just taken a 50% haircut in Citygroup bonds, Greek treasuries etc.”
Instead of directly and indirectly bailing out banksters, we need a.o. transparency, such that regulators (no the current ones, but regulators who deserve that name) and interested people know what investments pension funds and insurance companies hold.
If you were a smart amoral scumbag what would you do? I know what I’d do…
I buy me some politicians to bail me out when I failed. Then, I’d create a really good story – with lots of patriotism (ie eagles and flags) – “explaining” to the peasants how their glorious country needs freedom and democracy (and freedom and democracy) and ONLY by voting and having freedom and democracy can we have freedom and democracy and voting is the foundation of freedom and democracy (then we queue the eagles and flags – in slow motion – and peasants cry).
Bailouts will always be with us, as it’s just another way the socially mature people screw the perpetual infants. Step up and play the democracy shell game folks (look – over there – a its freedom eagle!).
Ina — you are on to something here.
The current bankruptcy laws — hilariously named the Banruptcy Abuse Protection and Consumer Protection Act –enacted in 2005 makes it all but impossible to compel a bak to restucture your home loan, even though you can still restructure loans on your boat, your rental properties or your vacation house. I think this has caused a lot of the housing problem and why we are still a long ways from getting a complete resolution of the current mess. Elizabeth Warren the TARP overseer and Harvard bankruptcy professor has lots of very trenchant things to say about this.
Another killer is student loans which cannot be dischrged in bankruptcy thereby creating a large group of welleducated serfs.
Get rid of these two things which the baks have fought tooth and nail and you would be well on the way to using the bankruptcy courts to clean up a lot of the crap created iover the last ten years.
Hey, this post and discussion are really interesting. Thanks to Toby ;-) for bringing something to my attention that I hadn’t noticed before, but that seems very important to me.
We are in a permagrowth model. In a permagrowth model, time is NOT cyclic…
As other commentors have brought up, the ancient Jewish society was structured around a cyclical idea of time where, within the week, Shabbat appeared as a BREAK in time (like the Jubilee, see…) that introduced a discontinuity from which a NEW CYCLE would appear.
This… cyclic idea of time can be propped against our perception of… the seasons, the lunar calendar, etc, the time our ancestors KNEW, and constructed because, to a very great extent, they were living much much closer to the natural world(the world of nature, not the rather electric light bulb world of WESTERN civilization that WE have created AGAINST nature..).
In a permagrowth INDUSTRIAL model, time “SHOULD” not be cyclic.
And if time itself “should” not be cyclic, then… how can growth be allowed to be cyclic, and… HOW DOES DEBT GET FORGIVEN ?
I like the guy’s reference to the Lord’s Prayer.
I DID say here that we could be reading the Gospel for some OLD/NEW ideas about how to make the economy work.
The key word is… FORGIVENESS.
Great word.
And the Lord’s prayer says.. “forgive us our debts…AS WE FORGIVE OUR DEBTORS.
That’s the golden rule, by the way.
The problem is… we have become a society that does not know how to forgive…
If we can’t forgive, then… how can we forgive debt ?
And if we can’t forgive debt, then… WHAT HAPPENS TO IT, and US, at the same time ?
Maybe… what is happening right now in the current financial situation ?
For me, forgiveness and trust go together, too.
They are tied to our vision of our neighbor, our fellow man, as we used to say.
I have said elsewhere that… when there is no trust, there is no economy either, and I believe this is true.
Now…. the problem of the forgiveness of debt leads to another, big problem… WHO is going to forgive the debt ?
I have said elsewhere that there are EXCELLENT STRUCTURAL reasons for the… idea of God… Excellent structural reasons that we ignore and belittle at our risk and peril.
I have been bothered by the elimination of diversity by business, namely and fundamentally the elimination of temporal differences, stores open 24/7, elimination of Sunday, elimination of summer and winter. There is much greater depth to our problems than monetary quantities.
Great reflections Debra.
Interesting connections Debra: trust –> forgiveness –> debt julbilee, and I guess faith should be in there too. One of the things I shouted about back in 2007 when this thing started exploding, was trust. Money is the unquestioned bedrock on which all else rests, but it is at heart a confidence trick, a game we agree to play, not necessarilly out of free will of course, but our general consent and trust contribute mightily to the ‘value’ of money, indeed are money’s value. And now here we are, trust eroded, the ability to forgive shredded by an absence of trust, and no faith in any other way, and almost no faith in ourselves. We are lost, and I fear only a deep collapse will rouse us to a new way.
I would quibble though with “against nature”. Hubris is part of nature too, as is collapse, decay, cancer, growth and so on ;-). It’s part of the cycle in the end, only as a human I want to see our species make it through this to the next level, whatever that might be. If we do make it, it should be very interesting indeed.
The possible redemption from the predicament of irreversibility—-of being unable to undo what one has done though one did not, and could not, have known what he was doing—-is the faculty of forgiving. The remedy for unpredictability, for the chaotic uncertainty of the future, is contained in the faculty to make and keep promises. The two faculties belong together in so far as one of them, forgiving, serves to undo the deeds of the past, whose “sins” hang like Damocles’ sword over every new generation; and the other, binding oneself through promises, serves to set up in the ocean of uncertainty, which the future is by definition, islands of security without which not even continuity, let alone durability of any kind, would be possible in the relationships between men.
Without being forgiven, released from the consequences of what we have done, our capacity to act would, as it were, be confined to one single deed from which we could never recover; we would remain the victims of its consequences forever, not unlike the sorcerer’s apprentice who lacked the magic formula to break the spell.
[…]
The discoverer of the role of forgiveness in the realm of human affairs was Jesus of Nazareth. The fact that he made this discovery in a religious context and articulated it in religious language is no reason to take it any less seriously in a strictly secular sense.
[….]
The reason for the insistence on a duty to forgive is clearly “for they know not what they do” and it does not apply to the extremity of crime and willed evil… [T]respassing is an everyday occurrence which is in the very nature of action’s constant establishment of new relationships within a web of relations, and it needs forgiving, dismissing, in order to make it possible for life to go on constantly releasing men from what they have done unknowingly. Only through this constant mutual release from what they do can men remain free agents, only by constant willingness to change their minds and start again can they be trusted with so great a power as that to begin something new.
In this respect, forgiveness is the exact opposite of vengeance, which acts in the form of re-acting against an original trespassing, whereby far from putting an end to the consequences of the first misdeed, everybody remains bound to the process, permitting the chain reaction contained in every action to take its unhindered course.
[…]
The alternative to forgiveness, but by no means its opposite, is punishment, and both have in common that they attempt to put an end to something that without interference could go on endlessly.
–Hannah Arendt, The Human Condition
“-of being unable to undo what one has done though one did not, and could not, have known what he was doing—”
I do not hold ignorance so tightly to responsibility , to require forgiveness.
I forgive ignorance, always.
For they know not what they do…
In a real sense, they do not need to be forgiven, by me, or anybody else.
Here’s a song about it:
http://www.youtube.com/watch?v=HsbPVlFcmDs
Out here in the fields of opportunity, it’s planting time again!
Wonderful passages from Hannah Arendt. Thanks for sharing them. I will keep them in mind. One quibble with Hannah : the “duty” to forgive.
“Duty” and “forgive” are antithetical words.
Because, “forgive” is subordinated to the economy of grace, (whence the word “gratuity”…) and grace can not be commanded, indeed can not even be… SELF commanded.
The economy of grace renders possible the forgiveness even of… willed evil.
Christ on the cross said “father forgive them for they know not what they do”, even as EVERY man, the outcome of whose acts is evil, does not REALLY KNOW what he does. He may.. THINK he knows, and then again he may be totally ignorant, but the question of forgiveness is independant of.. motivation or consciousness, anyway.
And I definitely feel that CLOSURE (to use a highly charged word…) through punishment and closure through forgiveness produce very different results in the world, and in people.
But this is rather far from forgiveness of debts, already…
This post is right about the basic situation – the bubble wants to burst and reality wants to deflate. It’s a naturally deflationary situation.
But since the zombie power and wealth of the kleptocracy depends upon exponential debt/”growth”, it must try to use all real wealth to keep the bubble of phony wealth inflated. That’s why they’re trying to refeudalize the West.
This passage goes to the core of the pathology:
In small amounts, debt is good. Home ownership is only possible for the young with mortgages, and many college degrees are partially supported with student loans. Working capital for growing businesses allow for inventory and distribution expenses. Lenders benefit as well: high interest rates are paid to pensioners on their life savings.
When debt exceeds a certain level it becomes a cancer on society. Easy credit fuels speculation which triggers bubbles.
In other words, as financialization gains momentum and exponential debt becomes the basis for the economy, it crushes the very justification debt ever had in the first place, since all its legitimate uses are priced out of the market by rent-seeking uses. It’s a monumental version of Gresham’s dynamic.
“Borrowers are responding in kind, by taking a cold-blooded and legalistic look at their agreements with lenders.”
Which is what they should have done to begin with, though I understand human nature, being what it is, we have people who believe salespeople – who think that realitors know what they are talking about, and that the commission doesn’t drive the realitors advice (yeah, buy the most house you can buy!!! I (realitor) make more money, and I don’t care if you have to eat nothing but beans for decades!!!!). As well as manias, where people just got to buy houses to make money (yeah, the homebuyer was greedy – but who lent the money to the obviously unsuitable borrower????)
I believe in the legality of contracts – I say make the banks find the contracts. Just as banks made bizarre, ridiculous loans, the bizarre ridiculous bundling of the loans is full of shennanigans, careless construction, and probably fraudulent 90% of the time. Because there is an unwillingness to prosecute at the macro level – banks and mortgage companies, as well as rating agencies, etcetera, let the legal system work at the micro level. I hope the financial system chokes on the wave of legality coming at them – they’re the ones who started the 300 pages of fine print for a credit card.
Easier said than done. It costs money to fight these cases, particularly if you need to hire expert witnesses. It’s a huge cost that is often beyond the reach of individual plaintiffs, particularly if they are already in financial duress.
I think I said this a week ago:
Global, National and Personal Debt Default is coming. It’s going to happen. We should choose the moment for it to be orderly rather than wait for the blind panic when it happens of it’s own accord…
“Global, National and Personal Debt Default is coming. It’s going to happen. We should choose the moment for it to be orderly rather than wait for the blind panic when it happens of it’s own accord…”
Excellent observation Tim, also the shortest, least rambling, most readable, and most accurate.
A great deal of debt formerly created and held by banks has been shifted to governments (soverigns). These huge soverign debts are too large to inflate away, as has been done in the past (at the first sign of extrodinary monetization the bond holders will act swiftly to bail out of the soverign’s bonds). These huge soverign debts are too large for the interest on them to be serviced by the GDP of soverigns (soverigns cannot grow their way out). There remains but one option; soverign default.
So far, soverigns have ‘kicked the can down the road’ by any number of tricks, including changing accounting rules, allowing bankrupt institutions to remain in business, proping up institutions like the GSE’s to the point that the US Gov backs over 90% of all US home mortgages, backstopping some auto makers, paying off AIGs bad CDO bets so that Goldman Sachs would not take a 13 billion loss, etc.
Most, if not all, western soverign nations are going to reschedule or default on their debts. My advice to individuals is to get as far away from western financial systems as possible and then hope for the best.
Here are some astute comments from a 20 year member of Barron’s Roundtable that are worth a listen…It may take a few moments to load.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/5/28_Felix_Zulauf.html
Bates,
I often wonder what it’s like to live in a fact-free universe, completely divorced from the real world.
Billyblog (see yesterday’s “Links”) did a superb job debunking the mythology you spout here on a daily basis as if it were incontestable truth. There are just too many counterfactuals (like Japan’s experience over the past 20 years) that your worldview, while simplistic and verisimilar, can’t explain.
You ordain: “These huge soverign debts are too large for the interest on them to be serviced by the GDP of soverigns (soverigns cannot grow their way out). There remains but one option; soverign default.”
Earth to Bates: The only “sovereigns” that are going to default are those who:
1) Have surrendered their sovereignty, such as those in the European Monetary Union, and
2) Do so of their own volition.
That the thoroughly discredited theories of Herbert Hoover could be brought back from the dead, repackaged and resold, and that people would be foolish enough to buy them, is beyond all comprehension.
@DownSouth
As a pleb with a pocket calculator I can work out that our current growth-to-survive/growth-to-pay-debt money systems will fail. We are hitting the top end of an exponential rising curve, the part where it literally starts going straight up.
We are still told that we need world wide growth to solve the recession problems. Europe has just allocated nearly 1 Trillion Euros to “lend” to EU countries. The US needs even more trillions to keep going. All over the world every country is saying “we must export more to solve the debt problem” Who to? Is the pertinent question.
Who is going to buy all these growth products?
ENERGY from oil and gas is going to start decreasing at circa 2% per year versus growth required of 3% per year. 10 years = over 33% growth against over 20% decrease in our favourite resources.
Do the sums on your pocket calculator! Removing the debt removes one of the reasons for pursuing growth-at-all-costs policies. This IS the real world! It’s resources are diminishing.
ENERGY not BANKING is the future. We need to use the unemployed/economically inactive people to insulate every state/public building. We need to nationalise our energy grid and suppliers. Stop the stupid competing, squabbling and lining the pockets of foreign share holders. Re-align the energy industry to point it directly at the future – the only one there is – renewable. Use the “profits” to create small scale feed-ins town size and city size and community projects. This time with the remit to be actually for the people, not for profit.
You can’t BUY a new oil field, a new climate, a new forest, a new shoal of fish, a new set of natural resources with all the trillions of debt or credit money in the world. Energy and food is what we all are going to need – not essentially worthless money.
Global Debt default WILL happen – you only need a pocket calculator to know that.
oops, sorry, the bold was not intentional
I see several faults in your thinking:
1) Your conviction that complex phenomenon can be simplified such that “you only need a pocket calculator” to predict them.
2) The certitude with which you hold to that conviction.
3) Granted, peak oil is important, but your comment reveals a quasi-doctrinal belief that it is the only thing that is important.
4) You forget that just a little bit over a year ago OPEC reduced production in order to maintain oil prices in the $70 to $90 range. You also seem to forget that just a little bit over a year ago oil prices fell to slightly more than $30 per barrel. There is currently excess capacity, and if we were to see another leg down on the financial crisis, the world would be awash in oil. OPEC might have difficulty defending $30 oil, much less $70 dollar oil.
5) It matters not one iota how fervently or zealously you believe sovereign countries will default. These are things that happen or not happen independently of what you believe.
The way you and Bates think actually has a long and proud tradition, with perhaps its most articulate proponent being Jonathan Swift. George Orwell summed it up this way in “Politics vs. Literature”:
[Swift] is a Tory anarchist, despising authority while disbelieving in liberty, and preserving the aristocratic outlook while seeing clearly that the existing aristocracy is degenerate and contemptible… But the most essential thing in Swift is his inability to believe that life—-ordinary life on the solid earth, and not some rationalized, deodorized version of it—-could be made worth living. Of course no honest person claims that happiness is now a normal condition among adult human beings; but perhaps it could be made normal, and it is upon this question that all serious political controversy really turns.
[….]
Happiness is notoriously difficult to describe, and pictures of a just and well-ordered Society are seldom attractive or convincing. Most creators of “favorable” Utopias, however, are concerned to show what life could be like if it were lived more fully. Swift advocates a simple refusal of life, justifying this by the claim that “Reason” consists in thwarting your instincts. The Houyhnhnms, creatures without a history, continue for generation after generation in order to live prudently, maintaining their population at exactly the same level, avoiding all passion, suffering from no diseases, meeting death indifferently, training up their young in the same principles—-and all for what? In order that the same process may continue indefinitely. The notion that life here and now is worth living, or that it could be made worth living, or that it must be sacrificed for some future good, are all absent. The dreary world of the Houyhnhnms was about as good a Utopia as Swift could construct, granting that he neither believed in a “next world” nor could get any pleasure out of certain normal activities. But it is not really set up as something desirable in itself, but as the justification for another attack on humanity. The aim, as usual, is to humiliate Man by reminding him that he is weak and ridiculous, and above all that he stinks; and the ultimate motive, probably, is a kind of envy, the envy of the ghost for the living, of the man who knows he cannot be happy for the others who—-so he fears—-may be a little happier than himself. The political expression of such an outlook must be either reactionary or nihilistic, because the person who holds it will want to prevent Society from developing in some direction in which his pessimism may be cheated. One can do this either by blowing everything to pieces, or by averting social change. Swift ultimately blew everything to pieces….
Spot on. Somebody’s debt is someone’s else asset and so on.
The Great Unwinding will happen and everybody would be much better off if it happened in a control, well-managed way.
@DownSouth
1) Your conviction that complex phenomenon can be simplified such that “you only need a pocket calculator” to predict them.
1a) I’m not making a prediction, I’m doing a calculation, arithmetic does not “predict”.
1b) It is not a phenomenon. It’s a complex system, the current situation itself is a phenomenon but I prefer the word aberration.
2) The certitude with which you hold to that conviction.
2a) My pocket calculator was working properly the last time I checked it.
3) Granted, peak oil is important, but your comment reveals a quasi-doctrinal belief that it is the only thing that is important.
3a) How do form that impression from a short blog comment? – I would need far more space to write down the implications of all that I see/hear/read. I write fervently, I give you that, I write that way because my calculator can’t lie and I now have 4 grandchildren and I worry for them, especially if you extend the calculations to 30,40,50 or 60 years.
4) You forget that just a little bit over a year ago OPEC reduced production in order to maintain oil prices in the $70 to $90 range. You also seem to forget that just a little bit over a year ago oil prices fell to slightly more than $30 per barrel. There is currently excess capacity, and if we were to see another leg down on the financial crisis, the world would be awash in oil. OPEC might have difficulty defending $30 oil, much less $70 dollar oil.
4a) You are still thinking short term. Regardless of the usage rate and price it is finite and a reducing resource.
5) It matters not one iota how fervently or zealously you believe sovereign countries will default. These are things that happen or not happen independently of what you believe.
see 1a.
As for rest of your comment, which again you base on short blog statement, … hmmm, you think I have not lived or thought or cogitated on the nature of the life, universe and everything. My last 2 years learning about “economics”, banking and money itself, driven by the various crises have lead to one place: Enjoy your life, try not to worry, try to do the right thing by yourself and others. What will be will be. AND I have turned those thoughts into actions… For the last 18 months I have owned and supported a business, not because it makes money, it doesn’t, but because it DID. For 6 years I was quite happy to take profit and use the fruits of my employees’ labor. So for the last period I have kept them employed, not claiming benefits etc. I will pay less taxes on other business profits because of that. This I call responsible capitalism.
It breaks the golden business/capitalist rule “Don’t lose money” I know that. Aberrations and phenomena call for and require the breaking of rules.
Stay Well, Tim
Ah yes, the trusty old reductio scientiae ad mathematicam.
At least the EMH guys made a better show of it, throwing in a mainframe or two, giving us some bluff and bluster along the way like the Wizard of Oz.
Benoit Mandelbrot, the famous mathematician, wrote that: “To me, all the power and wealth of the New York Stock Exchange or a London currency-dealing room are abstract; they are analogous to physical systems of turbulence in a sunspot or eddies in a river.”
“[P]ragmatism is needed in financial theory,” he went on to conclude. “It is the Hippocratic Oath to ‘do no harm.’ In finance, I believe the conventional models and their more recent ‘fixes’ violate that oath. They are not merely wrong, they are dangerously wrong.”
But such moral nitpicking never slowed guys like you and Bates down.
The mathematization of physics, by which the absolute renunciation of the senses for the purpose of knowing was carried through, had in it last stages the consequence that every question man puts to nature is answered in terms of mathematical patterns.
When Descartes’ analytical geometry treated space and extension, the res extensa of nature and the world, so “that its relations, however complicated, must always be expressible in algebraic formulae,” mathematics succeeded in reducing and translating all that man is not into patterns which are identical with human, mental structures.
Every assemblage of things is transformed into a mere multitude, and every multitude, no matter how disordered, incoherent, and confused, will fall into certain patterns and configurations possessing the same validity and no more significance than the mathematical curve, which, as Leibniz once remarked, can always be found between points thrown at random on a piece of paper.
Cartesian reasoning, as Whitehead observed, is entirely based “on the implicit assumption that the mind can only know that which it has itself produced and retains in some sense within itself.” Its highest ideal must therefore be mathematical knowledge as the modern age understands it, that is, not the knowledge of ideal forms given outside the mind but of forms produced by a mind which in this particular instance does not even need the stimulation—-or, rather , the irritation—-of the senses by objects other than itself.
The modern reductio scientiae ad mathematicam has thus overruled the testimony of nature. It certainly does not offer a confirmation of the human mind, of its capacity to surpass the senses in perceptivity or of its adequateness as an organ for the reception of truth.
Or like I said from the get-go: “I often wonder what it’s like to live in a fact-free universe, completely divorced from the real world.”
Or how we got to this point if all it took was a simple pocket calculator to figure it all out.
DownSouth,
I’m not sure how what you posted refutes the original post that energy is in fact the constraint in the system, and that it is dwindling.
As for oil prices dropping in 2008, all that means is that oil supplies are not yet dropping faster than economic output. Eventually, they will, and you will see increasing oil prices coupled with a declining economy. At that point, you better hope there’s a plan ‘B’ out there somewhere, because things are going to get ugly.
JMO
World oil production is circa 100 million barrels a day and it will start to reduce at 2% per year compound.
World GDP is circa 4,000 trillion Dollars per year and you propose that is expands by 3% per year compound.
20 years of oil reductions leaves 66.76 Million barrels a day in circa 2030. Calculate: ((0.98^20) x 100).
20 years of GDP growth gives us World GDP of 7,224 Trillion Dollars per year in circa 2030. Calculate: ((1.03^20) x 4000).
There will not be enough energy if the world’s suppliers / providers rely on oil.
Conclusion (if we rely on oil):
Countries will default when they can’t pay their debt because there is not enough energy to create the GDP they need. SO: We need to STOP using the remaining oil based energy to pay down debts instead we need to use it to create a renewable way to create the energy we are going to need in the future.
These are the fundamentals of what the world’s governments and economists are proposing as a way out of the DEBT and yet the debt is ephemeral compared to the need to be able to grow, move, and cook food as well as stay warm in the winter!
If there is a slump/depression the situation eases for while but compound growth will come back and will get us in the end. As MindTheGAAP said What is your plan B for this situation?
So don’t get all misty and philosophical answer this: Where are my missing facts?
TimOfEngland,
There’s all this weeping and gnashing of teeth over the end of oil, at least the end of cheap oil.
I live in a country (Mexico) where the per capita consumption of oil is 1/6 of what it is in the US. Yet the consumption of drugs and alcohol, as indicated by the incidence of substance abuse and emotional disorder, is less than 1/3 what it is in the US, almost 1/4 (Vinny where are you? I’ve lost the link to the study you provided some time back).
There are all these assumptions built into your predictions that humans cannot change or adapt their behavior. Your only window into the future is seen by glancing into the rearview mirror.
Your entire fantasy is built on the assumption that growth must be defined as increased consumption—-that is not only more toys, but ever more expensive toys. The no-public-transportation, suburban landscape, Hummer culture is immutable.
I believe it is entirely possible that man can define “growth” in an entirely different way, more in terms of human flourishing and not just the “consumerism” that stands at the core of US culture, and that is now being promoted on a global scale (thanks in no small part to a massive advertising campaign by US corporations for the last 80 years+.)
Another assumption your fantasy is built upon is that the end of cheap oil will mark the end of our consumerist culture before pollution does. I’m not at all convinced that’s true.
But let’s assume your two core assumptions are correct—-that the consumerist culture is immutable and that peak oil will spell the end the consumerist culture before pollution does. You state that oil shortages will cause “global default,” which I assume you mean blanket default. This assumes an even distribution of oil in your imagined future world, or at least a distribution based on market forces. I find that highly unlikely. Some countries will have oil, others won’t. If push comes to shove, the US will jettison “free trade” and “free market” dogma so fast it will make your head swim (as if it ever truly believed in those things).
And even if your fantasy world comes to pass, sovereign countries left without oil and still hell-bent on pursuing a consumerist culture have another option—-they can inflate.
And, for some of us, there is the “fact” that fossil-fuel extraction is eating the flesh and blood of the planet.
These “facts,” however spurious you may find them, “stimulate” some of us to want to kill all of you who continue to rely on technologies that are eating away at the Earth.
Just explaining why they will hate you.
I would suggest that as long as we do not prosecute fraud and hold people accountable , this process will continue. The great Greenspan dogma saying the market will correct itself continues.
This paying high salaries before the profits materilize is also a business model that is not sustainable
It’s not unsustainable. It’s fraud plain and simple. It even has a name : “control fraud”. Google it
Only a fool would not walk away from his house despite all the government propaganda.
The sooner the better .. albeit with some legal advice so that you can dust yourself up after the event and get going … especially given that we have banksters helped by the biggest bankster of all the Fed.
If there is one man at whom you should throw whatever you can lay ypour hands on whenever you sight him it is none other than Ben Bernanke. I hope someone gives him his just desserts! The conniving scondrel!!
“He and his family would then get back the land in the year of jubilee”: how, and by whom, was this land stolen from its current owner to be gifted to a previous owner? Why would anyone ever again buy land if it’ll be stolen at the next Jubilee? How then can anyone raise funds by selling any land? This seems to me to be a daft precedent when we are discussing a great act of theft already – the Federal government/Central Bank stealing from the population to gift the money to bank executives, shareholders and bondholders. Steal it right back again, I say. I’d go further – the public hanging of O, W and Slick Willie would perhaps concentrate the minds of future Presidents in an entirely constructive way.
Or, since public hanging is not available realistically, what alternativess suggests themselves that might have equally helpful consequences? It would be best if the alternatives followed the tradition of trial, conviction and punishment, rather than mere barbarism.
Banks could be required to hold a percentage of debt capital that converts automatically into equity when a certain P&L loss threshold is reached.
This would be a pre-programmed jubilee that would kick in at just the appropriate time and in a targeted way. Such bonds could pay a higher interest rate to compensate for the risk.
There could be a gradual conversion feature as well. In other words, for every $100 in these bonds, conversion could occur in four stages of $25 each, contingent on P&L or loan market value thresholds being reached. Numerable other features might be considered as well. The bonds could even be structured to convert back into debt if profits rebound over time enough to offset losses.
I’m sure this idea is not new, but it seems to me it might be an interesting way to better align the incentives facing bank debt investors and society’s savers and taxpayers.
I’m guessing you are pre-playing history for us.
It’s certainly the one I forsee.
Questions to all – wouldn’t a rational organism (society) stop pushing growth and instead promote sustainability? And in the event of overshooting on growth (exploitation) target deflation for a while?
Isn’t consumerism just an evolution of militarism where the good citizens are told to sacrifice for the rulers?
“Rational” is the keyword here. The powers that be are “rational” in pushing a “growth for the sake of growth” model, since it benefits them. It is also a very good model to perpetuate the myth of opportunities available to anyone who look hard enough and work his/her tail off to reach the Dream, American or otherwise. After all, if there is constant growth, the pie must be expanding, right?
It is rather ironic that, when it comes to biology, we dread unchecked growth, which is the very definition of cancer, yet, when it comes to economy, the same phenomenon is supposed to be a necessary condition of prosperity and happiness.
We got some serious rethinking of our most basic assumptions to do if we want to stand a fighting chance of surviving the next 2-3 decades.
Re: We got some serious rethinking of our most basic assumptions
You had me until there…
We (humans) didn’t get here by thinking. We got here by acting. We will get the the next phase using the exact same method we got to this one.
The smartest amoral scumbags will manipulate the stupid and gullible.
Excellent post. While I’ve very carefully avoided it myself, most of my fellow mid-30s middle-class professional friends are up to their eyeballs in unmanageable red ink after following all the “smart money management” advice from parents, relatives, media “expertise” etc. Many are staring into the future and recognizing exactly what Mr Goodwin advocates. I’ve been encouraging them to take the immediate hit via foreclosure / bankruptcy and get a quicker start on rebuilding their lives. Some have already done so. Many others are closing in on that decision, though student loans would still hamstring many. From my read of family & friends, the worst times for the economy are still ahead of us as losses are finally recognized and the ripple effects flow about.
As I’ve mentioned before, the solution is debt destruction and a nasty depression. Lefty economic academics (and business-beholden economists) recoil in horror and judge this as unacceptably cruel, but hey, life can be so… without our having a choice of “acceptability” or not. Academics and those who earn their paycheck from supporting the current system will have a tough time understanding this.
The good thing about pain, however, is that it tells society where it messed up. With decent leadership, we might be able to channel our pain-inspired anger into addressing the underlying problems: a monetary system that has misaligned our economy, our gov’t, and our society so far out of whack that Alice’s Wonderland is transparent in comparison.
A perpetual growth model will always reach a failure point. Perhaps the failure point will be because society says “enough” as it looks at forward and recoils. Perhaps the failure point will be when we are terrifically overpopulated, have subjugated every ecosystem around, and discover an inability to grow any more… then turn on each other. I hope for the former. The bailout path is more likely to lead to the latter.
Krugman supporters, heap your scorn now. I’ll laugh and shake my head at your wilfull blindness.
Not so. Just tell your friends and buds about the new Modern Monetary Theory. It can cure ALL their debt worries. All they need to do is click their heels together three time and “create more money”. It’s simple AND proven. Call your congressman today.
Borrowers are responding in kind, by taking a cold-blooded and legalistic look at their agreements with lenders.”
It is about time. However, releasing oneself from bondage is only part of the answer. We must release our fellow human being along as well, and the only way to do this is to force this current evil financial system to completely collapse. We must remove the vampires off of our society’s jugular. This is why last year I mentioned that one should not default before maxing out. Just pull a MOWA (Max Out, Walk Away) on these criminal predatory lenders, and let us all start afresh.
Vinny
You first.
A thoughtful post.
Unfortunately, the analogy at the end– about the Jubilee– has been over-emphasized by commenters. This has the unfortunate effect of emphasizing the “morality” aspect of the debtor-creditor dynamic.
In a sterile, hard-core contracting environment, the decision to default is a business decision. End of story.
All this blather about forgiveness…please.
But, if you have been a good soldier but are contemplating default. And if forgiveness must somehow enter the picture, how about the following:
“Dear Bank.
We’re several years into the gradual shredding of the Social Contract between a corporate, corrupt government and its citizenry. As a result, my assets backing my debts have declined precipitously.
Therefore, your assets are going to decline precipitously as well.
Up until now, I’ve been meeting my obligations. I am not am not a part of the problem. But you are.
Here are my keys. Please excuse my key-chain. It says “Fuck Off!”.
I hope you’ll forgive me. See, I just couldn’t resist.
Sincerely,
Your Creditor…because you owe me…bitch.
Good comment!
And send this very similar letter at the same time to your supervisor of elections …
“Dear Supervisor of Elections.
We’re roughly forty years into the gradual shredding of the Social Contract between a corporate owned, corrupt government and its citizenry. As a result, my trust backing my faith in you has declined precipitously.
Therefore, you must decline precipitously as well.
Up until now, I’ve been meeting my obligations as a good citizen. I am not a part of the problem. But you are.
Here is my voter registration card. Please excuse the message on it. It says “Fuck Off!”.
I hope you’ll forgive me. See, because you have sold me out to the military finance complex, I just couldn’t resist.
Sincerely,
Your former voter…because we are forming a new government …bitch.
Deception is the strongest political force on the planet.
Re: Deception is the strongest political force on the planet.
I think it’s self-delusion, actually.
Unless your new government can magically keep the smart amoral scumbags from purchasing the new politicians I think you’ll find that you’ll get the same government as now.
The government you have now is the one that perfectly matches the society it governs.
Self-delusion, like avoidance behavior, and rationalizing futility, is a form of deception.
The government you have now is the one that shapes and molds the society it governs.
Deception is the strongest political force on the planet.
That’s why the bitches may also need to also get acquainted with the guillotine every now and then. :)
Vinny
I regret the Jubilee reference, as I did not realize it was over worn. It also has a moral tinge to it that was unintended. I merely like it because it is the oldest cyclical monetary theory around, preceding minsky by several millenia. I do believe that a large transfer of wealth from creditors to debtors is right and best. I am neither a creditor nor a borrower at all.
I’m all for everyone who can benefit by defaulting on their debt doing so. But when the TBTF banks become insolvent (or more obviously insolvent) as a result, they should be taken into receivership. There is no reason for the taxpayers to continue to prop up large institutions that made too many bad loans.
Want responsible debtors? You can’t have them without also having responsible creditors.
This, in your article;
“In small amounts, debt is good. Home ownership is only possible for the young with mortgages, and many college degrees are partially supported with student loans. Working capital for growing businesses allow for inventory and distribution expenses. Lenders benefit as well: high interest rates are paid to pensioners on their life savings.”
Conflicts with this, in your article;
“The earlier you pull the rip cord the better off you will be later. In many states mortgage loans are non-recourse. Never make another mortgage payment. Turn over the keys after foreclosure. You will lose all of your down payment, but the lender can never get another penny from you. Your credit score will fall. But you do not want any more credit. Right? If you are trying to quit crack, how would feel about your pusher reducing your crack score? Stay off credit for a few years, and they will take you back with open arms.”
Are we advocating crack in moderation?
Credit has the capacity for good or evil. The seven important determining factors are;
• who controls the credit given
• where the credit comes from
• the amount of the credit given
• to whom the credit is given to
• what the credit is to be used for
• the ability of the borrower to repay
• how much the credit costs.
So — here is the evil, socially irresponsible use of credit now …
• A few big banks control the bulk of the credit.
• The credit comes from intentional bubble policy from those same big banks, and, the leverage in overrated assets and derivative products that the intentionally produced bubble policy has created. It is backstopped (meaning it ultimately comes from you and me in the form of taxes) by the citizenry which has NO EFFECTIVE CONTROL OVER POLICY!
• The amount of the credit given is a claim on the future and the capacity of the future has been exceeded.
• The credit is given selectively to major corporations, and withheld from aspiring competitors and the little guy.
• The credit is used for socially irresponsible projects that benefit the wealthy few.
• The favored creditors, resupplied with funds, CAN repay. The target of elimination creditors CAN NOT repay, are NOT resupplied with funds, and get eliminated or absorbed by the favored creditors.
• The credit cost for the favored projects are low, the credit costs for targets of elimination, you and me, are outrageously fucking usurious!
Now … here is the good, socially responsible use of credit as it should be …
•
•
•
•
•
•
•
No I didn’t fill them in.
Why?
Because you have NO EFFECTIVE CONTROL OVER POLICY! And you should be burning your voter registration cards in protest and working on peaceful election boycotts to get rid of your non responsive to the will of the people government instead of playing into the divisive, pernicious greed orchestrated, perpetual conflict grind, where the prudent has been pitted against the not so prudent and you are participating in your own elimination and destroying each other and your neighborhoods.
Credit is necessary, it should be available in socially responsible public utility form, on a no interest, administration cost only basis, with equal access by all citizens.
End of story!
Work out the details later!
Stop creating all of these, avoidance, head fuck remedial plans. If you want to party like 1454 you have to first party like its 1776!
Get cracking on the massive peaceful protests.
No balls! No brains! No freedom!
Deception is the strongest political force on the planet.
I am a libertarian, which usually makes me a bit unwelcome on this forum.
Yes, addictive drugs in moderation are good and fine. And yes, no society can draw a solid black line between good uses and bad uses of a powerful tool. That is why I am asking the individuals to use their state-given powers to start choosing to use crack wisely. I have no expectations that everyone will.
I do not distinguish between the evil bestowed upon the unwashed by big government and big finance. But their goals are not aligned with ours.
I agree in principle about drug use Bob, but you might have chosen a kinder and milder drug. Crack heads are the walking zombie dead. Crack is really mean shit!
I disagree on your take of the job of society.
It IS the job of society to draw solid lines between good uses and bad uses of powerful tools. The more powerful the tool, the more solid the lines should be. If the individual wants to make and use crack fine. Go for it loser! However, If the individual, or a group of individuals, wants to go into the business of making and deviously selling crack to school children and the unwary, then the state should, and must, transparently regulate the sale of crack.
Similarly with credit; I don’t give a shit if you loan your neighbor a thousand bucks at whatever you both consider a reasonable return. But when an individual, or a group of individuals, loans out massive sums of money whose use will impact greatly the society as a whole, then the state has a right and an interest in seeing that that credit is for a beneficial use.
So too with corporations. BP, given its massive size and impact potential should have elected citizen representation on its board of directors with the power to steer policy. The overzealous profit motive would have been moderated and we more than likely would be putting more resources into alternative energies.
You should have maximum freedom as an individual to grow your own individual spirit. The more you impact resources and the lives of others, the more you should expect to be transparently regulated by the state.
I find libertarians fall into two camps; trusting and naive of our cannibalistic human nature, or gangsters who use libertarianism to mask their gangsterism, much as the current crop of gangsters we have running the show mask their machinations with ‘free markets’, ‘capitalism’, etc.
You did not address the fact that you have “NO EFFECTIVE CONTROL OVER POLICY!”
How will you implement your remedial measures?
Deception is the strongest political force on the planet.
I agree that libertarianism is an incomplete framework, and is even moreso self contradicting at its extremes. That does not make it a bad framework.
You seem to fall into the absolutist framework, which says that anything that does not work at its extreme is therefore flawed. There is no scenario where crack can be effectively controlled. But I am certain that there are both better and worse ways to control it than what we have.
“I find libertarians fall into two camps; trusting and naive of our cannibalistic human nature, or gangsters who use libertarianism to mask their gangsterism…”
I still wonder which category Greenspan falls into. It’s hard to conceive that he had such a total blind spot for greed (so common to moneychangers) and the massive potential danger in concentrated wealth to overwhelm democracy. Was he a cannibal or an old fool deluded by his own prodigious powers of obfuscation?
A not very slick pernicious cannibal gangster, but made more slick and believable by a sell out corporate media that created his mystique and reverential persona.
“Yes, addictive drugs in moderation are good and fine.”
As a clinician who worked with a lot of hard-core addicts who totally messed up their lives and those of others, I can tell you that most of them started with “moderation”.
Vinny
I can say the same of debtors.
I have been following the debate about “walking away” for over a year, and while I agree with this post and most of the comments, I am disturbed that the general public still does not GET IT.
Case in point: most of the hundreds of comments on this NYTimes article on people who do not walk away, but stay and even fight eviction through legal means. People are at least as angry at defaulters as they are at banks and the government.
http://www.nytimes.com/2010/06/01/business/01nopay.html?hp
So, it seems to me that an early beachhead was established by econ bloggers like Yves who gave non-specialists insight into the big picture. Eventually the MSM caught on, and academics supported the “pro-default” cause.
But if the man on the street (and let’s face it, someone reading and commenting on the NYT website is probably smarter and better read than most) does not buy the argument, is the cause lost?
Many homeowners dislike “strategic defaulters” because if you walk away from your house, property values for everyone else start falling through the floor, hurting the ones trying to do the right thing even more.
Even here in NC, where we’ve been insulated somewhat from the housing market collapse, there have been increasing numbers of homeowners walking away from their mortgages. There’s a couple of them in my subdivision, in fact. The difference here is that the mortgage companies move quickly to condemn, since they know a home in good condition will still sell for a profit.
If you’re in SoCal or Florida or Ohio, where housing values are plummeting, that’s not the usual situation.
We have been working hard in my neighborhood (in Detroit) to mitigate the problem of homeowners walking away. I generally agree with the tenor of this article that strategic default is OK, and something that needs to happen. But homeowners should be responsible to their neighborhoods by giving an extra key to neighbors who can watch over the house before they leave, etc.
It’s the same reason Americans used to love to rant about “welfare mothers” but never got angry about corporate welfare. People are not trained to think abstractly or about systems; people really, really, really like to judge other people; the media encourages this tendency. Ordinary Americans don’t see the rich as the enemy: they identify with the rich, and see their lazy neighbors “using their house like a cash machine” as the enemy. A country that’s forgotten Marxism and denies the existence of social class is not a country that’s equipped to understand the current state of affairs.
Document creep! The comment from Yves at the beginning is all too true. Sometimes doing deals today makes me wonder if the world has lost its mind. I just did a deal for a crappy little $10 million Class B office building, and the joint venture agreement (just the JV agreement, not the dozens of other agreements for closing) was almost 150 pages! And people are negotiating these things like the document will save them. Seriously, you have any idea how hard it is to enforce a 150 page agreement? Try to make something about everything and you make it about nothing. This has jumped the shark in a mind-boggling way. The costs of negotiating a 150 page document are enormous. It’s killing me even thinking about this, and I was once a full-time lawyer making money by negotiating these type of long, high-end agreements.
Let me give you a piece of hard-earned wisdom. You have to do deals with people you trust. You need trust for a functioning commercial society. You can’t expect a document to replace trust. Do deals with people who have the intention of honoring their obligations. Sometimes, it’s really that simple.
AJ said; Seriously, you have any idea how hard it is to enforce a 150 page agreement?
Its as hard as enforcing a one page document if; number one, you can even afford to get a judgment — litigation often outweighs the cost of obtaining one, and two, having obtained the judgment the other party has been bankrupted by his creditors defaulting on their contracts.
AJ said further; “You can’t expect a document to replace trust. Do deals with people who have the intention of honoring their obligations. Sometimes, it’s really that simple.”
Right on and a good old school principle! But “the intention of honoring their obligations”, no longer fulfills due diligence for the same reasons as above. The ‘honorable’ are being ‘dishonored’ and so too become ‘dishonorable’. Fewer contract pages and more hard asset control up front, in the way of solid deposits, is required. Reagan said trust but verify. We are now in the verify first and then trust mode.
Document creep is directly proportional to; corruption in government, corruption in the rule of law, homelessness, etc. The trust is gone, the underground economy grows.
I had thought by now Vanilla Greed would wake up, smell the coffee, and mount a challenge, but pernicious greed has thoroughly cleaned their clocks. We are in an intentionally created spiral downward.
Deception is the strongest political force on the planet.
“the joint venture agreement (just the JV agreement, not the dozens of other agreements for closing) was almost 150 pages! And people are negotiating these things like the document will save them. Seriously, you have any idea how hard it is to enforce a 150 page agreement? Try to make something about everything and you make it about nothing.”
Sounds like the European Union constitution. What a joke, eh?…LOL
Vinny
The key to getting rid of toxic debt is to get rid of the Federal Reserve. The dollar is born in sin i.e. the Federal Reserve charges market rates for the money people need to simply live, not to mention prosper. This only profits the first receivers of the money, the brokers/dealers. Don’t worry, you can’t be one of them.
As money trickles down, each financial entity siphons off their share until very little filters down to the people who need it. Meanwhile, the mega banks can borrow from the FEDS Discount window at virtually zero, but they use that money for speculation. The result is the strangulation of the real economy as it does not receive the money it needs to transact business. This is the cause of our current deflation and concurrent financial bubbles.
A viable alternative would be to place the Fed into treasury with the sole mandate to keep the money supply in balance: not too much to cause inflation, but enough to allow commerce to function properly. The idea is to replace the existing money stock with debt free money. As part of that, all government bonds owned by private parties would be paid with debt free money as they matured. Debt held by the government, the national debt, would be “forgiven” or wound down over time. Future generations would not inherit debts that they cannot possibly pay off, but eventually would inherit a government with no national debt.
Just to clarify, the creation of money is debt free, but the banks would continue to lend at market rates on loans that have been properly underwritten.
There is not enough room here to discuss all the nuances so I am sure some will want to point out I did not mention this or that. However, thoughtful people will get the idea.
We need Monetary Reform. “Debt Jubilee, we don’t need no stinkin’ debt jubilee”.
Good post, but again, belaboring the obvious with that most important caveat:
Of course there’s too much debt — just as there’s too much of the causal factor — far too many debt-financed billionaires.
They churned out that debt, then saddled the rest of us with it.
Now’s the time for true Economic Democracy….
What does Adam Smith in the “Invisible Hand” say about the importance of trust in market capitalism?
Any free marketeers care to comment?
To quote from ECONNED:
In 1776, Adam Smith published The Wealth of Nations. In it, he argued that the uncoordinated actions of large numbers of individuals, each acting out of self-interest, sometimes produced, as if by “an invisible hand,” results that were beneficial to broader society. Smith also pointed out that self-interested actions frequently led to injustice or even ruin. He fiercely criticized both how employers colluded with each other to keep wages low, as well as the “savage injustice” that European mercantilist interests had “commit[ted] with impunity” in colonies in Asia and the Americas.
Smith’s ideas were cherry-picked and turned into a simplistic ideology of economics that now dominates university economics departments. This theory proclaims that the “invisible hand” ensures that economic self-interest will always lead to the best outcomes imaginable. It follows that any restrictions on the profit-seeking actions of individuals and corporations interfere with this invisible hand, and therefore are “inefficient” and nonsensical.
According to this line of thinking, individuals have perfect knowledge both of what they want and of everything happening in the world at large, and so they pass their lives making intelligent decisions. Prices may change in ways that appear random, but this randomness follows predictable, unchanging rules and is never violently chaotic. It is therefore possible for corporations to use clever techniques and systems to reduce or even eliminate the risks associated with their business. The result is a stable, productive economy that represents the apex of civilization.
This heartwarming picture airbrushes out nearly all of the real business world. Yet uncritical allegiance to these precepts over the last thirty years has produced a world in which corporations, especially in finance, are far less restricted in their pursuit of profit. We show in this book how this lawless environment has led the financial services industry to pursue its own unenlightened self-interest. The industry has become systematically predatory…
I think what really needs to be addressed is the nature of this debt based currency system, why it has worked in the past and why it is breaking down now.
A debt based currency has one very useful property. Debt tends to grow roughly proportional to productivity and for a stable economy, the money supply has to grow in tandem with productivity. Throughout much of history there has not been enough information on the state of the economy to effectively determine how much money needs to be introduced, so not only has this method entailed a reasonably stable money supply, but requires ever expanding growth to pay down the debt. The great flaws in the system are that it requires ever expanding growth to pay down the debt, even when such growth isn’t sustainable. Also it conversely requires ever expanding debt to maintain a sufficient money supply. Now the financial system has turned the entire economy into a debt production machine to create the illusion of wealth far exceeding the productive capacity of the economy. A lot of the money has been borrowed into existence for the purpose of speculation and the powers that be are more concerned with maintaining its value, at the expense of society, the productive economy and the environment.
Since money is drawing rights to productivity, the question is how to formulate a viable production based currency system.
Money serves as a store of value and a medium of exchange. As a store of value, it is private property, but as a medium of exchange, it is a public utility. As property, there is the desire to accumulate as much as possible, but as a medium of exchange, more money than productivity eventually destroys the value of the money. Money should only be treated as a public utility. In that way, it would be similar to a road system. You own your car, house, business, etc. but not the roads connecting them and no one seriously cries socialism over that. The fact is that money already is a government owned public utility. Just try printing some, if you think otherwise.
The reason banks and government like us to think of money as property is because it encourages us to use it in all economic transactions, which makes them potentially taxable. Treating money as form of public commons would make people very careful what value they would take from social relations and environmental resources to convert into currency in the first place. This would be healthy for society, the environment and the monetary system. Of course, it would create a slower, but more sustainable economy. We all like having roads, but there is little inclination to pave more than we need. If we applied the same principle to money, life would be in better shape. Instead of valuing ourselves by how big our bank accounts are, our sense of worth would be on how strong our community is and how healthy our environment is. A much smaller money supply would go a long way to limiting the size of the government and the banking system.
The function of the central bank is to make maintaining the value of the currency a public responsibility, while leaving private banks to profit from managing it. This is their error. Political power as private enterprise is monarchy. When monarchs lost sight of the fact that their purpose was to guide their people, not simply exploit them, they tended to be overthrown and eventually the whole system of hierarchal power was replaced by political power as a public trust. Democracy works by pushing power down to the level it is responsive. If we were to make banking a public function, it would also be bottom up. Local credit unions would use local deposits to loan to local enterprises and use the profits to fund local needs. They would then form regional banks for broader investments.
With a debt based currency, there is an overwhelming need to create debt. A good example is government spending. The current system is designed to overspend by buying votes for enormous bills that can only be passed or vetoed. This serves to create debt in order to store capital, as government debt is the primary investment vehicle. In the spirit of actual budgeting, a possible solution would be to break the spending bills down to their constituent items and have every legislator assign a percentage value to each item and then re-assemble them in order of preference. The president would draw the line at what would be funded. This would divide responsibility, allowing the legislature to prioritize, while giving the president final authority over total spending. Since making the cut would be graded on a curve, there would be much less incentive to trade favors and the percentage system would allow legislators to fine tune their judgement on complex decisions. Since this would likely reduce funding for local projects, a system of local public banks would fill this need.
Rather than borrowing it into existence, there are other possibilities of managing the money supply. For one thing, the current method requires ever accelerating productivity to pay down the debt incurred and this is running up against serious limitations. Not to mention that pervasive rent seeking from others productivity can be just as economically destructive to actual productivity, as authoritarian allocation of rewards, irrespective of productivity, can be.
A viable system needs to recognize excess money is inflationary and by the Fed’s logic of selling bonds to reduce the money supply, excess currency is in the hands of those with an excess of wealth. So, since the stability and value of the currency is a public responsibility, it should be taxed, not borrowed. If we tax out excess currency to contain inflation, then how about tax credits to introduce money into the system, when prices seem to be deflating? That’s what they are doing now, with all these rebates and it does serve to support productivity. Another method is for the government to spend it into the economy. With the above mentioned form of government budgeting, a little more spending could control deflation and less spending for inflation.
This may seem like it is giving the government more power, but acknowledging that maintaining a functioning monetary system is a necessary government function would clarify a reality that already exists, so the light shed on the issue might also serve to curb the less transparent powers of the government.
I agree with the general thrust of what you are saying, though now like to see money as an economic lubricant, or exciter of economic activity, and NOT a store of value.
Modern Monetary Theory thinks along the lines you have laid out. In case you haven’t already, check out Bill Mitchell’s blog for details on MMT:
http://bilbo.economicoutlook.net/blog/
Absolutely right. The rotten debt must be purged from the system.
Is it just me or does compound interest (paying interest on interest)play an important destabilizing role in the economy. In the context of renting other capital it would be preposterous (compound rents).
Anybody?
The destruction of trust is a very overlooked, and very serious problem.
By coddling the banksters and not prosecuting fraud, Obama and the very absent former corporate attorney Eric Holder are undermining the US financial system.
The message from the government:
1.) it is OK to commit fraud as long as you are an investment bank
2.) the stock market is a gamed market
3.) US capitalism is a fraud
4.) The USG is complicit in financial fraud
This is a very dangerous course of inaction, unless you want to destroy the whole system.
Isn’t inflation a fraud (of sorts). The problem is that for the last 70 years (+-) the “fraud mentality” was slowly perfected, but – unfortunately for society – it was perfected by way too many people. You can’t blame the smartest people for running their own scams if the government itself is a scam (inflation).
If you ain’t running a scam or participating in a scam (say an employee working for a TBTF Zombie banking) you really aren’t going to make big the bucks. And, without big bucks, you can’t buy bling. And, let’s face it, without bling, you’re just a nobody.
The most orderly unwind is my preference.
It seems to me the riskiest housing debt that ended up in private RMBS/CDOs has already been quantified and bondholders have already taken a hit or been bailed out through extend and pretend/ govt backstop programs.
Theoretically every one of those underlying mortgages could be written down to current discounted bond values with no further damage to the original bond holders and without introducing further actual systemic risk to the banking system.
That needs to be made to happen.
The borrowers who got mortgages through this channel should absolutely default with a clear conscience until the bondholders negotiate mortgage principal reductions. Frankly, I’d prefer the bondholder bailouts distributed to millions of smaller individuals than the concentration that resulted from the current fix. Forcing the bondholders to provide relief to homeowners to the extent of the losses they (bondholders) have already recognized seems equitable to me.
I hate bailing out anyone but in the current state of affairs, the takeover by the banks is overwhelming and they need to be checked, If that means distrbuting the govt largess the banks have so far benefited from to foolish borrowers, so be it for the moment. The banks won’t be any worse off and borrowers will be able to emerge from their debt trap.
The resulting mortgages in those bonds will reflect realistic LTV ratios. The resulting transparency would expose the magnitude of the insolvency at Fred/Fannnie, but foreclosures will be reduced and the housing market may be able to temporarily halt its decline, or at least appear to, which would allow time for planning the unwind of the FNM/FRE catastrophe.
We need more joy in our world and banks need to give it back to us!
The year of Jubilee in both the Jewish and Christian traditions is a time of joy, the year of remission or universal pardon. In Mosaic law, each fiftieth year was to be celebrated as a jubilee year, and that at this season every household should recover its absent members, the land return to its former owners, the Hebrew slaves be set free, and debts be remitted (see Jubilee (Biblical)).
The same conception, spiritualized, forms the fundamental idea of the Christian Jubilee, though it is difficult to judge how far any sort of continuity can have existed between the two.
http://en.wikipedia.org/wiki/Jubilee_%28Christian%29
Also see: http://www.nakedcapitalism.com/2009/09/steve-keen-we-need-a-debt-jubi
On trust:
1) Many years ago, when I worked for a very major bank, we cut a deal to lend a goodly amount of a Middle Eastern currency to a large American corporation through the intermediary of our operation in Nassau (Bahamas). A very good lawyer dictated a loan agreement, just under one page, to me as we rode downtown from the borrowers’ offices, we telexed it to Nassau and to the borrower – “acceptance of these funds in your account constitutes agreement to the terms of this letter”, or words to that effect. A few years ago, we lent a largish amount of dollars to a U.S. individual, secured by a heap of non-marketable shares in an excellent company, and the agreement ran nearly one hundred pages. Go figure.
2) A recent article on the BP oil slickers said that one of the reasons Washington is floundering is because it is populated by lawyers with no idea how to extract/process/make anything, so all they can talk about is liability and regulations, while the Caribbean is going to hell. They should all quit.
3) When lenders make stupid mortgage or buyout loans, or ‘invest’ in bonds that are de facto junk day one, n’importe the rating, and finance pre-packaged DIP loans, which implicitly connive at welshing on prior obligations, then they deserve not to get paid back, whether it is by homeowners, corporations or these United States.
I thought the purpose of “large” agreements was to purposely avoid responsibility. Isn’t the purpose of government to reward your buddies with other people’s money? Isn’t the purpose of inflation to scam savers?
The problem is there are now too many people in-on the games. We need to go back to simpler times when there were more honest (read: clueless) people (read: marks). We can’t ALL be Greece, somebody has to pay.
I’m a lawyer, and I used to have oil companies as clients. I know a ton about their business, because I had to – exploration through development through extraction through transport and marketing. A good lawyer, one who has practiced for actual clients, knows a whole lot about the business of the client: if you don’t know what is important to your client’s income, how it is made and why this deal matters to his business, you can’t optimally represent your client.
Unfortunately, I also know a good bit about Washington DC. Some of these lawyers never practiced at all; some of them only made it through a couple of years at the hazing level of a very large firm. But being lawyers isn’t what makes them useless in attacking practical problems. The necessity of serving several masters, being essentially owned by the industries they should be policing, and the fact that the “People” is the master least likely to cause them problems when they fail that master — all of this leads to outcomes that are not ideal. And again: these industry representatives are people known to the government. People they’ve relied on in the past for contributions and support. The rest of us are just a concept. Whose side would the average person be on, afterall?
I’d argue that it isn’t a lawyer thing, it’s a people thing. Our governmental system is broken and corrupt, and it breaks and corrupts the people who participate in it despite what they intend at the start.
That’s some extreme simplification going on with your comments: while this administration has plenty of attorneys, it has mostly former Goldman Sachs types, private equity types, Wall Street lobbyists and pharmaceutical lobbyists….
…oh yeah…and a former BP guy as Undersecretary at the Department of Energy…
Questions for the future?
If politics revolves around the ability of people to act in concert:
Does the state, in its present form, have an emancipatory role to play in resolving this ongoing and accelerating financial/political crisis?
Does the market, in its present form, have an emancipatory role to play in resolving this ongoing and accelerating financial/political crisis?
Is the democratization of consumption(supported by both the present configurations of the market and the state) a sufficiently demanding ideal to get us through this financial/political crisis?
Have the old political ideologies exhausted their capacity either to explain events or inspire us to constructive action?
I’ve just realised what a Jubilee would really mean – returning all the land in the USA to the Red Indians.
No. It’s too late for that because it’s past the 50 year cut off…LOL
Vinny
You know..
Our ancestors really were NOT idiots..
It is unfortunate that our reductionist, linear PROGRESS view of the way our history plays out (an accompanying feature of unlimited, and non cyclic growth, and time) keeps us from going back and carefully examining what they did, and what systems THEY used to deal with the same problems that we have now (for better and for worse, moreover). (The first Venetian gold ducat was struck in 1284, and was only matched by ANY European currency in the 19th century. In the 12th century, Venice had already created public debt. I’m sure our B.C. ancestors were already banking too, while we’re at it…)
Nothing new under the sun, the man said, and he was right.
I’m sure too that in Jewish society Jubilee was very carefully worked out to come as close to a social justice ideal as was possible. (Not to say that it was perfect…)
It is an unfortunate and unpleasant fact that our symbolic systems (of which money is one) tend to go out of control. Rather than beings means to an end, they become… ends unto themselves.
Well said, Ms. Debra, well said. And may I once again humbly suggest,
http://dieoff.org/page134.htm
Thank you…
Debra I’ve enjoyed the insights contained in your commentary.
The issue of “progress” and its role in our ideological formulations(both left and right) has not really been discussed.
Modern day progressives seem quite certain that the more ancient sense of limits is something to be conquered rather than submitted to.
In fact, I would argue that both modern “conservatives” and progressives are united in the belief that life should not be lived is such a way as to encourage limitation.
Both modern capitalism and the modern statism seem in agreement that insatible appetite is a firm foundation for our massive public/private economic system.
The idea of progress and the democratization of consumption are tightly linked in recent American history.
Eric Holder, the invisible US AG, is all over the news regarding a criminal probe of BP.
Where the *$!! is he regarding a criminal investigation of Wall Street fraud?
Unbelievable!
A world full of mini-Donald Trumps. What sweet revenge on the banksters.
Thanks for reposting this form yesterday, Yves. I was sure it’d make for an interesting discussion.
If I may add a few random opinions:
An erosion of trust leads to much greater contracting and dispute-resolution costs, a de facto tax on all commerce.
It also leads to lower money velocity, as people who can’t lend will either require higher interest rates (to compensate for the additional risk due to decreased trust) or will hoard wealth in whatever form.
However, trust extends far beyond mere volition to pay–there must also be an ability to do so, and this ability is increasingly lacking (unfortunately, so is the volition, and I believe that this unfortunate short-term mentality, which is prevalent in society, will be one fo the chief factors in its downfall–and will be an ignored factor, since it is difficult to measure).
As for Mr. Goodwin’s comments:
The current administration is implementing a policy of recapitalizing the banks (whose assets are still worth far less than their own debts) by lending them money through the Fed for nothing and borrowing back the money through the treasury for a lot more. This is called transferring debt from the banks to the government. But government debt has the same drag on societies in the long run, they can just hold their breath longer.[…] The banks […] are not lending to businesses in need.
This really deserves far more examination than I have seen up until now. Essentially, we can say that government is bankrupting the economic sector to save the financial one (this is completely backwards for what a country should do, incidentally, but I digress). The following serves as a very crude first-order approximation:
Given the shakiness of the world economies (no, it’s not a single economy), there is a general “flight to quality”. That flight goes towards first government debt, and then whatever money is left over will go to strong companies, than towards the marginal investments/speculations.
By issuing so much debt, there is less to go towards the strong companies, let alone to the weaker ones (remember, this is just a first-order approximation–I understand full well that there have been some junk bond issuances since 2008). This is just the typical “crowding out” effect often touted. But because the government has been using this money to play favorites and bail out the banks, it’s basically sucking up much needed funds for the rest of the economy and throwing it to the least useful sector (in a functioning economy, finance serves commerce, not vice versa!!!). For now (this will change eventually!!), companies can’t compete with government when it comes to perceived quality, so they are left begging for cash.
OK, but the banks should be lending, right? Well, of course they are–to the debtor with the strongest perceived credit position, which is the government, and specifically the US government, and its backed institutions. The US government is trying to counter this trend somewhat by setting up swap lines with other CBs–in effect, it’s trying to fight the trend that it is largely responsible for, and those central banks are basically recycling those dollars back into government debt.
Bizarrely, to a first-order approximation, there is money in the banking system which has absolutely no reason to enter the “public” (non-banking) system.
How does this end? Default by those who do not get this money (ordinary citizens en masse, or companies starving for cash) will put more pressure on the banks, and eventually put so much pressure that the central banks and their foreign governments can’t bail them out–like I said previously, the banks are so highly leveraged right now that countries can’t bail many of them out. Again, watch the Franc’s value with respect to the Euro—this is going to be a huge, huge deal.
As another point, if everybody defaults, then everybody (except for those who were responsible to begin with) is better off–all house prices and auto prices drop like boulders until even people with poor credit can buy them, moving prices up. The only real losers are the banks and the taxpayers whose idiot government backed up the banks. Of course, municipalities will also increase property taxes going forward, which will also reduce prices, but I’m just thinking of first-order effects at the moment.
Yves
I disagree with the premise completely.
I see our problems as follows:
1) Globalization was/is a false premise, that cheaper goods would benefit consumers more than loss of jobs
2) That the loss of middle class manufacturing jobs was inevitable. Products with a high labor content of more than 20% of final cost can be made less expensively elsewhere but all others could and should be made here.
3) We killed the goose that laid the golden egg (upward mobility of the middle class) and you can see it in declining same store sales for Walmart b/c the consumer has quit spending.
4) Wall Street in a fit of incredible stupidity created a world of paper assets and quit valuing production of real products. Even now to the extent they want to invest in production they do it in the pacific rim with US taxpayer provided money to some extent.
What we really need is a commitment to growth. We ship 3/4T dollars offshore each year. That money invested in an aggressive energy policy of independence based on conservation, nuclear, alternatives and yes carbon expansion in the short run will add $500B to our economy and the multiplier effect would be enormous.
We need to focus on America and give the world the finger. We need to leave the middle east and jigger our balance of trade as does every other country. That would allow the other $250B that is offshored every year in our balance of trade to come back to America.
The only salvation to debt is growth and we need to be far more focused on growth than debt. At this point no one seems to have an answer. The answer is energy independence and a recommitment to US domestic production.
I don’t see any salvation in growth, although I agree with most of what you state here.
Globalization has ALWAYS been the name of the game, and we have never known anything else in this civilization. So… no giving the world the finger. But we could try something besides… being the planet’s bully for a change.
The way things are going, I think we’re going to have to, anyway…
Slightly off topic, but:
Since the world is going to hell in a handbasket and this conversation is about trying to figure why, I think there are two other primary social constructs that need to be revisited as well; God and time.
The concept of god originated as a plural. Polytheistic deities were what we would currently describe as memes. Basic concepts to which the larger group accepted, such as the singularity and status of the group one is immersed in. Geographic and astronomical features. Seasons of the year. Group and cultural activities, such as celebrations, war, death, sex, sleep, illness, etc. All the myriad connections between these concepts naturally lead to a pantheistic network with a mythology of allegorical relationships. This pantheistic unity was difficult to describe conceptually, so it was natural to have this state defined as a unit and then to give it some form, the adult human male being the logical default option.
As we understand today, unity and unit are two profoundly different concepts. Unity is a state of connectedness, while a unit is a set. Effectively it is the difference between zero and one. While we think of zero as nothing, as an equilibrium state, the absolute, it is also everything. A potential spiritual absolute would be the essence from which we rise, not an ideal from which we fell. The problem is that human knowledge originates from the focal point of the individual and after attempting to peel away all the details and complexities of life, we have settled on this idealized conscious knowledge as our God and in a fit of megalomania, projected it onto the entire universe. To the extent there is a spiritual absolute, no matter how far into the abyss it extends, it is this raw consciousness to which we give form, while knowledge is a feedback loop with physical reality.
Top down theology assumes a moral theory of good and bad as a metaphysical duel between the forces of light and darkness. Actually they are the basic biological binary code, the attraction of the beneficial and repulsion of the detrimental. This elemental relationship is a polarity out of which exponentially complex relationships develop. What is good for the fox is bad for the chicken, yet there is no clear line where the chicken ends and the fox begins. Life is a process of creation and consumption as it bootstraps itself upward. We may all be branches of the same tree, but the result is we all point in different directions. Morality is a complex code, similar to language, which groups of people develop in order to coexist and obviously differ in detail from one group to another, but serve the same basic function. Between black and white are not just shades of grey, but all the colors of the spectrum.
It should also be noted that polytheists invented democracy, possibly because a pantheon requires a process of negotiation and resolution seeking. Monotheism has often been a logical bulkhead for validating monarchy and other forms of top down rule. At the very least, validating one’s tribe over all others.
We think of time as the narrative series of events that comprise our lives and the cause and effect sequences which are the basis of our cognition and rationality. This has been formalized as the fourth dimension of spacetime by using the speed of light to precisely correlate distance and duration. The simple fact though, is that time is going the opposite direction, much like the earth rotates west to east, rather than the sun circling east to west. The earth doesn’t travel the fourth dimension from yesterday to tomorrow. Tomorrow becomes yesterday because the earth rotates. Time is a consequence of motion, rather than the basis for it. It is not a dimension along which events exist and the present travels, but is the changing configuration of what is, such that potential becomes residual. When we think of time as that path we move along, then our point of reference is distinct from its context. Everything not part of our sense of self is part of that larger reality against which we are defining ourselves. On the other hand, if we think of time as the result of activity, we are an integral part of the larger reality. Our lives and all the events which define them go from being future possibilities to past memories. Without action, there is nothing, but with action, everything passes.
This may seem to be not particularly relevant to the topic of discussion, but consider how these ideas motivate many of our political and economic conflicts, of which we otherwise only comment about the effects and not the causes.
I am not sure why alexa sent me to your site but I might as well say I have been quite captivated by the comments you have patched together. How many days did it take this many people coming to your pages? I am fairly to this web site stuff.