10/12/11

Wall Street’s Design of Mortgage/Banking Bust of 2008 As a Campaign Issue

Talking about government and business economic management is a little like talking about a coach and his basketball team. If the coach and team are good then winning record just happens apparently effortlessly-the new normal-without much coaching. If the team is bad they need much coaching just to break even. If the coach and team both stink they just blame one another as drama queens even losing in an inverse dialectical spiral down to the benthos.

The N.B.A. is on strike, the economy of the U.S.A. with about 10% or more standing around with their hands in their pockets looking on at the employed working for global trading corporations getting new trade agreements to expedite shipments of cocaine from Columbia easier from congress and public debt getting deeper. The Republican presidential primary/debate season produces much dreadful verbiage-as analysis incomplete and inaccurate-on the causality of the economic collapse of 2008.

Broadcast talking heads have more to add transferring blame like collateralized debt obligations unto the federal government. The government is at fault for not keeping tighter controls on market trading, yet it is an obliging servant of the rich and of corporatism such that since President Carter Wall Street banking and trading have received more liberal deregulation while the economic infrastructure of the U.S. began its turn toward emasculation of workmen’s real income and job benefits that have been in decline for about 40 years.

Obviously home mortgages ought never to have been commoditized by the Clinton administration allowing a variety of obscure financial devices to be developed stimulating over production of over-priced, too large, ecologically inappropriate homes. The Larry Summers era policy opened the floodgates to corruption of home finance with people as remote as Australians owning shares of shares of homes in the U.S.A. with C.D.O.s insured by odd insurance schemes against loss of repayment.

I read two books on the Wall Street history of developing corrupt trading and financial practices this year-‘The Age of Greed’ and ‘The Quants’ that provided a fair education on the historical rise of corrupt Wall Street and banking methods. The motivations were of course simply to easily make money without producing real goods.

Even efficiency innovators like Jack Welch and G.E.’s downsizing, efficient cost cutting of select divisions helped to process existing stock for profit without enough concern for new growth. Government needs to reinforce work, environment and employment efforts in the U.S.A. and let those with a center of effort abroad fend more for-themselves as trans-nationalists.

From leveraged buy outs and hostile take over’s through the development of quantitative marginal trading techniques the advantage of slick profit taking of the work of others has become the general drift of banks and Wall Street instead of creating real production and reform with innovation of production itself. The well being of employees was also no longer a concern of corporations in the quantitative world of statistical profits. Neither was the ecosphere of the world meaningful as polluting or destroying its life would come to be regarded as an ‘externality’ to the insider profit taking.

Home mortgage made into tradable commodities for sale globally to investor allowed the traditional debasing of currency corruption to follow. If a glass of pure apple juice costs one dollar one could make a hundred dollars of profit from that one glass by diluting it and selling 1% pure apple juice and 99% water with artificial flavoring and coloring along with high fructose corn syrup in ninety-nine additional glasses. Home mortgages may also be diluted in effect and oversold to investors. Yet tranching also allows an informal pyramid scheme to let investors at the lowest level have the highest risk of not getting repaid. They are incentivized to do so lured by the highest rate of return interest, if repaid.

The higher tranches of the pyramid have the most priority in repayment and the lowest interest for return-they also have higher credit worthiness ratings from ratings agencies like Moody and Standard and Poors.

Like cheap, common swindles where large packages in stores are only partly full, or where a bag of triple A cashew nuts has only a few cashew fragments and maybe filler of ordinary worst batch peanuts, the value of lower level tranches might be given a false higher credit rating by packaging one A home mortgage along with several F mortgages. The ratings agencies may give the entire bundle of mortgages the rating of its best unit such as the one A amidst five other Fs.

Banks became computer driven trading corporations to just like the most specialized trading houses on The Street. Because the federal government bails out ‘too big to fail’ trading or insurance/banking firms the traders move into higher risk positions leveraging their risk to assets ratios by as much as 200 to 1. That is a culture of corruption-a national culture of corruption supported by the government, broadcast media, Wall Street, colleges and culture as non-communist. It is simply non-intelligent.

Democracy allows intelligence to be free to innovate the best case empirical scenario that authoritarianism represses. Unfortunately given global demographic and geographic facts along with telecommunications technology networking has created its own free market ad hoc authoritarianism that snares the entire world within its evil demesne. The free market is moving toward the communist Chinese social structure because of its over-networking, quantified trading infrastructure developing an inherited class f concentrated wealth and power that will structurally oppose all meaningful change to ecospheric sustainability, national political independence and egalitarian distribution of wealth.

The reforms required to restore competition would require a decommodification of home mortgages, a cap on the number of employees any corporation could have at 10,000, a limit to the number of corporations anyone could own shares of at 3, and a limit to the income that any citizen could have indexed to the average income of the most poor 10% of society at perhaps 25 times greater. The goal of reform should be to break the stagnated hold of ossified business and government power that reduces completion and invention, the destruction of ecospheric health and exploits non-sustainable resource use. American civilizations simply needs and upgrade through reform that it is too gutless and spoilt, unwilling and incapable of getting done because of the nature of its established social, business and government inertia. The reform would require secure borders, no illegal entry, full employment, real equal legal protection, a balanced budget and no public debt, a colorblind social environment and the transformation of the broadcast media to individual citizen podcast freq use and more. The material tools the U.S.A. has to work with to reform and become the New America for the Third Millennium part 1 are ample to bring a robust economic and high quality lifestyle to all citizens and legal residents of the united States that would serve as an example for the rest of the world. The politicians need to become people with a better grasp of the possibilities for the reform of a civilization given the present human tool kit and get things done without doing harm to the public in the ongoing transition work process.
Classical civilizations were not so spoilt that they were incapable of reform or of social justice. Classical civilizations did not become such pursuers of luxury and moral decay that other people felt they needed to war upon the corrupting power in order to survive. As a global leader in a business culture destroying the world environment the world’s poor may come to feel the United States is an obstacle to ecospheric survival of human-life friendly conditions. Even the U.S. military’s homosexual policy as well as that of Massachusetts, New York, Oregon and a few other states may stimulate moral resistance amongst billions of people abroad. Such myopic policies were not necessary for the reinforcement of civil rights of individuals at all.

The talking heads want to blame Freddie Mac and Fannie Mae for the Wall Street development of tranching and of collateralized debt obligations and that is not so. Those corporations went along with the herd of corruption trend that grew like those of defectors in the prisoner’s dilemma to the dark side of the force in order not to be left behind. Those profits were the new in thing and the winners (temporarily) were all moving that way. Very few of the large profit takers were doing so on the formerly honest, conservative side of the line.

The Wall Street-Washington D.C. axis of evil won’t be reformed by any candidate or congress that seems to be ethical and intellectual Lilliputians in comparison to those of times past. Tip O’Neil, Everett Dirksen, L.B.J., Richard Nixon, F.D.R.-those were effective politicians able to get things done. Ralph Nadir should be awarded the Congressional Medal of Freedom.

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