This may have been posted already. The headline looked familiar, but a search came up empty. I apologize if it's a dupe. I don't think I need to add a comment. My opinion mirrors Fishman's.
http://themoderatevoice.com/28103/our-system-became-a-ponzi-scheme/">“Our System Became A Ponzi Scheme”by Mikkel Fishman,
http://themoderatevoice.com">The Moderate Voice
Bill Moyers has an interview with William Black, the lead regulator that cleaned up the S&L debacle, where Black is adamant that our current problems are due to corruption or at least willful neglect that amounts to fraud on a systemic level. This highlights why I’m not optimistic about the future; it’s not a matter of simply restoring confidence or stimulating the economy to stop a downturn, it’s that a bulk (if not the majority) of our financial “wealth” is based on pure lies. I make that outstanding claim by looking at the amount of leverage in the system, where 8-10x leverage is the historical range and we’re still around 16-17x (down from 20x). Europe is even worse as it is at 30x. With the amount of outright fraud and incredibly idiotic risks that were taken, it’s possible that we’ll have to fall to the lower end of that range, or perhaps even down to 6-7x in order to flush the system out enough to start over.
Black points out that the people in charge now — whether it’s the CEOs or government officials — are in charge precisely because they aided, profited and now have an interest in covering up the true nature of what’s going on. As he says about Geithner and other Treasury officials, “They all were promoted because they failed, not because they had succeeded.”
Black further points out that this crisis was generated because of a decline in morals and standards, both within finance and the government’s relationship to it. He said that during S&L they found that 10% of the institutions became corrupt, and wondered why most didn’t, as the money was so easy and the results were so guaranteed. He concludes, “So, far more than law or by F.B.I. agents, it’s our integrity that often prevents the greatest abuses. And what we had in this crisis, instead of the Savings and Loan, is the most elite institutions in America engaging or facilitating fraud.”
In other words, I have long been worried about this happening by looking at the raw numbers and seeing that they don’t add up, and economists are arguing over which policies will have the best chance of making the ledgers balance, but the most important roadblock is probably the people in charge. This echoes Simon Johnson’s point exactly. The people that have gotten us into this mess, some of them making hundreds of millions, are still in charge because they are corrupted both legally and morally. They have convinced our politicians that if the Truth were exposed then the system would collapse, and the only thing that is holding it up now are Lies. That statement sounds like the most paranoid ravings of conspiracy theorists, yet it comes directly from the mouths and pens of the most senior and experienced regulators in the world. That is the position we find ourselves in.
Black concludes that we can move forward only by exposing the reality of the situation, replacing the people involved that have new morals, and realizing our losses…otherwise we will stagnate while those that are responsible continue to leech and steal from the system. He sums up my views that I’ve had the last couple of years that I was trying to explain to Dorian why I thought that unbridled optimism would hurt us greatly and that we shouldn’t take pleasure in our (IMO temporary) slowing of the decline.
“There’s a saying that we took great comfort in. It’s actually by the Dutch, who were fighting this impossible war for independence against what was then the most powerful nation in the world, Spain. And their motto was, “It is not necessary to hope in order to persevere.”
Or in other words, an optimalist would recognize that our financial system is rotten to the core, that we must clear it away and it will be very painful, but that we have the resources to recover and reach new heights as long as our political process will allow us.
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