The Origins of the Financial Crisis: "The make-believe world of finance capitalism"

[Better Believe It]

October 2, 2008

A Boy's Game
The Origins of the Financial Crisis
By WILLIAM BLUM

Why do we have this thing called a "financial crisis"? Why have we had such a crisis periodically ever since the United States was created? What changes occur or what happens each time to bring on the crisis? Do we forget how to make things that people need? Do the factories burn down? Are our tools lost? Do the blueprints disappear? Do we run out of people to work in the factories and offices? Are all the services that people need for a happy life so well taken care of that there's hardly any more need for the services? In other words: What changes take place in the real world to cause the crisis? Nothing, necessarily. The crisis is usually caused by changes in the make-believe world of finance capitalism.

All these grown men playing their boys' games. They create an assortment of financial entities, documents, and packages that go by names like hedge funds, derivatives, collateralized debt obligations, index funds, credit default swaps, structured investment vehicles, subprime mortgages, and dozens of other exotic monetary vehicles. They create all manner of commercial pieces of paper, of no known real or inherent value, backed up by few if any standards. Then they sell these various pieces of paper to the public and to each other. They slice and dice mortgages into arcane and risky instruments, then bundle them together, and sell the packages to those higher up in the pyramid scheme. And some of those engaged in this Wild West buying and selling become millionaires. Some become billionaires. They get Christmas bonuses greater than what most Americans earn the entire year. Is all this not remarkable?

And much of the buying is not done with the buyer's own money, but with borrowed funds; "leveraged", they call it. The pieces of paper sometimes represent commodities, but the actual commodities are not seen, may not even exist; if the seller demanded the buyer's own funds, or the buyer wanted to see the goods, the whole transaction would freeze. They sell "long", expecting the price to rise; they sell "short", expecting the price to fall; they sell "naked short", which means they neither possess nor own what they're selling; a name for each gimmick. They take ever-greater risks buying and selling increasingly-esoteric pieces of paper. It's a glorified Las Vegas, casino capitalism.

These pieces of paper can be so complex that many of those buying and selling them do not fully understand them; no problem, they just resell the pieces of paper to someone else at a higher price, even when one or both parties know that the paper, while pretending to be payable debt, is virtually worthless. The government, even when it tries to moderately regulate this Monopoly board, can at times also be confused by the complexities of the pieces of paper, compounded by the less-than-transparent practices that envelop the transactions; a potpourri including speculation, manipulation, fraud. Billionaire financier Warren Buffett has called the pieces of paper "weapons of mass financial destruction."

President Roosevelt, confronted in the 1930s with similar players, called them "banksters".

Is this any way to run a society of human beings?

Please read the entire article at:

http://www.counterpunch.org/blum10022008.html

[tama]

1. Banksters

are parasites eating from the table of the working man - a farmer, a carpenter, a blacksmith, a healer, a mother, a father, an gatherer, a hunter. Nobody really needs those deadly parasites that hypnotize entire communities and now even planets for their short-term personal gain at the expence of everything else.

They and their servants and slaves are the gray men stealing time, time for love and joy. They turn time into money and then charge interest on it, meaning stealing. Working, singing and dancing men don't really need money, don't need banksters, don't need grey men stealing our time.

[slipslidingaway]

2. K&R n/t

[moodforaday]

3. K&R for William Blum

:kick: