IMF Emerging Markets Veteran on the U.S.

One of the central themes of our Atlantic article was that the current crisis in the U.S. is very similar to the crises typically seen in emerging markets, and that resolving the crisis will require (some of) the measures often prescribed for emerging markets. This, Simon said, would be the assessment of IMF veterans who had worked on emerging markets crises.

At the exact same time that we were writing that article, Desmond Lachman – who worked at the IMF for 24 years, and then worked on emerging markets for Salomon Smith Barney for another seven years – was writing an article for the Washington Post saying many of the same things.* Here are the first three paragraphs:

Back in the spring of 1998, when Boris Yeltsin was still at Russia’s helm, I led a group of global investors to Moscow to find out firsthand where the Russian economy was headed. My long career with the International Monetary Fund and on Wall Street had taken me to “emerging markets” throughout Asia, Eastern Europe and Latin America, and I thought I’d seen it all. Yet I still recall the shock I felt at a meeting in Russia’s dingy Ministry of Finance, where I finally realized how a handful of young oligarchs were bringing Russia’s economy to ruin in the pursuit of their own selfish interests, despite the supposed brilliance of Anatoly Chubais, Russia’s economic czar at the time.

At the time, I could not imagine that anything remotely similar could happen in the United States. Indeed, I shared the American conceit that most emerging-market nations had poorly developed institutions and would do well to emulate Washington and Wall Street. These days, though, I’m hardly so confident. Many economists and analysts are worrying that the United States might go the way of Japan, which suffered a “lost decade” after its own real estate market fell apart in the early 1990s. But I’m more concerned that the United States is coming to resemble Argentina, Russia and other so-called emerging markets, both in what led us to the crisis, and in how we’re trying to fix it.

Over the past year, I’ve been getting Russia flashbacks as I witness the AIG debacle as well as the collapse of Bear Sterns and a host of other financial institutions. Much like the oligarchs did in Russia, a small group of traders and executives at onetime venerable institutions have brought the U.S. and global financial systems to their knees with their reckless risk-taking — with other people’s money — for their personal gain.

And here’s the conclusion:

In the twilight of my career, when I am hopefully wiser than before, I have come to regret how the IMF and the U.S. Treasury all too often lectured leaders in emerging markets on how to “get their house in order” — without the slightest thought that the United States might fare no better when facing a major economic crisis. Now, I fear time is running out for our own policymakers to mend their ways and offer real leadership to extricate the United States from its worst economic calamity since the 1930s. If we insist on improvising and not facing our real problems, we might soon lose our status as a country to be emulated and join the ranks of those nations we have patronized for so long.


* For the record, the Atlantic article was finalized on March 17 and went up on the web on March 26; judging from the URL, it looks like Lachman’s article went up on March 25.

45 thoughts on “IMF Emerging Markets Veteran on the U.S.

  1. I find myself mystified as to what the Obama Administration is thinking, it seems so obvious that they are letting the bank oligarchs take the system down. It must be American exceptionalism blinding them or something.

  2. The Obama Adminhistration is floundering because the Dennis Lachmans of the world aren’t politically connected enough to get jobs in the Treasury Department or the Fed. Sadly, the only other place for them to get people with experience in the U.S. Financial System is the system itself. Fox and henhouse, anyone?

  3. Precisely what leadership measures do you advocate so the US can “…extricate itself from its worst economic calamity since the 1930s…”?

    I accept that you want to commence anti-trust action. That I support, even though it anticipates results at least 10 years down the road and has nothing at all to do the sense of urgency expressed by Desmond Lachman in his observation “…time is running out for our own policymakers…”

    Exactly, what should regulators, in your opinion, do? Would sending FDIC agents into Citi Group offices this Friday evening be the place to start? Should they be waving aloft the results of the “stress test”? Should they simply declare that toxic assets must be valued at zero and go from there? What’s the play and what’s the downside for the taxpayer?

  4. I believe that the oligarchs rule the US economy in ways that have been extraordinarily damaging.

    But comparing the US financial leaders with the oligarchs in “emerging markets” fails in one significant way – the US leaders are some of the most highly educated, highly compensated people in the world.

    Makes me wonder what they’re teaching at the MBA programs that feed their talent to Wall Street.

    Makes me wonder when we moved away from building businesses to building up the bonus pool.

    And makes me wonder at the long-term viability of capitalism, if the ethics of the Wild West are all that govern the best and brightest businessmen in America.

    It seemed to me that once, in America, businessmen focused on building businesses – developing products and services that helped the country grow more powerful.

    Certainly, there were growing pains, labor disputes, corporate scandals, trust-busting presidents – I’m not looking at the past with rose-colored glasses.

    At the end of the day, however, there were trains, planes, automobiles, computer chips, powerful computer operating systems, the internet, electricity, fuel for cars and heating oil for homes…things that changed our lives in significant ways – for the better.

    Today, our business leaders have used their skills and intelligence to build a towering mountain of debt that threatens our future.

    And let’s be clear on this – by running up that debt, the businessmen have profited hugely. And they seem to be paying no price for the problems within their businesses.

    The oligarchs rule – and let’s hope they haven’t sucked the lifeblood out of America.

  5. the problem both with the Russia’s oligarchs and their American version is that they were requested from within the system. I have non-linear mathematical models which show that the excessive securitization and financialization are the expected responses of the system, which tries to compensate for its falling productivity (marginal utility) by developing excessive economies of scale — in the extreme form we get globalization. This model is corroborated by current statistics and also by the historic data. for example, the British Empire at the end of the 19th, start of the 20th centuries also presented an example of overwhelming financialization and securitization. it took extreme forms, while manufaCTURING WAS OUTSOURCED abroad. However, after a global crisis of 1894-6, Britain pulled itself up by the bootstraps, when it scrapped its coal navies and started a switch to oil-run technologies (dreadnoughts). The home-based manufacturing proved to be crucial during two world wars and the period between them and afterwards. Also, Britain introduced significant restrictions in the banking sphere following the global crisis of 1894-6. This refurbishing provided breathing room for the growth at the start of the 20th century, when the pound sterling became basically the universal currency under the then Gold Standard. we need to use such historic lessons, when we ponder the ways out of this crisis. the nonlinear mathematical models may become crucial, since the current econometrics is based on the concept of equilibrium and doesnt describe severe crises caused by selfgenerating nonlinear processes.

  6. At the risk of oversimplification, let me try out a few thoughts, and PLEASE tell me I’m wrong:

    One one hand we can work to reset our asset valuations and regulatory structures so that creditors/businesses/consumers worldwide can accept their validity, and which would include an appropriate level of debt. Alternately, we can pump more money into the system to cover our debts and over-valuations, aiming to grow out of of our underlying insolvency.

    The first course is untenable for politicians who get elected by painting a vision for a better life: living within our means would mean less goods and services for our dollars and our standard of living decreasing. Similarly, the govt would need to cut its services and/or raise taxes. The biggest piece of so-called discretionary spending is Defense, but when combined with everything else, like Healthcare needs, a budget always gets cornered into doing its best to merely slow the increase in spending. The only upside hope is to create a rate of growth greater than the increase in budgets leading to a overall decrease in those costs.

    This approach can work. At some point we might well have some (or even a lot) of inflation, but it can be “mopped-up”. There is always some degree of inflation, and our task here, and going forward, is to simply manage it to an acceptable level. Properly managed, the ongoing shell game of inflated valuations will raise all boats and we should (theoretically) be able to live happily indefinitely. Trillion becomes the new billion, but so what? There may be some collateral damage amongst the fixed-income types, but such is life.

    What’s more important, for those with real influence on these decisions, is that this allows for business as usual. For the elites (and don’t just lay this at the feet of the financial Oligarchs; there are alot of similarly influential and vested people in Congress and elsewhere), what is needed it to simply stay the course, giving-in just enough to the appearance of reform not loose their ability to keep the fix in.

    Whatever reform might be legislated tomorrow can be trimmed out the day after (just hire Phil or Wendy, they’re in the book!) The gap between rich and poor will continue to grow, but as long as the poor aren’t too poor, things will be just ducky. A degree of sensitivity will eventually becomes necessary to keep their heads off the end of a pole, but we are light years from that.

    I get to Argentina occasionally and its easy to notice how BA has been become increasingly threadbare while the people collectively grab onto whatever pathetic economic panaceas they are offered. Somehow, that’s the vision I keep seeing.

    Please, someone, set me straight; Show me another scenario. Please.

  7. “…as long as the poor aren’t too poor…”

    This I think is one of the tools utilized to placate the general populace in this country. I have always made the point that ordinary people complain about union’s and their benefits and pay packages. Yet, the truth is that unions are always comprised of ordinary people. In fact, you never see any situations where the union members have great pay and benefits and management at the some company has less benefits and pay than the union represented which would really be saying something.

    My point is that the general populace is more inclined to police itself than deal with government graft and corporate corruption. Take Michael Phelps, he is an ordinary person who has some medals and a limited shelf life in the spotlight. It was really shocking for me to see people happy that Kellogg dropped him. I didn’t get it as it was just more window dressing. Regular folks have more scorn for a guy killing a child than a corporation killing thousands or millions knowingly and slowly. If Kellogg dropped a Wall Street firm who it said did business in such an unconscionable manner that Kellogg no longer felt like being associated, that would have been news. Maybe even when Gerber sent the known bad baby food to Africa and Bear Sterns say, ‘dude that’s so reprehensible. don’t call us anymore’.

    This country suffers from a schism in our perception of ourselves and the elite who are apparently so far out and ahead of us. Certainly you find the same type of bias in third world countries who also feel helpless. If you said that the US was a third world country most would laugh. Still, if you compared the gap between the elite in the US and poor and then did the same for another country the gap might actually be greater here in the US. It really becomes clear that for US citizens we look at hunger vs. comparative wealth to measure ourselves. I submit that in most instances even the middle class probably prides itself exceedingly with not being on the very bottom and yet we are seeing that middle class today and a health emergency or bad boss decision can result in outright homelessness. Yet, Donald Trump has been broke how many times but I doubt he’s been to one soup kitchen. Its clear washed out for the rich doesn’t look like washed out for everyone else.

  8. The two articles do make the same argument: that the U.S. financial crisis looks remarkably similar to the financial problems of emerging markets. There is one big difference, however. The dollar is the world’s reserve currency. The U.S. is able to more easily borrow and print its way into debt without adverse affect. A shift in reserve currency status from the U.S. to another country would certainly pull the rug out from under American deficit spending. But short of that, how far into debt can the U.S. government go before the world loses confidence in its ability to repay? This is the unknown variable that Geithner and Bernanke are up against.

  9. Hoover sacrificed the economy in order to save the currency. This time the currency is being thrown on the fire to save the economy. So we are not only going to have to rebuild the economy and the financial system, we will likely have to rebuild the monetary system as well. Here is my view;

    Money functions as both a store of value and a medium of exchange. These work at cross purposes, because as a store of value it is a form of private property, while as a medium of exchange it is a form of public utility, similar to a road system. Most people focus on their own store of money and thus think of it as private property. In reality it belongs to whomever guarantees its value. Just try photocopying some. We do possess the money we hold, but it is in the same way we possess the section of road we are driving on. You own your car, house, business, etc, but not the roads connecting them. It was one thing when money signified some commodity you had stored or traded and its value was entirely based on that underlaying product, but now the money supply far exceeds any underlaying value of the real economy and its only real value is based on the ability of the government to tax. This means that it has broken away from being an functional store of value and is now essentially just a medium of exchange.

    Consider how it would change public perceptions of monetary wealth, if we were to accept that money is a form of public commons? The practice of hoarding excessive amounts would lack logical and eventually legal justification. The reason capitalism worked so well with very progressive taxation is because this served to drain those pools of excess wealth and use them to lubricate the parts of society and the economy which were necessary, but didn’t generate sufficient income. Otherwise more currency must be issued and this is not only inflationary but requires more value to be monetized, to the detriment of society and the environment.

    Now if people did understand monetary value constituted public property, than they would be far more reluctant to drain value out of their social networks and environment to put in a bank in the first place. We all like having roads, but there in little inclination to pave more than we have to. The same would apply to monetizing our lives. Other avenues of trust and reciprocation would have the space to develop and our society and environment would be healthier as well.

    Since currency is a public utility, profits from its administration could be public income. A public banking system would consist of institutions incorporated at every level of governance, so that individuals could bank with the ones which funded the services they are most likely to use. Different communities would seek to provide the best services with these funds, otherwise they would lose business and citizens to other communities. As it is, banking doesn’t need the inventiveness for which private enterprise is most suited, but the stability that is the forte of the public sector.

  10. Publish the names of all those who earned more than $1 million
    in any of the last ten years in banking/finance/WallStreet/investment houses and ask them to justify their earnings on the basis of value produced for someone besides themselves. The compensation structure in banking/finance/”investment’ is the picture of
    immorality (“Morality” – an underemphasized concept at this stage in our societal evolution). There has been an air of fantasy about the money system, as though “the dollar” were a plaything,but now reality comes in.

  11. That’s easy. Take out loans collateralized with a standby obligation to do washing should the need arise.

  12. RED ALERT!!! Simon Johnson and James Kwak are making the recession worse!

    Here is another excellent analysis from John Hempton on liquidity, solvency and lending:

    “Bank of America (for recent and topical example) is carrying $173 billion in cash and cash equivalents – a number which immunizes them against many but not all ills and is about $140 billion higher than normal.

    This excess cash inhibits BofA profitability by maybe 5-7 billion per annum (pre-tax). They don’t really want that profit drain – but – in a telling comment – they thought it was worth it to have that negative carry because the cost to running short of liquidity was too high.”

    The article goes on to theorize that BA is afraid of being seized (nationalize) by the government if it runs into a liquidity problem. To defend against that, BA sits on a massive amount of cash. Of course, Simon and James will do their part to make sure this fear doesn’t let up!

    Recession always hit the populists the hardest. James and Simon, way to go to shaft your populist followers!

    I can’t wait to see the stress test results! The drama and suspense is just keep on getting better!!

  13. At the heart of the credit crisis in the US and UK is widespread criminality across the populations. It is misrepresention, ie fraud, to knowingly sell a liar loan as an AAA rated security, it is fraud to make a deal that is not good for ones firm but secures a bonus for the deal maker, it is fraud to lie on a mortgage application, those whose job is to regulate are secondary parties to a fraud when they gloss over in the hope of landing or keeping a highly paid job.
    Where are the prosecutions. Where is the confiscation of the proceeds of crime. Where is “the rule of law”.

  14. A thousand thanks for an erudite and gripping post and thread. It is disturbing to see defenses, apologies, and excuses for what is obviously a monsterously corrupt, collusionary, imponderably wealthy clique, cabal, klan, or coterie of oligarchs that constitutes thesystem. These oligarchs prosecute criminal enterprizes (Ponzi schemes, insider trading, faud, tax evasion, and other act of financial malfeasance and perfidy), colluding with the government, select politicians, and the regulatory agencies, and the revolving door partisans perched within those agencies and in leadership positions within the government, -raking obscene fortunes offshore in the form of excessive compensation, bonus arrangements, and tax largess (not mind you, successful business management) – cloak their misdeeds as the house of cards collapses, the bubble bursts, and notes are due – and then cowardly, and I would contend illegally (certainly immorally) these predator class oligarchs and cronies rape and pillage poor and middle class Americans to covers the absurd gambling debts, and PONZI schemes, heap monsterous imponderable debt and deficit on the shoulders of our ,(not their) children. Then, shatteringly – astoundingly – the Obama government, – the peoples one hope for real change, truly giving voice to the voices populates his entire economic team with Wall Street insiders, Goldman Sachs voodoo economics practitioners, and the same criminals, swindlers, and thieves that caused the most calamitous economic crisis since the great depression, parrots, copies, and continues, the bushgov robbing-from-poor-and-middle-class-Americans-to-feed-the-superrich,-the-predatorclass policies.

    Our hearts are broken. We know now the oligarchs own the government, and the people are accountable and will suffer, hazard, and endure the terrible costs of the oligarchs gambling debts and misdeeds. There is no law. The law is forked tongued, – sharp and venomous for the people, – soft and gentle for the superrich, the predatorclass. The people pay, so the superrich, the predatorclass can play.

    This is the Amerika we inhabit. You can discuss the academic or theoretical causes, or past, present, or future baselinescenariors – or philisophical justifications or excuses relating why the people must endure and pay the bulk of the costs for the epic crimes and failures of the swindlers, theives, and criminals on in the finance sector, and thier faithful spaniels in the government, or debate about how we got here, or who is responsible, – but the reality TODAY is that trillions of the peoples dollars have been poured into FAILED institutions with the same FAILED management, bruting the same FAILED models, and the only US industry showing a profit in Q1 is said finance sector. The predator class cabals, and oligarchs own and control the government. They are immune from accountability, and evidently sanctioned by the heavens to majikally invent their own select accounting code or standard. The people have the houses, their businesses, the cars, the wages siezed or garnished, for a few thousand dollars in tax discrepencies – the finance sector cronies and oligarchs award themselves billions of dollars in 2008 bonus’, (wherein the most calamitous economic crisis since the great depression reared it’s ugly head)?

    There will be no end to the horrorshow, the predatorclass merciless plundering, rape, and pillaging of the poor and middle class – unless and until the predator class feels pain, and knows fear. The all men will truly be created equal, and there will be a balancing, and a reckoning.

  15. I think you are missing the point silly’. The mega banks should be broken up because of their political power, not due to their solvency (or lack thereof). The same goes for any entity of similar power and influence that can takeover the regulators.
    If the banks are so healthy, then why are they taking public money at all? If they are unhealthy and need taxpayer help due to their risk to the financial system, then claiming profits might be misrepresenting their status and could be considered fraud. If they are healthy and received taxpayer help then they misrepresented their status and could also be considered fraud. They are lying one way or another, and the fact that the government isn’t calling them on this situation shows that these corporations have way too much political power and need to be disintegrated. The call to break them up is NOT an economic argument but a political one.

  16. “the Social Security and Medicare crises that lie ahead”

    Conflating Social Security with Medicare – still pushing the great unified “entitlenment” scam, I see?

    I can understand that the prospect of having to pay back the trust fund out of general tax revenue is daunting, but it would be nice if Mr. Lachman had also come to be less cavalier about pretenting that this is somehow the same as exploding health care costs, and not a trillion dollar theft worthy of a banana republic – pension fund scam writ large.

  17. One more thing, Silly’ – my goal with the last post was to point out that the your argument (and similar ones) that the banks are healthy and the other argument to break them up are not necessarily the same argument. Using the financial argument to make the disintegration point, or vice versa, isn’t the best way to present the case.

  18. The problem is, Lois, it is not so obvious that the Obama administration is letting the bank oligarchs take the system down. The system appears to be stabilized at the moment. It is still sick, but there is time now for the surgeons to consult and figure out what procedures will work best to cure the patient. Obama the Candidate did not win by taking hasty actions — he was a calm, steady methodical campaigner who won by staying on message and running an incredibly tight campaign — and those who expect him to take hasty actions today when there is time for similar calm, steady, methodical actions simply were not paying attention when he was running for office.

    As I’ve pointed out in another thread, if you are looking for expertise that knows something about where the skeletons are buried in the financial system, you don’t get academics or IMF bailout specialists. All they have is theoretical knowledge, which is nice, but it is, well, theoretical. You look for, well, the best people you can find inside the financial system — the people who were reading the tea leaves correctly before things came to the current impasse. This presents obvious conflict of interest problems, but you don’t hire a plumber to decide your medical care when what you need is a heart surgeon, you just have to set it up so that the heart surgeon has somebody looking over his shoulder to make sure he’s not recommending unnecessary surgeries just to make extra bucks. And the person looking over your heart surgeon’s shoulder is going to be an expert on heart care too, and probably a member of the same medical society and such, but that just means you have to carefully examine their advice and check with even more sources before taking action, not that you should ignore their advice or go hire a plumber to decide your medical care.

    In short, it is not surprising that the Obama administration has hired a lot of people from within the system to work on repairing the system. Without additional supporting evidence, I am not currently willing to accept conspiracy theories about the Obama administration being the bagmen for oligarchs. We are currently in much better shape than we were at a similar point in 1931 when much less money had been vaporized out of the economy by the initial shock (the stock market collapse of 1929) than has disappeared due to the housing collapse, and while it’s fashionable to demean Hank Paulson and Tim Geithner as “tools”, evidence to support this thus far is of the same quality as proof of the existence of the Yeti. From where I’m sitting neither man is the sharpest tool in the tool shed, but Paulson did a reasonable job of stabilizing the patient for a lame-duck President while waiting for the new administration to take office, and the new administration has barely been in office for four months and it’s still unclear what they’re going to do about the core solvency issues once they have everybody onboard and the political consensus needed to take action (remember, nothing happens in a vacuum — there are always political constraints because we live in a democracy, not a dictatorship).

    To conclude: It may very well be that the Obama administration’s actions are as evil as you say. But at present, we simply don’t have enough evidence to make that statement with any degree of certainty. Until then, the best course of action is to urge the administration towards meaningful action in directions that we believe necessary, not jump up and down and rant conspiracy theories like a bunch of lunatics.

  19. How about if they know exactly what they do?
    It just happened their objectives could have been different than what you seem to expect.

  20. Tony Foresta,
    This is simple straightforward very close to what is going on. Your view is clear.
    To all others, well, talk is cheap…

  21. John Merryman, where can I find more of your thoughts? I intuit that you have much valid and valuable to say.

  22. Reasonable analysis and policy conclusion. “Trust busting” and oligarchic power breakup will not occur, however. Far too much political and economic capital has already been spent by both political parties on maintaining the status quo ante.

  23. Now we get to say “we told you so!” For eight years those of us who campaigned for Nader and the Green Party in 2000 have been ridiculed and blamed. Democrats and Republicans are so very different, we were told.
    Three of the top five donors to Gore were also in the top five for Bush. Wealthy corporations do not piss their money away. If they had no preference between the two candiadates, why donate? Because it was not a donation, it was a purchase. It was a purchase of the right to plunder the nation.
    When you vote for a candidate who is a Republican or a Democrat you are voting against yourself, against your country, against Democracy itself. The only way to end corporate control of the country is to stop voting for it.
    Right now the country has two major political parties. The Den-of-rats and the Rape-publicans.

  24. TonyForesta
    Reads like a conspiracy thriller plot.

    However, assuming there is any substance to your posting, what is your solution to the problem you have described?

  25. The solution notabanker, is exactly what Mr. Johnson and several others are suggesting. Remove the existing management teams of all the oligarchs immediately, and I would add prohibit them from ever again holding any management or trading position, or serving in any regulatory agency or government post. The government has already effectively nationalized the banks by pouring – 4 to 12 trillion taxpayers dollars into the finance sector alone in the last year. (I wish someone would tally all the government {Fed, Treasury, Congress} aiding and abetting of the finance sector so the exact, or close to exact number of trillions can be legitimately referenced.) While the government has used trillions (4-12) to bailout failed banks, – the Obama administration, like the bushgov is deep in the pockets of the financial cabals and oligarchs and has, populated it’s economic team with Wall Street insiders, and largely Goldman Sachs employee’s who, not surprisingly advocate for their fellow cronies, and oligarchs. The Obama has so far refused to question the integrity or accountability or accounting of the managers of the oligarchs who ushered the entire world to the brink of economic collapse. By allowing management to remain in place, and funnelling trillions of tax payer dollars into said managements coffers, and offshore entities and changing accounting rules to conform to said managements absurd pricing schemes, and providing extraordinary largess and overtly onesided favorable terms with virtually no downside risk to the oligarchs, – the Obama government has buttressed and shielded the oligarchs, and oligarch management and heaped all the imponderable costs, debts, and deficits, risks, burdens, pain and suffering on America’s poor and middle class. The PONZI scheme swindlers and thieves on Wall Street who conjured, profited wantonly from, cloaked, and exacerbated the worst economic crisis since the great depression are rewarded with billions of bailout dollars in bonuses and a getoutofjailfree card from the Obama government.

    Nationalize the oligarchs, remove their management, set up a resolutiontrustlikesubstance to manage the orderly dismantling, and dividing of the oligarchs into smaller institutions.

    Enact laws the prohibit and prevent the formation of toobigtofail oligarchs in the future.

    More restrictive regulatory laws must be passed and enforced focus on fairness, sound economics and accounting practices, transparency, and prohibiting, and forcefully punishing collusion, insider trading, tax evasion, offshoring, PONZI scheme’s, and other acts of financial malfeasance and perfidy. The punishments must involve long mandatory prison sentences and hefty fines to deincentivize these pernicious and destructive practices, which are evidently systemic and endemic in the system today.

    Overhaul the regulator industry, and re-examine the ratings agencies with the specific intent of weeding out collusionary, revolving door, and rackateering practices within the regulatory and ratings agencies.

    Compensation structures must be re-examined to and redesigned to prohibit the perverse incentive to profit from the fictional creation of massive mystical numbers, – and not quality products and services.

    Congress must kill now and forever the ability of US individuals, companies, and/or corporations to establish offshore, offbook entities to dodge tax liabilities, cloak accounting, and pile and shield management compensation.

    No doubt some would argue that the disruption would upset the markets and cause futher deterioration, or unwinding. From my perspective, disruptions and further unwinding are inevitable anyway. Until there is some transparency, and legitimacy, and credibility returned to the finance system, – the problems are simply kicked down the road, creating the next great bubble that will inevtibaly collapse and burn – and we’ll be in the exact same situation we were in Q4 2008, – only – with trillions of dollars of borrowed taxpayer dollars needlessly funnelled into the offshore accounts of the predator class swindlers, thieves and oligarchs responsible for the great unwinding.

    Unfortunately, and forgive the long post, but the reality is the oligarchs own and control the government. The government does not have the courage or integrity to stand up to the finance oligarch and demand accountability or enforce the rule of law – so what we will all be forced to hazard and endure is the same robbing and pillaging of poor and middle class Americans to feed the superrich, the predatorclass swindlers and thieves and the ruling oligarchs. Here is where things get sticky. The predatorclass is so far removed, and so disconnected from the rest of society, and the predator class and their spaniels in the government hold such little regard and respect, and such great disdain for America’s poor and middle class – that they foolishly imagine the poor and middle class will go silently and sheepishly to the flame. They are wildly mistaken. The boiling point is fast approaching. Rage is percolating and seething. Many Americans, many more than the parrots and message-force multipliers in the socalled MSM are approaching points of real desperation. We all know there are two sets of laws. One soft and gentle for the predator class, the other harsh and brutal for the poor and middle class. We know there is no representation in the government, and that the oligarch own and control the mechanic and conduct of the government. We know that the predator class and the oligarchs and the government work in collusion to rob and pillage poor and middle class Americans to feed and butress the superrich, the predatorclass and the oligachs. The question then is how much abuse, how much pain, and how much suffering are we willing to tolerate before retaliating.

    In a world where there are no laws, – there are no laws for anyone predators.

  26. Thanks TonyForesta. Your prescription for our malaise is certainly strong stuff. I note in a recent news item that the President has stated 100% confidence in his Fixit team. How do you propose to convince him that your problem assessment and solution is superior to his public statements?

    I think your rhetoric is memorable but you have yet to define how to ‘bell the cat’

  27. I pretty much agree with your analysis Tony, the retaliation, though, to have effect in this society has to mirror your proposed “solutions” rather than some uprising, armed or otherwise. Since it is the “government” that is unresponsive and that “government” is simply the corporate tools we continue to elect where do we find those individuals who would bring this meaningful change?

  28. Tragically notabanker, I do not see much hope in the people convincing the Obama government to “bell the cat” or change course, at least countenance alternatives to the rampant corporate wellfare ( policies being promoted and implemented by the Obama economic team.

    As one who fully supported Obama, and held the high hopes that he (unlike any other) politician would actually honor his promises to give voice to the voice, – I am shattered, and frankly astounded that Obama has pursued a overtly onesided solution, and surrounded himself with supplyside, voodoo economics Wall Street insiders, and Goldman Sach employee’s exclusively. There is not a single progressive or liberal voice, and any representative of labor, and any industry outside of Wall Street in Obama’s cabinet. This is a grotesque betrayal of the peoples best interests and specifically the people who voted for him with the audacity to hope for real change.

    Alas, what we see in many arena’s (accountability from the bushgov, torture, habeaus corpus, rendition, warrantless spying on Americans, Iraq, Aghanistan) unfortunately is the perpetuation of the status quo and the shameless advancing of the exact same penicious policies of the bushgov that undermined the credibility of the US globally, and weekened America politically, economically, legally, and morally.

    As far as retaliation michael magnotta, – I agree with you that “…to have effect in this society has to mirror your proposed “solutions” rather than some uprising, armed or otherwise.” No one is condoning or promoting violence, – but I am attempting to shine light on the fact that many people are approaching crisis thresholds that once breeched will push some of those individuals to pursue asymetrical solutions. There won’t necessarily be any sound reasoning, or logic, or principles or morality, or law guiding these individuals (or groups of individuals) asymetric actions or retaliations, – but a more primal or animal forces will drive thier actions.

    Restoring some sense of balance, basic fairness, legality, and equality, or egalitarian policies to the financial system could alleviate this ferocious strain and tension between thehaves and thehavenots. Reframing the unmitigated greed prevalent and systemic on Wall Street as unpatriotic and/or unhealthy could be a philosophical starting point.

    But, if nothing changes, and from my perspective, – I do not see anything changing – there will come a point when the mob turns on the predatorclass.

  29. so money and private business is just a road for traveling on… and the government owns the road… being that it is paved with private business and personal ‘imagined futures’… so we are a communist society where government should have greater control over the money since they produce the value of transport

  30. we are surrounded with surrogate wealth ‘TVs, cars, government’… and somehow it is now just the traction required to till the fields… wealth is real, we own it, there is no trade with the government they choose a direction… be it roads, wars, green, carbon trading footprints… this is not wealth, abrogating contracts to control supply of dollars ‘be it lawn mowers, or burger flippers’… fact of the matter is we produce less wealth as a nation, and our contracts we wrote up are worth more than we sold them for, so now we want to subsidize a distasteful direction with dollars… when its obvious we paid handsomely for the analysis on the underlying colateral… we got screwed, or rather we screwed ourselves… that is not wealth and money cant fix the problem of jealous greed… boils down to the banks were terrible investors, and the people have unrealistic expectations being their investments are worth 20% face value… government can raise taxes to pay for imagined wealth but thats the problem they ‘IMHO’ produce none… all we can do is choose a direction of real, healthy, economic wealth… and to me that means growth of our economy that does not require government subsidy… i am of the opinion the banks assets should have been sold off long ago to people who could be accountable for the value that they offered

  31. State capture does not require conspiracy ‘notabanker’, but can be analysed/explained from a number of very divergent perspectives, one of which has been provided by people such as Daniel Kaufmann, others which have historically taken a more leftist or class perspective and still others such as sociologists taking a power elite view.

    Not much can be done if the problems are ignored or displaced rather than confronted.

  32. Euro,
    I’ve had a few similar thoughts printed around the
    web, but mostly I’m just a student of nature applying some basic logic to economics.

  33. Nah,

    Command economies are dictated from the top down. When you have a process which tends to accumulate all value to those at the top, that is where we are headed anyway. Real growth is bottom up, not top down. The fact is that we need some top down order in order to function as a society in the first place. What I’m saying is not for the state to own everything, but to admit that it does create the monetary system. Whether it then leaves it to private management and profit taking is another matter. There are times when private banks and communities issued their own currency and they worked quite well, until they didn’t, for various reasons. We need a broad based currency. We don’t need a broad based banking system, although it needs to be regulated by whomever issues the currency in which it deals.
    As I pointed out, if people do recognize that currency really is, which it already is, a form of public utility, then they would be much less inclined to monetize wealth in the first place. This serves to reduce the power and influence of those managing the currency!

  34. sigh….more “words”, when what you need is action. As you all “blog” yourselves into oblivion everyday…the theft continues.

    I have said this before: nothing will change, until you march, armed, into Washington. Nothing. Your deeply corrupt politicians and business people don’t fear “words”. Armed citizens marching into washington….they fear.


  35. silly things,

    I don’t mind your comments. However, I do mind the fact that you “reply” to the first comment – even though your “reply” has nothing to do with that comment – simply to move your comment to the top of the page. You are no more or less important than any other reader of this blog.

    If you do that again, I will delete your comment.

  36. James Kwak,

    Hahah, perhaps it is my turn to question your logic?!

    “You are no more or less important than any other reader of this blog.” – James Kwak

    I don’t see the logical connection with your quote above and how I’ve posted my comments. The commenting mechanism is readily available to all. I didn’t enjoy any special advantages that aren’t available to all others. The fact that my comments, in my view, are more valuable than the many meaningless rants not withstanding:-)

    On the subject of fairness, the current commenting system rewards those who clicks submit first. Is that really fair to the guy that put in more thoughts into his comment? Shouldn’t the thoughtful comment get more attention?

    Let me broaden the subject of fairness to a larger scale. Perhaps you should take a statistical look at how many comments are meaningless rants. From that you can estimate how much time a reader has to waste on them. Finally, multiple that number by all your readers! Is it fair for baseline scenario to impose that level of inefficiency on its readers?

    Of course, to be fair, I know you are limited by In that sense we are working around the limit of the underlying system. As a student of economics, my action should’ve pleased you right? I competed more efficiently than the next guy!

    In conclusion, I disagree with you:

    1. logically – I didn’t enjoy any special advantage!
    2. objectively – Baseline scenario’s commenting system is fundamentally unfair and inefficient!
    3. subjectively – My comments are more valuable than others’ meaningless rant!

    I have to admit I am LOL as I write this! Honestly, you need to move to a better commenting system to take baseline scenario to the next level!

    Take care,
    Silly Thing

  37. The Quiet Coup
    got me thinking:
    “The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers”

    JJS: The “only” way? Why not spread around the “concentrated” wealth and power? Why underestimate the power of economic justice?

    “Faith in free financial markets grew into conventional wisdom”

    JJS: But you just painstakingly demonstrated, markets are not free but orchestrated. And most “civil servants” are not fiscal savants.

    “the economy can’t recover until the banks are healthy and willing to lend.”

    JJS: Really? It has never has before? Again, the pseudo-supremacy of money — symbols over land — stuff. That human brain’s need for symbol — which takes so much pleasure in religion and astrology and so forth — can easily obscure reality.

    “the Federal Reserve has taken on a major role in providing credit to the economy.”

    JJS: To the “economy”? Not to me or anyone around here. It’s that scepter-centric worldview again.

    Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer.

    JJS: “Complex” means don’t blame those responsible if it doesn’t work to takes too long. And it calls for self-styled “experts”. And sticking the citizen with the tab is not a foregone conclusion. Why underestimate the power of economic justice? Forget bailouts. Just de-tax efforts, charge full-market value for government-granted privilege (from EM spectrum licenses to oil leases) and pay the citizenry a dividend, as would any healthy economic entity.

    The “solution”, after breaking up the banking cartel, is a political one, “thou shalt not grow or merge,” yet without correcting the condition that allowed concentration in the first place, which is the privatization of publicly-generated, mainly and classically the value of land, or location more precisely. Have government recover that and share it with us, and mortgages — at half size and no longer inflating — would never again be such hot commodities. And deeper still, you’d flatten the business cycle. Then, in widespread prosperity, the only problem is it’d take the limelight off economists and commentators.

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