Hard Warning
If you labor under the thought that meaningful reform to prevent another financial crisis like the one in 2008 is coming from Washington, think again. Wall Street bankers' orgy of greed did not stop with the near-global meltdown of 2008, and the "reform" legislation in Congress is being hand-written by thousands of high-paid lobbyists as well as the industry's handmaiden, the Federal Reserve. Read Matt Taibbi's latest Rolling Stone article, " Wall Street Wars" for the wretched story of what became of solid, on-target reform of the failed regulatory squalor in which the powerful financial interests of this country wallow and thrive.As a financial economist, I despair at what is coming, and come it will. I was right the last time, and I'll be right again this time. Solid economic theory tasked to the objective analysis of data veritably howled of a bad, bad crisis, and I wrote about it in my four-part series, "The Economics of Wreckage," my two-part series, "The Federal Reserve under Fire," and finally in my Spring 2008 article, "The Gospel of Impending Doom." My detailed explanations of theory, interpretations of historical and timely data, and predictions based thereupon did no good, of course.
I am wiser, now. Going through the same process of meticulous exposition would have no impact, but I will tell you this: the analysis that motivated my previous warnings now informs me of much greater risk of a confluence of potentially disastrous economic problems—both inflation and recession—before the next presidential election.
When the whispering breeze of a real collapse of the global financial system brushed across our distracted faces in mid-September of 2008, no one could possibly have imagined (except those of us who did, but we were doomsayers, conspiracy theorists, anti-Bush malcontents, fanatics, marginalized academics, or some other manner of noise beyond the fringe of respectable inclusion).
The tribulation will be worse this time. Much worse. Contrary to what you might have heard, the sky really can fall.
As disturbing as that light wind of foreboding catastrophe might (or might not) have been to you, it was the muted, ill breath of genuine, life-changing storms to come in the cascading shards of our broken shelter of sunshine proclaimed by failed stewards and their failed successors. Those are the men and women—our leaders, their bureaucrats, technocrats, handlers, promoters, and thinkers—who have perverted the rule of law to protect the sovereign and its hordes of enforcers, inquisitors, prosecutors, and financiers. In toiling at that work so debilitating to a nation of free people, the sovereign has, in its reign of impunity uplifted on the stage of real and imagined threats touted in endless acts and scenes, become the coalition of inhuman entities ensouled not by any nature or its god, but by the fiat of corrupted law that poses to quicken the unensoulable, be it an unaccountable government or the enterprise of commerce in corporate form.
The disaster this time will not be owned by the Bush Administration, and you can do nothing about what's coming. You might think you can, but you cannot.
As I wrote in January, "Look hard into that darkening twilight: the sun is setting behind you."
Squander the last wisps of day at your own peril.
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Wrote Moody Blue:
Wrote Peter of Lone Tree:
One wild card is how angry the American people might get. Unlike the 1930s, we are no longer a nation who call each other "Mister" and "Ma'am," where even the down-and-out wear neckties and speak a discernible variant of regular English, where hoboes say "thank you," and where, in short, there is something like a common culture of shared values. We're a nation of thugs and louts with flames tattooed on our necks, who call each other "motherfucker" and are skilled only in playing video games based on mass murder. The masses of Roosevelt's time were coming off decades of programmed, regimented work, where people showed up in well-run factories and schools and pretty much behaved themselves. In my view, that's one of the reasons that the US didn't explode in political violence during the Great Depression of the 1930s - the discipline and fortitude of the citizenry. The sheer weight of demoralization now is so titanic that it is very hard to imagine the people of the USA pulling together for anything beyond the most superficial ceremonies - placing teddy bears on a crash site. And forget about discipline and fortitude in a nation of ADD victims and self-esteem seekers.
Kunstler Forecast
Wrote Dark Wraith:
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Something is really screwed up when we award billions to Wall Street elites for doing things we don’t comprehend, even as we lay off teachers by the thousands.
. . . And unfortunately we also don’t know enough to ask the most important question of all: Do these financial barons create economic value or are they just siphoning off wealth from other parts of the economy? Is their work productive or are they just blowing air into the next financial bubble that will explode in our faces?
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Corrupt practices are pervasive; regulation is behind the curve; lightening fast computers now do the heavy lifting. When professionals in the field were asked how they define criminal conduct, the majority surveyed said crimes only occur when you are caught.
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In a market where 70 percent of all trades are executed by computer algorithms via High Frequency Trading, Goldman Sachs has the power to make the market crash or rise at will.
. . . Coming on the very day that Congress considered two key financial reforms, the timing of the "flash crash" raises concerns that Wall Street is resorting to extreme tactics in its efforts to intimidate politicians who want to rein in the capital markets casino. Thursday's market plunge could have been an act of financial terrorism. Wall Street has both the motive and the means: Goldman Sachs, which is currently under investigation for a very different kind of fraud, has the trading power to make just such a market crash occur, and has much to lose from financial reforms moving through Congress.
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How artificial intelligence and robotrading pose a growing threat to the global marketplace.
. . . But the short version is simply a high-tech, high-speed variation on the type of confidence games that have been around forever. The only difference now is that they can be gamed in eyeblinks by machines whose capacity for pattern recognition and algorithmic trading is faster than ours. The shorter version is that they have no mercy, and there's nothing us puny humans can do about it.
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Thus the study of financial fraud received little attention.
. . . Control frauds always fail in the end. But the failure of the firm does not mean the fraud fails: the perpetrators often walk away rich. At some point, this requires subverting, suborning or defeating the law. This is where crime and politics intersect. At its heart, therefore, the financial crisis was a breakdown in the rule of law in America.
My old hat is all worn out. I must shop for heavier duty foil.