Category Archives: Economy

Greenspan and Market Morals

This is a reply to an article by David Corn about Alan Greenspan testifying before a Congressional Committee about his role in the “financial crisis”

The basic assumption of the “self-regulating market” ideology is, that bad products will be driven out because

“It is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.”

But this is only valid if the buyer has ACCURATE INFORMATION about the quality, (long term) consequences of  buying / using the products and the real intentions of the seller. Only if the participants have access to the same information, will there be any chance of an informed judgement by the “market”.  In this context it is no surprise, that the PR-industry is booming…..

In the case of Wall Street this assumption is absolutely laughable: hedge funds and other derivative and commodity traders are gambling with the livelihoods of other people: whether they bet on the prices of food, energy or the risk of default, the very essence of the game is to deceive and to manipulate, to drive prices down or up, whatever is profitable for the moment. The long term consequences for farmers, consumers and society as a whole did not bother them. They played a combination of poker, charade and a pyramid scheme.. always trying to find a new sucker they could cheat on… pity, that in the end, they screwed each other.

So it is hilarious to hear politicians lament “the loss of confidence” in the banking industry which they seek to restore by handing out trillions to professional con-men….. Let´s rescue the swindlers because they are “too big too fail” – and create even bigger financial conglomerates in the process! How stupid can you get? (We need to break up the financial supermarkets and separate commercial from investment banking and insurance companies as Roosevelt did with the Glass-Steagall Act.

Hey, let´s commit the ultimate blasphemy and ask why banking is not a public service?  Why do banks have to be private businesses? Why go on being slaves of a system of perpetual debt? Why not curtail interest rates for productive loans and mortgages (for family homes)? Why not stop the debt trap for developing countries by providing alternative loans with very little or no interest at all? (just paying back the principal and a small adminstrative fee – the real return for society would be that more capital for infrastructure, housing, health care and education would be available; instead of giving “aid” we could give them self-determination for a change … Is this just a fantasy?

If a trader can make millions in a few hours, days or weeks – why should he care about his “reputation”?  Yes, an important factor for moral behaviour is the acceptance and respect of our fellow citizens but in this environment, “respect” and recognition increases with your ability to create huge profits out of thin air, basically by cheating others. The more opaque and less accountable to the public a business becomes,  the smaller is the incentive for the players to behave “morally” or responsibly. In the long run investment bankers, hedge fund managers and the like seem to live  in a parallel universe and they have even managed to create their own black hole! (which absorbs all the “market efficiency” Greenspan was talking about..)

In the end “making money” (with no real productive value behind it) becomes an obsession and every new record profit by the other trader  is an incentive to strive for more….

This is no support for the attempt to biologize the problem ( “greed” as part of human nature, there we go again…) but proof of Erich Fromm`s assessment that in order to function and expand, the capitalistic economic system must fuel greed and selfishness until  finally “economic behaviour” became separated from ethics and human values. The total victory of the economic machine, which was supposed to run according to its own laws  was only a matter of time.

E. F. Schumacher wrote in his classic “Small is Beautiful that capitalism is doomed to fail because it contains no limiting principle…..The “growth” and profits are never enough… so people and the environment have to be exploited more and more .. until the system collapses.

Greenspan (who was called an idiot in the online forum) is only an idiot in the sense that all classic economists are idiots because they are blinded by ideology and, totally ignoring environmental imperatives,  promote an economic system that is incompatible with nature´s laws and human well-being. A system that has to grow incessantly in order to function is self-destructive (like a cancer grows until it kills the host organism).

He pumped all that cheap money into the derivatives system because otherwise the ongoing decline (depression?) of the US economy would have been obvious years ago, so creating speculative bubbles was all that was left to boost “growth” rates and maintain the illusion that the US is still the “engine” of the global economy (only with Wall Street betting and military expenditure). From his (and his cronies) point of view they did the right thing because the top 1% of Americans did extremely well and the top 20% now own 85% of the national wealth…. Perhaps some of them have lost a couple of zillions lately, so what? Paulsen´s rescue money may find its way to their pockets, who knows?

The majority of US-citizens though, must be content with higher debt (substituting higher income) and greater “volatility” (insecurity) as these factors are symptomatic for the current “financial system”.

The ugly truth is exposed here: What the hell is going on?

Final words must go to MILTON FRIEDMAN – the godfather of free markets –

“If I’m going to do good with other peoples’ money, I first have to take it away from them. That means, that the welfare state philosophy of doing good with other peoples’ money (…) is a philosophy of violence and corrosion. It’s against freedom, because I have to use force to get the money. In the second place, very few people spend other peoples’ money as carefully as they spend their own.”

(He meant social welfare of course, corporate and banking welfare is of course OK….)

and a Canadian Prime Minister:

“Until the control for the issue of currency and credit is restored to government

And recognized as its most conspicous and sacred responsibility,

All talk of sovereignity of parliament and democracy is idle and futile.

Once a nation parts with control of its credit, it matters not who makes the nation`s laws,

Usury once in control will wreck any nation.”

William L. M. King, fmr. Prime Minister of Canada (who nationalized the Bank of Canada)

Source: Money as Debt

By the way, did you notice, that Canada appears to have hardly any  problem with the “financial crisis”?

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Bailout Party for the Sharks

Hearings of the House Oversight Committee revealed  that  shortly after the $85 billion taxpayer bailout last month, AIG executives spent more than $ 400.000 on a “conference” in a luxury resort in California. The bill included $200.000 for hotel rooms, almost  $150.000 on catered food banquets and $ 25.000 for salon and spa-treatment…. Not to forget the 10.000 Dollars for booze…. According to recent reports AIG has already used up $61 billion of its $85 billion government loan.

Former CEO Martin Sullivan, who has already pocketed a $ 15 million severance package, was admonished by the committee for behaving as if he had no part in the home-made calamity. Expressions like “financial tsunami” were used to insinuate that we are dealing with a kind of natural disaster which is nobody´s fault.

Sullivan said that “the most respected financial institutions crumbled one after another” (respected by whom and for what, one wonders?) He received special scorn at the hearing because he “went before the board of directors and specifically asked them to ignore the huge losses for the purpose of the compensation plan” .

Do you know what a “Credit Default Swap” is?

No ?  And really don´t care?

Well, neither did I until the “global crisis” unravelled and the panic wave began to spread. We are talking about a global double digit (or more)  trillion dollar business with no oversight and no limiting principle. A simple explanation of the CDS-system can be found in this video:

All I can say is:  there is a method in madness. Whoever dreamed up this insane system where financial institutions can act as seller and buyer of “debt insurance”  at the same time, and bet against each other on the risk of default, these people need psychiatric help. With no transparency or accountability, no containment of any sort, the web got so big that thousands of banks and other financial institutions all over the world are apparently now entangled in it and nobody seems to have a clue about the exact figures or real values of these deals.  Even George Orwell would have been impressed to find that these strange transactions robbed the word “insurance” of its meaning and transformed into another version of “ignorance is strength”.

The idea of a collateral or an “asset backed” loan has been turned on its head because these guys played with debt as if it was some kind of party game: perhaps a mixture between poker and charade….

All these fancy names  and acronyms  like ABS, LBO, CDO, SIV, etc. Most of us did not have a clue what these things are and only now, when the shit has hit the fan, are we learning that these  “innovative instruments” are the “financial weapons of mass destruction” Warren Buffet was talking about years ago…

Le Monde Diplomatique (British Edition) published an article in 2006, warning about the consequences of a deregulated banking system:

” More importantly, deregulation and financial innovation have led to forms of crucial data that cannot be collected and quantified, leaving both bankers and governments in the dark about reality. We may or may not live in a new era of finance, but we certainly are flying blindfolded.”

“On 24 April Stephen Roach, Morgan Stanley’s chief economist, wrote that a major financial crisis seemed imminent and that the global institutions that could forestall it, including the IMF, the World Bank and other mechanisms of the international financial architecture, were utterly inadequate. Hong Kong’s chief secretary deplored the hedge funds’ risks and dangers in June, and at the same time the IMF’s iconoclastic chief economist, Raghuram Rajan, warned that compensation structures encouraged those in charge to take risks, endangering the whole financial system. Soon after Roach was even more pessimistic: “a certain sense of anarchy” dominated academic and political communities “unable to explain the way the new world is working”. In its place, mystery prevailed. By last month the IMF predicted that the risk of a severe slowdown in the global economy was greater than at any time since 2001, mainly because of the sharp decline in housing markets in the US and much of western Europe; it also included the decline in US labour’s real income and insufficient consumer purchasing power. Even if the current level of prosperity endures through next year, and all these people are proved wrong, the transformation of the global financial system will sooner or later lead to dire results.”

Gabriel Kolko rightly concludes that “Financial deregulation has produced a monster, and resolving the many problems that have emerged is scarcely possible for those who deplore controls on making money. The Bank for International Settlement’s (BIS) annual report, released in June, discusses these problems and the triumph of predatory economic behaviour and trends “difficult to rationalise”. The sharks have outflanked more conservative bankers. “

In my view, it is precisely those sharks that have now been “rescued” by the government… The final paragraph of the article (written in 2006) should remind us that the “rescued” are not the victims but the perpetrators here…

“There is now a growing consensus among financial analysts that defaults will increase substantially in the near future. Because there is money to be made in the field, there is now great demand on Wall Street for experts in distressed debt and in restructuring companies in or near bankruptcy.”

Another thought-provoking piece in LMD can be found here: (talk about  foresight….)

“Don’t Turn The World Over To The Bankers” by Kenneth Galbraith

How all legislative mechanisms to prevent such a crisis were eliminated in the US is explained here:

This is anything but a “financial tsunami”: it´s another euphemism for neoliberal policies: Planned Misery

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Economic Guru: Wall Street Rescue Plan is Wrong

(The identity of the economic expert is revealed at the end of the interview….)

Q: In view of the current crisis, don`t you think that corporations, especially banks have a social responsibility?”

A: “So the question is, do corporate executives, provided they stay within the law, have responsibilities in their business activities other than to make as much money for their stockholders as possible? And my answer to that is, no they do not”

Q: Under the circumstances it seems obvious that “leave the markets alone” is no longer tenable and that the government is after all the only reliable institution to turn to…

A: “The government solution to a problem is usually as bad as the problem.”

Q: Many people think that the main cause of this crisis is unbridled greed of bankers and investors. What is your response to these allegations?

A: “What kind of society isn’t structured on greed? The problem of social organization is how to set up an arrangement under which greed will do the least harm; capitalism is that kind of a system”

Q: The government aims to prevent a further spread of the crisis and to restore confidence in the banking system (the banks don´t trust each other anymore..) So is public critisicm about the rescue of “arrogant bankers” really justified?

A: “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”

Q: “Do you think the accusations, that President Bush, Sec. Paulson and others have exaggerated the crisis to stampede congress into accepting the  hastily produced “rescue plan” at the expense of taxpayers are justified?

The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority.”

Only a crisis, real or perceived, produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.

Q: Is it morally acceptable to let the taxpayers pay for the recklessness of Wall Street? To force them to act as guarantors for an astronomical amount of debt,  toxic loans and practice a kind of banking welfare?

A: “If I’m going to do good with other peoples’ money, I first have to take it away from them. That means, that the welfare state philosophy of doing good with other peoples’ money (…) is a philosophy of violence and corrosion. It’s against freedom, because I have to use force to get the money.

In the second place, very few people spend other peoples’ money as carefully as they spend their own.”

This imaginary interview was conducted with Milton Friedman, the “most prominent economist of the 20th century” and greatest advocate of deregulation (this translates into government is the source of all evil.. – lets drown it in the bathtub…)

The quotations are attributed to Friedman, I just used them as “answers” to show that these principles can only survive by applying them very selectively and are rather like the absurd claim of US militarists: it´s not the weapons, it´s who has them…..

For a deeper analysis of Friedmanite / Friedmanesque or even Friedmaniac policies see also

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Money As Debt: The Economic Dictatorship nobody talks about

Money as Debt: Please watch this video

to understand how the debt system really works

This presentation seems very simple, even childish at the beginning (as it is a cartoon) but gets better all the time and ends up as a real eye-opener at the end…. Here are some quotations from the video:

“Until the control for the issue of currency and credit is restored to government

and recognized as its most conspicous and sacred responsibility, all talk of sovereignity of parliament and democracy is idle and futile.

Once a nation parts with control of its credit, it matters not who makes the nation`s laws,

Usury once in control will wreck any nation.”

William L. M. King, fmr. Prime Minister of Canada (who nationalized the Bank of Canada)

“All of the perplexities, confusions and distress in America arises not from the defects of the constitution, not from lack of honor or virtue, so much as from downright ignorance of the nature of credit and ciculation.”

John Adams, father of the US Constitution

“Whoever controls the volume of money in our country is absolute master of all industry and commerce and when you realize that the entire system is very easily controlled one way or the other by a few powerful men at the top, you will not have to be told, how periods of depressions originate.”

James Garfield, (assassinated US Pres.)

“I have unwittingly ruined my country. A great industrial nation is controlled by it´s concentrated system of credit… We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by free opinion, a government by conviction and the role of the majority, but a government by the opinion and duress of a small group of dominant men.”

Woodrow Wilson, US Pres.1913-1921

“The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented.

Bankers own the earth. Take it away from them, but leave them the power to create money and with the flick of a pen they will create enough money to buy it back…

Take this great power away from them and all great fortunes, like mine, will disappear, and they ought to disappear for than the world would be a better and happier world to live in.

But if you want to continue to be slaves of banks and pay the cost of your own slavey, then let the bankers continue to control credit (and create money).”

Sir Josiah Stamp, Director of the Bank of England 1928-1941 (reputedly the 2nd richest man in England at the time)

“The inability of the colonists to get power to issue their own money permanently, out of the hands of George III and the international bankers, was the prime reasong for the revolutionary war.”

Benjamin Franklin

“Money is the new form of slavery and distinguishable from the told simply by the fact that it is impersonal, there is no human relations between master and slave.”

Leo Tolstoy

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We never had it so good: “Financial Woes are not as bad as it gets”

“The important thing is not to stop questioning.” Albert Einstein

Max Hastings writes in the Guardian Weekly about the psychological impact of the financial crisis and recommends ” a little knowledge of history” to remedy the situation because “today`s  woes” pale in comparison with the “threats to health, diet or physical safety” that confronted earlier generations “over the past millenium”.

He begins his analysis by reminding us that “mankind almost always gets threat assessment wrong” and following his thoughts further one has to congratulate him for proving the point.

He then recommends reading Pepy´s diary for “anyone silly enough to suppose our own times extravagantly dangerous“.  At first glance this assessment seems right because the risk of epidemics (at least those based on poverty, lack of hygiene and lack of scientific knowledge about germs) or devastating fires (because fast arriving fire-brigades and other life-saving infrastructure was unavailable) is very low today compared to earlier centuries.

But this only applies to  affluent societies where some sort of social justice (income distribution) and has been achieved. For the poor and “developing” (adopting the unsustainable capitalistic system that we have forced on them) countries times have not changed so much and if we look at the Human Development Reports of the UN there is no reason to celebrate. Millions of people still live in abject poverty, with no sanitation, no potable water, no access to decent healthcare or education, no social safety net. For many of them, times may not be so different from 17 th, 18 th or 19 th century Europe. Here children no longer have to work 12 hours in cotton mills,  their rights have been acknowledged,  but as we all know, in many parts of Asia child labour is a “normal” part of the economy as are adult sweatshops where people are practically working as slaves. We know all that but prefer to forget about it when buying our trainers, clothes and Christmas decorations….

Hastings goes on to say that “crises of peace, precipitated by disease, natural disaster or financial collapse are often harder to bear than those of war” because people feel they are impotent to influence the situation.

This sounds not unreasonable but I would object to putting disease, natural disaster and financial collapse into one category (or appearing to do so by listing them together). The alleged financial collapse is 100% man-made, a longer systemic process, no sudden calamity and not the result of adverse fate.

While it is true, that “the illusion of useful activity” can help to live through a crisis we are seeing now that this principle – when applied to the perpetrators and accessories of the “crime” – (politicians, finance “analysts”, economists, gullible journalists) does not reduce the anxiety. And how could it?

First “Frankensteinian” Treasury Secretary Henry Paulson tells the US Congress to give him feudal discretion over almost a trillion USD (of debt passed off as real money)  because otherwise the sky would fall on us. Then President Bush steps in to “convince” his own party dissidents that “ordinary Americans” and the rest of the world would suffer terribly if this “bailout” pardon “rescue”-package is not passed in the quickest of time.

The same journalists (at least here in the German speaking world) who only weeks ago had written that the financial crisis had little impact on the real economy or the ordinary consumer now, in a remarkable about-face joined in the fear-mongering choir from Washington, London and later Brussels and when the stocks started to tumble, didn´t it prove them right?

No, says US progressive economist Dean Baker who warned of the coming crisis years ago and points out that the stock market is NOT the economy and its fluctuations have more to do with mass psychology than real economic values.

But it gets better: first the media( following the politicians) tells us not to worry because “experts” have told them that ordinary people will not be affected by the crisis (former top executive of Deutsche Bank says: Subprime loans are only a small segment of the whole business…). Only a few weeks later they amplify the alarm bells from Washington and, having successfully alienated the public, they now start lecturing us about “staying calm and not succumbing to panic“….

Hastings concludes that “capitalism is suffering a richly deserved shock to its hubris” but … “possesses enough resilience, energy and imagination to come out the other side.”

Judging by its past performance (last 200 yrs)  I doubt that very much. Talks about resilience have very little credibility now after former Goldman-Sachs CEO Paulson professed his trust in the financial markets on Fox News in March 2008 and the record of capitalism is disastrous if we bother to look at the whole system, not just the usual parameters like growth of GDP, trade balance, etc.

As Marx understood, capitalism suffers from a systemic fault: Overproduction – since there is no self-containing principle . To increase profits the system must expand, increase productivity  and consumption. But the inherent contradictions cannot be overcome:

  1. As part of  production labour costs (wages) must be driven down to increase profits.
  2. To ensure increasing consumption incomes must rise or prices keep falling to prevent a slump.
  3. Falling prices (per unit) can only be achieved by lowering wages and / or prices for raw-materials and /or automation (which replaces jobs) and increased productivity.
  4. Since the profits of all these measures are no longer re-distributed to the workers and the tax burden is more and more shifted from capital to labour, consumption is stagnating or declining and the real economy can no longer deliver increasing profits.

To overcome this dilemma, economists tried globalization (increased access to cheap labour, raw materials and new markets, formerly known (in another shape) as colonialization) and neoliberal “reforms” – both of which worsened the situation (but further enriched the business elite with “trickle up” policies). The last resort was “financialization”: In order to maintain rising profits more and more (actual and borrowed) money is being pumped into the financial markets (as mentioned at the beginning but the enormous artificial profits  are not backed by real value: they “created a hyperactive financial economy and a stagnant real economy“.

Greenspan flooded the market with cheap credit because he knew that creating another bubble  (as the only way to keep the system afloat (at least until he fled the scene of the crime, …). The extreme volatility of this system and risk for society this virtual casino created apparently did not bother him, the Fed or the bankers and politicians who worked hand in hand….

Social Welfare is obviously out, corporate and banking welfare is in.

Hearing economists and politicans now talking about “restoring stability to the financial markets” (by burdening the state (= the citizens) with more billions of debt is beyond irony. These guys took excessive risks with their derivatives and “securitizations(Orwell would have loved this expression) and did not give a damn about the consequences as long as they could find a sucker to pass on the toxic debt….

Capitalism is unsustainable because it ignores its inherent contradictions and – most of all – it is still not willing to acknowledge that “the economy” is a sub-system of the natural production cycle and must therefore respect ecological imperatives. Hastings assessment that we are facing “No threat to health, diet or physical safety” is blatantly false: (he meant it in the context of the financial crisis apparently , but  if we look at the crisis as a symptom of a bigger disease, in the context of capitalism as religion, where governments see themselves as servants of the economy the threat is enormous…)

The insane concept of exponential growth also causes huge environmental destruction (loss of habitat and functioning ecosystems, loss of biodiversity, “climate change”, etc.

Recent reports about the increasing threat to biodiversity (a quarter of mammals are now facing extinction) are really frightening, but they are just the tip of the iceberg (a metaphor with no future for the same reasons….) Many people used to laugh about environmentalists being concerned about the disappearance of butterflies, toads or certain types of bats, plants, etc.  because they thought that these species had no intrinsic value and no economic value. Now we know that this is completely wrong: They are all a part of functioning ecosystems and these are the pillars of the biosphere. Their services are indispensable and priceless (e.g. trees filtering the air, retaining water in the soil, etc.)

Hastings is insofar right  as we no longer have to fear the epidemics of earlier centuries and have achieved  remarkable increases in food production and in general great convenience in our lives but at what cost?

  • New invincible viruses (attacking and outsmarting the immune system itself and resistant bacteria are emerging and threatening our health (HIV, “bird flu”, MRSA, new forms of TB, etc.)
  • industrial farming requires tons of toxic pesticides, synthetic fertilizers and antibiotics; “outpout” has increased (energy input even more, the ratio is about 1:10) but the quality of our grain, vegetables and meat may be worse than 100 years ago….to say nothing of soil fertility;
  • Scientific “innovation” has brought us  a series of toxic and cancer-inducing chemicals (no immediate health effects but long-term damage like PCBs, plastifyers, Asbestos, etc.) Allergies and other auto-immune diseases are constantly on the rise and “scientists” are messing with the immune system – with terrible results…. (how can you find a cure for something when you haven´t even understood what causes the problem? )
  • Every year we find ourselves exposed to  more “food scandals” like BSE, “bird flu” in poultry (allegedly from wild birds but much more likely the result of factory farming…), the latest milk powder scandal in China, several salmonella outbreaks in the US, etc. Our food travels thousands of miles…
  • Having “externalized” all these  problems to society for decades, the industry is still trying to belittle the problems (see “Climate Change” and energy debates) and politics has little more to offer than useless conferences, the scam of “emissions trading” and greenwash like “clean coal”… They cannot solve the problems, they are part of the problem.

So, my final conclusion is: NO, the threats we are facing now are not less fearsome than those of earlier centuries, on the contrary. Massive environmental pollution and degradation – most of all with persistent toxic chemicals and mutagenic substances like radioactive fission-products that are going to threaten all forms of life for generations to come (see also use of uranium munition in Iraq, Afghanistan and former Yugoslavia) are a deadly legacy of our sick economic ideology which traded off survival for short term profits.

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Wall Street & Human Greed: Blame it on the genes….

Human behaviour is NOT determined by genes, it is mainly the product of socialization, the code of ethics in a certain culture, social conditioning in the family, in school, in society in general, etc. Genes are not all-powerful, independent control units but part of a sophisticated information-network in the cell and the whole organism, which reacts to different environmental situations. Social experiences can alter gene-expression so this is not a one-way street of control and command.

The “Selfish Gene” is an absurd concept whose main purpose is to excuse the devastating consequences of an insane economic ideology which encourages greed and selfishness, even claims that selfish behaviour will be good for the whole of society. Greed is not the result of “genetic interests” but part of the “pathogenic nature of our present social character” to use the words of Erich Fromm in his masterpiece” To Have or to Be” .

His conclusion was, that the economic system needed to fuel egotism, selfishness and greed in order to function (to ensure ever encreasing consumption and profit) and that this self-damaging behaviour would eventually create a sick society and destroy the environment. Fromm also pointed out that once “economic” behaviour became separated from ethics and human values the total victory of the economic machine, which was supposed to run according to its own laws (“rule of the market” in modern parlance) was only a matter of time.

But based on socio-anthropological findings, for him (and for me, too) man is an essentially moral and social being, which thrives on solidarity, compassion, love and shared emotions with other people, not material abundance or lust for power

To think that we are genetically inclined to cheat, lie, steal, or kill is the result of a disturbingly reductionist view of biology. Why has nature endowed us with a conscience? Why do we feel good when we help others, why are we capable of empathy and compassion – even for strangers and animals – when competition and selfishness are the ruling principle of nature? Why do people risk their lives to fight for justice? Why do progressive journalists and writers feel inclined to raise public awareness of corporate greed, political deception and environmental destruction in their writings? (They could make more money with cheap literature….)

The looming ecological catastrophe is NOT the result of unconstrained “genetic interests” but the consequence of the pathological pursuit of profit and power by TNC´s and unregulated “financial markets”. The only problem is that most governments, too, have succumbed to neoliberal ideology, the rule of globalized markets and the idea that the value of human beings depends solely on their ability to increase GDP.

The ugly truth is that humans, all forms of life, even soil and water have become commodities in this globalized market society. For economists, they have no intrinsic value, their price is determined by the market, by the law of supply and demand. The “labour market” is in reality a market for human beings, their economic “value” of course constantly falling, because downsizing, automation and outsourcing jobs to low-wage countries creates more and more “redundant” people…

The madness of economic theory can also be realized in the fact that nature is treated as “income” not as capital. To let economists calculate the “cost of climate change” is totally useless since they are incapable of understanding Einstein´s wise words:

“Not everything that counts can be counted

and not everything that can be counted, counts…..”

The intrinsic (and economic) value of functioning ecosystems is so great it can never be and need not be demonstrated in financial terms. Just a basic knowledge of biology and ecology is needed to realize that the totalitarian ideology of an  economic system based on eternal “growth” (as in cancer)  is incompatible with the “natural economy” on which our lives depend.

The great irony is, that too much “freedom” is going to kill us in the end because in a market society it means freedom from responsibility for short-sighted, stupid and arrogant producing and consuming patterns that are destroying the equilibrium of the natural production system for short term profits. Long term ecological damage and the undermining of social cohesion, are simply not factored in so the “success” of market rule and unfettered capitalism is an illusion…..

To talk about taking effective measures to combat climate change (read global catastrophe) and at the same time build more airports, roads, etc. to generate even more destructive “growth” shows that these politicians are part of the problem, not the solution. Nothing can survive (for generations) on this planet without a self-limiting principle. Cancer cells seem to be very successful for some time but in the end they commit suicide by killing their host…..

Greenpeace had a slogan in the 1980ies (adopted from native Americans / Indians: something like

Not Before the last river will be polluted, not before the last tree will be felled, the last fish will be gone, etc. will they realize that money cannot be eaten…”

The whole concept of individual liberty (not caring about the consequences of production or consumption) would have to be replaced with a profound sense of community, of responsibility for the future of the whole planet. Everything we do, what we buy, what we eat, etc. has ecological, economic and social repercussions, often thousands of miles away… But we are kept in ignorance about the absurdity of  “economic growth” as the leading principle of society and politicians still do everything they can to bring us closer to unprecedented ecological disaster..

They have turned us into gullible “consumers” but we need to become “citizens” again….

(consumare means to exhaust, to deplete so eventually to destroy…)

Book Selection:

  • To Have or To Be by Erich Fromm
  • The Great Transformation by Karl Polanyi
  • Small is Beautiful by E.F. Schumacher
  • Crimes against Nature by Robert Kennedy Jr.
  • Earth Democracy by Vandana Shiva
  • The Shock Doctrine by Naomi Klein

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Financial Crisis: “Global economies left teetering”

In 1980 90% of capital transactions took place in the real economy. 15 yrs later 95% of financial transactions happened in the virtual economy also known as “financial markets”.

“…. Even an accumulation of debts may appear as an accumulation of capital, (so) the height of distortion taking place in the credit system becomes apparent.

(Marx, Capital, Vol. III, Chapter 30: Money Capital and Real Capital)

2005: THE REAL WORLD: (suffers from more and more capital being sucked into the black hole of reckless financial engineering….)

A study about “Global Governance of Financial Systems: The International Regulation of Systemic Risk”[1] was published in 2005. The authors conclude that financial deregulation and liberalization have created many opportunities for economic growth but have also burdened the economy with a great many financial crises over the past 30 yrs” They rightly argue that the massive deregulation enabled the banks to adopt more  “innovative financial instruments”, and that it “increased international banking activities and interdependence (which means) greater exposure to systemic risk arising from bank failures and high volatility.”

2005: THE FINANCIAL WORLD: (lavishes praise on the excessive risk takers…) e.g.Euromoney recognized Lehman Brothers with several awards, including “Best Credit Derivatives House,” “Best Debt House in North America,” “Best Debt House in USA” (also in Italy, Israel and the Netherlands).

Securitization Deal of the Year”: Whinstone Capital Management – Northern Rock’s £423 million funded synthetic securitization (doublespeak at its finest…) of First Loss Risk Management (sole structurer and joint bookrunner) [2].. the list goes on and on…. (

The glorification of these processes by the business press deserves criticism.

In 2006 another alarming study by the IMF (Safeguarding Financial Stability by G.Schinasi) raised even more concern about the negative consequences of deregulation regarding “the potential for fragility, instability, systemic risk, and adverse economic consequences”. The “left-leaning” independent press ran several articles on the subject, warning of the dire consequences if this cancerous system was allowed to grow even further.

In 2007 Paul Krugman[3], pointed out predictions about 2 million foreclosures in the US and  asked “Why was nothing done to avert the subprime fiasco? Why were warnings about “abusive lending practices” in 2004 (!) ignored?And his answer was: ideology . The people in charge “were and are men who believe that government is always the problem, never the solution, that regulation is always a bad thing.”

So there was plenty of warning but suggestive media rhetoric (“financial tsunami”, “turbulences”, “in Not geratene Banken” (German Press), is still insinuating that the crisis is a kind of unpredictable natural disaster and that the government must now come to the “rescue” with even more billions of  borrowed money, while  taxpayers have been allocated the role of unwilling guarantors for the astronomical debt.

In light of this media performance, the arrogance and hubris of Wall Street and their international clones, I find it extremely galling that “financial analysts” like Steven Pearlstein keep telling the public that they are ignorant of the “seriousness of the situation” (hence their opposition to the “rescue” plan. At the same time he sticks to the official line, that this is all about “greed, arrogance and imcompetence” and that we are in this big hole “all together” (as long as the bubble kept growing the party was very exclusive….)

For more than a decade these megalomaniac bankers and investors reaped astronomical profits through “excess leverage and a pyramid scheme” (Jo Stiglitz), were paying just 15 % tax on obscene profits, and are now demanding  with a straight face, that the mess they have created is being socialized. The last standing investment bankers are now seeking shelter under the big umbrella of the state (what´s left of it after the Friedmanite ideological cluster bomb attack…)

Adding insult to injury, the gamblers get even more borrowed capital to relieve them of their “toxic” products at overpriced rates in order to “restore confidence” in the market. The same economic parasites who betted on the odds that (their own) corporate borrowers would not be able to pay their debt (“credit default swaps”) get a fresh supply of artificial “life-blood” (in the form of more debt) in the hope that this time they will have more luck in their artificial casino world…. As Adrian Mole used to say: How stupid can you get?

For years we have been told that there is no more money for social security, etc. and that fiscal austerity (reducing budget deficits) is the highest priority of government. Now all of a sudden, taking on billions of more national debt is no longer a problem, on the contrary it is an absolut necessity to guarantee the survival of an insane financial (debt) system that created the crisis in the first place.

Instead of disarming the financial hydra (by disentanglement and outlawing of  “multifunctional banks” e.g. restore Glass-Steagall, which separated commercial from investment banks and insurance companies) and implementing  a kind of  “Financial Product Safety Commission” (as suggested by Prof. Stiglitz) the stuffed shirts and hypocrites passing off as democratic politicians tell the public  “that these institutions are too big too fail” and to save ourselves we must give them even more borrowed money to play with….. In the US, they even create more and bigger “financial supermarkets” (e.g. Bank of America acquires Merrill Lynch) so the hydra gets another ugly head…..

The same politicians, who had swallowed the neoliberal gospel about the benefits of  “regulatory and tax relief” hook, line and sinker and therefore aided and abetted the financial crimes that created this mess, are now appearing on (German) TV-shows expressing their outrage about “the greed and lack of transparency” in the banking industry. What the public basically feels, is in my view, that absolutist kings like Louis XVI. were guillotined for lesser crimes…… This is a new kind of  financial / corporate feudalism with the last step yet to come – the rich paying no taxes at all – socializing cost and risk has already been achieved.

At least here in Austria, one former chief executive (of the BAWAG bank, then owned by the Austrian Trade Union Federation OEGB – of all people), was found guilty of breach of trust, fraud and falseaccounting and was sentenced to nine and a half years in prison. The judge also ordered him to repay Bawag €6.8 million in pension benefits. (Note: Austria did not just produce the infamous Hayek! We had a much greater economist and thinker: Karl Polanyi (THE GREAT TRANSFORMATION)

But the bigger problem is that this crisis is not debated in the greater context: Pearlstein – as most other commentators – warns of the “prospect of little or no economic growth” as the greatest threat but in reality THIS ENDLESS GROWTH IS THE UNDERLYING  PROBLEM:

As Marx understood, capitalism suffers from a systemic fault: Overproduction – since there is no self-containing principle . (This insane concept also causes environmental destruction (loss of habitat and functioning ecosystems, loss of biodiversity, “climate change”, etc.) To overcome this dilemma, economists tried globalization (increased access to cheap labour, raw materials and new markets, formerly known in as colonialization) and neoliberal “reforms” – both of which worsened the situation (but further enriched the business elite with “trickle up” policies). The last resort was “financialization”: In order to maintain rising profits more and more (actual and borrowed) money is being pumped into the financial markets (as mentioned at the beginning but the enormous artificial profits  are not backed by real value: they “created a hyperactive financial economy and a stagnant real economy”[4].

Greenspan flooded the market with cheap credit because he knew that creating another bubble was the only way to keep the system afloat (at least until he fled the scene of the crime, …). The extreme volatility of this system and risk for society as a whole apparently did not bother him, the Fed or the bankers and politicians who worked hand in hand…. (in the true spirit of  de Mandeville and Friedmann)

And why should it? When the corporate welfare system is so reliable and many journalists so gullible?

The last words must go to Karl Marx, a man with incredible foresight (the things he could not predict were the advent of a brainwashing PR-industry, a corporate media  and the systemic “dumbing down” of the masses….):

“In a system of production where the entire continuity of the process rests upon credit, a crisis must obviously occur — a tremendous rush for means of payment — when credit suddenly ceases….. At first glance, therefore, the whole crisis seems to be merely a credit and money crisis.” ………

At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day and collapses; …..unsuccessful speculation with the capital of other people; finally, capital which has depreciated or is completely unsaleable…. The entire artificial system of forced expansion of the reproduction process [“economic growth”] cannot, of course, be remedied by having some bank, like the Bank of England give to all the swindlers the deficient capital …… and having it buy up all the depreciated commodities at their old nominal values.

Incidentally, everything here appears distorted, since in this paper world, the real price and its real basis appear nowhere, but only ….., notes, bills of exchange, securities.

Particularly in centers where the entire money business of the country is concentrated, like London [or New York]…the entire process becomes incomprehensible.”


Note: This comment is a reply to an article in The Guardian Weekly: “Global Economies left teetering” by Steven Pearlstein (03.10.2008), originally published in the Washington Post

[1] Oxford University Press, Authors: Alexander Kern, Rahul Dhumale and John Eatwell

[2] Lehmann Website

[3] A Catastrophe Foretold, New York Times, October 26, 2007

[4] Walden Bello: Wall Street Meltdown Primer, Sept. 26, www.fpif.org

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