I may have already posted some of this previosly. If not please enjoy. If so, it deserves repeating.
One thing that so many people cannot understand is that more than one factor is at work at the same time. In other words the banks are guilty AND governments have spent too much. Both the state and the financial system have racked up ruinous debts and they both work together. There is more than just ONE villain in all of this, but so many ideological people can only believe that EITHER the public sector OR the private sector are guilty for creating the mess. In reality there are multiple actors in this tragedy and many times they are actively working together in an orgy of greed and selfishness.
Left wingers want to place all the blame on capitalism, and right wingers want to place all the blame on profligate governments. Guess what? Both have been irresponsible and corrupt and BOTH need to be reformed. The Euro crisis is caused by bad fiscal policy and wasteful governments, while banks and investors have also not managed risk responsibly.
Both mortgage lenders AND mortgage takers are guilty of being irresponsible and for creating the mortgage crisis. Yes the banks were and are completely irresponsible, criminal and predatory, but property buyers have also been completely irresponsible too. People buy houses speculating that they can make a quick and easy buck by flipping them, They do so with no money down and with no realistic way of actually being able to afford the mortgage once the teaser rate expires, they spend all the extra money the bank gives them for reappraising the house (they do not pay down the principal on the mortgage and actually increase it this way). When the bubble popped and they could not longer sell their house for a juicy profit, they eventually stopped paying their mortgage all together and effectively lived for a year or so for free. Then when the bank wants to foreclose, people are indignant and start playing the victim, expecting that they have the right to live in a property that they could never afford and have not paid for simply because they “bought” a house with 100% money that is not theirs. They expect the government to come rescue them with taxpayer´s money, or for foreclosures to be frozen indefinitely, or for the bank to forgive them the money that they have lost speculating. I know that not all property owners who have gotten into trouble were this extreme, but even if they were not overtly irresponsible, people need to understand that buying speculative assets (like houses) with leverage in a bubble is really dangerous. When people lost hugely in the stock market bubble of 2000 the government did not ride in to save them. It was understood that those who play in the market can lose as well as win, and when they lose, it is not society’s responsibility to save them from their misfortune. Those who live by the sword can also die by the sword. The same is true with buying housing with leverage with unaffordable mortgages.
We have created enormous moral hazard. The banks have taken over the government, and operate in a world of fraud and criminality with impunity.
You cannot solve a problem with more of what has created the problem. This obvious truth eludes our elite.
“This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later.”
–Walt Howard, commenting about CHS on another blog.
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Preserving the Status Quo with Artifice and Lies Leads to Systemic Collapse (November 18, 2011)
Suppressing dissent, transparency and fact inevitably leads to systemic collapse– exactly what we’re seeing in the European financial system.
Fortunately for us, when our immune system identifies a cancer cell, the cancer cell can’t demand to be saved by threatening to kill the entire system. You see the irony here, of course; the cancer cell will destroy the entire organism/system if it is spared, so its threat to bring down the entire system if it is eradicated is pure self-serving artifice.
This is a precise analogy for the “too big to fail” banks in the U.S. and the Eurozone: once again we are hearing the heavy-breathing threats that a systemic bank failure would destroy civilization. The truth is that preserving the cancerous banking system will inevitably bring down the entire system, so the only way to preserve the global economy is to eliminate the financial cancer now, before it triggers systemic collapse.
The best way to understand this is to consider the economy as a system. All sustainable, stable systems require a free flow of information: multiple pathways of communication, experimentation/mutation and transparent feedback. This essential activity generates the low-intensity instability of volatility and fluctuation.
A system which suppresses information and the low-level instability of dissent and negative feedback thus suppresses the information the system needs to remain stable. Suppressing dissent, facts, transparency and feedback inevitably destabilizes the system. It is ironic, isn’t it, that the suppression of dissent, facts and transparency creates the surface illusion of stability, but it is only a facade. Beneath the surface, the lack of information and low-level fluctuation/volatility builds up system instability which is suddenly released as non-linear, chaotic volatility and collapse.
What Europe, the U.S., China and Japan have now are leaderships that substitute lies for fact, obfuscation for transparency, artifice for feedback and propaganda for communication. The essential negative feedback of dissent has been choked off, leaving only self-reinforcing positive feedback loops in the system, feedback that inevitably leads to runaway collapse.
In a financial example, when the negative feedback of short positions is banned, then there are no buyers left when the selling begins. The selling cascades, triggering more selling, which then feeds more selling until the bid disappears entirely.
In Europe, the political and financial Elite is preserving the Status Quo with artifice and lies. This can only lead to non-linear systemic collapse. Beneath the surface, they are manipulating, intervening, propping and pumping, but preserving a terminally unstable system with more lies and intervention is impossible.
The only question left is how much longer the system can wobble unsteadily before it finally collapses in a heap of depreciating euros.
My “On the Edge” interview with Max Keiser is now online. Fortunately for me, Max keeps the ball rolling and succinctly summarizes my rambling. Good fun in Paris–thank you, Max and Stacy, for the opportunity to spend some time with you.
If this recession strikes you as different from previous downturns, you might be interested in my new book An Unconventional Guide to Investing in Troubled Times (print edition) or Kindle ebook format. You can read the ebook on any computer, smart phone, iPad, etc. Click here for links to Kindle apps and Chapter One. The solution in one word: Localism.
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Order Survival+: Structuring Prosperity for Yourself and the Nation (free bits) (Mobi ebook) (Kindle) or Survival+ The Primer (Kindle) or Weblogs & New Media: Marketing in Crisis (free bits) (Kindle) or from your local bookseller.