Restoring Faith in Finance

Debtonation Readers: This is the full version of my latest blog for Huffington Post:15th March, 2009

Once a-ponzi time, millions worshiped at the feet of the Wizards of Finance.  These Wizards preached an economic religion that promised security and an abundance of riches from the ‘Emerald City’ — Wall St.

Investors following this religion were led to believe that they could make capital gains effortlessly and endlessly.

To make these gains, it was argued, there was no need for protection from the authorities. 401(k) plans were safe in the hands of the Wizards. There was also no need for investors to engage in hard work: to invest in research; to engage more labor; to sweat at making goods or delivering services.

There would be no need to save.  Money would be made effortlessly.

Above all, argued the Wizards, there would be no need to consider limits — financial, environmental or human. There would be no limit to consumption. No limit to the amount of credit created by private bankers. No need to consider the limits imposed by the ecosystem, or limits to the exploitation of labor — whether in the US or China.

And so investors, armed with a firm belief in Wizards, unlimited credit, economic growth and exploitation, marched down the yellow brick road. They borrowed and invested. Then they went shopping.

Even though the average business enterprise makes returns of roughly 3-5% each year, Junior Wizard Madoff promised, and delivered to investors a 10% annual return on investments. Some like Eli Wiesel, invested $15 million with him and thought he “was God“.

Millions more gathered behind the TV tipster, Jim Cramer and hailed his idolatrous motto: “In Cramer we Trust”.

Some believers raised questions about how the Wizards made such extraordinary capital gains?  They were quickly silenced, and told by the Sorcerers at the Fed and in Congress not to worry their pretty heads about the complexities or duplicities of these capital gains.

Instead they were simply to have faith.

The Chief Wizard — Alan Greenspan — waved his magic financial markets wand, and with the help of politicians, effectively dispensed with government regulation of credit-creation. He and his friends in the ‘Emerald City’ then rustled up a gigantic credit bubble. This bubble financed the inflation of assets, and immeasurably increased the wealth of those who owned assets: e.g. property, stocks and shares and works of art.

Those without assets — the poor, and those known as ‘sub-primers’ — were forced to borrow at very high rates of interest. If they could not borrow or had to rely just on their wages, they were denied access to the ‘Emerald City’. They became poorer.

As the rich got richer, they fell worshipfully at the feet of Chief Wizard Greenspan, who promised each and all the equivalent of a pair of ‘ruby slippers’.

All they had to do was believe.  And so they did.

But then came the tornado. Investors were rudely awakened from their dream.

Now there is a dawning realization that while millions may have felt enriched, they were in fact, duped and robbed.

While they thought they had ‘gained the whole world’, in fact something much more valuable was lost.

Trust.

Now it seems, Americans are ditching the Greenspan belief system, and losing faith in the Wizards of Finance. It turns out they are mere gnomes, and have no supernatural powers at all.

This is disastrous. The loss of faith and trust in finance undermines not just the reputation of the Wizards, but the financial system, sound businesses, hard-working Americans — and the entire global economy.

To stabilize the financial system, and to right the global economy, we need to restore faith and trust in the way banks do business.

For that to happen, it is vital that the money-lenders and their lobbyists are chased from the temple, and the temple is restored ‘to the ancient truths’ to quote Roosevelt’s 1933 inaugural speech.  ‘The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.’

These values are common to all the Abrahamic faiths — Jewish, Christian and Muslim, and are well known to most Americans. These are some of them:

I am the Lord your God, who brought you out of the land of Egypt, out of the house of slavery;

Do not have any other gods before me.

You shall not make for yourself an idol.

You shall not bow down to them or worship them…

Remember the Sabbath day and keep it holy.

The seventh day is a Sabbath to the Lord your God; you shall not do any work — you, your son or your daughter, your male or female slave, your livestock, or the alien resident in your towns.

You shall not steal.

You shall not bear false witness against your neighbor.

You shall not covet your neighbor’s house… or anything that belongs to your neighbor.

The point about these ‘ancient truths’ is that they are rules. Regulations that underpinned the values of all civilizations. And to our great cost, we have ignored them. We have de-regulated.

The one most ignored by the Wizards was the rule of the Sabbath — a form of regulation that periodically corrects imbalances — every 7 days, every 7 years (think of sabbaticals) or every 7 x 7 years (think of Jubilee). A form of regulation that underpins the system defined by Ched Myers as Sabbath Economics.

Sabbath economics places limits on the exploitation of labor, of livestock and of the land, in the broadest sense. It is environmental law, and it’s labor law.

During the decades of de-regulation, the concept of 24/7 was introduced. Money markets whirred 24 hours a day, each working day. There was to be no limit to the exploitation of labor, or livestock or land; or to consumption. The ecosystem would expand, it was believed, just like the credit bubble — into eternity.

If we are to restore stability to the financial system, to tackle this spiritual crisis, and to restore faith, we will have to first revive the ancient truths and regulations. Including the truth about limits.

We will have to bring an end to the idolatry of these past few decades, and return to a system of regulation that periodically corrects imbalances — and reminds us of limits. A system of Sabbath economics.

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10 comments to Restoring Faith in Finance

  • richard campos

    The stubborn insistence in continuing to pour money on wall street smells fishy, irresponsible and ultimately perilsome.
    Energy

    trickles down from the sun to the plants and from there trickles up from the lowest stage of prey to the highest stage of predator , this demand

    sided distribution allows for the equilibrium that prevents the system from collapsing ,avoiding an overgrowth of predators that would crash the

    existence of the system. This is a qualitative model of distribution that allows for symmetrical allotment by symmetrical alignment of variables

    that prevent the system from distorting its shape(geometry), structure-function, (topology)and ecological-evolutionary qualities (non linear

    dynamic partial differential equations). This should also be the logic for the distribution of money, if you pour more money on the top of the

    income bracket, instead of money trickling down, you encourage growth of more predators that ultimately end up crashing the systems equilibrium by

    terminating other species and driving us all to extinction by inevitable Global war.

  • Coincidentally the BBC just ran an article about possible economic allegorical intentions behind Wizard of Oz.

    http://news.bbc.co.uk/2/hi/uk_news/magazine/7933175.stm

  • ann

    hmmm interesting Matthew….have just re-read Mankiw on the wizard of Oz too…see here:

    http://gregmankiw.blogspot.com/2006/05/wonderful-wizard-of-oz.html

  • john fletcher

    william jennings bryan, who appears in the Wizard of Oz, has had rather a bad deal from history because of his role in the

    Scopes/Monkey Darwin trial of 1925.

    What is often conveniently forgotten about the trial is that Jennings – as a social progressive – was

    mainly opposed to Darwinism in its Social Darwinist/Survival of the Fittest/Capitalism Red in Tooth and Claw incarnation.

    As a christian he

    defended ordinary peoples’ working conditions and work hours against what he saw as the relentless advance of an inhuman and deeply exploitative

    form of capitalism.

  • Thanks for this John, think I knew that largely from Pat Conaty, a good friend, who has a deep knowledge of the

    history of progressive movements…he works with the new economics foundation, and this is one of his publications…

    http://www.neweconomics.org/gen/z_sys_publicationdetail.aspx?pid=164

  • rom

    Ann

    The State funds its gigantic wars through fractional reserve banking, and it increases its powers through this type of banking system.

    The victims are the people whose wealth is taxed or taken through ‘inflation’ by financial industry insiders who use the new money before it

    filters down and creates inflation. Democratic politicians largely support such a system for their own ends or are powerless to change the system

    they depend on. The politicians act as a buffer between the people and the bankers giving the appearance they are in charge allowing the Bankers

    free reign and at the same time getting some fame and fortune (and feelings of greatness and self importance no doubt) for themselves.

  • rom

    “Energy trickles down from the sun to the plants and from there trickles up from the lowest stage of prey to the highest stage of predator , this

    demand sided distribution allows for the equilibrium that prevents the system from collapsing ,avoiding an overgrowth of predators that would crash

    the existence of the system.”

    It is inevitable that if man is freed from any religious constraints, his highest aim is going to be wealth,

    power and materialism. Thus given the chance he will tilt the system in his favour together with his ‘class’ or friends and they will not care

    about anything but increase. They may even buy scholars who will justify their operations for them…e.g. free markets, and trickle down

    economics.

    The truth is the financial industry is parasitical and the real producers are robbed by the parasites. They use the power of the

    State to do their bidding for them, if the State stopped supporting the parasites through bail outs, and laws which protect them and their

    industry, it would collapse allowing the free market to operate. These people who interfere and meddle in economics have no knowledge and their

    meddling usually results in all sorts of negative results, it would be better if they just humbled themselves and left everyone to organize their

    own lives without their omniscience. They just cannot help themselves, interfering gives them self-importance and they tend to benefit the bankers

    with their policies.

  • C. Rasjid

    In an economics forum, I posted an outline proposal (only for debate) of a Fix Money Supply Full Gold Standard.

    “…Deflation is

    trivial as long as it is predictable and stable….In this gold standard, savings is never debased and has a “natural rate of return” through

    deflation. Debasement of savings is only possible through a variable money supply system as in the current US FRB system.

    The importance in

    only trusting Gold is that in times of political uncertainties, countries holding Gold don’t need to worry about unilateral abrogation of

    international treaties. Gold is in this way better than SDR.

    Fractional Reserve Banking has great drawbacks as:
    1) variable money

    supply – this is the actual reason for this current economics crisis. It is the source of all instabilities in interest rates, prices, mis-

    allocation of savings, etc.

    The problem of the current US housing crisis, foreclosure, availability of refinancing,etc is all about

    instability, unpredictability and risks. Those who bought properties at the market bubble top has no recourse – it is just bad.

    A parallel

    can be found in the Asian Crisis when currency and interest rates volatility put borrowers to insolvencies.

    With my simple model, a

    school teacher may start teaching at 21, works and saves for 10 years and buys a house at 31 without any need to consult any investment advisor to

    know if it is time to buy – prices have dropped 21 % from 10 years ago and there never was any top nor bottom. He knows all the risks involve as

    economic life is, first of all, predictable.
    Money that is not limited from the supply side trying to match and service the GDP which is a

    collection of physical goods limited from the supply has unpredictable consequences.
    This is the root cause of the current global financial

    crisis.

  • john fletcher

    “The Obama administration unveils its $1 trillion plan to buy toxic assets from banks and restore the financial system. But should we

    return to the way it was? We speak with Chicago lawyer Thomas Geoghegan about his new Harper’s Magazine cover story, “Infinite Debt: How Unlimited

    Interest Rates Destroyed the Economy.” Geoghegan writes, “We dismantled the most ancient of human laws, the law against usury, which had existed in

    some form in every civilization from the time of the Babylonian Empire to the end of Jimmy Carter’s term.””

    http://videocafe.crooksandliars.com/heather/thomas-geoghegan-“infinite-debt-how-unlimite-debt

  • ann

    John, this is a fantastic link…thanks for it…will go after the magazine too. Do you think they have been reading the

    blog? There are so few thinking along these lines…

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