The Memetics that Ruined Main Street; a Value Systems Analysis of the Housing Crisis

In a continuing effort to bring understanding to where Economics meet Memetics, in this post I will offer an expanded view on the value systems that created the housing crisis. Suffice it to say that many will disagree with my viewpoint. It has been my experience over the last 2 years that every time any analysis on the causes of failure in any industry that point to Wall Street, these self-proclaimed “Masters of the Universe” vehemently deny any and all responsibility. (More on how Wall Street downshifted to an unhealthy ego-centric value system in an upcoming post).

One of the most requested slides from my presentations is entitled The Housing Bubble; How Wall Street Destroyed Main Street. Although I have posted it below, it’s important for the reader to understand that greater forces were at play for many years that created the perfect storm that got us here. It wasn’t just Barney Frank lowering the underwriting standards at FREDDIE and FANNIE. It wasn’t gang member Darnell Bell who just got busted here in San Diego for running a $100 Million mortgage scheme with 22 others who were accountants, brokers, appraisers, and professional tax preparers. Mr. Bell, a known gang member who was already in jail on drug charges at the time of his indictment, didn’t wake up one day and decide that drug dealing is no longer hip and wanted to get into banking; instead, banking came to him. The focus of the rest of this post and the Memetics in the slide discuss how the removal of barriers to entry into the housing market created the mess we’re in and how there won’t be a return to prosperity in housing any time soon.

Corrupting the Oldest Form of Order

In the research I’ve done to pinpoint the causes of the housing crisis a common theme kept emerging over and over again. This phenomenon wasn’t just a threat to the housing market, but to every institution that capitalism had so fondly upheld for hundreds of years. I have since concluded that cheap and unregulated supply of money has forever perverted capitalism as we know it. From a cultural value-systems perspective it is paramount to understand the historic role that money played in human evolution. Before any of the Abrahamic religions offered humanity the notion of “Sacrifice Now for future gains”, humans had to control their impulses for immediate gratification to “save” for future rewards and in doing so, evolved into a higher level of bio-psycho-social complexity. This sense of postponing gratification allowed for a barter trade system that gave birth to money and eventually to the complex global financial system we have today.

Over the centuries money became a very important cornerstone that built the cultural codes that in part define who we are.  The simple discipline that required the accumulation of savings became itself the barrier that separated compulsive acts from long-term behavioral patterns that lead to human progress. Simple things like payment of wages in return for hard work became the model that defined human interaction and the driving force for seeking better and more enlightened lives. So, how did we go from that level of social complexity that was thousands of years in the making, to giving a farm hand in Bakersfield a $700,000 loan on an income of less than $15,000 a year?

Two major dynamics were responsible for perverting money. The first was the flood of liquidity from the OPEC countries, and other countries representing the   Emerging Economies which had no stable investment infrastructure in their own countries. These investors primarily from a tribal-to-egocentric cultural value system with Trillions came knocking on Western doors seeking the illusion of stability and high returns. (See previous post for an explanation of what investment means to the different value systems). Since these investment giants couldn’t bother  investing in individual mortgages at the retail level, Western investment bankers gladly took their money and invested it for them. It didn’t matter that the farm hand couldn’t pay his mortgage, wall street had cleverly packaged it with a million other mortgages just like it, sprinkled a bunch of sophisticated-looking derivatives on the top and sold it as securities to these countries’ sovereign wealth funds and brokerage houses; All the while, collecting their 12.5%-20% fees in advance. Not a bad way to rip off unsophisticated investors, and blame the little guy for not making his payments on time.

The other dynamic that perverted money was the Bush Administration’s reaction to the 9/11 attacks. Not the military one, but the far more dangerous reaction that used the same value system that brought down Saddam Hussein in fighting off the possibility of recession. Bush along with Greenspan liberated the American consumer from any sense of accountability by redefining patriotism as “spend, spend, spend, or the terrorists win”. Interest rates were lowered to historic levels, and Wall Street anxiously accommodated this call by creating more securities that just kept giving the consumer more and bigger credit cards where the balances became perpetually bigger but never became due. This phantom growth in mortgage loan sizes came on the hands of greedy investors who pushed appraisers for higher valuations which fueled a bigger and bigger housing bubble with a huge array of supporting actors like the ones recruited by Mr. Bell in San Diego.

The fact that real estate was historically looked upon as a “real” asset allowed for a shared hysteria that dismissed  the notion that value will disappear as a soap bubble would disappear when it bursts. Wall Street thought it had finally found the goose that laid the golden egg  and they fianlly turned the “real” into their realm of “unreal”. By the time enough steam gathered to call Wall Street’s bluff, Trillions were lost, and millions of lives ruined. The likes of Mr. Bell, and there are thousands like him, wouldn’t have had the sophistication to pull off what he did without incompetent regulators who were asleep at the wheel and a predatory Wall Street that spent years laying down the infrastructure for predatory lending and investment practices.


The perversion of the role of money on Wall Street, will take a while to manifest on Main Street and a while longer for it to heal the things it destroyed. By nature, Americans don’t hold long grudges, but by targeting the most unique aspect of the American Dream, Wall Street has cheapened housing in ways unimaginable. The phantom rise in values created unsustainable levels in housing production that will take many years for the market to absorb. The disappearance of Trillions of dollars in home  equity and the continued decline in values make the horizon for recovery that much further away. So, when will the average American start thinking again of a home as a vehicle for building wealth? That crystal ball won’t be invented till after a New Economy takes a firm hold.


What Investment Means to the Different Cultural Value Systems

I have been asked by many who attended my Spiral Dynamics Integral presentation at the Adizes Graduate School for a copy of some of the slides in my presentation and I promised to make as many of them as possible available to the reading public on this blog. Unless accompanied by my narrative that’s informed by the in depth research I’ve been involved in, I’m afraid that the information on most of the slides will be misinterpreted. Below are 2 slides (needed to split up the slide into 2 images) that are rich with useful information.  This Memetic table represents a comprehensive look at the investment world as seen through the eyes of the different value systems of Spiral Dynamics Integral.


Economic Policy and Global Value Systems

Most of us have heard the saying “to the victor belong the spoils”. Well, to the victors of WWII belonged the greatest spoils humanity had ever seen; the undisputed mandate to set up a single economic model for the world to insure that human potential is put into productive peaceful pursuits. Europe and Japan were rebuilt with economies based on what England and the US thought were best suited for their own cultural value systems. It was strongly believed that a developed world where private ownership of resources with the least amount of regulation and the pursuit of free market ideals will surely make our planet a better place. In addition, for less developed countries wishing to pursue this Utopian dream, institutions like the IMF and the World Bank were set up through the Breton Woods System of Monetary Management to help them finance this arduous journey.

More than sixty years into this experiment and the results seem to have produced a very mixed bag. On one end of the spectrum the free market economy concept worked well for nations that were already developed and had the institutional capacities in place to make the transition to highly industrialized consumer-based economies. At the other end of the spectrum, less developed countries have gotten further behind and are struggling to feed millions of their own people. So, what went wrong? The answer might lie in the developed world’s inability to identify barriers to development from a cultural values perspective.

How Economic Policies Deny Evolution of Cultural Value Systems

At the end of the colonial era imperial powers carved up tribal lands into arbitrary countries with the hope that tribes will be forced to dismiss thousands of years of rivalries for a cause called “Nation”. The promise of industrial prosperity was the carrot at the end of the stick; A concept that worked so well for Europe and Japan but has remained foreign to most places in Africa, the Middle East and many poor places till this day. What the framers of the Breton Woods architecture ignored was that places that are primarily tribal in nature must build their own indigenous capacities that would eventually transcend tribal existence and propel them into their own unique expression of cultural prosperity. Before a tribe can embrace industrial age values, it has to go through an egocentric stage where an individual’s values are imposed over those that make up the collective values of the tribe. Europe went through this evolution over hundreds of years and the results were many bloody wars. The US went through it during the civil war at a cost of millions of lives to get to a stage to say “never again”. The conquest of this egocentric stage should never be underestimated or it will manifest in pathologies that create organizations like Al-Qaeda and the endless number of failed states. (Bin-Laden’s family was extremely wealthy but relied on nepotism and tribal favoritism to become wealthy instead of through the industrialized system of merit that levels the playing field in the West). What policy makers should have been aware of is that this stage of social development wouldn’t need to take on the form of bloody warfare. Instead, designing for economic prosperity at the tribal level will blunt any unhealthy desires to start wars with the neighboring tribes. This type of policy setting would have required intimate knowledge of the indigenous life conditions of those tribes and the challenges they face. Based on information gathered from these places, we can create the base for what I call “Stratified Economic Policy”. The concept of micro loans created by Muhamad Yunis is a great example of such highly functional solutions for Bangladesh and places of similar indigenous challenges.

Without the interference of Western designed development programs, the non-western world would have very likely developed along these lines: In order to move to more advanced developmental stages, capital accumulation earned from hard work must be applied by a tribal culture towards what evolves next and naturally for that tribe. To some it could be acquisition of farm land. To others it could mean sending their first born to a good school, or buying more cattle like the case is with most Central African tribes. These normal transitions to healthy manifestations of a culture’s uniqueness were halted by the appearances of two phenomena that were the byproduct of post WWII prosperity: The West’s insatiable appetite for resources and the creation of the IMF.

Into a Tribal World Enter OPEC and the IMF

After WWII the industrialized world shifted its focus to a consumer-based industrial economy, which required a tremendous amount of resources and raw material. And lo and behold, as if the Gods were testing the West’s true intentions in claiming to help the rest of humanity, most of these raw material were found in third world countries; OPEC for oil and Africa and South America for the rest of the raw material needed for our modern day consumption. From a macro development theory perspective, these non-industrialized countries had never experienced a systemic enforcement of the rule of law at a national level nor had the resources or the complexity to understand the meaning of most of the institutions that the West takes for granted. In describing the reason for the arrested development stage of these countries, a renowned social scientist said that they never had the chance to rebel. The discovery of natural resources in tribal cultures had, in essence halted the normal stages of human development within them. Left to their own devices, without having the West take the stuff from the ground, these cultures would have maintained a natural evolutionary process and formed healthier and more cooperative tribes tested and tried by the passage of time to smooth out tribal differences before the idea of “Nation” could crystallize. Life conditions at the time of discovery of oil were such that egocentric warriors had to rise to leadership positions without ever being exposed to concepts such as nationalism, the importance of state institutions, and a real understanding of wealth management. To protect their new-found “lute”, these leaders used tribal warfare tactics in making sure their own tribe prevails. Till this day, if you’re a developer wishing to get a Billion dollar project approved in Saudi Arabia, or Dubai, a poem written just for the occasion  that praises the generosity and the greatness of the Sheikh, will improved your odds of success over someone who’s done extensive research about the market viability of the project and its associated costs. The OPEC dynamics in a place like Venezuela have taken on a slightly different twist. Populist economic policy has been the tool of choice for tribal leaders in South America. Chavez, while paying lip service to the poor and giving them small siphons for food has sidelined most national institutions and stolen billion in oil revenues in the process.

The story with the IMF is slightly different in the sense that it catered to the same pathologies through loans instead of oil revenue. Without ever knowing what Africa needs like Dr. Yunis knew what Bangladesh needs, the IMF, by shear ignorance of the role that cultural values play in the development of a place, is single handedly, responsible for more death and corruption than any other post WWII institution. One only needs to look at which countries borrow from the IMF. Over 97% of borrowing countries were dictatorships (before recent loans made to Iceland). Yes, dictators with the blood of thousands on their hands like Mugabe and Assad (the father) are on the top of that list. A full discussion of IMF policies is a subject needing many posts to expose its pathologies.

The road to that Utopian dream hatched by FDR and Churchill in Breton Woods, NH over a Brandy (as President Obama says) has turned out to be the road to Perdition for third world countries rich and poor . If the G-20 want to address the causes of poverty they need not look any further than the dysfunction inherent in the institution they just voted to triple its resources The flood of unconditional oil revenues from industrialized countries and loans with little accountability from the IMF have corrupted tribal values forever and created a pathology that has become very difficult to undo. When oil revenues disappear, most OPEC countries will have to wake up and realize that to prevent future abuse of power it’s not enough to choose a good tribal leader to lead. Rather, it becomes paramount to establish societal institutions and the rule of law. To Europe, the US and Japan, this rule of law came after hundreds of years of bloody warfare. To the third world, it would have to come from a perspective of “stratified policies” that are informed by the life conditions on the ground and not by some Western think tank with Ivy League credentials billing the UN for millions for their advice and claiming to know what ails a world of lower complexity.