Tag Archives: financial derivatives

A Brief Summary of Where Economics Meet Memetics

A Brief Summary of “Where Economics Meet Memetics.”

Below are some excerpts from an interview I gave to  the Adizes Graduate School Newsletter. Some of the slides included here were distributed by Don Beck at a recent conference on Conscious Capitalism with leading CEO’s like John Mackey of  Whole Foods and Kip Tindell of The Container Store. I’m told Mackey, who uses Spiral Dynamics in his management philosophy, was taken with my analysis of how the UNHEALTHY STRATEGIC ENTERPRISE 5th level system can make an entire economy toxic. One of the primary goals of this blog is to help businesses evolve from answering to the Stockholder who’s misguided by the Wall Street philosophy of short term profits to the stakeholder who has a long term eye on People, Profit, and Planet. That’s  the integral equation for the new frontier in sustainable  practices.


Said E. Dawlabani on Economics

The Memetics behind the Financial Crisis

At the Spiral Dynamics seminars in Santa Barbara, Dr. Don E. Beck invites a number of guest presenters. Some of these special guests help participants view complex issues through the simplifying lens of spiral dynamics. In effect, spiral dynamics helps in understanding Why and How major global events occur. Below, Said E. Dawlabani, who presents during Level 2, provides us with the benefit of his insights and opinions regarding the financial crisis that impacts our lives and decision-making processes today:

Q: From a Spiral Dynamics perspective, what were the major causes of the financial crisis of 2008?

Spiral Dynamics is the study of cultural value systems that emerge in response to changing life conditions. I concern myself with large scale socio-economic changes and interpret the interplay between the eight known levels of human existence, or value systems, particularly in the area of economics.

In Spiral Dynamics terms, Finance, or Capitalism in general, is just one sector of the fifth level system which has a focus on ‘Strategic Enterprise’. The financial crisis was precipitated due to the changing balance between the 3rd, 4th, and 5th level value systems in the United States. In a nutshell, what caused the financial crisis was the erosion of the fourth level system, the ‘Authority Structure’ system, in two areas of regulation. This allowed third level system dynamics, the ‘Empire Driven’ dynamic, to take advantage of the lapse in controls.

The first area of regulation that was impacted was the governmental regulatory structure itself, which started to slowly disappear with the first Reagan Administration. The second was monetary policy at the Fed. From the top down, government had begun to favor laissez-faire capitalism. For almost three decades, these policies gave us the illusion of prosperity but in the long term gave rise to an unhealthy version of the Strategic Enterprise (fifth level system) practices that became very difficult to reverse. Productive output that was measured through the strength of our manufacturing sector gave way to a more service oriented output.

As the fifth level value system found itself unrestricted, it transitioned beyond a service based economy into what was considered prohibited or sacred territory – the field of ‘financial engineering’. This is where the foundation for potential systemic damage was created.

Q: You mentioned that ‘life conditions’ are an important catalyst for change in evolving value systems. How did this transition from a healthy value system to an unhealthy system manifest in real life?

Corporations and consumers alike abandoned the ethics of the fourth level structural system which made the US a great model of Capitalism – for an ethic that was engineered on Wall Street. For more than three centuries, this evolving but sustainable model for Capitalism called on consumers to build equity through hard work. The system called on corporations to pursue organic growth through product diversification and healthy competition. Instead of hard, productive work to build equity, the Wall Street model for capitalism substituted impulsive speculative borrowing – a hallmark of the ‘Empire Driven’ third level system.

Consumers shifted their focus on spending from what they earn to spending from what they could borrow. Borrowing – thanks to Wall Street – was limitless, and was no longer tied to strict formulas based on actual earnings. Corporations shifted their focus from providing shareholder value by growing their product line organically, to acquiring corporations their financial advisers lined up for them regardless of whether these acquisitions served the long term health and viability of the corporation, or their mission. Wall Street, being virtually unregulated, had no regard for the long term consequences of its actions as its brokerage houses gave out money to collect commissions and placement fees and not to promote the distribution of wealth to all corners of society.

Q: You mentioned that the area of financial engineering was sacred or prohibited. Could you elaborate more on what that means and how that created the systemic damage to our financial system?

When a value system is healthy, it supports the needs and the emergence of all other systems on the spiral. When it is unhealthy it is very destructive. Historically, money has played a very important fourth level systemic role in helping cultures emerge. Pay had a direct relationship to the number of hours worked or the level of skill attained. Financial output had a clearly defined correlation to input and there was a great sense of personal responsibility. The belief in the role of money is what built nations and what helped humanity emerge in the last eight thousand years. A healthy, innovative fifth level system arose as a result of a healthy fourth level system.

Between 2000 and 2006 all this changed. Unprecedented levels of liquidity came to Wall Street with no legitimate investment vehicles to put it in. So Wall Street created Notional or Virtual securities called ‘derivatives’ that forced the participants in the system to downshift to a betting game on how real assets will perform in the future. These models provided the illusion of legitimacy as they flooded consumers and capital markets with money. Wall Street quickly became identifiable with the unhealthy version (exploitive) of the third level value system and, like the case is always with a system that focuses on immediate rewards, it had no staying power. When it collapsed it almost took the whole world down with it.


Of Mayan Gods, Government Elites, and an Arrogant Financial Industry

I had expected by the time I write my first post of 2010 many politicians and heads of investment banks would have humbly resigned and joined Habitat for Humanity as show of remorse for their ugly deeds. In the alternative, they would have been put on trial for their roles in causing the historic fall of the US. But alas, my hopes and those of millions have not been realized and we are angry. We are angry when we hear that at the height of financial crisis Tim Geithner, at the time, the head of the New York Fed, in several emails urged AIG to fudge their numbers to avert systemic failure of the financial industry. We are angry because instead of being on trial for such blatant and arrogant collusion he is now our Treasury Secretary.  We are angry because congressional hearings about regulating financial derivatives, the main cause of the crisis, started when Congress was on break and lobbyists send in farmers, the only group that needs derivative-based insurance to secure their crops and made them the face of this ugly and corrupt industry. We are angry at the hypocrisy of billionaire investment tycoons like Bill Gross who blasts the dysfunction in Washington and blatantly calls the Treasury a kleptocracy for being so friendly to bankers, yet his firm PIMCO takes absolute advantage of that dysfunction every single day. We are angry because we are no longer in a democracy. We voted for hope and change, but Wall Street made sure that these words are only parts of a speech recited daily to the masses by an incredibly effective orator.

Now, you might ask what  do Mayan Gods have to do with Wall Street and Washington politics. The answer lies in the history lesson that brought the demise of the Mayan civilization. At its zenith, the Mayan elite, made up of priests and politicians progressively turned away from addressing the needs of their people and turned their focus to serve their own needs. Well, as often is the case with hubris these became the defining moments that began the decline of a 3000 year old dynasty.

What will be in store for the US for 2010 and beyond is still to be determined. We are a resilient self renewing culture that must build a new model which makes the old, tired, corrupt, and self-serving model obsolete.


The Most Comprehensive Summary of the Economic Crisis

This past weekend I gave a presentation that offered a (Memetic) value-systems analysis approach to the financial crisis to an integrally-informed crowd of about 60 at Boulder Integral in Boulder, CO. This was part of Dr. Don E. Beck’s Spiral Dynamics in Action training series. (Until we have a full description of the color-coded value systems of Spiral Dynamics on this blog, please click here for a quick description  (hover your mouse over Interactive Spiral).

After my presentation many audience members came to me expressing their shock and disbelief about the ominous threat that the shadowy global banking system of financial derivatives presents to the very survival of Western culture.

Many requested additional information  and I promised to have that available through this blog. Although my presentation was a result of comprehensive research I’ve done since the beginning of the crisis, I was able to find an article on the web that puts the crisis in proper chronology and identifies the major players in it. Since the publishing of that article in late January the derivatives market has grown from $600 Trillion  to $685 Trillion today. Click here to read the article.

Since this blog is about where Economics meets Memetics, most articles on the web, TV and in print fail to take into consideration the cultural impact that cheap and unregulated money (the removal of  BLUE (ORDER value system vMEME) in the Money/Commerce Spiral) (or lack of oversight in a free markets system) had on accelerating the demise of UNHEALTHY ORANGE (ENTERPRISE vMEME); or best described as Wall Street on Steroids. The events that broke the weakest BLUE link were the attacks of 9/11 that turned this into “the perfect storm”. I compare Bush’s economic team’s reaction to 9/11 to when a truck hits your house, and you turn around and give the keys to the liquor cabinet to the kids (completely unrelated cause and effect). This is precisely what happened when the Fed dramatically lowered interest rates and the rallying call every where turned to: spend, spend, spend or the terrorists win. We had no complex capacities at the monetary or fiscal policy levels to interpret terrorism.   Sophisticated and highly complex economic policies are often made for the long-term and are never designed to turn on a dime.  Bush’s team saw everything as it relates to an unplanned war (short-term, reactive and lacking in insight) and all other policies emanating from his administration followed suit. (A dangerous downshift from a heavy, long-term REGULATOR/ORDER  BLUE value system to a reactive and systemic fighter FEUDAL RED value system).

The unregulated derivatives market wouldn’t have grown to the size that it is without the flood of cheap and unregulated capital that enabled both, diabolical ORANGE at the highest levels to package these financial weapons of mass destruction, as Warren Buffet calls them and sell them as securities (insured by AIG and rated AAA by S&P (corrupt REGULATOR/ORDER BLUE vMEME)). At the retail level, cheap capital allowed for a  PONZI ECONOMY with a RED consumer (spend NOW with NO GUILT) who just borrowed and spend without ever being held accountable by a lender. That same lender made more money from that consumer by finding him a new and bigger credit card, a new and bigger mortgage and sold all of it to an UNHEALTHY ENTERPRISE ORANGE value system of Wall Street again, and they in turn put it into a derivative and sold it back to a wider institutional market all over the world.

Because of the depth and breadth of the damage done to the entire Western financial system by a few but very destructive, highly sophisticated and rarely understood financial engineers (Wall Street UNHEALTHY ENTERPRISE ORANGE value system), we will witness the damage they caused over a prolonged period of time. The Great Depression was a catalyst that propelled most of the US labor force into the industrial age, this atrophy of financial engineering will also act as a new catalyst as it ushers in a new and complete shift in paradigm and value systems.  Unlike the Great Depression however  the horizon for new discoveries  and a shift away from the function of MONEY  will take much much longer to crystallize