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

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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.

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Destruction by an UNHEALTHY ENTERPRISE value system (vMEME) Continues

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A new academic paper written by Brent T. White, a law professor at the University of Arizona, calls on 15 million American homeowners to ignore the social messages of shame, and walk away from their underwater homes.

The paper, titled “Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis,” argues that homeowners are losing out on hundreds of thousands of dollars by trying to float underwater homes. Click this link below to read the full article on the First Tuesday blog.

http://blog.firsttuesdayjournal.com/?p=2146

Here’s where Economics meet Memetics: This is yet another example of a regulatory value system (ORDER vMEME) unable or unwilling to fully exercise its power to protect the consumer , while an UNHEALTHY ENTERPRISE vMEME continued to lend money to people who can’t afford it and refuses to acknowledge its own past mistakes). I fully support putting an end to the first time buyer subsidy (inducing the HEALTHY ENTERPRISE vMEME under false pretense to prevent real market price discovery) and whatever program that will empower these 15 million homeowners to walk away. Loan modifications by banks are currently a joke thanks to a $Trillion + Bailout where banks took the money to cushion their balance sheet instead of doing the real work of writing down the value of their loans.  Our tax money has empowered the bankers to make us poorer. Reversing that is where the Obama administration should be focused. What do you think?

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Zombie Banks and the Lessons of Japan

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Japan’s “lost decade” has been a perpetual case study for economists and business schools alike. Keynes’ monetary policies, which have to do with the supply and the cost of money, never envisioned a decade of prosperity predicated on historically low interest rates.  As we entered this recession, that whole side of monetary policy should have been declared dead on arrival as the Fed lending rate had been very close to zero and money supply had been at unprecedented levels for many years. If the economic expansion leading up to 2008 happened while mortgage rates were at 8-9% in a reasonably chastened lending environment, then monetary policy would have been a very powerful tool for the Obama administration to use. The fact that the Obama team ignored this fact and gave banks more money at  0-.25% and not much borrowing or lending has taken place confirms the we are heading into the same trap as the Japanese.

The common global culprit that started in Japan in the 90’s ; call it the atrophy of Freidman’s free-market ENTERPRISE value system (Click here for an earlier value systems  blog explaining what investment means to the different value systems) was the shift from having monetary Keynesian policy (ORDER-value system economic tools for policy makers) being completely marginalized by populist consumer-spending policies. When that happened, interest rates had to be reduced to close to zero to maximize consumer spending. (Give money to all regardless of their value systems and see what happens). This process created unprecedented wealth as the consumer’s purchasing power almost doubled by the shear drop in interest rates. To the housing market, this caused meteoric rise of property values and achieved its intended goal of transforming homes into ATM’s. Japanese bankers exhausted the heck out of this model and created things like 40 and 50 year mortgages till there was nothing left to create. By the time the Japanese property bubble burst, the Imperial Palace in Tokyo was worth more than all property valuations in the state of California (now that’s what I call a bubble).

Japan’s banking sector suffers from what’s known as “Zombie Banks”. A phe.nomenon where there are lots of lenders but few borrowers. I’m afraid that’s where the US will be in another 2 years. The speculative FUEDAL/UNHEALTHY ENTERPRISE value system is still alive and well and is still driving much of the activity on Wall Street and at property auctions all over the country.  We won’t get a full picture of the damage, a stage called price discovery, till most of this speculative activity stops. Consumers falling into the HEALTHY version of the ORDER-to-ENTERPRISE value system on the other hand, are a wise and powerful bunch and have taken corrective measures to reel in their spending. This has been the only meaningful bright spot in a minefield of otherwise useless economic data in the past 18 months, AND THE BANKS HATE IT!

Homes need to become ATM’s again to bring banks out of their zombie state and that will not happen any time soon simply because property values haven’t bottomed out yet. As of the date of this blog, the total number banks that have failed in 2009 in the US stands at 140 and at the cost of tens of billions to the tax payer.  Once the dust settles, and the taxpayer’s thresh hold for FDIC-style bailouts is fully exhausted, public opinion will not support the role of banks being anything more than a utility.  Only when banks are sidelined in such manner through necessity will homes be used as places of residence again and not as a speculative investment vehicle and that will spell the end of a nasty adventure into ill-conceived economic policies.

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Speaking Gaian Truth to Economic Power