Monday, August 31, 2009

Pen Meets Paper August 31, 2009

Opinion by Helge Nome
Today I would like to follow up on comments made in last week's column (available on about our financial system and its seeming inability to distribute wealth in an equitable way.
Most people don't have the time or inclination to learn about the mechanics of our financial system, any more than taking the trouble to figure out the internal workings of a digital computer. We use both all the time, but leave the maintenance and upkeep to the experts.
Two years ago I had the misfortune of finding out, the hard way, that our financial system is not a very healthy critter, to say the least, even though most of its attendants keep claiming that it is. Until recently, that is, when denial was no longer possible in face of the facts.
So what is wrong with this animal? The symptoms are obvious: The amount of money, or credit, available to people that want to do something useful, like providing needed goods and services in all sectors in the economy, has been drastically reduced, which is reflected in large increases in unemployment and tightening of budgets all around. Banks are restricting lending to fit in with very rigid criteria involving low risks to themselves.
Most economists agree on the symptoms, but few agree on the nature of the underlying disease and our Queen, Elizabeth II, pointedly asked some repected members of the London School of Economics:
"But didn't you see this coming?" To which they reportedly answered rather sheepishly: "Sorry, ma'am, we didn't".
Being in such good company (with wanna-be economists), I will venture forth some expanations (to be ingested with a pinch of salt):
History is always the best teacher. What has happened before will happen again at some point in time when the same, or similar, circumstances prevail. This is as true of bush fires, when a large volume of dry vegetation is available for ignition by lightening under windy conditions, as it is for problems in the financial system, when its regulatory framework has been altered and rampant speculation has taken hold.
Add to this the fact that our method of allocating financial resources to provide purchasing power to consume the products of our industrial economy is tied to an ever growing interest bearing debt for most people in favor of a financial oligarchy that accumulates power for itself, without regard for the consequences on people or environment.
During the time leading up to October, 1929, the gambling spirit took well and truly hold of our cousins down south, in particular. Lots in huge real estate developments in Florida were flipped over for record amounts of dollars, even though the lots were prime alligator habitat in the marches of that state and no one in their right mind would even park a houseboat there. The economists of the day were beating their chests and the President said: "The good times are here!"
We know what happened.
Today, our financial wizards, working for "investment" banks, etc., didn't even bother to peg out any real estate. They just made up computer based "financial instruments", claiming to have some inherent value, and proceeded to buy and sell them accordingly. More and more people took the hook, and here we are. Sucking on our thumbs because most available credit has been used to buy this worthless junk.

The solution is to re-regulate the system, take the power of credit creation away from the oligarcy, and fix our accounting system so that there is money available to buy the products and services we need without us getting drowned in debt to a bunch of financial manipulators.

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