Runaway Feedback Loops, Wealth Concentration and Gaming-The-System
by ilene - October 16th, 2010 2:05 pm
Runaway Feedback Loops, Wealth Concentration and Gaming-The-System
Courtesy of Charles Hugh Smith, Of Two Minds
Positive feedback loops soon reach the runaway/self-destruction stage. Concentrations of wealth and gaming-the-system are reaching just such levels.
Positive feedback loops lead to runaway scenarios. The classic example is global warming and the Arctic ice cap. As temperatures rise, the the ice melts, exposing more land or seawater. Ice reflects solar radiation, and so as it shrinks then more solar radiation is absorbed, raising temperatures more, which melts the ice faster, which then leads to more solar radiation being absorbed, and so on.
The runaway feedback loop leads to the disappearance of the Arctic ice and a much warmer planet.
Nature has multiple feedback loops, and so the solar radiation flux may be acting to reduce temperatures as the positive feedback of melting ice raises temperatures. But the point is that positive feedback is self-reinforcing and it speeds up processes as it gathers momentum.
We can see runaway feedback loops in the economy and society, not just in Nature. One of the key runaway feedbacks in the U.S. is the concentration of wealth and political power.
As wealth has become concentrated in the top 1/10th of 1%, then the political power that can be purchased with that wealth also rises, which then enables the wealthy to increase their wealth via "Federal entrepreneurship" and other means.
The political process--once potentially a force resisting or moderating wealth--has been completely captured by an ever-expanding army of lobbyists, the fast-spinning revolving door between the Central State and corporations and unprecedented levels of corporate/Elites campaign contributions.
The judiciary, theoretically a force which could have resisted this concentration of wealth and political power, has also been co-opted by a marriage of ideology and wealth/power. Thus the courts have gutted every attempt at limiting corporate/insider influence over the processes of governance; the courts have enabled corporations to have the "right to free (paid) speech" unburdened by the obligations that go with such rights.
The wealth/power feedback has reached runaway levels. "Reforms" are gutted in backroom deals, votes to benefit the banking/mortgage/foreclosure industry are done on voice calls to evade public scrutiny, and a thousand other games and tricks are played daily to subvert the common good for the benefit of the few and their armies of technocrat toadies.
The other positive feedback loop approaching runaway levels is the Entitlement/Welfare State, both…
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DiggThe Normalization of Sociopathology in America
by ilene - October 16th, 2010 2:02 pm
The Normalization of Sociopathology in America
Courtesy of Charles Hugh Smith, Of Two Minds
The moral rot at the center of American life results from a normalization of pathologies--sociopathic and psychopathic states and behaviors are now "normal" or incentivized. Moral behavior is institutionally punished.
My entry on the moral rot which has taken hold in all socio-economic levels of America drew a number of insightful responses: Runaway Feedback Loops, Wealth Concentration and Gaming-The-System (October 13, 2010).
While the American/Western worldview holds that we are autonomous individuals exercising free will at every moment, in reality we are all heavily programmed by our socio-economic class conditions. What is so striking about present-day America is the way in which the narcissistic, no-moral-compass social pathologies of entitlement, denial and fabrication of "truth"/reality has been "normalized" (accepted as normal behavior and thinking) in all social classes.
Before we analyze that further, let’s get some direct experiences from three observant readers.
First up in Freeacre, one of the proprietors of the excellent Trout Clan Campfire blog:
Here are my examples (of the feedback loops you described):
Thirty-one years ago, when I was pregnant with my son, a friend in San Francisco explained to me that I should go down and apply for welfare. He told me the the social workers basically tell you the right answers to give when applying. They ask the question and you just say agree with whatever it is. That’s the game. (I didn’t do it, choosing to marry the father of our child and live a life of penury instead…)
2) We finally were able to buy a house in Portland. Our next door neighbor lived in one exactly like ours. But, she was divorced and had two kids. Her kids went to church school for free, got free clothing and medical care, her mom collected her rent from the state, she got food stamps, and on and on. Her ex even got a penile implant due to an unfortunate motorcycle accident! We ended up losing our home and car and having to declare bankruptcy due to our son’s medical bills for cancer.
3) Years later, when my husband got cancer and I had to pay his COBRA payments up front, I had hardly any money for food or the house payment from my job at the Tahoe Daily Tribune. When I inquired what we could do to qualify for some assistance, the social
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Lair of the Pigmen: FHA to Extend Government Loan Subsidy Benefits to NYC Luxury Condo Market
by ilene - August 13th, 2010 4:27 pm
Lair of the Pigmen: FHA to Extend Government Loan Subsidy Benefits to NYC Luxury Condo Market
Courtesy of JESSE’S CAFÉ AMÉRICAIN
Weren’t FHA loans supposed to be a form a welfare for ‘poor people?’ Not since the Expanding America Home Ownership Act of 2007.
And it appears this is one ‘reform’ that can’t be blamed on ‘the liberals’ and Obama. Crony Capitalism is not a political party, it’s a way of life in which power and greed are the measure of all things.
Well, some of the New York real estate developers are poor, relatively speaking, compared to an investment banker or a trader pulling down a fifty million dollar annual bonus for packaging fraudulent financial instruments. But they are all rich in their well connected friends in the government.
The kleptocracy never sleeps; crony capitalism knows no bounds…
NBC New York
Luxury Condos Asking the Feds For Help
By JUAN DEJESUS
Fri, Aug 13, 2010Seek FHA insurance to drive condo sales
The federal government may soon come to the rescue of stalled luxury condominiums in Manhattan.
Manhattan luxury condominiums known for posh amenities and high price tags are beginning to apply for Federal Housing Administration backing.
Condominium developers hope to open financing opportunities for their purchasers as well as guarantee a little protection for themselves. Not only will lending institutions be more willing to lend to purchasers with FHA backing, but the FHA will pay the mortgage should a home buyer default.
The FHA loosened the condo rules because of “market conditions,” Lemar Wooley, an agency spokesman told Bloomberg.com
The administration recently agreed to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo in Match, according to Bloomberg. That deal allowed buyers to make a down payment of as low as 3.5 percent in a complex where apartments run up to $3 million…
Why The Bankers, The Fed, and Their Allies In Washington Are Afraid of Elizabeth Warren
by ilene - August 11th, 2010 4:15 am
Why The Bankers, The Fed, and Their Allies In Washington Are Afraid of Elizabeth Warren
Courtesy of JESSE’S CAFÉ AMÉRICAIN
“Fascist regimes almost always are governed by groups of friends and associates who appoint each other to government positions and use governmental power and authority to protect their friends from accountability. It is not uncommon in fascist regimes for national resources and even treasures to be appropriated or even outright stolen by government leaders."
Dr. Lawrence Britt
The Nation
The AIG Bailout Scandal
William Greider
August 6, 2010
The government’s $182 billion bailout of insurance giant AIG should be seen as the Rosetta Stone for understanding the financial crisis and its costly aftermath. The story of American International Group explains the larger catastrophe not because this was the biggest corporate bailout in history but because AIG’s collapse and subsequent rescue involved nearly all the critical elements, including delusion and deception. These financial dealings are monstrously complicated, but this account focuses on something mere mortals can understand—moral confusion in high places, and the failure of governing institutions to fulfill their obligations to the public.
Three governmental investigative bodies have now pored through the AIG wreckage and turned up disturbing facts—the House Committee on Oversight and Reform; the Financial Crisis Inquiry Commission, which will make its report at year’s end; and the Congressional Oversight Panel (COP), which issued its report on AIG in June.
The five-member COP, chaired by Harvard professor Elizabeth Warren, has produced the most devastating and comprehensive account so far. Unanimously adopted by its bipartisan members, it provides alarming insights that should be fodder for the larger debate many citizens long to hear—why Washington rushed to forgive the very interests that produced this mess, while innocent others were made to suffer the consequences. The Congressional panel’s critique helps explain why bankers and their Washington allies do not want Elizabeth Warren to chair the new Consumer Financial Protection Bureau.
The report concludes that the Federal Reserve Board’s intimate relations with the leading powers of Wall Street—the same banks that benefited most from the government’s massive bailout—influenced its strategic decisions on AIG. The panel accuses the Fed and the Treasury Department of brushing aside alternative approaches that would have saved tens of billions in public funds by making these same banks “share the pain.”
Bailing out AIG effectively meant rescuing Goldman Sachs, Morgan Stanley, Bank of America…
Chris Whalen Calls for Reforms, But Gives Crony Capitalism and the Neo-Liberals a Rewrite
by ilene - July 13th, 2010 2:24 pm
"ALL THE GREAT THINGS ARE SIMPLE, AND MANY CAN BE EXPRESSED IN A SINGLE WORD: FREEDOM, JUSTICE, HONOR, DUTY, MERCY, HOPE." WINSTON CHURCHILL
Chris Whalen Calls for Reforms, But Gives Crony Capitalism and the Neo-Liberals a Rewrite
Courtesy of JESSE’S CAFÉ AMÉRICAIN
I enjoy Chris Whalen of the Institutional Risk Analyst. His outlook and perspective are generally well-informed and well to the point, fresh and practical.
In his most recent essay titled Building a New American Political Economy, excerpted below, he spends quite a few words in taking Paul Krugman and the stimulus crowd to task, or more accurately, out to the woodshed for what we used to call a ‘proper thrashing.’
I like his conclusion, which strikes a similar chord to the tag line which I have been promoting since 2002.
"The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery."
There must be a fundamental restructuring of the US economy, a reconsideration of globalization and its scope and impact on domestic policy, and a significant reform of the role of the financial system before there can be any sustained recovery.
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The housing bubble was not only noticeable well in advance of its collapse, but it was predictable in my view, because of what Greenspan’s policies had been coupled with the fiscal irresponsibility of the government.
What I do not like, at all, is the revisionism that imputes the problems facing the US today to ‘the Keynesians,’ seemingly alone.
Deficits Don’t Matter, Until They Do
Who was it who proved, according to Dick Cheney, that ‘deficits don’t matter?’ Not some wild eyed liberal, but Ronald Reagan. And if Reagan was a Keynesian, then Tim Geithner is Leonardo da Vinci.
The greatest deficit growth in the US came from a belief that cutting taxes for the wealthy, without cutting spending, and even increasing spending by enormous amounts on military projects, even in peacetime, in the pursuit of empire and the New American Century, was viable because this would stimulate growth from the top down, trickle down as it were, and negate the deficits.
It was from the anti-government Republicans and faux Democrat elites like Bill Clinton and his economic advisor Robert Rubin, and the billionaire boys club’s think tanks, that the ‘efficient markets hypothesis’…
Innovation, Risk and the Forest Fire Analogy
by ilene - July 4th, 2010 3:20 am
Innovation, Risk and the Forest Fire Analogy
Courtesy of Charles Hugh Smith Of Two Minds
To clear open space for innovation to take root, sometimes you need a forest fire to destroy all the deadwood. Instead, we are frantically piling up more deadwood.
What was once an inflammatory outlier--that our brand of "capitalism" incentivizes exploitation, fraud, complicity, corruption and plunder--is now commonplace. Even the most mainstream financial media websites now sport commentaries which excoriate our systemic fraud, and books galore gleefully sport titles containing "hot" words like plunder.
That is a remarkable turn of events: that a radical critique of our entire financial system has gone mainstream, and in many circles has been accepted as "obvious." (For more on the tricky nature of what’s "obvious," please see the chapters on the politics of experience in Survival+.)
In Innovation: Financial, Technical and Institutional (June 30, 2010), I attempted to connect the dots between risk and innovation. I believe that the two concepts are intrinsically bound like oxygen and hydrogen in the water molecule, but this deep structural connection between the two is generally ignored or not even recognized.
In essence, innovations which remain inherently unstable and unsafe regardless of hedges, controls and safety features--that is, they embody intrinsic risk-- cannot be placed in the same category as innovations with inherently low risk.
One of the keystones of the Survival+ critique is the realization that the risks of our systemic "financial innovations" are ontological and cannot be massaged away to zero. Indeed, the idea that this was possible underpinned the entire credit bubble and its inevitable implosion.
Mathematician Benoit Mandelbrot discredited this notion in depth in his book (highly recommended) The Misbehavior of Markets.
I addressed this last year in The Yellowstone Analogy and The Crisis of Neoliberal Capitalism (May 18, 2009):
For decades, the operative theory of forestry management was that limited controlled burns-- mild reductions of dead underbrush and debris--would essentially reduce the possibility of a major fire to near-zero.
But the practice actually allowed a buildup of dead wood which then fueled the devastating forest fire which swept Yellowstone National Park in 1988. Various revisionist views sprouted up later, claiming the fire was not the result of misguided attempts to limit natural forces (Vast Yellowstone Fire Now Seen as Unstoppable Natural Cataclysm (NT Times, 1989)).
Now we’re in a financial conflagration which is widely considered the result of
…
Krugman Finds His Nut(s)?
by ilene - February 10th, 2010 7:25 pm
Krugman Finds His Nut(s)?
Courtesy of Karl Denninger at The Market Ticker
As in "a blind squirrel finds one – once in a while."
(With apologies to the person who posted it on TF under that title before I got to Tickering this – heh, I had to go get my teeth cleaned, so give me a break already! 
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But in fact Krugman hasn’t found his nut(s), although he should check. He’s groping around down there…. perhaps he could come up with something if he’d just take the next logical step from here:
The point is that these bank executives are not free agents who are earning big bucks in fair competition; they run companies that are essentially wards of the state. There’s good reason to feel outraged at the growing appearance that we’re running a system of lemon socialism, in which losses are public but gains are private.
No Paul, that’s not reality either. Your liberal mind just can’t get its tiny little wings around what really happened, so let me help you.
You can start with my Ticker entitled "The Audacity of Synthetics", in which I explain to the proletariat what any self-respecting "economist" (or "economic reporter") should already know about, but which I’ve yet to hear you opine upon:
But this leaves open the question of whether it is fair, just, or even legal to create a synthetic security that at it’s core comes into existence because someone believes that the reference is going to detonate, and then sell off pieces of that security to investors without prominently disclosing the source of the funding of the cash flow, that they proffered the criteria for inclusion in the reference and that the INTENT of their funding was to profit from an EXPECTED detonation of the reference securities.
It also leaves open the question of laying off that risk on an insurance company (whether in a regulated subsidiary or not) without similarly disclosing the above to them up front! That is, is it fair, just (or even legal) to buy fire insurance on a property when you have been told that someone expects a fire in that structure based on what they believe is credible analysis (e.g. a look at the
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Meredith Whitney: The government is “out of bullets”
by ilene - December 8th, 2009 8:24 pm
Meredith Whitney: The government is "out of bullets"
Courtesy of Edward Harrison at Credit Writedowns
I am not sure I buy Meredith Whitney’s assertion that the government is “out of bullets” in its quest to prop up the economy. It’s a matter of political will more than anything else. Nevertheless, I do agree with her basic premise in the CNBC video below that the financial sector is likely to see a more unfavourable economic climate in 2009 than it has done in 2009.
In particular, a looming crisis at the state and local government level, coupled with continued distress at regional and local banks will mean a deadly combination of higher taxes, fewer jobs and less credit for households and small businesses. Unless we see a change in the political climate in Washington, now oriented toward deficit reduction over jobs, we are likely to see a double-dip recession late in 2010 or 2011.
Whitney says “the component parts don’t add up” in addressing the Obama Administration’s conflicting rhetoric on jobs, stimulus and deficit reduction. I have said Barack Obama gets it because we have confirmation that he understands that raising taxes or cutting spending is what leads to a double dip recession.
I will accept that not everyone believes we should avoid recession if it means more government spending because of the enormous debt loads in the private sector and the unfunded liabilities in the public sector. Fair enough. I have my own doubts due to concerns about crony capitalism. That is an ideological debate about the role of government.
But in executing actual policy, I believe the President’s words and actions are at odds in part due to the political landscape and the wishes of the corporate interests to which he is beholden.
Witness the duelling headlines today where Joe Klein points out a speech with elbows that the President delivered today. Michael Tomasky was equally impressed.
But, this was just a speech. When it comes to actual policy, Robert Reich was less impressed.
Barack Obama is trying once again for balance. On the one hand, he wants enough government spending to
…
The Real Reasons Behind Fed Secrecy
by ilene - September 28th, 2009 2:58 pm
Political Moment: Texas Straight Talk
The Real Reasons Behind Fed Secrecy
By Ron Paul
Last week I was very pleased that the Financial Services Committee held a hearing on the Federal Reserve Transparency Act, HR 1207. The bill has 295 cosponsors and there is also strong support for the companion bill in the Senate. This hearing was a major step forward in getting the bill passed.
I was pleased that the hearing was well-attended, especially considering that it was held on a Friday at nine o’clock in the morning! I have been talking about the immense, unchecked power of the Federal Reserve for many years, while the attention of Congress was always on other things. It was gratifying to see my colleagues asking probing questions and demonstrating genuine concern about this important issue as well.
The witness testifying in favor of HR 1207 made some very strong points, which was no surprise considering the bill is simply common sense. It was also no surprise that the witness testifying against the bill had no good arguments as to why a full audit should not be conducted promptly. He attempted to make the case that the fed is already sufficiently accountable to Congress and that the current auditing policy is adequate. The fact is that the Fed comes to Congress and talks about only what it wants to talk about, and the GAO audits only what the current laws allow to be audited. The really important things however, are off limits. There are no convincing arguments that it is in the best interests of the American people for anything the Fed does to be off limits.
It has been argued that full disclosure of details of funding facilities like TALF and PDCF that enabled massive bailouts of Wall Street would damage the financial position of those firms and destabilize the economy. In other words, if the American people knew how rotten the books were at those banks and how terribly they messed up, they would never willingly invest in them, and they would fail. Failure is not an option for friends of the Fed. Therefore, the funds must be stolen from the people in the dark of night. This is not how a free country works. This is not how free markets work. That is crony corporatism and instead of being a force for economic stabilization, it totally undermines it.
If the Fed gave its actual arguments against a full audit, they would not have…
Deregulation as crony capitalism
by ilene - August 20th, 2009 10:07 pm
Edward at Credit Writedowns had some interesting comments on the earlier post by Jesse at the Le Cafe.
Deregulation as crony capitalism
Courtesy of Edward Harrison at Credit Writedowns
Jesse of Jesse’s Café Américain posted on the important subject of deregulation in his last post, “Why the Austrian, Keynesian, Marxist, Monetarist, and Neo-Liberal Economists Are All Wrong.” In it, he opined that it is entirely wrong-headed to assume everything will be alright if we just let free markets work their magic. I want to take his thoughts one step further because I think there is a misperception about what the free market entails and why the deregulation movement went astray.
Kleptocracy defined
First, a framework.
Last March, I posted an article called “A populist interpretation of the latest Boom-Bust cycle” in which I used Jared’ Diamond’s viewpoint of stratified societies as Kleptocracies as a lens through which to understand the secular trends which have characterized the last generation of western economic history.
The corollary of this – and where I want to concentrate – is that advanced societies are not egalitarian. Some will de facto have more, and others will have less. Moreover, as Diamond asserts, this lack of equality becomes, in essence, a kleptocracy i.e. a reverse Robin Hood organization where the elites enrich themselves at the expense of the others.
This has been the reality in all advanced societies based on agriculture, manufacturing and services for the last 10,000-odd years. This social structure has been net beneficial to the societies employing it in comparison to more simple societies – a case of a rising tide lifting all boats. So, on some level, kleptocracy is nothing about which to get irate.
The problem is that not all kleptocracies are created equal. At some point, the ruling class overreaches in a way that subtracts from rather than adds to the overall…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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