fugaf....here....by popular demand.....(hahaha!!!)....
this was published by the Common Conservative in Feb, 2010....the web site is down...Thomas Lindaman told me they were working to restore the domain....
below is the unedited draft of the article which appeared....
have a "field day"...
The Biggest Misconception of the 21st Century
Months have passed and there seems to be little substantive improvement to our economic crisis. The obvious question is: why?
Perhaps, the problem and its solution may not be what most experts believe it to be. Maybe, both Democrats and Republicans have missed the glaringly obvious. Is it possible the market collapse was enabled by a very serious underlying problem? Are bail-outs and stimulus packages little more than ineffective measures which only provide political talking points because certain problems transcend politics and who is in the Oval Office?
It appears neither Party has recognized the fact that we are in a new era because of recent technological strides in computerization and communications. America and the world community have acquired an ability to process transactions and disseminate information with a real time efficiency never before experienced in human history. This ability has changed the way in which the confidence/financial markets operate, the way news media impacts current popular beliefs, and the relationship between the confidence and intrinsic economic sectors.
These technological advances have lulled people into believing the confidence/financial markets are the most important aspect and driving force behind the economy. This is the biggest misconception of the 21st century. Nothing could be further from the truth.
Since the beginning of civilization, those people who possessed large amounts of money were thought by themselves and others to have power. And, to a large extent, that is correct because man’s lust for money has elevated it to a god-like status thereby lending truth to the adage that money is power.
Today, the technological advances of computerization and communications allow or enable the velocity of money and scope of financial transactions to be accelerated and implemented disproportionately to the rest of the economic environment and thereby have seriously skewed the economic playing field.
Money, as it always has been, is simply a medium of exchange; it is not the basis of any economy; goods and services are a nation’s economic foundation. Without an intrinsic economic sector, money has no meaning, value, or use. Very simply, money cannot exist without an intrinsic economy. Therefore, the financial markets and intrinsic market of any economy can be only, under the best circumstances, co-dependent systems.
In reality, the intrinsic sector must drive the financial sector. When the reverse occurs in a capitalistic economy, unsavory consequences begin to reveal themselves because the financial markets interfere with the supply-demand relationship and thereby artificially drive prices in the intrinsic economy. Beyond that, the proliferation of derivative instruments is, in reality, a house of cards simply because they are confidence based instruments piled upon one another in a pyramid fashion. The danger lies in the intrinsic base. Once the base is disturbed, the house of cards implodes.
Unfortunately, the economic lesson to be learned from this crisis will be very difficult to absorb for a number of reasons. First, there is a political agenda which uses this crisis to assist in its fruition. Secondly, the biggest problem is: those with power and money want to be the driving force behind the economy; they do not want to relegate themselves to complying with the nuances of the intrinsic economy; they want to control it. And, lastly, most economists rely upon observations of the past and try to apply past solutions to the present unaware that the new technology has made previous solutions impotent in today’s environment.
The US government is inundated with advisors and experts. Therefore, it is only reasonable to ask: if the projections, advice, and assessments of the experts are correct, why did the crisis occur. Why couldn’t it have been prevented or, at least, ameliorated to some extent and why couldn’t we easily extricate ourselves from it? While the question may sound glib, it raises the issue at the core of the problem. That is, if the experts do not have the answers or are powerless to effectively remedy the crisis, then, only two possibilities exist. First, the correct answer or solution must reside within another realm of possibilities apart from their economic or financial expertise. Or, possibly, the priorities of the politicians in Washington caused them to intentionally ignore the well founded, appropriate remedial advice of their economic advisors…but, that is highly unlikely since neither the past president or present president nor their administrations or congress has alluded to the correct solution to this crisis. So far, the solutions offered by either party are politically motivated without regard to the core problem.
Unfortunately, the American public is in for a rude awakening. The effects of this crisis will linger. Yes, there have been recessions and depression in the past and the government couldn’t verify if there was a recession for months. Americans experienced the down turns…they thought they were in a recession...but, they weren’t sure until all the facts and figures were in; there was a waiting period for verification. That’s obviated by the fact that the Great Depression didn’t get its name until after it was over.
But, this time, one day everything was rosy and the next day…wham! President Bush announced the nation was facing a crisis in the financial industry and the next day the economy began sliding downhill; and, within a week, the entire economy was in a shambles. What happened? Did the crisis occur simply because President Bush said there was a crisis? Perhaps, there is some truth in that idea. But, whether, the crisis was politically motivated or occurred via a series of private sector economic blunders is not the issue in this discussion. The issue is what forces enabled the crisis to occur almost overnight? That’s never happened before; or, perhaps, more correctly, past generations really didn’t see a crisis coming until it was too late because they did not have the tools to accurately forecast and identify financial and economic problems. The onset, impact, and alleviation of previous recessions have been a more gradual series of events; and, most of the facts relating to those events were viewed in hindsight.
What’s different this time? And, what must be done to correct the problem and prevent a similar recurrence? The answer to those questions is computer/communications technology is the enabler of this crisis; and, unless this issue is addressed and remedied, the next crisis will make this one pale by comparison.
Our technology has outpaced our regulatory systems; and, to make matters worse, regulations which were in place were left unenforced for political reasons. The result was economic disaster. What has occurred through regulatory negligence leading to unbridled technology is: the driving forces of the economy have juxtaposed.
In the big picture, in the past, the stock market and financial markets were driven by economic events because the financial community is a confidence based market. Today, the opposite is true. Wall Street and the financial community drive the economy and create economic events; and, that could never happen without the enabling computer based technologies which create the media information barrage and facilitate real time transaction processing.
To exacerbate the problem, those people in power within our government and those with wealth within the private sector want the American public to believe Wall Street is the engine which drives the economy. Sadly, that self-serving idea is completely counter-productive to economic growth in a capitalistic market. When Wall Street actually drives the economy, economic disaster follows…as we have witnessed and are presently witnessing.
For most of the 20th century, the private sector generated money at a snails pace via comparison to today’s computerized environment. The federal government has been the historic agent which expanded or contracted the money supply to balance the requirements and events of the private sector and intrinsic economy. Currently, the role of the US government has changed relative to its influence and impact upon the financial community and the generation/ supply of new dollars into the economy.
The private sector controls the generation of money in a way which has never been previously experienced. The use of derivative instruments, the velocity and volume of stock market transactions, the interface of American markets with world markets, the encroachment of foreign enterprise into American domestic markets, the real time dissemination of information, and all of the financial changes which impact our lives and economy have occurred in relative recent history…within the last 10-15 years…and, the changes have been enabled entirely by computer technology.
At this point, let us be perfectly clear. Computerization of the financial markets and the media are not the cause of the problem; computerization is the enabler. This implies the crisis we are currently experiencing will recur at some point in the future because the enabling system has been effectively omitted from any remedial plan. Instead, we employ the remedial policies of a bygone era.
We must remember that the computer has enhanced the capability of the financial and media markets in a way which makes the Industrial Revolution’s contribution to manufacturing seem small by comparison. Just imagine someone from Wall Street in 1950-something trying to insure and market bonds securitized by sub-prime mortgages. How quickly does anyone think billions of dollars of those instruments would be sold? Today, those instruments can be sold in a proverbial heartbeat because we have the computerized communications and data processing capabilities to market those securities both domestically and world wide. We are in an entirely new era and the technical systems upon which we rely must be harnessed.
In our attempts to resolve today’s financial crisis, it seems to be a popular notion to look back at the Great Depression and analyze what FDR did to end the depression. Some critics claim it was WWII that ended the depression and nothing done by FDR helped; others say what he did prolonged the depression. Some believe he is a hero by ascribing to the idea his programs ended the depression. Regardless of who is correct, one thing is true: by comparison to the present level of computerized market sophistication, FDR might as well have lived in the Stone Age. There is no comparison between then and now. FDR did not have CDS’s or CDO’s, sub-prime mortgages, various derivative instruments, hedge funds, ETF’s, and an entire computerized environment which integrates world markets into the American markets. Yet, no one addresses this issue…and, it is the key to this crisis. The only value in looking back at FDR’s administration or earlier in history is to reassure ourselves that the complexity or level of sophistication of the financial markets are not the keys to a healthy economy. Yet, we persist in comparing today to FDR’s era. That’s laughable! Television was invented when he was president…he had little more than a telephone to contact the outside world.
Capitalism, like any other economic system, requires that a balance be maintained between its two major sectors, i.e. the financial/confidence market(s) and its intrinsic goods and services sector. That critical balance has been seriously disrupted and is the cause of our crisis. Whether it was disrupted as a result of the greed of the “evil capitalists” on Wall Street or the result of a political ideological struggle between the Republicans and Democrats is not the issue. The fact remains: capitalism requires that critical balance be maintained…period! The moral of the story is that no matter how bitterly the Republicans and Democrats battle one another for political control, they cannot afford to upset this critical economic balance.
The financial market cannot be the sole driving force of the economy; there is a time for it to drive and a time to be driven. This is not a naive statement; this is a capitalistic economic axiom. It’ not an accident US capitalism is the most successful economic system in the history of the world. It occurred because capitalism is a self correcting system when left relatively undisturbed.
Today, computerization yields data and projections which are disseminated to the public by the media. The financial markets react to the projections and informational barrage. Then, the intrinsic goods and services markets follow suit and adjust or behave as the financial sector predicts they will behave. In the end, today’s information stream creates a virtual reality just like a child’s computer game and the markets react and adjust according to that information barrage. In a sense, the American economy has become the victim of its own technology.
If we preoccupy ourselves with the minutia or technicalities of the crisis, we miss the big picture…much like the adage: “can’t see the forest through the trees”. We concern ourselves with toxic assets, mark to market write downs, securitization, collateral calls, and the like. But, in the final analysis, we find that our monetary infusion is to shore up balance sheets. What does that mean? It means we are committing money to institutions which lost money to make numbers jibe on balance sheets. Those assets lie in accounts represented by a series of numbers containing more numbers which represent money. All of this is being done to prevent people or institutions from losing their power because they lost their money. And, all this is done at a time when the bigger economic picture demands those fortunes be lost and the institutions collapse in order that the financial system might self-correct in order to get back into balance with the intrinsic economy. But, the rich and powerful don’t want to lose their money; so, everyone gets bailed-out by their pals in government.
Balance must be restored. We are dealing with a financial time bomb and everyone who has power to correct the system, for their own self-serving reasons, has their head in the sand or deliberately will not address the issue. This crisis is a portent of things to come. Computer technology is a wonderful asset for the financial community…or, it can be as destructive as a nuclear bomb. Unless we adjust our mindset and priorities regarding the balance which must be maintained between the intrinsic sector of the economy and the confidence/financial sector, economic growth will be stifled. Yesterday’s solutions will not repair today’s economic woes.
What will we do? The next logical question is: how do we restore the balance? That’s another discussion.
Market Data 
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