Of Bleached Anal Rings and the Displaced Heads of Kings.

Dog Poet Transmitting.......

The degree of indulgence and absurdity, engaged in by the self-adulating fops of the day, during their brief respite here, enjoying what they earned at some other time and traded off for something far less than what they could have gotten, is a wonder to behold. One of the key pleasures of having too much money is the ability to spend it on things that most people cannot afford and on things that push the boundaries of excess far beyond what you may have imagined. That may even be the chief pleasure. Perhaps they move from one to the other? For those who have the style-wit and capacity to appreciate having their anal ring bleached, there will always be places to go. It is probably fitting that such places exist because there have to be places where those of a similar mindset can congregate and also locations where they can be gathered together for the opportune, communal, world-shaking moment. There are even entire countries like this. Israel comes to mind.

I recently heard from someone who has traveled all over the world and he mentioned the places he had been and the most pleasant and the least pleasant. The least pleasant was Israel. He said it was stunning how much the residents hated each other. It turned out to be only slightly less than they hated everyone else. No country is more aware of the ‘everyone else factor’ than Israel. I think of the place as a very large mental institution for the care and expression of a specific pathology and the results of that pathology are becoming more and more apparent. I don’t know how true that is but it sounds like fantastic news, if it is true. In the process of creating and maintaining a world of exclusivity, for those lining up to the rear of the horned god of the temporal realm, for that special and enduring kiss, there are protocols of necessity that translate into revered institutions of perpetual operation. No word yet on whether the devil has his anal ring bleached or whether that is a fait accompli, given all the heat from the bussing and… well, heat in general, I guess.

I’ve got nothing against being wealthy. I wouldn’t mind it up to a point. It could be wonderful to be able to finance certain projects and be generally useful, which is how I see the opportunity and responsibility of it. I’ve got nothing against spas. I go to the public baths, less often than I would like, for the saunas and certain other amenities. I would love to have a sauna. I’ve got nothing against having a good time. Some might say I’ve had more good times than I should have but that’s generally coming from people incapable of having one. I think any sane and rational person knows what my objections to excessive wealth and privilege are. Wealth is a by product of Karma and everyone gets to go to the well on occasion, according to certain features of cause and effect, time, circumstance and the orchestrated fortunes of birth. Talent and industry should be rewarded.

These days we’ve got quite a crop of self-felating vipers, giving new meaning to the snake with its tail in its mouth and ironically, fulfilling the rule of the eternal but not necessarily as originally intended. Something happens to a person when they desire ever more and more than they need, while caring less and less for those around them. Having purchased privacy and the freedom to be idle, they can’t rest without making sure of an increased difficulty in the pursuit of it by those who don’t have it. Foreclosing on homes and making jobs disappear, while devaluing the currency, are a few of their avocations. Then you get things like this. It should be noted that Chase made a lot of their fortune foreclosing on the mortgages of war widows; a house specialty from Chef David.

It amuses me no end to see the rich slather themselves in expensive scents, cut from the glands of small animals; unguents and chemical smell repressants abound because they really do stink underneath it all. I’ll tell a little personal truth, which is verifiable and also known to my close associates. I can go without a shower for a month or more and give off no sign of it and I don’t use any of these things. How do I do it? How do I eat enormous amounts of garlic and seldom smell of it and …why? I’ll expound on that in my book, “Spiritual Survival in the Temporal World” when it comes out early next year. Statements like these are magnets for jeering, scoffing and poorly constructed jokes but the ‘proofs in the pudding’.

Some of us are aware of all sorts of things we don’t talk about a lot, can’t talk about mostly, because it just clangs off the consciousness of the ones being addressed and then clatters down the road like a runaway hubcap. Certain truths just bounce off of the attention of most because recognition requires a change and an adjustment in the way they live and they damn well don’t want that. They want to have what they have until they die, which they don’t expect to happen and they don’t want to accept any of the eternal realities of existence.

This is why so many women, who are beautiful to begin with, or could be, paint themselves up like circus clowns, as if the march of time might be fooled and the observer deceived. Instead of blooming by the grace of nature and growing ever lovelier with the passing years, as the inner beauty comes forth to shine in radiant splendor and sits like the crown and evidence of true royalty upon their character and features, they opt for something else; something dreadful.

I don’t envy the rich and the imagined powerful. I don’t envy their false fellowship with each other and the sure lack of friendship and true affection that can be had by the dirt poor but not by them. I’ve seen the enormous hospitality of poorer cultures and the near total lack of it in the affluent ones. I watch people. I feel sorry for them most of the time and I recognize the danger that can rush forth, if one treads on their understanding of what the real costs are that they incur and their rights to abuse themselves and others while pursuing ephemeral mists, which stretch across the vast swamplands of material attraction.

You can’t tell anyone anything until suffering has brought them to the place of listening. I remember a cartoon I saw awhile back of two bookstores next to each other. The sign over one of them said something like, “Cheap, sensational and poorly written drivel” and the other said, “Timeless works of beauty and imagination.” There was a line stretching out of the first bookstore around the block and no one in front of the other. But you can see this right in front of you every day. The proof of all that’s said here, or has ever been said anywhere, is right in front of your eyes and those who cannot see it are blinded by the smoke from the fires of their desires and attractions. You can’t have the one and see the other, which is how you get, ‘in the world but not of it’.

The too few who have too much are in need of global conflicts to distract the public from their crimes and make yet more money they don’t need. They are whipping these conflicts up as I write these words and everyone else would be better off it they took every one of these bankers, politicians and everyone like them and gave each of them a knife and a flashlight and sealed them up in a bunch of abandoned apartment buildings. Those who want to make war should have the opportunity to personally engage in it. They should be showcased on pay per view in contests against their fellows. Anyone caught stirring up conflicts and playing blood games with money should be immediately arrested and lined up for a performance. Let the punishment fit the crime. Take everyone responsible for Afghanistan and parachute them into the Hindu Kush. Let the same be done for the architects of every conflict.

Those who have stolen huge fortunes from their fellows should be quarantined in the slums of major cities. Those who abuse their powers in law enforcement should become prison inmates. What about those who experiment on people in the name of science? There are many crimes I can think of. There are many crimes that are born out of other crimes. Today there is an ever increasing rash of pet disappearances because people are broke and hungry so they are kidnapping these animals and selling them to labs.

Meanwhile, those responsible for all of these things, visit the links provided earlier in this post. They’re having their anal rings bleached and god knows what else. Sooner or later, too late is on the doorstep. Sooner or later, “I told you so” is a fading echo, with only “No! Please God! No” remaining. Sooner or later those with too much will offer everything they have for escape and forgiveness and someone will take everything they have but there will be no escape and no forgiveness. The message is on the answering machine and the past due reminder is in the mailbox. Meanwhile, life goes on.

End Transmission.......

Last night's radio show is now available for download.

I am Alive

The New Shangri-La

Camden's Tent City Back, Bigger

More People Now Living In Tents In Camden

Tough times have people in Camden living in tents. The makeshift "Tent City" has not been heard from for a while now, but it's back, and it's bigger than ever.

Despite numbers showing an improving economy, homeless men and women living here say their economy has only gotten worse.

Click on the video to see our report from FOX 29's Sean Tobin.

http://www.myfoxphilly.com/dpp/news/local_news/Camden_Tent_City_Back_Bigger_121210

Derivatives: The Quadrillion Dollar Financial Casino Completely Dominated By The Big International Banks

EDITORIAL at theeconomiccollapseblog.com

If you took an opinion poll and asked Americans what they considered the biggest threat to the world economy to be, how many of them do you think would give "derivatives" as an answer? But the truth is that derivatives were at the heart of the financial crisis of 2007 and 2008, and whenever the next financial crisis happens derivatives will undoubtedly play a huge role once again. So exactly what are "derivatives"? Well, derivatives are basically financial instruments whose value depends upon or is derived from the price of something else. A derivative has no underlying value of its own. It is essentially a side bet. Today, the world financial system has been turned into a giant casino where bets are made on just about anything you can possibly imagine, and the major Wall Street banks make a ton of money from it. The system is largely unregulated (the new "Wall Street reform" law will only change this slightly) and it is totally dominated by the big international banks.

Nobody knows for certain how large the worldwide derivatives market is, but most estimates usually put the notional value of the worldwide derivatives market somewhere over a quadrillion dollars. If that is accurate, that means that the worldwide derivatives market is 20 times larger than the GDP of the entire world. It is hard to even conceive of 1,000,000,000,000,000 dollars. Counting at one dollar per second, it would take you 32 million years to count to one quadrillion. So who controls this unbelievably gigantic financial casino?
Would it surprise you to learn that it is the big international banks that control it?

The New York Times has just published an article entitled "A Secretive Banking Elite Rules Trading in Derivatives". Shockingly, the most important newspaper in the United States has exposed the steel-fisted control that the big Wall Street banks exert over the trading of derivatives. Just consider the following excerpt from the article....

On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan.
The men share a common goal: to protect the interests of big banks in the vast market for derivatives, one of the most profitable — and controversial — fields in finance. They also share a common secret: The details of their meetings, even their identities, have been strictly confidential.

Does that sound shady or what?
In fact, it wouldn't be stretching things to say that these meetings sound very much like a "conspiracy".
The New York Times even named several of the Wall Street banks involved: JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup.

Why does it seem like all financial roads eventually lead back to these monolithic financial institutions?
The highly touted "Wall Street reform" law that was recently passed will implement some very small changes in how derivatives are traded, but these giant Wall Street banks are pushing back hard against even those very small changes as the article in The New York Times noted....

"The revenue these dealers make on derivatives is very large and so the incentive they have to protect those revenues is extremely large,” said Darrell Duffie, a professor at the Graduate School of Business at Stanford University, who studied the derivatives market earlier this year with Federal Reserve researchers. “It will be hard for the dealers to keep their market share if everybody who can prove their creditworthiness is allowed into the clearinghouses. So they are making arguments that others shouldn’t be allowed in."

So why should we be so concerned about all of this?
Well, because the truth is that derivatives could end up crashing the entire global financial system.
In fact, the danger that we face from derivatives is so great that Warren Buffet once referred to them as "financial weapons of mass destruction".
In a previous article, I described how derivatives played a central role in almost collapsing insurance giant AIG during the recent financial crisis....

Most Americans don't realize it, but derivatives played a major role in the financial crisis of 2007 and 2008.
Do you remember how AIG was constantly in the news for a while there?
Well, they weren't in financial trouble because they had written a bunch of bad insurance policies.

What had happened is that a subsidiary of AIG had lost more than $18 billion on Credit Default Swaps (derivatives) it had written, and additional losses from derivatives were on the way which could have caused the complete collapse of the insurance giant.
So the U.S. government stepped in and bailed them out - all at U.S. taxpayer expense of course.

As the recent debate over Wall Street reform demonstrated, the sad reality is that the U.S. Congress is never going to step in and seriously regulate derivatives. That means that a quadrillion dollar derivatives bubble is going to perpetually hang over the U.S. economy until the day that it inevitably bursts.
Once it does, there will not be enough money in the entire world to fix it.

Meanwhile, the big international banks will continue to run the largest casino that the world has ever seen. Trillions of dollars will continue to spin around at an increasingly dizzying pace until the day when a disruption to the global economy comes along that is serious enough to crash the entire thing
.
The worldwide derivatives market is based primarily on credit and it is approximately ten times larger than it was back in the late 90s. There has never been anything quite like it in the history of the world.

So what in the world is going to happen when this thing implodes? Are U.S. taxpayers going to be expected to pick up the pieces once again? Is the Federal Reserve just going to zap tens of trillions or hundreds of trillions of dollars into existence to bail everyone out?

If you want one sign to watch for that will indicate when an economic collapse is really starting to happen, then watch the derivatives market. When derivatives implode it will be time to duck and cover. A really bad derivatives crash would essentially be similar to dropping a nuke on the entire global financial system. Let us hope that it does not happen any time soon, but let us also be ready for when it does.

How Do I Buy Gold and Silver?

Greg Hunter
USA Watchdog

I am hearing more and more questions about how to buy gold and silver. How do you buy it? Why should I buy gold and silver? What kind of gold and silver should I buy? What is the difference between numismatic and bullion coins? Which of these should I buy? Do buyers get some kind of confirmation that what they are buying from these shops is real and certified? Will the government confiscate my gold and silver? Can the government make owning gold illegal? How do I know if my gold and silver dealer is reputable? Where can I buy gold and silver? These are just some of the questions I will try to answer in this post.

First off, why should you own precious metals? Read this:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the “hidden” confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

Who do you think this was written by? If you guessed former Fed Chief Alan Greenspan, you would be correct. It is titled “Gold and Economic Freedom,” and it was originally published in 1966. (Click here to read the entire Greenspan article.) After reading this, it is hard to believe he was the Chairman of the Federal Reserve for nearly 20 years. Gold is the antithesis of the Federal Reserve Note.

Greenspan’s article is the time tested reason for owning gold. For more current reasons, look no further than “The Seven “Ds” of the Developing Disaster,” written by gold expert Alf Field. In short, DEFICITS, DOLLAR, DEVALUATIONS, DEBT, DEMOGRAPHICS, DERIVATIVES (this is the big one), and DEVOLUTION are the reasons why Field says gold and silver are bound to rise over the long term. (Click here to read the complete article from Field.)

For a video explanation for how and why to buy precious metals, we turn to Mike Maloney. He’s a best selling author who wrote a book titled “Why Gold and Silver?” His videos give the simplest and clearest explanation I’ve ever seen. Below is one of my favorites.



Read Full Article

The BNote: Green Currency in Baltimore

Jeff Dicken and Michael Tew
Reality Sandwich

Where are we now, and how did we get this far?
The energy is building. Even before we have printed a single note, everywhere we go in Baltimore people have already heard of the BNote, and businesses are signing on to accept them when we launch next year. We are finding that people are very receptive to the idea of an alternative economic system - one that will benefit people instead of corporations. Google searches now show blogs and internet media referencing Baltimore’s new local currency, and we’re starting to get coverage in the local press and on the radio. Our currency design contest went global when other sites starting picking us up on the net. When the BNote arrives in Baltimore, only the birds will be surprised.

In less than a year, we have managed to build this idea into an organization that is on track to create a strong local currency with broad participation. Much of this progress has to do with the diversity and positive vision that the Evolver movement has already been able to foster in its local groups.

The first Baltimore spore on local currencies happened in mid-2009. Damien Nichols, who attended, suggested to his friend Michael Tew that he come to the next spore and meet the people there, who seemed to be working to achieve similar goals. Michael had background in both microfinance and legislative lobbying, and had been looking for an opportunity to advance alternative economic systems on a community level. Michael attended the food spore, and on the strength of his participation in the discussion that night, he was invited to make a short presentation at the 2012 spore on the subject of microfinance. There, he put forth the idea that, by the end of 2012, a micro-finance based economy (which is fundamentally different from the Capitalist economy in many important ways) would be the dominant form of economic organization for the majority of the people on planet earth. And that Baltimore would be a very good place to bring microfinance and local currency together.

At the end of that spore, Michael met Jeff Dicken, a long-time supporter of microfinance efforts with an IT systems and arts background. Through this and subsequent conversations, the idea of a local currency being a necessity for a resilient community and city, in the face of the economic meltdown and further upheaval to come, began to take root. Soon after, Jill Harrison brought her own social justice and non-profit background to the endeavor. After some informal meetings over the winter, Michael moved to Baltimore in March 2010, and a series of regular meetings was established. At first, there were just two or three of us, but as we continued to talk with other Evolvers about the effort, we started to attract people willing to help, and by the end of June we had an increasingly effective and growing team of enthusiastic volunteers.

The basic questions on starting a currency were raised: debit system or paper money; what organizational form to adopt; how to go about designing and printing the currency; how to enroll people in participating, and so on. Notes from each meeting, including links to relevant Internet resources, were distributed among the group. Keeping everyone communicating was one of the keys to forming a committed, ongoing project, and many of the system’s features - the “BNote” name, the approach of issuing only 1- and 5-dollar value notes the first year, etc. - were discussed informally via email between meetings before being adopted by the group. The Lewes (England) Pound site’s guide to starting a currency and Peter North’s book Local Money provided invaluable guidance as we started to put together the strongest features of other currencies already in existence.

We decided that our currency would be convertible to and from U.S. Dollars, and that we would restrict ourselves to a specific, identifiable geographic neighborhood for a pilot project. Both Jeff and Ian McDonald had realized independently that the Hampden community in Baltimore would be a strong launching place for the BNote, and as we looked more closely, we found that the area had many features that are important for the strong adoption of a local currency:

Read Full Article

The eurozone is in bad need of an undertaker

The EU’s Franco-German "Directoire" and the European Central Bank have between them ruled out all plausible solutions to the eurozone’s debt crisis.

Reuters image

Ambrose Evans-Pritchard
Telegraph

There will be no Eurobond, no increases in the EU’s €440bn (£368bn) rescue fund, and no mass purchases of Spanish and Italian bonds by the ECB. Nothing. The system is politically and constitutionally paralysed. Spain and Portugal will be left nakedly exposed before their funding crunch in January.

It is entirely predictable that Angela Merkel and Nicolas Sarkozy would move so quickly to shoot down last week’s Eurobond proposal, issuing pre-emptive warning before this week’s EU summit that they will not accept “a bundling together of all Europe’s debts”.

How can Germany or France agree lightly to plans that amount to an EU debt union, with a common treasury, tax system, and budget policy, the stuff of civil wars and revolutions over the ages? To do so is to dismantle the ancient nation states of Europe in all but name.

Even if Chancellor Merkel wished to take this course – and even if the Bundestag approved it – the scheme would still be torn to pieces by the German constitutional court unless legitimised by radical EU treaty changes, which would in turn take years, require referenda, and face populist revolt in half Europe.

What the German people are being asked to do is to surrender fiscal sovereignty and pay open-ended transfers to Southern Europe, taking on a burden up to six times reunification with East Germany.

“If we pool the debts of the countries in the south-west periphery of Europe, we are blighting our children’s future: the debt levels are astronomic,” said Hans-Werner Sinn, head of Germany IFO institute.

Any attempt to prop up the status quo will cement the current account imbalances of EMU’s North and South, to the detriment of both sides.

“I doubt that the current leaders of Europe fully understand the economic implications of their decisions. They are repeating the mistakes that Germany made over reunification,” he told the Handelsblatt.

Read Full Article

Failing to Prosecute Wall Street Fraud Is Extending Our Economic Problems

Bill Gross, Nouriel Roubini, Laurence Kotlikoff, Steve Keen, Michel Chossudovsky and the Wall Street Journal all say that the U.S. economy is a giant Ponzi scheme.

Virtually all independent economists and financial experts say that rampant fraud was largely responsible for the financial crisis. See this and this.

But many on Wall Street and in D.C. - and many investors - believe that we should just "go with the flow". They hope that we can restart our economy and make some more money if we just let things continue the way they are.

But the assumption that a system built on fraud can continue without crashing is false.

In fact, top economists and financial experts agree that - unless fraud is prosecuted - the economy cannot recover.

Fraud Leads to a Break Down in Trust and Instability in the Markets

As Alan Greenspan said recently:

Fraud creates very considerable instability in competitive markets. If you cannot trust your counterparties, it would not work

Similarly, leading economist Anna Schwartz - co-author of the leading book on the Great Depression with Milton Friedman - told the Wall Street journal in 2008:

"The Fed ... has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that [uncertainty] that the balance sheets of financial firms are credible."

So even though the Fed has flooded the credit markets with cash, spreads haven't budged because banks don't know who is still solvent and who is not. This uncertainty, says Ms. Schwartz, is "the basic problem in the credit market. Lending freezes up when lenders are uncertain that would-be borrowers have the resources to repay them. So to assume that the whole problem is inadequate liquidity bypasses the real issue."

***

Today, the banks have a problem on the asset side of their ledgers -- "all these exotic securities that the market does not know how to value."

"Why are they 'toxic'?" Ms. Schwartz asks. "They're toxic because you cannot sell them, you don't know what they're worth, your balance sheet is not credible and the whole market freezes up. We don't know whom to lend to because we don't know who is sound. So if you could get rid of them, that would be an improvement."

And economics professor and former Secretary of Labor Robert Reich wrote in 2008:

The underlying problem isn't a liquidity problem. As I've noted elsewhere, the problem is that lenders and investors don't trust they'll get their money back because no one trusts that the numbers that purport to value securities are anything but wishful thinking. The trouble, in a nutshell, is that the financial entrepreneurship of recent years -- the derivatives, credit default swaps, collateralized debt instruments, and so on -- has undermined all notion of true value.

Robert Shiller - one of the top housing experts in the United States - said recently that failing to address the legal issues will cause Americans to lose faith in business and the government:

Shiller said the danger of foreclosuregate -- the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt -- is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.

Nobel prize-winning economist Joseph Stiglitz says about the failure to prosecute Wall Street fraud:

The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that's really the problem that's going on.

***

I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That's the point. There were victims all over the world.

***

Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.

Wall Street insider and New York Times columnist Andrew Ross Sorkin writes:

“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”

***

Fraud at big corporations surely dwarfs by orders of magnitude the shareholders’ losses of $8 billion that Mr. Holder highlighted. If the government spent half the time trying to ferret out fraud at major companies that it does tracking pump-and-dump schemes, we might have been able to stop the financial crisis, or at least we’d have a fighting chance at stopping the next one.

Economics professor James Galbraith says:

There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that's a process which needs to get underway.

No wonder Galbraith says that economists should move into the background, and "criminologists to the forefront"

Failure to Stop Fraud and Prosecute Criminals Causes a Loss of Trust in Government, Which Makes Government Less Effective

As Shiller stated in the quote above, the failure of government officials to stop fraud and prosecute the financial fraudsters has caused a lack of trust in government itself.

Indeed, polls show that people no longer trust our economic "leaders". See this and this.

A psychologist wrote an essay published by the Wharton School of Business arguing that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:

According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. "Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG." The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. "Normal expectations of what is safe and dependable were abruptly shattered," Sachs noted. "As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred."

People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.

He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. "She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.

"By no means a sophisticated economist, she knew ... that some people had become fantastically wealthy by misusing other people's money -- hers included," Sachs said. "In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished."

Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to "hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again." In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.

Government regulators know this - or at least pay lip service to it - as well. For example, as the Director of the Securities and Exchange Commission's enforcement division told Congress:

Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public's fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.

If people don't trust their government to enforce the law, government will become more and more impotent in addressing our economic problems. If government leaders take action, the market will not necessarily respond as expected. When government leaders make optimistic statements about the economy, people will no longer believe them.

Trying to Cover Up the Truth Extends Financial Crises

Elizabeth Warren, William Black and others say that attempting to cover up the truth extended Japan's financial problems into an entire "Lost Decade".

As Joseph Stiglitz said about Wall Street fraud:

So the whole strategy of the banks has been to hide the losses, muddle through and get the government to keep interest rates really low.

***
As long as we keep up this strategy, it's going to be a long time before the economy recovers ....

Pam Martens - who worked on Wall Street for 21 years - writes:

The massive losses by big Wall Street firms, now topping those of the Great Depression in relative terms, have yet to be adequately explained. Wall Street power players are obfuscating and Congress is too embarrassed or frightened to ask, preferring to just throw money at the problem and hope it goes away. But as job losses and foreclosures mount and pensions and 401(k)s shrink, public policy measures to address the economic stresses require a full set of unembellished facts...

It was four years after the crash of 1929 before the major titans of Wall Street were forced to give testimony under oath to Congress and the full magnitude of the fraud emerged. That delay may well have contributed to the depth and duration of the Great Depression. The modern-day Wall Street corruption hearings in Congress ... must now resume in earnest and with sworn testimony if we are to escape a similar fate.

To the extent that the government tries to cover up - instead of openly discuss - financial fraud, it will only extend America's economic malaise.

Failing to Prosecute Fraud Encourages Financial Players to Take Bigger and More Blatantly Illegal Actions

Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals - and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future. Joseph Stiglitz, Professor Black, and many others agree. See this, this and this.

It was largely fraud which brought down the financial system in 2008. Unless we prosecute the fraudsters, they will do even bigger, stupider and more blatantly illegal things in the future which will lead to even bigger crises.

Failure to Prosecute Fraud Exacerbates the Sovereign Debt Crisis

The governments of the world have spent trillions trying to paper over the fraud and prop up the big, insolvent banks, instead of forcing them to restructure and forcing bondholders and shareholders to take a haircut.

A study of 124 banking crises by the International Monetary Fund found that propping banks which are only pretending to be solvent drives up the costs to the country:

Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.

Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions’ liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.

***

All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government’s fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.

The American banks and government have certainly pretended that all of the big banks are solvent. As ABC wrote in October 2009:

The Treasury Department and the Federal Reserve lied to the American public last fall when they said that the first nine banks to receive government bailout funds were healthy, [the special inspector general for the Troubled Asset Relief Program] states in a new report released today.

Similarly, the stress tests were a complete and utter sham.

The government has given the giant banks huge amounts in loans and guarantees based upon their false representations about their financial health. The Fed has larded up its balance sheet with toxic assets from the banks.

Debt levels are also getting dangerously close to the level that they become a drag on the economy. See this and this. When Keynesian economists argue that debt does not harm the economy, they are talking about debt incurred to pay for stimulus and productive things for the economy. But throwing trillions at the giant banks - who are mainly using the money to gamble - is not stimulus. It helps the executives of the big banks and their shareholders and bondholders, but not the broader economy.

Indeed, attempting to prop up big, insolvent banks is preventing stimulus from getting out into the economy.

Fraud Causes Growing Inequality, Which Undermines the Economy

Growing inequality is very harmful to our economy. Indeed, if wealth is concentrated in too few hands, the "poker game" ends, as only too few fat cats are left with all of the chips. See this, this, this and this.

Fraud benefits the wealthy more than the poor, because the big banks and big companies have the inside knowledge and the resources to leverage fraud into profits. Joseph Stiglitz noted in September that giants like Goldman are using their size to manipulate the market. The giants (especially Goldman Sachs) have also used high-frequency program trading (making up between 40- 70% of all stock trades) which not only distorts the markets, but which also lets the program trading giants take a sneak peak at what the real traders are buying and selling, and then trade on the insider information. See this, this, this, this and this.

Similarly, JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley together hold 80% of the country's derivatives risk, and 96% of the exposure to credit derivatives. They use their dominance in the market to manipulate the market.

Fraud disproportionally benefits the big players (and helps them to become big in the first place), increasing inequality and warping the market.

Fraud Increases the Severity of Boom-Bust Cycles

More and more people - such as the Bank of International Settlements and Barons - are saying that bubbles inevitably lead to busts, thus destabilizing the economy.

Professor Black says that fraud is a large part of the mechanism through which bubbles are blown.

Without strong laws against fraud, bubble after bubble will be blown, guaranteeing that the financial system cannot be stabilized in a fundamental sense.

Failure to Prosecute Fraud Is Worsening the Housing Crisis

Finally, failure to prosecute mortgage fraud is arguably worsening the housing crisis. See this and this.