Top Economists: Trust is Necessary for a Stable Economy … But Trust Won't Be Restored Until We Prosecute Wall Street Fraud … Most policy makers still don't understand the urgent need to restore trust in our financial system, or the need to prosecute Wall Street executives for fraud and other criminal wrongdoing. But top economists have been saying for well over a decade that trust is necessary for a stable economy, and that prosecuting the criminals is necessary to restore trust. In his influential 1993 book Making Democracy Work, Robert Putnam showed how civic attitudes and trust could account for differences in the economic and government performance between northern and southern Italy. Political economist Francis Fukiyama wrote a book called Trust in 1995, arguing that the most pervasive cultural characteristic influencing a nation's prosperity and ability to compete is the level of trust or cooperative behavior based upon shared norms. He stated that the United States, like Japan and Germany, has been a high-trust society historically but that this status has eroded in recent years. – Washington's Blog
Dominant Social Theme: Incarcerate ‘em. Then everything will be better.
Free-Market Analysis: We have noted of late the emergence of a particularly ubiquitous power elite dominant social theme: It's Wall Street's (Big Finance's) fault. This is an extraordinarily important promotion because it is intended to spare central banks from scrutiny and deflect blame to the private sector. The above article, posted at Washington's blog, is almost torturous to read because it presents in relentless detail the current betrayal of trust at high levels in Western (US) society and uses an endless amount of cites to buttress its arguments. In doing so – in our opinion – it almost totally misses the point.
Having stated this, let us pause to express our extreme admiration for many of the articles on Washington's Blog. It is a courageous exercise in many ways, well-written, passionate and somewhat iibertarian in our view. In fact, this is perhaps one of the only articles we could find with which we have a serious difference-of-opinion. (So don't take it personally, Washington's blog if you happen to notice our commentary; we've written a number of analyses on this subject, several in response to Rolling Stone articles.)
Additionally, we should point out that there is no doubt Wall Street is an enabler and that Goldman Sachs in particular sits near the center of the modern conspiracy in all its fundamental criminality. There really is no "private" sector in America anymore (but for struggling small-time entrepreneurs). However, from the power-elite point of view, these are unimportant distinctions. Capitalism is to be blamed whenever possible with an eye toward creating evermore regulation, government bureaucracy and mercantiism.
Ultimately modern-day high finance is a technocratic function. It is a supporting mechanism not a strategic one. The planning for the New World Order – the fundamental strategy of ruin – is made at much higher levels by a handful of banking families and their enablers. Blaming financial entities for the endless economic catastrophes that afflict the West is a bit like blaming meteorologists for earthquakes. We pointed this out previously in our article "Mervyn King Caught Spreading a Meme," as follows:
[UK central banker] Mervyn King's statement to the UK Treasury Select Committee is a textbook case of how the elites that run the West's banking system attempt to deflect blame from central banks by pointing fingers at the private sector. King, Britain's top central banker, is charged with protecting the elite's most important asset: central banking, which in the modern era involves printing money-from-nothing without any underlying asset base. The power elite has successfully installed central banks in almost every country around the world and these central banks are coordinated by the Bank for International Settlements out of Switzerland, a mysterious entity that is evidently and obviously under the control of the powers-that-be.
It is a measure of the power of the BIS that its couriers travel under blanket immunity throughout the world and that personal searches or searches of their cargoes is forbidden. In order for this to be so, laws have to be on the books in countries throughout the world confirming these privileges. That these laws apparently exist indicates the incredible and subtle reach of the Anglo-American elite and its ability to influence legislation globally. King's statement to the Treasury Select Committee as reported in the UK Telegraph is a pitch-perfect defense of central banking using the meme of private-sector blame. This fear-based promotion was used most successfully in our view during the Great Depression in America when "Wall Street" was exclusively blamed for the market crash (rather than reckless Federal Reserve inflation) and the entire modern apparatus of regulatory finance was initiated.
This article, unfortunately, is like Mervyn King on steroids. It is so detailed and all encompassing that it even blames the boom-bust economic cycle on Wall Street corruption. (The Misesian concept of central-banking-initiated business cycles goes unmentioned.) What is most frustrating, however, is its faith in US and Western institutions. The American judicial system is inherently corrupt; a shell of the system that it once was and likely based on Admiralty law rather than common law. Judges apparently even receive some sort of compensation for putting people in jail (we've read this) and the prison-industrial complex itself incarcerates more Americans than the rest of the world put together under heinous conditions.
There is something inherently questionable about insisting that the American judicial system "clean up" Wall Street. The justice system is in as much need of cleaning up as the financial system. But the article rolls along nonetheless. Here's another quote:
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. Indeed, William Black notes that we've known of this dynamic for "hundreds of years."
Of course, the article neglects to point out that the Nobel prize given to economists is not the "real" Nobel prize but is similarly named to confuse people. The corruption of the system is so deeply layered that one almost despairs that the mainstream media (or even portions of the blogosphere) will see their way clear of it.
Begin with the (reasonable?) idea that the financial system as it stands now is worth resuscitating. We've written a good deal on the stock market and the general system of high finance as it is practiced especially in the US. It is dysfunctional in large part because it is planned that way. The West's real financial problem is mercantilist central banking, which creates the paper-money booms that drive stock markets to new heights – at which point the middle classes begin to invest, only to lose their money during the inevitable busts. To argue that if "crooks" are put in jail, the system will miraculously right itself as trust returns is to ignore 100 years of cleverly crafted deceptions orchestrated at a level far higher than those being incarcerated. You can read an article on this issue here:
Beyond this, we think there are different reasons why US citizens in particular have withdrawn trust from the system, that have little to do with Wall Street criminality per se. We wrote about this long ago. It has to do in our opinion with the bailouts that were granted to big banks around the world and in particular the money that was printed by the Fed to reliquify the world's financial system. You can read that article here:
For the first time in 100 years, the actual mechanism of modern money creation was revealed because the bailouts were made in full view of the Internet. Thousands and then perhaps millions of people in the US and throughout the West suddenly realized that central banks were PRINTING the money that they were giving away. For the average person struggling to hold on to his or her house, the realization that "money" could be printed at will by a handful of extraordinarily powerful men was a realization that has in our view essentially shattered the cleverly manipulated compact between the elites and an unsuspecting public.
John Maynard Keynes said that not one man in a million could conceive of how central banks operate but he would have to revise that statement today. Millions DO understand. And that is why we have long predicted that the dollar reserve system is finished as well. It has little to do with Wall Street "crooks" and everything to do with the dawning realization that a handful of people control money and that – as George Carlin famously said – "it's a club, and you're NOT in it."
We hoist a glass in the general direction of Washington's Blog's many fine articles (metaphorically anyway). This is not one of them. The story finishes with this quote: "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bulls–t would stop, all over Wall Street," says a former congressional aide. "That's all it would take. Just once." To which we reply, "Really?"