Why Bankers Didn't See Collapse
By Staff News & Analysis - August 02, 2010

How can we avoid the next financial crisis? Urgently listen to those who foresaw this one … Three years on from the collapse of the sub-prime housing market in America, Gregory Zuckerman asks who can help us avoid the next financial crisis. … After a strong recovery at the end of 2009, life has proved tougher in 2010 for the titans of Wall Street. … A few savvy investors – most with little relative experience in real estate, derivatives or mortgage investing – anticipated a historic housing and financial collapse. Their remarkable success begs an obvious question: why did this unlikely group predict the crumbling of the housing market and the resulting pain felt around the globe, even as the experts were stunned by the developments? – UK Telegraph

Dominant Social Theme: So many questions that must be earnestly answered.

Free-Market Analysis: We have written about this dominant social theme before but are constantly amazed by its reoccurrence. Actually, it is not a dominant theme but a sub-dominant social theme, a spinoff of a larger theme, which is, of course, "the world's central banking economy is a solid one and mostly nothing goes wrong – and when it does, we shall learn from our mistakes." In other words, we are supposed to be surprised when something bad DOES happen.

Actually, the constant harping on this theme has to do with a larger quandary, which is that the crack-up boom has been so intense and horrible that somehow it must be explained. It is a problem for the powers-that-be because the system's credibility depends on the expertise of those at the top. How could so many wise central bankers have missed the signs? How could so many taken the plunge without a word of warning.

It is a real problem. On Saturday we wrote about the religiosity that the power elite attempts to organize as part of its larger fear-based promotions. It is not enough to use fear-tactics or to provide ready-made authoritarian solutions. At a deeper level those who run these entities, who are even tangentially involved with them, are to be presented as, well … deities. There is no doubt that regulatory democracy, even as it descends in to chaos, is increasingly presented as a secular religion.

We have written about the religious elements of central banking – which is nothing but the price-fixing of money and yields correspondingly ruinous results. Nonetheless, there is certainly a ritualistic quality about the various programmatic elements. Even the vocabulary that is used has a sacramental feel. The vestments of course are the expensive suits. The sermons occur when the bankers are called – as they regularly are – to give reports on the economy. Alan Greenspan was among the best at this, for part of being a central banker, a large part, has to do with a flair for the dramatic.

Greenspan was dramatic? It seems odd, but it is not. There is no logic to central banking. It is entirely impossible for individuals to anticipate how much money an economy needs. All central bankers can do, really, is inflate – print too much money and hope that a disaster does not occur on their watch. But Greenspan was special. He spoke in tongues like a Delphi Oracle. You could never really understand him, but one look at his craggy face and angular shape clad always in an expensive ill-fitting suit, and you knew you were privileged to be sitting in on a spectacle worthy of Hollywood.

Here's just one example of "Greenspeak" from a speech on international imbalances way back in 2005: "If the currently disturbing drift toward protectionism is contained and markets remain sufficiently flexible, changing terms of trade, interest rates, asset prices, and exchange rates will cause U.S. saving to rise, reducing the need for foreign finance and reversing the trend of the past decade toward increasing reliance on it. If, however, the pernicious drift toward fiscal instability in the United States and elsewhere is not arrested and is compounded by a protectionist reversal of globalization, the adjustment process could be quite painful for the world economy. "

Wow. Such words – comprehensible only when separated – would be analyzed and re-analyzed after a Greenspan speech. Articles would be written expressing awe about his use of language and its opaqueness. The idea, these authors would maintain, is that this was how the system was supposed to work. The chief central banker was never supposed to give away too much, or be understood too well. It was like a game that everyone was playing, and the duty of someone like Greenspan was to keep everyone confused and off-balance. That was his genius.

Only Greenspan was no genius and the "game" was no game after all. Now that Western economies have all-but-collapsed, we can see (once again) in retrospect how disastrous it all was. And this is the larger danger, of course, for the power elite, which is struggling desperately to cobble together a belief system that is crumbling away. Of course, the elite and the mainstream media will not give up trying; they will stop at nothing to support the continuance of money power.

Having a historical argument to make (as we often do), we cannot help but see the parallels to the Gutenberg press so many years ago – and what it did to the Catholic church. And as we have written previously, as well – at the prompting of feedbacker and commentator in his own right – the bailouts of the big banks and financial firms may have hastened the system's downfall.

You can see the article here: The End of Wall Street.

The reverberations have not been felt yet, entirely, but one can assume that families in America and throughout the West are well aware of what a mockery their struggles are. People scrimp and save to end up with a measly pittance at their end of their lives while the financial superstructure prints money at will and picks and chooses who will receive the absolution of millions and billions of dollars. It is profoundly immoral, and we would venture to say that the way it has played out on the Internet is ultimately going to produce a crisis of credibility.

People do not see what is going on because it is very hard to take a step back and look at the big picture. But unlike those alternative news websites that constantly harp on the infallibility of the power elite, we look at what is transpiring and see great historical parallels with a previous era some 500 years ago when elite memes tumbled down and were replaced by something else. The system inspires disbelief and the debunking that is taking place is increasingly akin to what was once generated by the papal indulgences.

We mentioned the furor in Greece the other day and the way young Irish are leaving Ireland. Germany faces a constitutional crisis over the EU and Spain, France and Italy are increasingly discomfited. In America, the Tea Party movement readies an electoral tidal wave to sweep incumbents out of office and the Federal Reserve fights a continually growing rear-guard battle to maintain its power and perks. The West's Anglo-American elite is losing in Afghanistan and increasingly is losing the battle for control over the information that makes its fear-based promotions practical and believable.

After Thoughts

The elite meanwhile casts around for a believable narrative to explain what is inexplicable, that the very "best and brightest" did not see the current financial catastrophe around the corner. Yes, the elite and its mainstream purveyors must believe this is a critical explanation to make – if only to reinforce the stability of the system. But we imagine that the Pope must have stood on his balcony one sunny morning to explain to a rapt and restless crowd below why papal indulgences were both praiseworthy and credible. It didn't make a difference then and it won't make a difference now either.

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