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WHILE WE SLEEP, OUR WORLD IS AT RISK – PART I (BACKGROUND AND OVERVIEW)

December 24, 2013

WHILE WE SLEEP, OUR WORLD IS AT RISK – PART I (BACKGROUND AND OVERVIEW)

This is the first of what may be the most important series I will ever write about what can happen at the intersection of economics and policy-making. The implications of my research on this topic scare me. We spend some 700 billion dollars or more per year for “defense,” ostensibly to project muscle into American policy the world over and to avoid conquest of our country by those with whom we war, yet we are cooperating in broad daylight with those who have the negotiated power to bring your country and mine down to Third World status without the firing of a single shot. There is an example in history. Rome was not destroyed by “the barbarians;” Rome was destroyed by Romans. They did themselves in and “the barbarians” came in to pick up the pieces. We are following a similar pattern – albeit quietly.

I am not a doomsayer by choice; events are making that selection for me. Most doomsayers who write dour blogs in hopelessness for the ether or alternative publications are young and aggressive and wed to a cause. As a pragmatist, I do not fit any such description. My discussion of our possible doom does not track the usual issues of the day, such as environmental ruination due to global warming, making a cesspool of the oceans, GMO excesses or the like. Nor does it involve our failure to nuke Iran or speak to the passing social issues of the day either real or pretended. Unlike the young and fiery doomsday writers above mentioned, I do not pretend that my recipe will solve the world’s problems and that a failure to follow my recipe for reform will with certainty result in the end of humanity.

I therefore doubt that my take on the risk of “doom” as I will present it in this series will bring on the end of humanity, but it is a faint possibility, depending upon how we handle the potential fallout should the disaster occur. Given our rate of progress to date in handling this huge and expanding cloud of risk we are living under, I cannot be optimistic that we will solve our problem before it shows up in overnight crisis form demanding immediate solution, as it did once before.

The problem I am referring to is this: WHAT ARE WE GOING TO DO ABOUT THE ESSENTIALLY UNREGULATED BIG BANKS? Just precisely why do these six  institutions (which I will name later) enjoy a virtual pass on real regulation and continuing success in resisting real regulation in their eternal quest for more and more profit in the exchange of increasingly esoteric paper along with other such fearsome conduct which puts money both their own and NOT THEIR OWN at risk on international markets? The Big Six banks are Morgan Stanley, Bank of America, Goldman Sachs, Citigroup, Wells Fargo, and, of course, JP Morgan Chase, the most maligned of the six recently with their losses of billions of dollars in credit derivatives trading gone sour and billions in fines paid for playing games with mortgage securities. One sees many of these banks’ CEOs on business TV and the business pages of newspapers. From their conduct since the repeal of the Glass-Steagall Act, I think their pictures should be in post offices. That they are not in post offices may tell us why their acts of plunder continue apace.

This ends my Background and Overview Part I of this essay. Future parts will delve into the billion dollar lobbying effort by the Big Six to (so far, successfully) stymie application of the Dodd-Frank Act. I will also discuss in some detail the application of the Volcker Rule on proprietary trading in re what it did and did not do for “limiting excessive risk” as well as bringing back Glass-Steagall (disastrously repealed in 1999) as the law of the land. Sound uninteresting? Trust me, your country is at stake, so stay tuned. GERALD  E

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