Derivatives

English: Wall Street sign on Wall Street

English: Wall Street sign on Wall Street (Photo credit: Wikipedia)

The abuse of unregulated derivatives by Wall Street caused the Great Recession. That is the conclusion reached in Republic, Lost, How Money Corrupts Congress–and a Plan to Stop It by Lawrence Lessig. The following quotation is the simple analogy he uses to explain what happened. The regulation of derivatives is compared to laws regulating automobile highway speeds.

“A speed limit that applies to black cars only will not only incentivize the sale of colorful vehicles, it will also be a boon to the paint departments of auto body shops everywhere. That’s the story of Wall Street in the 2000s. While some portion of the market for derivatives was no doubt driven by a genuine meed for the particular flexibility of a derivative, a huge proportion was simply black cars being painted red. The winners in this new market were the drivers of those freshly painted cars, and the firms that had done the paint jobs (aka Wall Street). The losers were–surprise, surprise–the rest of us.”

The derivatives in question were backed by US mortgages and rated AAA by Standard and Poor and others. Derivatives were exempt from regulation by act of Congress as urged by Alan Greenspan and others. Financial instruments still regulated by law were recast as derivatives to escape regulation. And without the discipline of regulation, Wall Street took on excessive risk. And it came tumbling down in 2007-8 birthing the Great Recession.

Atlas Shrugged

Ayn Rand

Ayn Rand (Photo credit: DonkeyHotey)

Atlas Shrugged by Ayn Rand ( real name Alisa Zinov’yevna Rosenbaum), published in 1957 and at 1168 pages, about 1,000 pages too long. Posing as a novel, it is really an exposition by Rand in favor of  unregulated and untaxed capitalism, a philosophy she dubbed objectivism. Rand was born in 1905 in Russia and emigrated to the US at age 21 in 1926 from the newly formed USSR. I believe that she was traumatized in her formative years by the Russian Revolution which occurred in 1917.

Who is John Galt? He is the hero of the book and embodies Rand’s philosophy. He does not appear in the book for the first 700 pages. Toward the end of the book, he explains Rand’s philosophy to the world in a radio address beginning at 8:00 p.m. Eastern time that I imagine lasted all night (she says 3 hours). Only Fidel Castro among world leaders currently alive could have rivaled Galt for wordiness. If he had been cast as an US Senator rather than an electrical engineer, Galt could have sustained filibusters by himself.

Rand’s characters are not believable, being less than two-dimensional. They scream rather than speak or shout and they are always smoking cigarettes. The novel? takes place mostly in the US, while the rest of the world is ruled by people’s states. The picture she paints of the US is a nation in decline and resembles the Soviet Union that she left. It is a shame that many of the current GOP leaders subscribe to her vision and philosophy. Paul Ryan and Alan Greenspan among others are her disciples.She favored Social Darwinism, survival of the fittest, starvation and extinction for the rest.

Rather than read this book, I recommend reading or re-reading Orwell’s Animal Farm and 1984. In my opinion, more is to be gained from Orwell than Ayn Rand, and Orwell is more pertinent to our present situation. Orwell’s two books are available in one volume from Amazon.com at $15.00. Their combined length is only 400 pages, 1/3 the length of the Rand book which has the weight and size of a brick, and the readability too IMHO.

Please see Ayn Randistan

Are you better off than you were 4 years ago?

Alan Greenspan, former chairman of the Board o...

Alan Greenspan, former chairman of the Board of Governors, The Federal Reserve Board, USA. (Photo credit: Wikipedia)

The answer is hell yes. We are out of Iraq and we are drawing down our troops in Afghanistan. Bin Laden is dead and al-Qaeda is on the run. The economy is improving slowly from the Great Recession. Too many are still unemployed and the housing bubble is not over. Who shall we thank for the state of the economy? Republicans in Congress who have attempted to block every one of President Obama’s initiatives.

We can rightly blame GW Bush and Alan Greenspan for not preventing the Great Recession and the housing bubble. After 3-4 years, Barack has rightly taken ownership of the economy. He acted to prevent it from becoming the Great Depression 2. It seems that most people don’t realize how bad the economic situation was and capable of becoming. Too many believe the GOP mantra that it is Obama’s fault, while the GOP are doing everything in their power to prolong the slow recovery until after the election. It is the same strategy used by the CIA under Nixon’s direction to overthrow the Allende government in Chile in 1971. Now the people of the US are learning what it is like to be on the wrong end of economic warfare.

Big 3

English: Karl Rove Assistant to the President,...

English: Karl Rove Assistant to the President, Deputy Chief of Staff and Senior Advisor (Photo credit: Wikipedia)

No, not GM, Ford and Chrysler. The Big 3 I am referring to are the three Republicans who have done the most damage to the US and the US economy besides GW Bush. None were ever elected to office, none ever faced the voters. They are Karl Rove, Grover Norquist and Alan Greenspan.

Without Karl Rove’s help, GW Bush would have lost both elections in 2000 and 2004. In 2012, Rove’s group American Crossroads is poised to further damage American politics.

Grover Norquist is a brilliant individual according to his longtime friend, Jack Abramoff. To him, I believe, we owe the Republican tendency to label all opponents as Marxists. We also owe him the Republican refusal to compromise on taxes.

Alan Greenspan’s allegiance to Ayn Rand and the unfettered free market led to the unchecked housing bubble that burst and produced the present Great Recession.

Both Karl and Grover support Mitt Romney. I don’t know who Alan Greenspan will endorse, but I suspect that eventually it will be Mitt Romney.

Boring white guy

Former Chairman of the Federal Reserve Alan Gr...

Former Chairman of the Federal Reserve Alan Greenspan, receiving a Presidential Medal of Freedom in 2005 (Photo credit: Wikipedia)

Tim Pawlenty was on MSNBC moments ago with Andrea Mitchell denying that he wants to be Mitt Romney‘s running mate. He certainly is qualified if they indeed do pick a boring white guy.

I am surprised that some reporter has not asked Andrea about her husband, Alan Greenspan. Like how does it feel to be married to the person most responsible for the Great Recession? Reporters are always asking stupid questions of victims of disasters about how it feels. One would think that some reporter would put the question to her.