The United States has been living a lie.

As a nation, we have been kidding ourselves, repeating myths, hoping that if we say something enough times, it will become reality — no matter how untrue. The credit crisis and now foreclosure debacle has revealed to anyone who cares to look what we have sought to ignore: That the past decade has been based on a set of fundamental beliefs that are intrinsically false.

Its time for an intervention. We need someone to force us to stop hitting the bottle, lose the bimbo, skip the dessert cart, visit the gym. Its time to stop bullshitting ourselves about Financial Engineering, and face both the Truth & Consequences of our legacy financial system.

It is past time we recognize these hard truths:

1) There is no free lunch: The very first rule of economics has been forgotten time and again. Everything has a cost, and that cost is commensurate with value received. This includes making loans to unqualified borrowers to propping up home prices. Banks, regulators and policy makers have to start thinking in terms of collateral costs of free lunches to unintended consequences.

2) Financial Engineering is Not Alchemy: Just as you cannot convert lead to gold, neither can you convert high risk to low risk through a wave save of the spreadsheet. Ongoing attempts at eliminating risk — repackaging, syndicating and securitizing it — have been revealed as misleading nonsense. The risk involved in any directional bet cannot be removed by slicing and dicing and merely selling off various tranches. During crises, all asset classes seem to correlate anyway.

Whether its Greek bonds or Alabama’s sewer financing, changing numbers on a spreadsheet does not magically transform losses into gains, change debt-to-income ratios, or create wealth. All this does is temporarily mask the actual underlying financial condition of the engineered entity. Moving pieces of paper around has time and again been revealed as a scam; why people fall for it over and over is due to a collective failure of memory.

3) Bank Hedging Undermines Lending: At one point in time, banks’ had a collective expertise in evaluating the credit worthiness of borrowers. Whether it was revolving credit, auto loans, mortgages, or small business loans — they knew how to evaluate the likelihood of repayment or default.

In a mad grab for market share and profits, the larger lending institutions experimented with replacing their own experience and business judgment with complex hedging models.

Thus, credit risk of any borrower became far less significant, since it was to be hedged. As the financial sector became less dependent upon their own decision making, credit quality slid towards worthless. Hedging removed the banks’ incentive to quality-of-loans, and replaced it with the motivation of quantity-of-loans. Sliding all the way down the quality scale in credit ALWAYS end badly.

4) The Rule of Law is Sacrosanct: Our system of private property has developed due to the rule of law. The ability to demonstrate ownership, pass clear title, resolve disputes has worked for 100s of years. The recent frauds we have seen from law firms, process servers, bank legal departments, even drive through RE courts has put the nation at risk of becoming a lawless banana republic.

There is only one solution to this threat: For the rule of law to be in force, those people who violate it — previously known as “criminals” — must suffer the painful consequence of their illegal actions.

If you falsified documents that where used in foreclosures, you must be prosecuted for criminal fraud. If your firm’s primary purpose was this illegal activity, it must be put down. This means loss of professional licenses, corporate death penalties and jail time for offender . There is no deterrent to criminality of there are no significant penalties.

5) Campaign Finance Reform: The hijacking of the American financial system was done legally. Over the past 3 decades, the regulatory apparatus was Jiu Jitsued so that rules were made for the benefit of the financial sector — not the public. Thanks to a series of Supreme Court decisions, the corporate takeover of first Congress, then the election process, is now complete.

The only way to reverse this is a national campaign to pass a Campaign Finance reform law — preferably, a Constitutional Amendment — that gets the dirty money out of politics. Full disclosure of all donors, no hidden  advantages for corporate cash, public financing of Congressional elections needs to be written into the constitution.

No one likes to face the hard ugly truths about themselves. As a nation, we need an intervention — our closest friends need to sit us down and slap us across the face. The sooner we stop kidding ourselves, the sooner we can move forward with more productive honest economic lives . . .

Category: Bailouts, Credit, Legal, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

82 Responses to “America Needs an Intervention”

  1. grimreaper says:

    I sometimes conclude you are a bit too status quo-y for me. Not this time.

    Well done.

    Now, who’s gonna lead us?

  2. [...] Some ugly truths about ourselves and the destruction our financial engineering has wrought.  (TBP) [...]

  3. Petey Wheatstraw says:


    I’d reorder your list, by priority, as follows:

    4, 5, 3, 2, 1

    No, 4 is the drum I beat (constantly). If we take care of No, 4, fixing everything else will be much easier.

  4. constantnormal says:


    The NYT and WSJ should run this (with appropriate attribution and payment, of course) on their front pages.

    The Congress should be continuously water-boarded whilst having this read to them until it takes hold.

    But I suspect that more than a few of them would expire before getting the message. I suppose one would call that “A Good Start”.

  5. Gray says:

    “our closest friends need to sit us down and slap us across the face”
    Hehe, we would love to do that! But, come on, who dares to slap a superpower?

  6. For the rule of law to remain in force, those people who violate it — previously known as “criminals” — must suffer the consequence of their illegal actions.

    Yes, but how high up the food chain are you willing to go? Just high enough to eliminate the competition from the more well connected boys? Or maybe a little higher. How about prosecuting some for treason against their nation, failing to uphold the constitution, putting the nation in a financial and military situation that jeopardizes the nation’s security and even fails to protect it own citizens from foreign invaders?

    Do you want to start at the bottom and work your way up or how about starting at the top and working your way down? Maybe when you remove the glass ceiling the fleas will learn to jump a little higher

  7. globaleyes says:

    Every Now & Then, BR grabs the wheel of his own blog and spits out heartfelt opinions. This blogger is left thunderstruck by the clarity of today’s post. Not once did he mention that Capitalism without failure is like religion without sin. That’s what readers are for.

  8. globaleyes says:

    Will the rule of law be abandoned ?

    Answer: not if BR has his way!

  9. drewburn says:

    Amen, Barry, amen.

  10. nice post, BR..

    as well,

    in general..


    more specifically, lest we forget that the ‘Banks’, just this Century, were handed a huge assist when ‘Federal Preemption’ p*mp-slapped the State AGs that were trying to rein in the Abusers of their Citizens..

    “Defund to Defend”

  11. I woukd start at the top and work down

  12. maspablo says:

    I’m with you. ! The only chance I see, for progress on these “real” issues is if another politcal party is formed ,that in turn could help realign one of them to be practical,pragmatic about our future ! And , of course I don’t see tea party as the pragmatic, practical one, but, we can only hope they may help (creative destruction) the others to drink,own and prescribe the truth about our problems ! ( You. See it in local nyc politics, major parties , rather lose to the other major party , than lose to a alternative one .)

  13. Wes Schott says:

    right on, BR…

  14. Winston Munn says:

    At least America’s Team is starting to resemble America – or is it the other way round?

  15. rktbrkr says:

    1)No Free Lunch: The Fed recently announced that their policy is to prop up asset prices.

    2)Financial Engineering Alchemy: Mark to Market Accounting for banks was eliminated precisely to mask bank losses,everything will be fine until they’re insolvent and need another bailout. They need a crisis to justify the next raid on taxpayers money. Stress tests were another regulatory mask, Fed defiance of FOIL laws etc.

    3)Bank Hedging Undermines lending. I see a bigger problem of bank competence. Banks chased fast & easy money into areas where they had no expertise (GM and Merrill Lynch mortgages etc). Endemic documentation deficiencies of this activity are just coming to the fore. There is a basic problem of bank incompetence – trying to be all things to all people.

    4)The Rule of Law is Sacrosanct. We came within a heartbeat of turning real estate law on it’s head by rewriting the notarization laws to facilitate systemic fraud by the banks to cure their paperwork failures. Sins of commission to cover up sins of omission. More broadly fraud is something that can only be committed by an individual never a corporation or corporate officer, the former is a crime the latter is an error. If an individual renegs on a 300K mortgage thats a moral failure that imperils western civilization and they should be ruined for life, if a corporation defaults on a $3 billion commercial financing thats a tough but fair business decision.

    5) Campaign Finance Reform. Laws were written to legalize bribery of our politicians. We need the consent of those bribing the politicians to change these laws and I can’t see how that can be done. We can see the power of special interest with the ram-rodding of the misleadingly titled 2 page actuary law thru the Senate.

  16. mathman says:

    Making the case that reform is much more complex than it seems at first glance, with respetct to we have our “watch-dog” agencies looking out for our best interests (don’t ya know):

  17. countziggenpuss says:

    Public financing of elections? Those with the money will never go for that and as we all know, those with the money already own the government.

  18. PrahaPartizan says:

    Re Point #3, the banks’ problems with this approach are that 1) it requires people; 2) it requires time and 3) it requires expertise in the industries involved. All of this eats into profits, which does not sit well with our current crop of bank overlords. I recall reading that one of the Lord Rothschild’s when asked about why the family business maintained such an intensive intelligence network responded drolly “Money is information in motion.” Our current banking system has retained the motion and eliminated the information.

  19. “Banks, regulators and policy makers have to start thinking in terms of collateral costs of free lunches to unintended consequences.”–from Point #1, above..

    well, someone would have to remind them that is Freely available, on the ‘intertubes’, at the minimum..

    or, does reading Bastiat, these daze, put one on some, DHS, List, or another ?

    if one could, only, flippin’ believe that this is happening..

    they may begin to Remember that ‘Centralized Authority, without Limits, is Tyranny”

  20. Lugnut says:

    Good post Barry. My only observation is that unless/until you can fix number 5, you can never address items 1 through 4. All the skewed laws passed, all the cronyism, all the FASB rules, all the lawmaker/regulator/lobbyists revolvoing doors. all the politically motivated decisions to NOT prosecute someone, all stem from the lobbyist driven Brinks trucks that back up to the back door of the Senate and House on a daily basis. Until you find out a way to roadblock that money, (or at least reduce it and make it tranparent), none of this will ever change.

  21. Darmah says:

    BR said – “our closest friends need to sit us down and slap us across the face. ”

    Unfortunately, we’re like Elvis and Michael Jackson — we pushed away what friends we had and all we’re left with is enablers, hangers-on, and spongers.

  22. cpd says:

    Excellent list. We would be a lot better off if these were followed.

  23. Raleighwood says:

    I think your list is fabulous and needs to be disseminated far and wide.

    But really, interventions only work when the client fears being ostracized, or understands and appreciates the potential growth their misconduct is obstructing.

    Our Congress no longer fears its citizens or gives a shit about individual potential – they got theirs and now the rest of us are on our own. They have gerrymandered their way to bulletproof.

  24. machinehead says:

    All well and good — but the system we live under currently features perverse incentives which ensure that it won’t be fixed.

    The most serious perverse incentive is the notion of ‘non-revenue constrained’ federal funding — that is, the belief that if tax revenues are not adequate to pay expenses, we can simply ‘print’ the difference. Even as we speak, rumors say that the Federal Reserve may embark on a $1 trillion printing campaign as soon as next month.

    The world of irredeemable fiat currencies sprung on us in August 1971 has been a disaster. All this system has to offer is sequential bubbles. And that’s all we’re going to get if it remains in place, with its destructive illusion that the federal government is an bottomless well of funding.

    Closing down the Federal Reserve is the only reform which will actually get the job done. One can’t erect a prudent, productive society on the shifting Jello of a Bubble economy. Stable money is the prerequisite of all other human progress.

  25. Winston Munn says:

    The problem is that Wall Street has bought the AAA tranches of “By the people” and “For the people” and created a whole new subprime tranche called “By and for us, people”.

  26. Trevor says:

    Bravo! I can’t imagine anyone putting it better.

  27. Mannwich says:

    Amen Barry.

  28. thirtysouth says:

    Well said. However, I personally believe this post was a perfect opportunity to also list the current administration’s actions in circumventing the rule of law in regard to the Chrysler bondholders. This action from the highest office in the nation exemplifies the depth of difficulty we are currently facing.

  29. greg says:

    BR…all good thoughts but unfortunately here’s what will happen. You will probably vote out several of the incumbents in the next election, replace them with members of the other party, and hope for change. There will be a brief period of euphoria where you will be convinced things are going to change now, and then slowly it will become evident that you have in fact voted in more of the same, a mirror image if you will. Should benefit all the blogs though, all you will have to do is run the same articles from the last 2 years or so replacing the words Democrat with Republican and vice versa.

  30. ToNYC says:

    You had me at No Free Lunch. This should be the principal, necessary and essential requirement for graduating from Elementary School. The concept of “No Free Lunch” actually keeps us a Free people in ensuring equal rights. Algebra and Calculus are branches of Mathematics and as important in Finance as the Law of Gravity in keeping us all honest.

  31. NeutralObserver says:

    Excellent post Barry. Really it is a tragedy for Capitalism to lose its Communist adversary. While Communism never did much good for anyone living under it, for 70 years it scared the robber barrons in the rest of the world into behaving themselves thus permitting the blossoming of the middle class. Alas, those days are over and the laissez faire capitalists are unable to control their greed. Maybe Oliver Stone’s next sequel should be called “The Audacity of Greed.” Perhaps we must wait for the emergence of some new form of external threat to the mortality of uber-capitalists for things to change from where we are now because I cannot see how any of Barry’s suggestions are likely to be implemented in the present environment.

  32. Bokolis says:

    You can howl all you want about campaign finance reform. It doesn’t change the reality that , once someone gets into office, they spend the rest of their political careers playing prevent defense. They will build the war chest accordingly and will do their benefactors’ bidding. As long as money can buy a legislators’ ear- if not outright buy the legislators- we’ll just be pissing in the wind. We’ve all sat by as corporations have attained more rights than people…a ingredient for the breakdown of society. Fundamental change will only come when this is reversed. If it means a constitutional amendment, then so be it.

  33. daf48 says:

    We can’t even get an indictment of Fraud, how are we going to get the rest?

  34. TennesseeCPA says:

    How could public financing of elections accomplish what you say you want? Do we need to keep grabbing funds from taxpayers to do anything worthwhile? Does the government produce anything? Where will these public campaign funds come from, but from other more productive places.

    Full disclosure of all contributors should be an incremental step toward “sunshining” the system. Could we please stop trying to right all wrongs with a single step/bill/amendment.

  35. tlwilliamson says:

    “A Proposal to stabilize Our Global Economy”

    Here is an economic solution for general global discussion based on US history. It worked for the USA. It may also work for the entire planet. What ideas do you have? Is there a way to bring some stability to global and local economies through a concerted global effort?

    In the 1790′s and in the mid 1800′s there were numerous banks in the US offering their own currencies. Each of the various states also had their own central bank with their own currency. The states did not want to relinquish some of their state sovereignty for the national good, and the banks were driven by self-interests. There were huge economic disparities in the new USA? Each state had it’s own economic engine so to speak, and many banks even had their own currencies pushing their own policies. No state or bank believed in a future where the nation as a whole was strong and successful. Each of these entities saw the national government as more of an association of individual states, not as an entity having a strong national identity. Chaos, economic disaster, and possibly even real national collapse were forecast by some.

    The agrarian southern and the metropolitan northern states wanted, no demanded, the independence of their economic decisions from that of the other states. The economic, financial and monetary chaos that ensued was a major cause of the economic variability and chaos throughout the nation in the early days of the USA. This situation caused chaos in the national economy of that time
    because each state and bank promoted only those things that were in their individual interests and not that of the nation as a whole.

    The world is in a much similar position today with our intertwined and inter-connected economies, currencies and ultimately our global stability, growth and prosperity. Maybe we can learn from US history.

    SNIP Continued here

  36. b_thunder says:

    The last time a set of changes like the ones that Barry is proposing were required, a few wealthy, highly educated and influential folks got together and wrote the Declaration of Independence.

    Now the people like that sit around mahogany tables and plan either borrowing $2Trillion to bailout their favorite and failed bank(s), or printing $2Trillion to bailout their failed member bank(s), or takeover of another failed country/countries, or takeover of a next failed K-Mart, Fannie or GM, or a takeover of a failed RE trust, etc.

    The next Declaration of Independence won’t happen. The next French Revolution is the only way to implement the change, but with new military-grade devices of non-lethal crowd control, it ain’t gonna happen.

  37. amandahenk says:

    Thank you for this. I’m a librarian in the midwest married to an engineer. We are the boring backbone of the middle class. Over the last few years I saw the stupider of my friends and relatives suckered into loans they could never repay, abused by fast talking loan officers and promises that if they didn’t buy now they’d never be able to. I’ve seen my child care provider nearly lose her home to a stupid servicing error and be so grateful to keep her home she has allowed the bank to literally rob her of hundreds of dollars. Dollars that she paid, but that I know meant her children did without. I have seen my tax dollars go by the boatload to these fraudsters.

    The idea that these people could get away with this crazed destruction of our property system, this absurd undermining of the rule of law is abhorrent to me. I want to live in a world based on justice, equality before the law, and due process. If I or anyone I know did any of the things the banks have done, we’d be in jail, our assets would be seized, and our children would be impoverished. This double standard is renting apart the fabric of our society.

    I have no platform for my anger, I have no voice that anyone will listen to. But you do. Please keep using your voice to protect what remains of the fundamental bedrock of this country– the rule of law. Please stand up and shout from the rooftops to make this stop. To return our country to basic sanity and equality. Use your voice for all of us who have none.
    Thank you.

  38. JT23456 says:

    What we need and what we’ll get – hummm ….. Nice description of what we need. Let me describe what we’ll get – the hook has been set and the fish (us) is in play. We’re going to get reeled in and let to run out – in other words played. They have zombified the real thinkers and doers and castrated the herd. The US in general can’t understand and it doesn’t even have enough manhood left to get an erection. It’s only half way thru the 1st quarter, but the game is already won, they won, we’re just being played with. Constitutional Amendment – when pigs fly.

    Try this version –

    I like #6 – The middle class is over. It’s not coming back.

  39. Fred C Dobbs says:

    You are on a roll today. Laws that merely summarize conduct that is ‘baked into our genetic cake’ tend to work. (for example, incest) Laws that tend to go against ‘human nature’ usually don’t work. (for example, that shall not lie or tell half-truths) Laws that tend to damp cultural differences between ‘multi-cultural’ human groups sometimes work, if they don’t go to far, forcing one group to give way to the other. Laws that tell the tide to wait, or tell the water to run up hill don’t work at all. A problem we have in the US is we have far to many laws, and far to many that don’t work. Respect for the law, and government falls. For example, people in the west drive faster than federal rules made in and for the east by some ignorant bureaucrat or Congress, and the westerners think less of the federal government for being run by stupid insensitive people. As people in Arizona what they think of eastern liberal ignorant elite! What is going to happen to the US is clear: study history. The Golden Age of Athens lasted 50 years. The Golden Age of Britain lasted about 50 years, until 1914. The Golden Age of the US is coming to an end. The moment a country elevates leisure above work, it begins to live beyond its means, and the miracle of compound interest dooms it to bankruptcy, sooner or latter. The moment a country worships non-productive people over productive people, when everyone doesn’t make their fair contribution to society, it falls apart, over the manifest unfairness of one worker’s effort being compelled to pay for feeding his family, families of strangers abroad and elsewhere in the US. When the US became the Big Rock Candy Mountain, the decline began. The decline is irreversible, for the antidote is to remove the unproductive, disruptive elements that block society coming together, and working together. William Graham Sumner said ‘industry, moderation, and self-denial’ are the laws of prosperity for men and states. Was he wrong or not? Bye Bye American Pie.

  40. VennData says:

    Today’s Nobel Prize Recipient was deemed unqualified by some GOP Senator, who gets to go unnamed. GOP senator from Alabama Shelby demanded a second hearing on him. Etc… etc…

    … add this to your list of structural problems. A US Senator’s ability to stop from having a Nobel prize winner on the Fed.

    If that’s not partisan nonsense, like every single thing the GOP has done in the last two years, I don’t know what is.

    P.S. Why aren’t you Tea party screwballs angry about this? Oh, that’s right, you believe that the tax cuts will help the deficit. …Yeah that’s worked real well under Reagan, then under Bush. Sorry, forgot, you’re economically illiterate, anyone who is economically literate, you mock, and you were an honors student
    where you were home schooled.

  41. doctorforest says:

    Consequences of our actions? Consider the worldwide environmental habitat genocide/destruction and the reckless re-distribution of CO2 from fossil fuels over the last 50 years. Nature bats last, just like hyper inflation will solve the financial problem of our nation being awash in printed currency. We are all gaga over Apples latest gizmo, while the world burns from our “waste”. Where are our sane leaders?

  42. obsvr-1 says:

    a common sense approach, makes sense to the centrist majority who have no representative party to align with. I like the ideas and starting at the top is the best approach, however an intervention needs someone (somebody’s) to do the intervention. If we need to start at the top then who performs the intervention ? Indeed the US is teetering on the brink of an intervention, but it looks like it is going to take the form of a revolution by the masses that have been screwed so deeply that there is no other way out.

  43. [...] Some lessons from the past decade we have yet to learn.  (Big Picture) [...]

  44. mote says:

    “In a nation ruled by swine, all pigs are upwardly mobile—and the rest of us are fucked until we can put our acts together: not necessarily to win, but mainly to keep from losing completely. We owe that to ourselves and our crippled self-image as something better than a nation of panicked sheep.”

    Hunter S. Thompson—The Great Shark Hunt, 1979

    True confession:

    I was formerly a member of Senator McCain’s group working toward campaign finance reform. Guess its nice to exercise one’s idealist qualities from time to time, but judging from the present state of things, we passed CFR, but got run out of Burma in the process.

    CFR was one of the few pieces of legislation that received bipartisan support. The Democratic Party carried the water, and our mission was to secure a minority of Republicans. If CFR ever gains interest again, I’m game for another round.

  45. advsys says:

    Well said!

  46. Another good piece to further our attempts to understand the psyche of decision makers. As a Canadian, some of follow related events with nervous anticipation…. not desirous of what may lie around the corner for us too, as America’s top trading partner. We are all in for a new world, sooner than most think.
    Saverio Manzo

  47. DeDude says:


    Do you really think that the taxpayers are not paying through their noses for the fact that corporations own our government?

    Why do you think our latest wars have been costing trillions and spending over half of its expenses on private contractors doing a soldiers job for 10 times a soldiers salary?

    Talk about penny wise and pound folish

  48. ToNYC says:

    @ b_thunder

    “The next Declaration of Independence won’t happen. The next French Revolution is the only way to implement the change, but with new military-grade devices of non-lethal crowd control, it ain’t gonna happen.”

    The military you speak of is composed of US citizens who are not Corporate citizens. The force thing they have covered; the intelligence part is far less clear.

  49. Marc P says:

    BR, a thought on your comment #3 on hedging:

    “[Once] credit risk of any borrower became far less significant,
    since it was to be hedged. [Then] As the financial sector became
    less dependent upon their own decision making, credit quality
    slid towards worthless.”

    This is the classic “tragedy of the commons” effect, isn’t it? If a loan originator knows that it is putting mortgage loans into a security or tranche with other loan originators, the originator has financial incentive to put in the poor loans rather than good loans, because the loan sale price is the same for all the loans in that quality tranche/classification.

    Then as the loan quality dropped for a given classification, the rating agencies simply adjusted their ratings to match so the resulting securities received the same ratings.

    But the industry knew all this. All the facts were in front of them. The only surprise was not that the music stopped. My guess is that the exec’s surprise was how much momentum there was to continue dancing even though clearly there weren’t enough chairs.

  50. Rescission says:

    Good post.

    If securitization had mandated that the underwriters had to hold onto a percentage of the risks for the loans, that would have fixed the problem. They would have developed proper credit underwriting. Securitization without holding risk is a recipe for disaster. Back in the day, the banks were on the hook for the payment collections, so they learned how to underwrite. RMBS and CMBS were terrific liquidity plays, but somebody forgot about good old fashioned risk management. A really bad thing. So, your Number 3 is spot-on.

    Can you throw VennData into moderation? His partisan rants are deserving of the penalty box.

  51. Clem Stone says:

    You forgot to mention us innocent little people who gamble for a living. Life should be made easier for us!

  52. jnmervin says:

    I expect you stop reading the comments after a while. Presumably the day job demands some attention from time to time?

    But in case you do cast an eye down the list – what a splendid post. Really. A big moment in the Big Picture. Where ARE the mainstream commentators to step up and say these things. Where ARE any political leaders who we can assume have even read them?

    Be careful or you’ll get your name on a ballot one of these days!

  53. basquebob says:

    Great post Barry.

    @Rescission: since when pointing out the obvious is partisan?

    @JT23456: from the link you posted I liked some of the comments better such as “The world didn’t collapse when milkmen and telephone operators lost their jobs; so long travel agents.”

  54. [...] Big Picture blogger Barry Ritholtz says America needs an intervention. “The credit crisis and now foreclosure debacle have revealed [...]

  55. MaxMax says:

    Well, yeah, but some of us were saying that back in the 60s [I'm multifaceted: I was there and I remember] and The System [hoo, boy, that brings back memories] is too entrenched, too well financed, and too capable of propaganda [c.f. WSJ Liars, by a certain BR] to be changed. What you are calling for, Barry, is something much more than political realignment. It’s unlikely to happen, as the unmoneyed classes have learnt from experience that they’ll be gunned down in a flash while the WSJ/Fox propaganda machinery will paint them as traitors.

    As to why your comments are in a blog, and not on the front page of every paper and the lead item on every news programmes is merely indicative of the power of the system.

  56. Niskyboy says:

    Is it the “very first rule of economics” which has been forgotten, or something more basic?

    Let’s find out by exploring the ethics demonstrated by many bankers and other people of influence in today’s society, as they grew up:

    1) The first reports of widespread cheating by high school students were met with shock and outrage. Now cheating is so widespread it’s more an embarrassment than anything else. After all, everybody does it, right?

    2) These kids got a little older and went off to college, where they proceeded to make and distribute copies of copyrighted music and movies at will. At first this was seen for what it is, theft. Then (with more than a little help from record company greediness and ineptitude) it also became no big deal — after all, everybody does it, right?

    3) Then they graduated (with a “Gentleman’s B,” graded on a curve) and became bankers. Come to find out, it appears many of them are less than the upstanding and honest stewards of our wealth than we thought they were.

    This comes as a surprise?

  57. zot23 says:

    I’d just like to say excellent post. When are you going to run for president Mr. R?

    You couldn’t be any more clueless or worse than what we’ve had for decades…

  58. jswap says:

    “There is no free lunch”

    I’d like to hook Bernanke and Geithner up to a lie detector and find out if they actually believe this one.

  59. Mr. Math says:

    Campaign Finance Reform on this list is a complete non-sequitur to the rest of the list.

    If you want to reduce the $$$ in politics, then you need to reduce the economic value of government power.

  60. Malachi says:

    Great post BR. Thanks. Bring on an intelligent 3rd party candidate to galvanize the masses. Oh wait, we just had an intelligent outsider galvanize the masses and then he brought in all the insiders. Maybe we need a billionaire like Bloomberg who knows the game and can stand on his own.

  61. Shadowfax says:

    Good stuff.

    1) Only individual citizens should be allowed to make campaign donations, and only up to $200. Obama should propose this Constitutional Amendment; it will pass 95% to 5%.

    2) Other myths that should go away include: “Tax cuts increase revenues” and “Starve the Beast.” Studies and history say these are bunk. Both actually cause folks to think government services are cheaper than they actually are. Would we be at war if each family was paying a $1,000 war surtax every year? Nope.

    3) We cannot be the world police with a worker to retiree ratio that has fallen from 5:1 in 1960, to 3:1 today and 2:1 by 2040. Defense has to get cut back from $700B to around $300B, the last time we balanced the budget. We are kidding ourselves; most of this is borrowed money. The real threat is economic; defense spending should be re-directed to education. The unemployment rate of those with high-school educations is twice that of those with college educations.

    4) Taxes are far too low, below 15% of GDP vs. the historical average of 18%. They were 19.5% of GDP the last time we balanced the budget. That is almost a $1 trillion, about $1,000 per family! Yes, we are tax crybabies.

    5) We are not competing effectively with the developing countries. The world is now about economic competition and the developing countries are literally putting us out of business with low cost labor. What happens when their huge education investments start to take the jobs of our skilled labor.

    Here is the plan: Build 200 nuclear plants. Shift much of defense spending to education and reforms so we put the best teachers in the classroom. Raise taxes.

    Simple, isn’t it. Focus on the issue: How do we compete with developing countries?

  62. MikeG says:

    And for the public:
    Stop electing corporate whores just because “He’s a good [insert religion of choice] man” who can pay lip service to your particular version of invisible sky-daddy.

  63. Shadowfax says:

    4) Let me correct one point above. The gap from our 14.8% of GDP tax collections in FY2009 and the 19.5% in 2001 is 4.7% of GDP. This is about $700 billion, about $7,000 per U.S. family per year. Yes, we must tax the rich alot more.

  64. Lariat1 says:

    Late to the party but this post should be mandatory reading for all. Thanks.

  65. FrancoisT says:

    Barry wrote:

    There is only one solution to this threat: For the rule of law to be in force, those people who violate it — previously known as “criminals” — must suffer the painful consequence of their illegal actions.

    then was asked by How The Common Man Sees It:

    Yes, but how high up the food chain are you willing to go? Just high enough to eliminate the competition from the more well connected boys? Or maybe a little higher. How about prosecuting some for treason against their nation…

    To which Barry answered:

    I would start at the top and work down

    Well, let’s get started now, because once again, the higher ups have decided they won’t support the rule of law against the financial interests sucking this nation dry. As per the excellent Yves Smith, which post I’m copying in its entirety here:

    I should have expected this. Team Obama is so predictably bank friendly that it was inconceivable that the Administration would ever decide against them on anything other than the occasional sop to maintain plausible deniability. But this morning’s news stories reveal the officialdom isn’t even bothering to keep up appearances.

    First, from Politico writer Ben Smith, via a newsletter targeted to policy types:

    WALL STREET WARNS WASHINGTON ON MORTGAGES – The financial services industry is growing increasingly concerned as more politicians get behind the idea of a broad moratorium on home foreclosures, which banks and many outside analysts say could be good short-term politics but terrible long-term policy.

    One senior Wall Street executive told Morning Money over the weekend: ‘President Obama should be very cautious about aligning himself with Congressional leaders who are playing politics with the foreclosure issue. With foreclosed properties comprising one in every four homes sold in the United States, the spreading moratorium could disrupt real estate deals in progress, slow down the process of clearing the backlog of troubled home loans and [endanger] the economic recovery.’

    So we are back to Wall Street calling the shots, the very same Wall Street that invokes the “give us what we demand or we’ll shoot the economy” demand whenever its pet interests are threatened. Here the securitization industry was colossally irresponsible in its conduct, and has created a mess that will be monstrously difficult to remedy….and we’re supposed to plow onward in business as usual mode?

    And notice the false dichotomy: the banks who screwed up yet again (and will need to be recapitalized again, trust me, foreclosure moratorium or not, there is a tsunami of litigation on the horizon that will bury servicers and the major trustees on securitizations) versus “Congressional leaders who are playing politics.” Huh? And it FURTHER, and falsely implies that those evil Congressmen are the reason banks have imposed moratoriums. Erm, it has to do with the fact that filing an improper affidavit is a very serious matter, and the banks have to straighten that out (at a bare minimum, as we stress here repeatedly, the affidavits are merely the presenting problem, not the fundamental failing).

    And we further get another lie, that it’s the foreclosure freezes imposed by banks, and the prospect of more at the state level, that might affect REO sales. That’s another Big Lie; the most pressing impediment, and it’s not getting better any time soon, is title insurers withdrawing from foreclosure sales from banks that have admitted to having affidavit problems. Other title insurers are reported to be writing qualified policies on foreclosure sales.

    The other disturbing but revealing report of the morning is the new Obama administration straw man: that it’s not backing a national foreclosure freeze. First, as bank expert Chris Whalen points out, this is eventually going to happen, but on a state-by-state basis. not nationally. But second, look at the deplorable logic. Per the Washington Post, boldface ours: (

    The Obama administration does not support a nationwide moratorium on foreclosures at this time, Federal Housing Administration Commissioner David Stevens said Sunday in an e-mail response to questions.

    “We believe freezing foreclosures for all banks in all states, whether we have reason to believe them to be in error or not, is simply not the prudent step to take in this fragile housing market,” he said.

    The statement couldn’t be more clear. “Markets” as in bank/corporate interests uber all(i)es, no concern with the rule of law.

    Sell pitchforks, buy Cheytac, JDAM, FNs and all the hard hitting stuff. We’re gonna need it bad, folks!

  66. cognos says:

    Eh, its really not that bad.

    If it werent for the total incompetence of AIG, Bush, Paulson, and Sheila Bair… the whole “crisis” would’ve been half as bad (or half as lucrative for us specualtors!).

    If it werent for the continued incompetence of pro-cyclical regulators, Elizabeth Warren, whomever is stopping all refis at Fannie/Freddie, the ignorant congress, goldbugs, and a do-nothing Federal Reserve… this whole thing would be over already and we’d be on to the next up-cycle.

    Which we kinda already are…

    So we had a 1-2 year downturn… why all the crying?

  67. FrancoisT says:

    By the way Barry, your post is more timely than you can imagine.

    Take a look at this very depressing, yet must-know series of hard truths.

    The first one on the list is a crucial indicator of the overall health and well-being of a nation:

    In 1950, the United States was fifth among the leading industrialized nations with respect to female life expectancy at birth, surpassed only by Sweden, Norway, Australia, and the Netherlands. The last available measure of female life expectancy had the United States ranked at forty-sixth in the world. As of September 23, 2010, the United States ranked forty-ninth for both male and female life expectancy combined.

    Just to underscore the rapidity of the decline, as recently as 1999, the U.S. was ranked by the World Health Organization as 24th in life expectancy. It’s now 49th.

    BTW, “female life expectancy at birth” is how nations are told how well, (or bad) they’re doing in terms of access to health care, social justice and an array of parameters that nations that called themselves “advanced” are supposed to care about.

    I know for a fact that too many fucktards in this country would be ready to dismiss these unpleasant facts as “politically motivated attack on the greatness of this unique nation” blah blah blah!

    The fact is: “This sucker is going down!”…and unless we get our shit together, it’ll get lower and lower.

  68. vachon says:

    Thank you, Barry. I’ve re-posted this on my FB page.

  69. VennData says:

    Rescission says “…If securitization had mandated… that would have fixed the problem…”

    Yeah that will fix it. Good idea. Thanks for the thoughtful comment. But what should we do about the real world where that’s not what happened?

    See here in the real world, the strings behind the GOP are your enemy, you pseudo-capitalists. The fact that you don’t get it was why people try to explain it to you.

    Instead of telling us about how great things were in the “…old fashioned days…” Are you telling me you don’t think America needs to change the ridiculous intervention-deserving policy that a Senator can stop this nomination and not have his name revealed?

  70. Rescission says:


    I was in the mortgage finance business for 20 years, so I understand the problems. Securitization will eventually open back up as we need liquidity in the financial markets. I thought this post was about fixing the problems “prospectively”, thus the gist of the post. I was responding to Barry’s point #3.
    Just trying to give constructive ideas here, pal. This is the real world.

    I don’t understand what the heck you are trying to say. “It’s like a you’re a talkin’ but you’re not a sayin’ anything”

  71. lalaland says:

    Add me to the list of whole-hearted supporters of that post.

    I was talking recently to someone who investigates medicare fraud for a living, and according to her the biggest problem isn’t pure fraud – that could be found and prosecuted fairly easily. It’s undoing the decades of loopholes written into the law that permit – legally – the very profitable scams. In the same sense the biggest problem with the bubble was that so many of the elements involved were toxic as hell but also completely legal. Not all, but a whole lot. Which was a bigger problem:

    I think your list should be read backwards – fix campaign financing (especially for judges) which will allow the legal system to tighten the thumbscrews. When the legislators aren’t so beholden to their corporate financiers, they can tighten up existing laws to prevent abuse including the over-leveraging and all the rest.

    I personally think the perfect metaphor for what is wrong with America is the existence of expediters in NYC. In our fair city the buildings department has made it so impossible (when they aren’t taking bribes) to get anything approved an entire industry has sprung up dedicated to getting things approved, for a fee.

    Any time you have to pay someone to game the system in your favor the system isn’t working. The realms of lobbyists are the best indication that the system doesn’t work – in a better system the government would seek out answers to the pressing questions, not have people paid to inform them of their client’s positions. The tax preparation industry points to the failure of the tax code, not to mention the legions of tax shelters. Ambulance chasers illustrate the failure of tort reform, and on and on. Wherever an industry has sprung up to become a middleman in what should be a one-to-one relationship you have a problem.

    But beyond that – the main point, that we are insisting a lie is the truth, and the illusion is real, is totally valid. We love to point the fingers and assess the blame, but there was a LOT to go around by my estimation, and not all of it at the top. From the flippers to the treasury department, wall street, and congress is a long road: there were a lot of complicit players, not all of whom are contrite by any means. I don’t know if it’s the result of hearing that the way to grow the economy is by tax cuts or whatever, but America seems to have a fairly tenuous sense of self responsibility these days, and the sooner we say we collectively f*cked up the better.

  72. jad714 says:

    The problem with us is right now our freedom is causing us to kick back and enjoy it without being responsible for our country. Sometimes, in order to preserve the freedom we enjoy, we have to chose not to exercise it in favor of responsibility.

  73. soloduff says:

    Concerning item 4, “the rule of law is sacrosanct”: Would that it were so! I am sorry to be one to spoil nostalgia for The Good Ol’ Days, but this nation has had a long line of war criminals at the helm of the Executive Branch for longer than I care to remember. The previous administration, for example, was undeniably guilty of the crime of aggressive war–the worst of war crimes, according to Justice Jackson (Nuremberg tribunal). Where is the rule of law in the Military Commissions Act? In “extraordinary renditions”? In “signing statments” In gov’tcorporate mocker of the FISA act? And don’t forget the Arms Export Control Act–which is supposed to keep US military largesse from breaking international law, such as Apache helicopters killing “militants” in occupied Palestine. Get real, folks–calling for regeneration of America is as delusional as rearranging the deck chairs on the Titanic for a better view of the rescue that is not forthcoming.

  74. MikeW says:

    As Jeremy Grantham has pointed out, the percentage of America’s GDP which goes to the financial sector has grown substantially in the last several decades and increasingly constitutes a drag on the real economy.

    The distinction between genuinely productive activity which adds to total wealth, and rent-seeking behavior which merely redistributes wealth, is not made often enough in public discourse.

    We certainly need a functioning banking system to have a productive economy, but whose interests were served by the creation of synthetic CDO’s?

    Is it any wonder that the Germans, who turn their energies towards real production in the form of machine tools, fine automobiles, etc., run healthy trade surpluses, while we in America play games with money as an abstraction and seem fated to perpetual deficits and an ever-shrinking base of real production?

  75. wngoju says:

    BR for President!

  76. wngoju says:

    @mikew: “whose interests were served by the creation of synthetic CDO’s?’. LLoyd Blankfine’s, silly goose. That’s LL-oyd. Old LL. (Related to LL Bean?) Doin’ this sxxt for … God! God, I tell you. PRAISE the LLORD! Wait… what happened to my life…

  77. Paul Jones says:

    Powerful post!

  78. emailcraigs says:

    FWIW….”I” have not been living a lie….but I have been lied to. I bought a home I could afford even though it wasn’t as big and grand as the next guys. I try to keep to the motto of only spending half of what I make and have had some reasonable success. BUT, I have been living IN THE LIE that a lot of other people have been perpetuating and building to the detriment of America. The very simple truth is that there are a lot of ordinary people out there that did follow common sense rules and are now either suffering with the rest of the sheep or, at best case scenario, have basically lost the last decade to pure incompetence on the part of all those highly paid “geniuses” that the economy supposedly cant do without…..and apparently still cant. The only thing a lie needs to become the truth is for nobody to question it. And oh how our “leaders” don’t seem capable of questioning anything.

  79. [...] Some lessons from the past decade we have yet to learn.  (Big Picture) [...]

  80. IPINLive says:

    No question the laws need tightening. The other problem is the volume of inaccurate reports in the press (in the UK at least) that are cobbled together in a bid to generate news and subsequently lead the public to make rash decisions based on badly interpreted “sound bites”. Great blog by the way!