Blog 38

2009-June-14

The Fall Guy
[Bernard Madoff - A Lesson in Scapegoats]

Committed
It's true, Bernie Madoff did commit a heinous crime and his recent sentencing means he will not get out of jail until he’s 221 years old. Whether or not this punishment fits his crime could be the subject of another discussion, but not here.

It's strange how the parties involved in Madoff’s sentencing, the lawyers on both sides, judges and no doubt the judiciary all seriously discussed the number of years jail sentence he should get. Isn’t this all mildly amusing? For a man aged 71, isn't the length of a jail sentence just a bit arbitrary?

I know that the longer the sentence the higher level of security correction [sic] facility he would be allocated to. Higher being less desirable apparently [depending on your personal preferences that is].

But Madoff will always be the ultimate winner, he got the money, he used it, played with it and lived very well for a significant proportion of his life with it. Now, having shed the burden of the inevitable mounting stress as his Ponzi scheme neared its conclusion, he can look forward to spending the rest of his days virtually stress free in some, no doubt special wing of some special jail [which by all the laws of nature, won't be that many].

A Much Bigger Crime
Hailed as the biggest crime in financial history by some commentators, Madoff’s crime in fact palls into insignificance compared to the perennial crime the banks have been operating since they coerced governments to abandon the ‘gold standard’ during the early part of the last century. Yes, this fraud has been taking place for nearly 100 years, right under the noses of us all.

When I say that it's a crime I mean this in a social sense rather than in a strictly criminal sense. The banks are not so stupid as to blatantly commit criminal acts (though of course many do), their plan to install a financial model into the social system that maximized their wealth stripping capabilities has been a slow pernicious plan that has taken many years to perfect and bring to full fruition It now extracts many trillions of dollars every year from those who create all the wealth in every nation but it’s still not a criminal offence in almost all countries. It goes under the guise of 'free market trading' which cleverly implies that its abolition would result in a financial market that was somehow 'not free'.

Though as I mentioned before briefly, it’s probably the biggest crime against society that has ever been perpetrated. The fact that it has not been legislated for is a measure of the banks deviousness and dismal failure on the part of lawmakers to first comprehend what was happening, secondly to understand it and the consequences and third, not to have installed mechanisms in a timely manner to halt its implementation.

Apparent Inaction
Even today, in the midst of the biggest depression since the Great Depression, very little is being done to correct the underlying causes. Politicians are still treading far too lightly, no doubt in fear of the retribution banks can and would instigate if they go too far. A few consumer safeguards in the credit card system instead of a complete overhaul, or even the takeover of credit cards by government are inadequate and in any case begs the question, why were these measures not enacted 40 years ago when this particular wealth stripping scheme was devised?

Yes, there was a time when the money supply was the prerogative of governments, and rightly so. Who else has the peoples proxy to calculate the balance between the GDP provided by the wealth creationists and the amount of money in circulation? The fact that the money supply has fallen into the hands of the banks is a problem that needs to be addressed urgently.

Of course, none of mechanisms the banks have installed would have been possible without the full backing of government. I don't want to spend too much time here discussing the reasons for the involvement of governments in the banks wealth stripping schemes. I would just say that the 'creation of wars' is just one mechanism the banks use regularly that enables them to commit governments to massive debt. There is a saying that 'he who pays the piper, calls the tune', well in the case of the relationship that has developed between the banks and government during the last 100 years, it’s the banks that have been calling all the tunes.

At this stage I’m sure many of those reading this who have been schooled in modern economics will be thinking to themselves that all the financial techniques, instruments etc that are in place are all necessary for the whole global financial system to work. Well let me just say at this point, the number of financial system failures both small and depressingly large [pun intended], national and international are proof positive of the inherent flaws in the current system.

The Broader Viewpoint
Economics is an overcomplicated subject (which is why no two economists ever agree), macroeconomics does look at the bigger picture but is still overcomplicated, what's required is another branch of the science I like to call hyper-macroeconomics.

In order to understand why the system fails regularly you have to step [in modern parlance] right out of the box. By this I mean you have to step out of the miasma of trees that have been carefully planted by the bankers in the financial instruments/dubious-schemes forest, disregard all the detailed financial money manipulation mechanisms, just think of the whole social/financial system in terms of:

  1. Wealth Creationists [Everyone who makes or produces things and those who physically help them]

  2. Wealth Distributors [Government via national taxation, intended ideally to maintain an equitable social system]

  3. Wealth Strippers [Banks and some financial institutions]

  4. Wealth Manipulators [Financial services sector]

By viewing the whole economy in this way it’s apparent that items 3 and 4 above can be removed from the equation without having much effect on the social system. For what benefit can organizations that simply strip wealth out of the system have on the real wealth of society. In fact removal of the wealth stripper/manipulators would result in an altogether richer world for all, no loss, just gain. Chances are that in short order, poverty would be eliminated, research foundations would receive so much funding that disease would become a thing of the past and terrorists would have very little to gripe about or to justify their myriad of causes. The solution is this simple at the hyper-macroeconomic level.

The New Utopia
There would of course be a hiatus during which time those employed in the wealth stripping and manipulation sectors were absorbed into the wealth creationist/supporter sector, but when the process is completed the stage would be set for global prosperity on a level beyond anyone’s dreams.

Simplistic? yes, a pipe dream, well possibly, at least for the next few generations. But as each generation passes and financial system failures continue to rob people of their livelihoods, their homes and their dignity a realization will set in that demands radical reform of the financial system. My fervent hope was that it would happen this time round, but I have a feeling it will take at least another 50 years or so.

Mending The Fence
Going back to our narrative, there is still the question of how to deal with all the surplus wealth that would inevitably be generated. Well, having all but gotten rid of the banks and financial institutions as in the example above, there is in any society a practical requirement some form of intermediary monetary control to assist with the trade between wealth creationists.

However, there is an equally desirable requirement for this sector to be so heavily regulated and policed that they take their rightful place in society as a taker, beholden to the wealth creationists, providing only a service that enriches rather than diminishes the social order.

All that’s really required of the financial services sector is:

  1. Money Warehouses that are able to redeem all their depositors money immediately on demand. Such warehouses would of course charge storage fees like any other warehouse. These depositories would not be at liberty to lend the money in their reserves, they would however operate other banking services such as money transfers etc, on a fee basis.

  2. Credit Banks that acquire ‘temporary use’ of deposited money in order that they can lend it at a higher rate of interest than they pay to their depositors, the difference being their profit. Depositors money would not be available on demand but redeemable only on the basis of whatever time contract existed, the banks temporary usage conditions, redemption date and early redemption penalties etc. Though it sounds too obvious, it would be necessary to make it illegal for any credit bank to lend more money than the amount on deposit. In addition to the profit made from lending the credit bank would charge for all other banking services.

  3. Financial Institutions that acquire temporary use of deposited money for the purposes of investing in wealth creation companies. New rules are required to ensure that investments in companies never puts wealth creation companies at risk. The prime objective of company investment must never be forgotten, it is for the good of the company and ultimately for society, NOT primarily for individual gain. Investments in this category must be long term with minimum pre-determined durations, based on the type of business invested in.

The Creation Of Wealth
Moving on now, forget for a moment all the financial instruments that currently exist in the financial services sector, hedge funds, derivatives and the like, these are merely the 'inner workings' of a system that only 'plays'[gambles] with wealth that’s already been created and stripped from the wealth creationists.

No amount of trading on the stock market creates any new wealth in a society, it merely flows between players in the financial services market. Create another one thousand new financial instruments, inject another million 'players' into the sector and not one dollar of 'new wealth' will be created in the world economy*. This group of people are just competing against each other, the clever ones end up very rich, the not-so-clever ones end up just rich and if either faction gets unlucky they lose, momentarily.

Overall though, very few of the people who operate in the financial services sector lose in the short to medium term because the flow of wealth, as it’s continually stripped from the wealth creationists, is sufficiently robust to support them all, well at least, most of the time. It’s only when an imbalance occurs between the amount of wealth being created and the amount being stripped passes a critical point that the system begins to fail. If the wealth creationists cannot keep up with the voracious demand of the wealth strippers/manipulators then we all end up in the familiar cycle of financial recession/ depression.

In Conclusion
So the demise of the bit player Bernard Madoff in this current malaise is but the moving of a relatively small pawn, a smokescreen designed in some small way to hide the global game of chess the banks and governments have been playing with their benefactors for far too long.

If change is to happen it will require a massive social uprising fronted by a leader knowledgeable enough and capable enough to initiate a long term plan that is diametrically opposed to the plan the banks initiated a very long time ago and have been developing ever since and governments go along with it because, well I've already mentioned that.

* Wealth strippers/manipulators can of course create wealth for a nation at the expense of other nations in much the same way as financial services 'players' can create wealth for themselves at the expense of other players. But in the end it's still just the manipulation of money between nations and players, no new real wealth is created. You just have to look at what happened to Iceland to see what happens when nations become heavy players in the international financial gambling den.

 

 

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