Financial systems appear to be returning to their inherently unstable nature, which plagued the 19th and early 20th centuries

From The Next Panic in the Atlantic Monthly:

(Written by Peter Boone, a director at Salute Capital Management and a visiting senior fellow at the London School of Economics, and by Simon Johnson, a professor at MIT Sloan and senior fellow at the Peterson Institute for International Economics)

Europe’s current financial crisis will be followed by a more devastating one, likely beginning in Japan. The Japanese government is using private savings to fund current spending, such as pensions and wage payments. With projected annual budget deficits between 7 and 10 percent of GDP, Japanese savers are essentially tendering their savings in return for newly issued government debt, which is not backed by hard assets. It is backed only by an aging, shrinking population of taxpayers.

The most worrisome implication of Japan’s increasingly precarious position, particularly in the wake of the 2008 crash and Europe’s ongoing crisis, is that our financial systems appear to be returning to their inherently unstable nature, which plagued the 19th and early 20th centuries. Financial institutions back then were not too big to fail—they were too big to save. Their balance sheets dwarfed most governments’ ability and willingness to provide support.

Through the development of central banks and active fiscal and monetary policy, the rich world has managed to avoid serious depression for seven decades. Yet big finance—which tends to grow ever larger when crises are rare and credit risks seem muted—hides deep political flaws, the costs of which compound over time. Relative to the size of the world economy, global debt markets overall are two to three times their size in 1970.

Computer “Science” doesn’t deal with the issue of humans writing software

In the article titled, Faith, Hope, and Love An essay on software science’s neglect of human factors (PDF) the argument is made that Computer Science is useful as a mathematics tool, but doesn’t deal with the elephant in the room issue of what software techniques help humans write better software.

There is surprising little human factors or industrial psychology style research used to design new computer languages or programming guidelines (eg. object oriented design)

Another article points out that most of the major computer programming languages in use today were not developed by computer science academics.

Kodak got a lot of things right—and still got it wrong

Kodak saw digital photos coming, but didn’t have the guts to kill it’s cash cow film business until it was too late. They did roll out some digital photo products early on, but they didn’t commit the amount of money necessary for product development to compete with the Japanese camera makers. See:

http://spectrum.ieee.org/podcast/at-work/innovation/innovation-is-hard

What caused the wealth gap? (in the US over the past 30+ years)

So it’s not really Wall Street and big banks which are the source of our econmic problems, it’s globalization.

From http://news.salon.com/2011/10/11/what_caused_the_wealth_gap/:

“for most of American society, and certainly for the majority of Americans who don’t have a bachelor’s degree, globalization has meant facing much lower-wage workers abroad and increasingly powerful competitive pressures. So our society began to separate between the “haves” and the “have-nots,” really in the early 1980s.”

And paraphrasing: Ronald Reagan’s solution to the problem (less government), completely missed the point and, in fact, made things worse.

Graphical breakdown of $12.7 trillion added to the national debt over the past 10 years

A section of the graphical table showing what caused the increases in the national debt over the past ten years. Blue sections represent Obama’s policies. Red sections represent Bush policies.

From the WhiteHouse.gov blog Where does our national debt come from :

“Extend and Pretend”: The Severe Ramifications of Wall Street’s Game

If what this author is saying is true, how come no one is screaming about it on the daily news shows:

“Extend and Pretend”: The Severe Ramifications of Wall Street’s Game:

A systematic plan to create the illusion of stability and provide no-risk profits to the mega-Wall Street banks was implemented in early 2009 and continues today. The plan was developed by Ben Bernanke, Hank Paulson, Tim Geithner and the CEOs of the Wall Street banking syndicate. The plan has been enabled by the FASB, SEC, IRS, FDIC and politicians in Washington DC. This master plan has funneled hundreds of billions from taxpayers to the banks that created the greatest financial collapse in world history. The authorities had a choice.

  • In April 2009 the FASB caved in to pressure from the Federal Reserve, Treasury, and Wall Street to suspend mark to market rules, allowing the Wall Street banks to value their loans and derivatives as if they were worth 100% of their book value.
  • The Federal Reserve balance sheet consistently totaled about $900 billion until September 2008. By December 2008, the balance sheet had swollen to $2.2 trillion as the Federal Reserve bought $1.3 trillion of toxic assets from the Wall Street banks, paying 100 cents on the dollar for assets worth 50% of that value.
  • In November 2009 the Federal Reserve and IRS loosened the rules for restructuring commercial loans without triggering tax consequences. Banks were urged to extend loans on properties that had fallen 40% in value as if they were still worth 100% of the loan value.
  • By December 2008 the Federal Reserve had moved their discount rate to 0%. For the last two years, the Wall Street banks have been able to borrow from the Federal Reserve for free and earn a risk-free return of 2%. The Federal Reserve has essentially handed billions of dollars to Wall Street.
  • When it became clear in October 2010 that almost two years of unlimited liquidity being injected into the veins of zombie banks was failing, Ben Bernanke announced a second round of quantitative easing (QE2). He has expanded the Fed balance sheet to $2.6 trillion by injecting $3.5 billion per day into the stock market by buying US Treasury bonds. Bernanke’s stated goal has been to pump up the stock market. While taking credit for driving stock prices higher, he denies any responsibility for the energy and food inflation that is spurring unrest around the world.
  • The Federal Reserve has increased the monetary base by $500 billion in the last three months in a desperate attempt to give the appearance of recovery to a floundering economy.

  • Beginning on December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. The unlimited insurance coverage is available to all depositors, including consumers, businesses, and government entities. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution.

[During the 2008 crash] The FASB changed the [mark to market] rules so that when the market prices were not orderly, or where the bank was forced to sell the asset for regulatory purposes, or where the seller was close to bankruptcy, the bank could ignore the market price and make up one of its own. Essentially the banking syndicate got to have it both ways. It drew all the benefits of mark to market pricing when the markets were heading higher, and it was able to abandon mark to market pricing when markets went down the drain.

Part two of the master cover-up plan has been the extending of commercial real estate loans and pretending that they will eventually be repaid. Billions in commercial loans are in distress right now because tenants are dropping like flies. Rather than writing down the loans, banks are extending the terms of the debt with more interest reserves included so they can continue to classify the loans as “performing.” The reality is that the values of the property behind these loans have fallen 43%. Banks are extending loans that they would never make now, because borrowers are already grossly upside-down.

Extending the length of a loan, changing the terms, and pretending that it will be repaid won’t generate real cash flow or keep the value of the property from declining. US banks hold an estimated $156 billion of souring commercial real-estate loans, according to research firm Trepp LLC. About two-thirds of commercial real-estate loans maturing at banks from now through 2015 are underwater

It should warm your heart to know that financial [institution] profits have amazingly reached their pre-crash highs. All it took was the Federal Reserve taking $1.3 trillion of bad loans off their books, overstating the value of their remaining loans by 40%, borrowing money from the Fed at 0%, relying on the Bernanke Put so their trading operations could gamble without fear of losses, and lastly, pretending their future losses will be lower and relieving their loan loss reserves. The banking industry didn’t need to do any of that stodgy old-school stuff like make loans to small businesses. Extending and pretending is much more profitable.

George Lakoff on how the conservative mind works (poverty represents a lack of discipline)

This article does get to the “losing is for losers” mentality of conservatives. From the article What Conservatives Really Want on the HuffingtonPost.com

“The way to understand the conservative moral system is to consider a strict father family. The father is The Decider, the ultimate moral authority in the family. His authority must not be challenged. His job is to protect the family, to support the family (by winning competitions in the marketplace), and to teach his kids right from wrong by disciplining them physically when they do wrong. The use of force is necessary and required. Only then will children develop the internal discipline to become moral beings. And only with such discipline will they be able to prosper. And what of people who are not prosperous? They don’t have discipline, and without discipline they cannot be moral, so they deserve their poverty. The good people are hence the prosperous people. Helping others takes away their discipline, and hence makes them both unable to prosper on their own and function morally. “

Budget Puzzle: You Fix the Budget

The NYTimes has a fantastic multiple choice style test/puzzle called Budget Puzzle: You Fix the Budget for showing people what realistic choices are required to balance the (government yearly) budget.

Most significantly, the web page shows the tremendous cost of entitlements and military spending, and conversely, the insignificance of other popular budget cutting ideas (like cutting the size of the government)