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Variations on a Theme by Herrington

April 23, 2011

Global finance, as it is practiced today, appears to me to be little more than a legalized Ponzi scheme directed not by a single ruthless mastermind like Bernie Madoff, or even the fabled Ponzi himself, but by an entire industry, as Adam Smith observed, seeking the common goal of economic man “to reap where they have not sown.”

By whatever means available, with the help of lobbyists, campaign contributions, their captured professionals, the economists, and others they seek to sell loans secured by nation/state assets to the gullible and corrupted governments of the nations themselves. Ultimately, these, so-called, secured assets will eventually either run out or underperform and leave the borrowing countries to ultimately default and the banks to fail because of these defaults.

But that really does not matter to the Global Financial Industry. The inevitable catastrophe always is sometime in the future, hopeful the far future where as Keynes wryly observed, “In the long run we all are dead.” Like in most Ponzi schemes, their plan for that inevitable eventuality is based either on the addled psychology of the sneak thief, “I’ll be gone with the goods before the police arrive,” or the sublime insanity of the sociopath, “no problem, I will just persuade them to do it again, and they will.”

What Global Finance is telling governments today is to borrow the money from us, the Global Finance Industry, and invest it. Over time the rate of return on those investments will provide enough money, either through a direct return on the investment or the growth of the economy induced by those investments, to pay back the debts and the profits (interest) to the lenders. Of course, you must pay the fees of the Global Financial Industry up front.

Like all Ponzi schemes they clinch the deal by promising the gullible they can have something for nothing. In this case they promise the governments that they do not have to raise taxes to achieve this economic largess that could benefit everyone. In effect as Steven Herrington put it, they “…prey[s] on government’s obligations to meet the needs of people.” The Huffington Post, May 13, 2010.

Now here is where it gets good. You see Global Finance is remarkable, almost miraculous. It achieves what most Ponzi artists only dream about, a double bind Ponzi scheme. Having obtained the commitment from the gullible representatives of the people, they then turn to many of those same people whose government agreed to borrow money on their behalf, the rich, the frugal and even the middle class and the poor through their collective funds represented by pensions and the like and persuade them to invest in these ‘can’t lose,’ ‘guilt edged’ investments of the very sovereign states the finance industry so assiduously are undermining in pursuit of the huge fees they will earn. We the people, just like our representatives in government, eventually believe the fraudsters’ story, do invest and the Ponzi schemers reap their fees.

Then what happens? They raise the funds from the rest of us (minus their fees) and loan it to the government (taking out more fees in the process). The government pays, and for a while everyone is happy with this economic miracle. Unfortunately, the government’s return on the investment never quite reaches the returns that were promised and the assets that secure the loans, like the country’s full faith and credit which in turn is based in large part on the expected returns on those investments, runs out.

So now what happens? Well, the debtor, you and me through our government, could simply recognize they have been had by unscrupulous hucksters and stop paying the debts. This is what happens in real life. The defrauded then take the errant fraudsters to civil and criminal court and try to sort things out, usually by seizing the fraudsters’ ill-gotten assets and redistributing it among themselves. But that is not possible here. Why, because not only are we the people the debtors through our government, we are also the lenders. Also, if truth be told, many of us are the fraudsters too or at least we work for them or sell to them. What are we to do? Who can rescue us and lead us from this conundrum?

Why, the Global Financial Industry can save us. Yes, these same fraudsters, with the help of their paid mouthpieces, the captured economists, have a solution all ready. It is really simple. Take all that money we tax ourselves to pay directly for things like health care or whatever else we consider required for our general welfare and use it to pay off the debt. But what about those things we still need, like say national defense or oil depletion allowances and the like how can we pay for them if are collective funds are used to pay off the debt? That is simple say the fraudsters, borrow from us agin to pay for them.

As Herrington observed,

“This has become a global socioeconomic hamster treadmill in which no one benefits except the brokers. Eventually the global economic decline this predicts will affect bankers too. They just refuse to see it coming*, like Madoff.” The Huffington Post, May 13, 2010.

* The last refuge of scoundrels is not patriotism, it is in the excuse that no one could see it coming.

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