I dare to plunge into water that is beyond my depth – economics! I would never have, in a million years, chosen economics as my major in college. But over the years I’ve become fascinated by the subject. Why?
If George Carlin, my inspiration for Brain Droppings, thought the biggest pile of bullshit was religion, then economics has to be a very close second. Take the exemplar of economic bullshit, former Federal Reserve Chairman Alan Greenspan – he of “irrational exuberance” – who kept insisting the “invisible hand” of the marketplace would keep our economy from going down the toilet, even as it was going down the toilet. Since Mr. Greenspan was an acolyte of the hair-brained Ayn Rand and her high Priest Milton(Chicago) Friedman, both purveyors of fiscal snake-oil, it was inevitable that his pie-in-the-sky notions would collapse under the weight of reality in the corrupt world of finance.
If we could find the epicenter of the collapse it would probably be in the gambling casino of “Derivatives.” Now here’s where you and I get fuzzy-headed and bleary eyed. it is the genius of the financial cabal of crookery that makes Wall Street’s Three-Card Monte moves so opaque, slathered with oily, arcane lingo as to make your heads spin. We of the great unwashed,to avoid exploding brain cells, rely on brokers and the wizards of financial services to administrate our investments, our 401Ks, our mutual funds, our hard-earned pensions. I regret to say relying on these Wall Street foot soldiers merely delays the inevitable, for they too are deluded by the Emperor’s New Clothes, and lustily lift their voices in hosannas to the Lords of finance.
I sought to understand “Derivatves” – to cut through the gobble-de-gook. One analogy helped to begin my understanding: If I buy a ticket to a baseball game – that’s an investment in the game. If I bet on the outcome – that’s a “Derivative”. So a “Derivative” is a bet, no different than what occurs with your local ‘bookie’. In our financialized society the bet is usually on whether a stock will rise or fall, whether a company will grow or fail. It has to be said that the largest share of these transactions have NO productive value other than to enhance the wealth of the investor. For each dollar in this crap-shoot only about five to ten cents goes to producing something useful. In recent years the astronomical sum of 60 trillion dollars, four times the GDP of the U.S., were bet in the “Derivatives” gambling halls according to Nouriel Roubini in his “Crisis Economics – A Crash Course In The Future Of Finance.” The way to offset or hedge these bets is to purchase insurance known as Credit Default Swaps. “However, unlike the purchaser of an insurance contract, the purchaser of a CDS didn’t have to actually own the asset that was the subject of the bet. Worse, anyone who had placed a bet that someone would default had every incentive to make this happen. Purchasing a CDS was akin to buying homeowners insurance on a house you didn’t actually own – and then trying to set fire to it.”
A side note: If we were to impose a miniscule .02 percent sales tax on such cockamamie financial
transactions we could balance the budget and revive our crumbling social contract with
the working class and the poor.