Timeline/Stages for Collapse of our Way of Life

From Investorrzo (it belongs on this thread):

In Confronting Collapse, author Michael C. Ruppert, a former LAPD narcotics officer turned investigative journalist, details the intricate connections between money and energy, including the ways in which oil shortages and price spikes triggered the economic crash that began in September 2008. Given the 96 percent correlation between economic growth and greenhouse gas emissions and the unlikelihood of economic growth without a spike in energy use, Ruppert argues that we are not, in fact, on the verge of economic recovery, but on the verge of complete collapse.

http://www.financialsensenewshour.com/br...

[Moderator's note: AGW doesn't belong here.]

Mike,

You understand, of course, that you're risking the wrath of the moderators by posting something about climate change, even though it is inextricably linked to fossil fuel energy.  I wrote a response, but on second thought have decided to wait to see whether your post is condemned to CT isolation.  Thanks for the post anyway, this stuff is important.

Doug

Doug,

     I am told we are going to be hearing a lot more about "geo-engineering" which surely is another futile attempt in Industrial Civilization's short-term, linear-thinking of trying to solve a manmade problem with further technoscience fixes.

Remember this guy??

Hank Paulson: Blame Crisis on FHA/GSEs

Hank Paulson, the criminally inept Treasury Secretary who shoveled trillions of taxpayer dollars to insolvent banks, facilitated the grand theft of some near $20 billion dollars from AIG by Goldman Sachs (where he was previously CEO), is attempting to change the narrative of the credit crisis and collapse.

In today’s Washington Post piece, Paulson ignores facts, rewrites history, and fabricates causes of the economic collapse:

“A significant root cause of the crisis was the combined weight of government policies promoting homeownership; these are apparent in the housing GSEs, the Federal Housing Administration (FHA), the Federal Home Loan Banks, the federal tax deduction for mortgage interest and various state programs. Homeownership was overstimulated to the point that it was unsustainable and dangerous to the broader economy.”

Let us point out a small problem with Paulson’s rewrite: Throughout the 20th century, interest rates were kept in a realistic range, at least relative to economic growth, by bond traders and the Fed.

At the same time, bank lending standards were based upon historically well founded measures: The borrowers ability to service the debt. Factors that impacted this involved such quaint notions as income, employment history, credit score, other debt obligations, and assets. Further, home loans were based on specific Loan to Value — LTV — meaning that a substantial down payment was actually required. And last, legitimate appraisals were performed at the behest of banks that actually kept these loans on their books for 10 or 20 years — not 30 days.

None of this finds its way into Paulson’s assessment of the causal factors.

How about Alan Greenspan? That is a major systemic risk at the root of the crisis. Greenpan’s tenure as Fed chair was one of irresponsibility and recklessness. His Federal Reserve’s generational low rates set the housing spiral into motion originally. Somehow, Paulson did not see fit to so much as mention Greenspan or the Federal Reserve at all.

Despite repeated warnings by some Fed members, Greenspan directed the Fed to commit nonfeasance — to fail to fulfill its obligation as regulator of lenders. They allowed a proliferation of irresponsible, non-bank subprime mortgage underwriters, who abdicated any and all lending standards. If you really want to find the root causes of the crisis, you begin there. Just don’t look for any mention of subprime lending in Paulson’s commentary. Just as astonishingly, Paulson fails to so much as mention the Federal Reserve’s ultra low rates.

Other things somehow missing from the Paulson commentary? How about the word “derivatives?” Perhaps that might have been a factor? Misaligned Wall Street compensation? Excess Leverage of investment houses? The Repeal of Glass Steagall? The Federal Pre-emption of state lending rules? 

Don’t bother looking for any of these either . . . they were not deigned worthy by the former Gioldman Sachs CEO, and are thus omitted from his discussion as well.

Perhaps the former US Treasury Secretary can explain how the world had a global housing boom and bust — countries not covered by the FHA or GSEs. How did THAT happen? Indeed, the boom and bust in the US was smaller than that of many other nations. And the FHA/GSE role in that? Perhaps the former Treasury Secretary can explain the root causes of that.

Paulson oversaw the greatest transfer of wealth in the history of mankind — from taxpayers to insolvent banks and their bondholders. His commentary is thinly veiled attempt to rewrite what actually occurred, and to shift his own sad role from conductor of the theft, to hapless victim of long standing government policy.

If this exercise wasn’t such a transparent attempt at self-exoneration, it would be amusing, Instead, it is merely pathetic.

Paulson’s book on the crisis is “On the Brink.” It should be titled “Too Much to Drink.”

>

Source:
Housing policy must be set on sustainable basis
Hank Paulson
Washington Post, July 30, 2010

http://www.washingtonpost.com/wp-dyn/con...

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pschaeffer Says:

Mr. Ritholtz,

I yield to no one in my disdain for Paulson and his errors of omission and commission as Secretary of the Treasury. However, even a stopped clock is right twice a day. The reality is that Federal housing policy did play a role in subprime / housing / Wall Street disaster. The key phrase here is ’some role’. Did the banksters, (mis) rating agencies, (non) regulators, Greenspan, etc. play a role as well? Of course, they did and they should be held fully accountable. However, that doesn’t eliminate the role of public policy in promoting home ownership on behalf of NINJAs.

Since I am not likely to convince anyone, please consider the words of Raghuram Rajan, former Chief Economist of the IMF. Back in 2005, RR gave a paper anticipating the financial crisis at a conference in Jackson Hole. His reward for his prescience was the somewhat overt hostility of his peers. Indeed Krugman (who did not share the group think mindset) has apologized for how RR was treated.

RR hasn’t gained the fame and notoriety of Nouriel Roubini for being ahead of the curve. However, he has written a book, Fault Lines, outlining the origins of the financial crisis. He emphatically states that housing policy did indeed help to create the environment that led to the financial crisis. The following is from a Q&A over at “Predicting the Financial Crisis: A Q&A With Fault Lines Author Raghuram Rajan” (http://nyti.ms/bpOTwt).

“Q.

Income inequality has been on the rise in the U.S. for some time, but it’s not often identified as a contributor to the financial crisis. What’s the link between income inequality and the crisis? What kind of reforms would you suggest to address this problem?

A.

The housing boom and bust was at the center of the crisis. This was an atypical boom and bust in that the up-and-down movement of house prices for the poorest people was much more than the movement for people at the top. Why did the “greedy” bankers suddenly develop a social conscience and start lending to poor people? The answer is that they were guided to lending to the poor by the money directed into low-income housing, much as sharks are drawn to blood. And why did so much money flow to the low-income housing? Because the government was trying to solve a deeper problem — growing income inequality.”

 

There is a broader point here. Everyone needs to stop trying to see the financial crisis as a consequence of “one thing”.

Was public policy at fault? Of course, it was. Why was Bush so intent on promoting the housing bubble? Because he wanted Hispanics to feel that they were joining the American dream without paying them a decent wage? No doubt that is part of the truth.

Why were bankers so greedy and reckless? Because a generation of financial stability, successful bailouts (LTCM), and the "Greenspan put" had made them feel invulnerable? Because tax policy had become progressively (poor word choice) more favorable to high income individuals for 50 years? No doubt that is part of the truth.

Why were interest rates so low? Because economic recovery was slow and halting after the tech bubble burst and 9-11? Because the ever rising tide of imported goods was decimating much of the U.S. economy and some offset mechanism was needed? No doubt that is part of the truth.

Why were interest rates so low (second edition)? Because trade imbalances were giving China, Japan, and a few other countries vast surpluses that they had to invest abroad? Money that pushed down interest rates in the U.S.? Money that arithmetically had to be borrowed by someone at subprime consumers conveniently and profitably fit the bill? No doubt that is part of the truth.

The point is that many forces - trade deficits, greed, deregulation, housing policy, TBTF, etc. came together to create the crisis. We are not going to able to fix this unless we recognize that many things, not just one, went seriously wrong.

"The point is that many forces - trade deficits, greed, deregulation, housing policy, TBTF, etc. came together to create the crisis. We are not going to able to fix this unless we recognize that many things, not just one, went seriously wrong."

And you could add Peak Oil to that list. The world will soon be going on an energy diet, while the power elite keep on bingeing at our expense.

I'm sure we will. Rather than going to the root of the problem they come up with a technical fix which will, of course, have some unintended consequences that will need further fixing, etc. etc. It is a complete mystery to me why our gov't has not gone on an all out conservation binge. That is really the only way in any kind of reasonable time frame that we can cut consumption of ff and reduce emissions at the same time. Oh, but don't worry, I'm sure they'll come up with a technical fix for that.

Doug

Goes 211,

    You might find this enlightening. I did.

...

The Five Deadly Incentives of Dog-Eat-Dog Economics

What explains that failure? In a complex economy, the ruthless drive to profit and win at all costs becomes divorced from value-added gains in the real world. Instead of sustainably creating and disseminating genuine wealth–tradable goods and services, improved products, better information access–cutthroat conditions encourage shortcuts and destructive behavior, a far cry from the constructive fruits of co-opetition. In the recent real-estate bubble, complex financial instruments like CDOs were prized for demonstrating how extreme free-market banking could expand social goods, like homeownership. In the wake of the bubble’s popping, however, we can see that such hypercompetitive, unregulated markets–and the expansion of homeownership they facilitated–worked only in the short term, and were destined for collapse in the long run.

Fundamentally, the cachet of the cutthroat fosters all the wrong incentives, and without regulatory networks and transparency to manage such raw capitalistic impulses–which Adam Smith himself underscored–five deadly incentives are reinforced. First, it rewards unscrupulous behavior. Social Darwinism encourages an all’s-fair outlook in which backstabbing, exploitation, and outright chicanery are perversely promoted, as demonstrated in fiascoes like Enron, Tyco, and the Madoff scandal. If shady misrepresentation of assets and quasi-legal bilking of customers can yield rapid profits, then more constructive paths are bypassed.

Second, such laissez-faire market fundamentalism too easily equates profits to generated wealth, ignoring the fact that a company can rake in enormous profits for itself without actually contributing real goods and services. While some investment banks in the 1990s did help underwrite the risk-filled rise of productive high-tech startups, virtually the entire industry chose a path of lesser resistance after Glass-Steagall’s repeal in 1999, namely the toxic derivatives that even now threaten global finances. Other examples abound: Far too many health insurers make obscene profits (with outlandish executive salaries) by denying care rather than providing actual services. Sallie Mae, the now-private student loan firm, profits enormously as it saddles struggling graduates with usurious interest, contributing little to the real economy. Not all profits are equal, but in a system of survival of the fittest, any profits will do.

Social Darwinist systems also stifle dissent, constructive criticism, and creative thinking by subordinates. In a cutthroat workplace, even those who calmly report obvious design flaws (or supply constructive criticism) are penalized, because they disrupt the quick rollout of short-term-profit-maximizing products. As John Schwartz reported in a landmark New York Times article in 2002, in the wake of Enron’s collapse, the trading giant had used an infamous "rank and yank" system to periodically purge even high-performing employees, based on those employees’ opposition to company policy. Candid reporting of impending perils was disastrously impeded.

Fourth, it commoditizes human beings, with ruinous effects on morale. "Chainsaw" Al Dunlap, the notorious CEO of Sunbeam in the late 1990s, became a ruthless icon during perhaps the zenith of the cachet of the cutthroat in the United States (which the journalist John Byrne, in his post-mortem on Dunlap’s disastrous tenure, called "the Era of Profit-at-Any-Price"). He took particular zeal in mass layoffs of long-contributing workers at firms that he dubbed, in his book Mean Business, "more welfare state than business enterprise," for which he was initially rewarded. But the loss of institutional know-how and declining morale led to an accumulation of blunders and ultimately financial disaster for the company, after thousands of lives had been ruined.

And finally, it promotes short-termism, the most pernicious and deadly incentive. Social Darwinism compels an obsession with easily quantifiable, immediate metrics of success that miss the big picture of an institution and economy’s overall viability; in so doing, it also isolates competing individuals from supposedly "fuzzier" yet important considerations of the broader public good. Capital markets reflect only a limited stock of an industry’s relevant information. For example, clear-cutting an ancient forest (for development or timber-harvesting) would be rewarded in an "efficient market" for yielding quick profits, while ignoring less-quantifiable damages (to the local ecology, or to new medicinal sources) that would far outweigh the initial gains. Without prudent regulatory bodies or forward-looking social policies, companies face demands to "win" immediate approval at the expense of a region or industry’s long-term sustainability.

The ravages of short-termism were illustrated with sobering clarity in a forum from late 2009 at the Harvard Business Review, titled "Is the U.S. Killing Its Innovation Machine?" Featuring nearly two dozen accomplished panelists, including ex-CEOs and brilliant innovators and wealth-generators like Pixar co-founder Ed Catmull, the forum noted that U.S. high-tech companies–driven by unflinching demands for rapid cost-cutting–have outsourced even sophisticated, high-end processes, so much so that entire sectors of engineering and computer science effectively lack home-grown expertise. Bright undergraduates increasingly shun these fields, given the incurred student debt; the disappearance of a high-tech career ladder exacerbates the problem. As Catmull emphasized, maintaining leadership in technology, manufacturing, and innovation requires precisely the sort of long-term investments–in basic R&D and in trained professionals–that cannot be easily quantified on a balance sheet. They also yield shared dividends for an entire industry which do not obviously redound to a particular competitor, and so they effectively contradict the five deadly incentives.

The resulting erosion of American scientific leadership is especially alarming. Once the top oil producer, the United States no longer enjoys the historical cushion of abundant natural resources and widespread manufacturing (despite a much higher population), fonts of wealth that aided many a recovery in the nineteenth and twentieth centuries and substantially underpinned our sense of American exceptionalism. (The UK suffers a parallel quandary, with the decline of its North Sea oilfields and the loss of its manufacturing base since the Thatcher years.) With the additional loss of value-added high-tech jobs–driven by the ruthless cost-cutting and short-termism of eat-or-be-eaten market pressures–we lack wealth-producing industries that can help break the structural deflationary spiral of the Great Recession, losing the network of technical expertise that Gary Pisano and Willy Shih dubbed "the industrial commons."

Basic research in the public sector and academia–the wellspring for rich high-tech industries like the Internet and biotech–will not save us either. Cutthroat conditions have also arisen in the realm of scientific grant funding, albeit unintentionally as a result of budgetary constraints. Between ten and twenty percent of grant applications receive funding from sources like the NIH and NSF (among an already highly selected group of professionals). Far from generating a "tougher" and more creative breed of researcher, capable of handling the competition, these circumstances discourage the risky and creative proposals that have made the United States a technological leader. Other scientific centers, in China, Germany, and Japan are increasingly overtaking U.S. leadership in these critical fields.

Unfortunately, these downward trends are masked by Americans’ tendency to frame complex issues as simplistic ideological battles, pitting the needs of business and wealth creation against human rights and oversight. To regulate or not to regulate? Ensure health care and subsidize college tuition, or leave people to their own devices? Yet compassion and competitiveness can go hand in hand. Scandinavian countries–mostly resource-poor nations with high social investment and progressive taxation–illustrate this perhaps most cogently, ranking highly in per-capita GDP, business competitiveness, and high-tech production. Likewise, Germany–with similar policies and resource scarcity–has retained its manufacturing strength and rivals China as the top exporter, despite having barely 5 percent of the latter’s population. Critics may correctly note apples-and-oranges discrepancies between Europe and the United States, but as proof of principle, their carefully managed mixed systems are quite competitive in unquestionably value-added domains.

For these countries, carefully regulated capital markets and tax credits–which discourage short-term thinking and promote professional development, ecological sustainability, and high-tech job creation–incentivize scientific innovation, R&D, and their societies’ general fund of knowledge. Ensuring reliable health care removes the time-consuming and costly burden of coverage from both business owners and employees in an uncertain economy, freeing up their talents for creativity and job creation. Subsidizing college tuition for capable students, enabling them to graduate debt-free, protects them from the suffocating onus of snowballing loan obligations merely to acquire essential training, thereby helping them to start businesses and acquire valuable experience....

What Darwin Didn't Mean

Joe Bageant is featured in a documentary film now in production, titled "The Kingdom of Survival", scheduled for release in November. Others in the film are Noam Chomsky, Mark Mirabello, Ramsey Kanaan, Sasha Lilley, Mike Oehler, Bob Meisenbach, and Will "The Bull" Taylor.

Writer and filmmaker M. A. Littler describes his film as a search for visions that challenge the status quo. "This is an interdisciplanary documentary combining speculative travelogue and investigative journalism in order to trace possible links between survivalism, spirituality, art, radical politics, outlaw culture, alternative media and fringe philosophy," he said.

"Contrary to the popular approach of trying to summon arguments that legitimize a pre-conceived point of view, I sought out contrary opinions ranging from the far left to the far right of the political spectrum, from the spiritual to the strictly secular and from the profound to the profane," Littler said.

"The Kingdom of Survival" circles through themes of utopianism, globalized capitalism, anarchism, intellectual and spiritual self-defense, religion and art in an investigation of physical and psychological survival strategies practiced by groups and individuals in a conflict-ridden and confused post-modern world. The film is a production of Slowboat Films .

-- Ken Smith

 

After publishing my previous report 'Eating ourselves out of a home,' I came across this chilling prediction from Professor Frank Fenner, Professor Emeritus of microbiology at Australian National University; the human race, and most of the natural world, will be extinct within 100 years due to human overpopulation.

Professor Fenner is the man who helped eradicate smallpox. According to Our Compass, Fenner told The Australian Newspaper that the human race will be unable to survive a population explosion and ‘unbridled consumption.’

The original story appears in Our Compass, and shared through the site Care2. A portion of the news story is quoted below:
 

Fenner told The Australian newspaper that ‘homo sapiens will become extinct, perhaps within 100 years.’

‘A lot of other animals will, too,’ he added.

‘It’s an irreversible situation. I think it’s too late. I try not to express that because people are trying to do something, but they keep putting it off.’

Since humans entered an unofficial scientific period known as the Anthropocene – the time since industrialisation – we have had an effect on the planet that rivals any ice age or comet impact, he said.

Fenner, 95, has won awards for his work in helping eradicate the variola virus that causes smallpox and has written or co-written 22 books.

He announced the eradication of the disease to the World Health Assembly in 1980 and it is still regarded as one of the World Health Organisation’s greatest achievements.

He was also heavily involved in helping to control Australia’s myxomatosis problem in rabbits.

Last year official UN figures estimated that the world’s population is currently 6.8 billion. It is predicted to exceed seven billion by the end of 2011.

Fenner blames the onset of climate change for the human race’s imminent demise.

He said: ‘We’ll undergo the same fate as the people on Easter Island.

‘Climate change is just at the very beginning. But we’re seeing remarkable changes in the weather already.’

‘The Aborigines showed that without science and the production of carbon dioxide and global warming, they could survive for 40,000 or 50,000 years.

‘But the world can’t. The human species is likely to go the same way as many of the species that we’ve seen disappear.’

There seems to be a global awakening as to the dire situation we've gotten ourselves into. I pray that this perceived global awakening is real and that everyone will now be motivated to take action to protect the future of our planet, all its precious life forms, and our children.

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Overpopulation, global warming, and overconsumption are all big worries, to be sure. But a century seems like an awfully short time for us to literally all die out. Then again, with over 7 billion of us expected to be sustaining ourselves on the same planet by the end of next year, it might not be as unreasonable as it sounds. Below is a chart showing global population through history:

Humanity Going Extinct - Frank Fenner Gives Us 100 Years 

Ponzi Demography:

Mike,

I wish I could say I found this enlightening but I really did not.  It is interesting that the author choose to call that section "dog-eat-dog economics" with its clear reference to Ayn Rand's Atlas Shrugged. Although I like a lot of Rand's underlying individualistic philosophy, I find her personally to be a seriously flawed individual and several of her beliefs to be arrogant and somewhat distasteful ( love of gold/money and hatred of religion ).

The 5 points the author brings up are kind of a mess and I don't think flow together very well.  For example the third point and about "stifling dissent" is fairly true of most systems.  The example he gives is actually quite silly because if a problem is found early enough to "disrupt the quick rollout of short-term-profit-maximizing products", it may very well be better for the companies long term viability than rolling out a sub par product for the quick buck.  This is very much related to point 5 about being to short term focused. 

Capitalism requires a balance between short term and long term focus.  If you ignore the short term, you very well might not be around for the long term.  It is a difficult balance, but the companies that do it well should be rewarded and the companies that do it poorly need to pay the consequences.  Unfortunately it has not been like that for a long time and the governments reaction to the 2008 crisis was just the most outrageous example of how the system is broken.  Why do so many of today's youth act irresponsible, live at home until well after adulthood, and yet act so entitled to everything that they have.  Its because the previous generation bailed them out and allowed them to live that way.  What is happening to that generation is happening on a larger scale to the whole country.

I have very little sympathy for the fourth point about commoditizing human beings.  As long as the relationship is not exploitive or coercive, companies should be free to hire/fire who they please.  Why should GM pay $40/hr for unskilled line work when there are thousands equally qualified that would love to have that job for 1/2 the price?  When did a job become property that you can own?  If you own the job, you can do what you want with it which clearly won't lead to high productivity.  I am sorry but I believe that the business owner is the owner of the jobs, not the employee.  To think otherwise, you must believe in some sort of Marxian utopia that completely ignores the unintended consequences of such a system.

What exactly is co-opetition and who is the final arbiter of where that line is drawn?  Do you really think that there is someone or some group of people that can fairly look at these problems and claim they only have the good of the community in mind?  I propose that everyone from progressives to free market capitalists, will look at a problem and see it quite differently.  Everyone, including our so-called leaders, have a bias that will be included in their decision process. 

What justification do these leaders have to rule over us?  I know I was never asked or gave consent.  Right now 62% of the population feels that the Federal Government does not have the consent of the governed.  That is tyranny by any definition yet it seems that you may want the state to lord over us even more and tell us what we can and cannot do socially and economically?  I think that would be quite dreadful.

My feelings on capitalism can be easily summed up as individuals with freedom to voluntarily trade their property.  The details of this are far less simple because property is not quite so easy to define and the state effectively wants to have some control over most transactions via taxes, regulation, legal tender, ...  For me the most valid criticism of capitalism is how it treats externalities.  You are correct that there are many hidden costs in much of the globalized trade which is not captured but instead exploited with the current system.  Without a doubt a poorly structured regulatory system can do as much harm as good as we are witnessing today.  A good capitalistic system must capture externalities and have legal and regulatory system that is simple, fair, and applied equally as a basic starting point.  The government in such a system must must operate transparently.  None of these are the case today.

At least for me, the sovereign individual is key.  I find most collectivist beliefs to be somewhat offensive.  This is not because I believe that it should be every man for himself, but because I believe that the only real community worth having is one where people voluntarily join together without coercion.