“In the US and many other countries, the too-big-to-fail banks have become even bigger,” Stiglitz said in an interview overnight in Paris. “The problems are worse than they were in 2007 before the crisis.”

Stiglitz’s views echo those of former Federal Reserve chairman Paul Volcker, who has advised President Barack Obama’s administration to curtail the size of banks, and Bank of Israel Governor Stanley Fischer, who suggested last month that governments may want to discourage financial institutions from growing “excessively.”

A year after the demise of Lehman forced the Treasury Department to spend billions to shore up the financial system, Bank of America’s assets have grown and Citigroup remains intact.

In the UK, Lloyds Banking Group, 43 per cent owned by the government, has taken over the activities of HBOS, and in France BNP Paribas now owns the Belgian and Luxembourg banking assets of insurer Fortis.

While Obama wants to name some banks as “systemically important” and subject them to stricter oversight, his plan wouldn’t force them to shrink or simplify their structure.

Stiglitz said the US government is wary of challenging the financial industry because it is politically difficult, and that he hopes the Group of 20 leaders will cajole the US into tougher action.

G-20 steps

“We aren’t doing anything significant so far, and the banks are pushing back,” he said. “The leaders of the G-20 will make some small steps forward, given the power of the banks” and “any step forward is a move in the right direction.”

G-20 leaders gather next week in Pittsburgh and will consider ways of improving regulation of financial markets and in particular how to set tighter limits on remuneration for market operators.

Under pressure from France and Germany, G-20 finance ministers last week reached a preliminary accord that included proposals to claw-back cash awards and linking compensation more closely to long-term performance.

“It’s an outrage,” especially “in the US where we poured so much money into the banks,” Stiglitz said. “The administration seems very reluctant to do what is necessary. Yes they’ll do something, the question is: Will they do as much as required?”

Global economy

Stiglitz, former chief economist at the World Bank and member of the White House Council of Economic Advisers, said the world economy is “far from being out of the woods” even if it has pulled back from the precipice it teetered on after the collapse of Lehman.

“We’re going into an extended period of weak economy, of economic malaise,” Stiglitz said. The US will “grow but not enough to offset the increase in the population,” he said, adding that “if workers do not have income, it’s very hard to see how the US will generate the demand that the world economy needs.”

The Federal Reserve faces a “quandary” in ending its monetary stimulus programs because doing so may drive up the cost of borrowing for the US government, he said.

“The question then is who is going to finance the US government,” Stiglitz said.

Sydney Morning Herald

According to the World Bank, world-wide wealth to the tune of $34 trillion has now been wiped out in the latest phase of destruction. This means that, if you believe its chief economist, Justin Lin, we have some way to go before the orgy ends.

Twelve months ago, in the summer of 2008, in a Renegade Economist documentary – http://www.youtube.com/watch?v=1nttuh8oHYw&feature=channel_page – We forecast that the wipeout of wealth would reach $45 trillion.

Carry on Crushing

According to Lin, the World Bank’s first Chinese official to serve as chief economist, the West should accelerate the destruction of its capital base.

 ”Excess capacity has built up and unless this issue is addressed, we will face a deflationary spiral,” he warns. The West, apparently, should demolish more factories, adjusting the industrial base to accommodate economic reality.

But here’s the problem: if China continues to invest in capital formation (which it is doing), and if China’s labour costs remain lower than the wages paid to western workers, the trade balance between East and West will continue to be lopsided in favour of Mr Lin’s homeland. So how do we stop the downward spiral?

China has an advantage over the West: its command control in Beijing is determined to boost growth even as the West continues its toboggan ride into depression. At the last count, China was growing at an annual rate of 7.9%, and rising.

Eastern Promise

What if the West accepts Mr Lin’s advice, and demolishes more of its manufacturing capacity? Disgruntled French workers apparently find this strategy appealing, as a negotiating tactic: workforces are now rigging factories with gas canisters, to blow up the capital equipment if they do not receive improved redundancy pay-offs.

But if we carry on crushing the West’s industrial base, the ratio between the West and the East’s capacity would have to be adjusted on a continuous basis, until everything that we consumed was Made in China.

Do we have to allow the Chinese to specify the terms for the next business cycle? No! The appropriate tax reform would reduce western labour costs (without reducing living standards), while raising incentives to invest in the innovative firms that could lead the West out of depression. Instead, conventional economic wisdom urges us to accelerate the destruction of capital. It seems that our forecast – the wipeout of $45 trillion worth of wealth – will be realised in 2010.

 Was that a laugh, I heard, as I last strolled past Marx’s mausoleum in Hampstead?

Monetary policy, the regulatory agencies concede, is insufficient to prevent asset price bubbles. So a second tool is needed. But what should that be? Don’t ask the Treasury, because they don’t know. If they did, we wouldn’t be enduring the worst economic crisis since the Depression of the 1930s.

How About an Inquest?

 Following the massacre in the markets, the bodies are strewn all around as evidence that something went terribly wrong. Economists failed to alert governments of the impending collapse in the financial sector. And yet, curiously, there has been no forensic examination of the tools employed by forecasters to explain their failure.

In the US, 13,000 people apparently earn their living “doing” economics. That’s according to Professor Robert Samuelson, son of the Nobel prize winner Paul A. Samuelson. He finds it “intriguing” that most economists failed to predict the financial crisis. There is no compelling explanation for this failure, writes Samuelson in The Washington Post (July 6). Because “economists have not engaged in rigorous self criticism to explain their lapse”.

There is nothing mysterious about the unwillingness to scrutinise their failure. The answer is simple. Economics is not practiced as a science. Rather, it is a pretentious way to covertly promote political prejudices. The last thing that economists need is an inquest. But that leaves the UK Treasury mute about the “macro-prudential” tools needed to prevent the next property boom/bust.

They Protest Too Much

Economists love shouting about the failures of others to disguise what they don’t know. Take the case of Paul Krugman, whose competence is such as to apparently warrant a Nobel prize. In a New York Times column (July 3) he admonishes the Obama administration for an inadequate fiscal stimulus programme to cope with a shortfall in jobs of about 8.5m.

Krugman does confess that “as an economist, I’d add that many members of my profession are playing a distinctly unhelpful role. It has been a rude shock to see so many economists with good reputations recycling old fallacies”.

But can we trust Krugman to add up simple numbers? He takes exception to the manipulation of employment figures, but his over-priced textbook on economics claims that the rent of land in the US is just 1% of national income.  Since it’s probably more like 33%, we need to treat the pronouncements of people like Krugman with a pinch of salt.

Camouflaging the Root Cause

No government in the world has shown the slightest inclination to highlight the root cause of the financial crisis. The incentives to create credit on a reckless scale are located in the land market. Ever since the early 17^th century, governments have held enquiries into financial crises following savage bouts of land speculation . Despite all the agonising, however, not once did they remove the rewards to prevent such episodes recurring.

This time, the rush over the financial precipice started in the US. There, bankers had found yet another way to milk the land market. They targeted low income black neighbourhoods with  high-cost/high-risk mortgages, knowing (so clever were they) that they would not bear the risk. Those risks would be sold to mugs like pensioners whose funds would buy the securitised mortgages.

Twisting and turning the bank regulations after this last episode will not prevent the bankers inventing new ways to milk the land market towards the end of the next business cycle that begins in 2010. That’s why the UK’s White Paper on financial regulation isn’t worth the paper on which it is written.

According to Andy Haldane, the Bank of England’s financial stability director, there remain many “unanswered questions”. That’s the clever economist’s way of distracting us from the fact that the coroner has yet to ask the right questions.

http://www.guardian.co.uk/business/2009/jun/21/business-confidence-survey-kpmg

A survey of UK business leaders advised The Guardian they see signs the recession is leveling off if not any time soon coming to an end. The Guardian reports that one in three firms are experiencing financial difficulties. Many are likely to fail if global and domestic demand continues to fall, and demand will fall unless employment increases.

The survey reported that “one in four businesses have seen their banking relationship worsen”. Bankers have had to tighten credit criteria, increase reserves for loan losses and deal with continuing increases in defaults and foreclosures.

Recently, the UK’s National Institute of Economic and Social Research (NIESR) reported that the UK economy resumed growth in April and May. And,  Martin Weale, director of NIESR, reported that GDP figures should indicate the downturn has ended “or that it is close to over”.

One problem with government forecasts based on GDP (Gross Domestic Product) is that what goes into the GDP figure has little to do with measurement of real economic growth. Virtually every amount spent by the government goes into the GDP calculation, regardless of what the money is spent or whether raised by taxation, borrowing or monetary expansion.

Here is the spreadsheet for the 2007/8 claims –  interesting reading.

No-one at Renegade Economist HQ realised that it was so expensive to live in Falkirk – Scotland.

The power really has shifted – we the public now understand that politicians are a colossal distraction.

We must to take up the agenda – that’s within the rules.

Download the file here and give us your thoughts.

By understanding the pattern that individuals follow, the progress of a culture or a nation becomes predictable, and the stage that they have reached is identifiable by certain known characteristics. Those who study the evolutionary consciousness of humanity all over the world, have developed countless maps and models of the evolutionary journey, from simple easy to understand three stage models to complex ones of 15 or more stages. When they are superimposed over one another, they show a consistent sequential pattern.

One of these models, a four stage one devised by Kohlberg and Gilligan, labels Egocentric as the lowest level, followed by Ethnocentric, then Worldcentric and finally Kosmocentric. The other more complex models provide more detail, but I am intentionally keeping it simple here. This model can be described as showing the size of the person’s consciousness or what the person includes in his or her field of care. A recent study suggested that some 77% of the world population is currently Ethnocentric or below.

This Ethnocentric stage is characterised by tribal orientation, nationalism, rivalries, adolescent behaviours, and the like. Let us consider now the responses made by the bankers and the politicians to media and public criticism. They were very similar.

• The claim that “Everything I did was within the rules.”
• An inability to recognise that what they did was ethically or morally wrong.
• The excuse that “I made a mistake”, but the mistakes were all to their own benefit.
• An almost pathological inability to take responsibility, and to say “I am sorry”.

 Anyone who has a teenage son will recognize these adolescent traits; however, when one is under 25 such behaviour is to be expected as an acceptable phase in growing up. Above 30 or so, and especially if one is a banker or a politician with power over many, such behaviours are not only unattractive, unacceptable, and inexcusable, they are positively dangerous. Why have the media not picked this up and pointed it out?

Introducing tighter regulations for bankers or politicians does not raise their level of maturity, morality or their ethics, it just limits what they can get away with. No, it is the type of people, the Ethnocentrics themselves, that have to go. Worldcentric people by definition and by their nature would not have abused the old regulations, let alone need new ones. Anyone below Worldcentric on the “chart” should not be selected or elected into positions of leadership in politics or big corporations, not just banks. Fewer people would fit the bill and that would limit our choice, and so it should.

The second of the two issues was the failure of commentators to seriously question the capitalist economic system that has proved to be so fragile and unjust. It has brought wealth to half the world while the rest starve; it thrives on excess consumption and the inevitable emissions, and it seriously retards the evolutionary development of individuals and cultures. Bankers and politicians alike strive to prop up the old failing system which they abused, because they know no better.

It did not occur to them that this was a golden opportunity to start to create a viable, sustainable economic system in line with the requirements of emerging Worldcentric human consciousness stage. Putting off the inevitable only makes the next economic crisis bigger and sooner. Worldcentric observers are amazed, distraught by the primitive ethnocentric thinking of our politicians and bankers, but they are up against the power that they still exercise.  

However there is also a groundswell of more conscious or ‘worldcentric’ people who will no longer tolerate the old order and they will become ever more vociferous until the ethnocentric majority of politicians are discredited, ousted and replaced. Some commentators will reread if not resurrect Karl Marx, but the way is forward not backwards. A new economic order is essential, one that puts people and planet before profit.

So why have these two core issues been bypassed? Because few can contemplate the demise of capitalism and so they retreat into a state of denial, and few so called leaders can face the fact that despite their profile and in some cases their cleverness, their behaviour is adolescent. They have no knowledge of the evolutionary imperative that determines our future and ultimately our survival, let alone any understanding of it, or are guided by it. Why not? Because our schooling has tragically failed many generations now by ducking evolution, in simple terms, it omits the development of emotional intelligence followed by wisdom. Instead schools have been obliged to promote quantitative technowledge to meet commercial goals. The result is a gross excess of designed obsolescent material gadgets, goods, guns and emissions, and an absence of the wisdom to use our innovative ability responsibly for the collective benefit of mankind.

Are Worldcentric politicians and bankers too much to ask for? Many conscious people are waiting in the wings for this adolescent lot to get out or grow up. Worldcentric people are described as having “a greater expansion of self to embrace all people regardless of race, gender, class, or creed; social activism, moral relativism, rationality that questions rigid belief systems and transcends traditional rules and roles”, and so on. Kosmocentric ones would be better still. They “identify with all life and consciousness, human or otherwise, have a deeply felt responsibility for the evolutionary process as a whole, and have an innate universal morality”, amongst other things. This is, after all, what we need if we are to overcome further economic crises and the even greater environmental and social justice crises that are on the way.

And so, cleverly manipulating the politicians, the banks are disposing of their victims – the suckers who took on mortgages they couldn’t afford – and shifting worthless assets on to a new batch of suckers (taxpayers). Prognosis: a new, lean banking machine ready to cash in on the glorious opportunities over the next business cycle.

This is not the authorised version, of course, but the ability to control the way the public perceives the problem is part of the crisis management skills that are fostered by what we might call the logic of our economic system.

Spilling the Beans

Sometimes, the beans are spilt, of course, like the revelations by Mark Patterson. He is chairman of the company that is supposed to be pioneering the joint public-private bank rescues in America. Because he was speaking to a forum of investors in a far-flung corner of the Persian Gulf, Patterson thought it safe to offer the insider’s account of the US government’s strategy. But someone recorded his words and this is how they were reported in the Daily Telegraph (May 14):

“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40% of the money but get little of the equity upside. It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn of the $700bn Troubled Asset Relief Programme [TARP] funds.”

Much the same rip-off is operating in London, of course, where the authorities are pumping in money to rescue banks by protecting the financiers and socialising the losses. A few sacrificial lambs are offered, of course, but the golden handshakes handed out do much to soften the blows. Meanwhile, the money-printing pump-priming operation run by the Bank of England is enabling banks to rebuild their capital base, leaving the inflationary consequences (like the erosion of the buying power of wages) to somebody else.

Playing by the Rules

There is nothing illegal about these scams. Governments and the bankers are playing by the rules. Those rules were calculated to produce the boom, the busts and the managed recovery back to business-as-usual. So milking the taxpayer to protect the financial sector is not corrupt: it’s the name of the game.

Britain’s parliamentarians affirmed this logic over the past two weeks. They used their so-called expenses to lavishly appoint their homes and, in some cases, to make capital gains out of the sale of properties which they bought in part with the money received from taxpayers. It was all done according to the rules. Some MPs were reimbursed for the interest payments on mortgages that did not exist.

Let’s be honest. Members of the public who are outraged at the way their MPs milked their expenses to enhance the value of their properties were happy to pocket the something-for-nothing value that miraculously attached itself to their homes over the past 10 years. Few questioned the ethics of this way of getting rich. It all came out of “the rules”.

Digging up the Foundations

What passes for diagnosis – explaining the global economic crisis – is no more than navel-gazing. Discussions around “the future of capitalism” carefully avoid challenging the rules that direct people into ethically corrupt behaviour. Just about everyone now has a vested interest in protecting the system – meaning, the rules of the game.

Economics lacks the forensic archaeologists who are needed to excavate the foundations for a critical look at what, exactly, is corroding the social super-structure. Given the geo-political realities now in place, this can mean one thing only – violent times ahead.

The tactic of claiming ignorance is surely wearing thin and we must keep asking these probing questions in order to force those in power to take responsibility for their actions so we can all move forward to world with self awareness and social responsibility at its core.

Watch it here