Genghis Khan the GREEN: Invader killed so many people that carbon levels plummeted

Moved to: SQSwans: Julia Pongratz: Genghis Khan the GREEN: Invader killed so many people that carbon levels plummeted.

Living on a Lifeboat: What repression keeps us from discussing something as important?

Living on a lifeboat

Garrett Hardin | Garrett Hardin Society | 1974

This article appeared in BioScience, vol 24(10), pp. 561-568 and in The Social Contract, Fall 2001 issue. Currently available in Stalking the Wild Taboo.

Susanne Langer (1942) has shown that it is probably impossible to approach an unsolved problem save through the door of metaphor. Later, attempting to meet the demands of rigor, we may achieve some success in cleansing theory of metaphor, though our success is limited if we are unable to avoid using common language, which is shot through and through with fossil metaphors. (I count no less than five in the preceding two sentences.)

Since metaphorical thinking is inescapable it is pointless merely to weep about our human limitations. We must learn to live with them, to understand them, and to control them. "All of us," said George Eliot in Middlemarch, "get our thoughts entangled in metaphors, and act fatally on the strength of them". To avoid unconscious suicide we are well advised to pit one metaphor against another. From the interplay of competitive metaphors, thoroughly developed, we may come closer to metaphor-free solutions to our problems.

No generation has viewed the problem of the survival of the human species as seriously as we have. Inevitably, we have entered this world of concern through the door of metaphor. Environmentalists have emphasized the image of the earth as a spaceship -Spaceship Earth. Kenneth Boulding (1966) is the principal architect of this metaphor. It is time, he says, that we replace the wasteful "cowboy economy" of the past with the frugal "spaceship economy" required for continued survival in the limited world we now see ours to be. The metaphor is notably useful in justifying pollution control measures.

US Naval Services Long-Term Study: Global Tipping Points on Food, Water, Energy, Pollution, Population, & Natural Resources & Population Explosion...

US Naval Services Long-Term Study: Global Tipping Points on Food, Water, Energy, Pollution, Population, & Natural Resources & Population Explosion...

State of the Worlds Future: According to a long-term study just released by the U.S. Naval Services Department, a series of tipping points could dramatically alter the global prospects for economic growth and humanity — for the worse.

Right now, for instance, fully half the world is vulnerable to social instability resulting from rising food and energy prices, lack of water, failing state governments, and pollution.

The Population Explosion: The Most Powerful Force on Earth: The population explosion is beyond control. It has emerged as the single most powerful, immutable force on Earth, driving geopolitical change, stimulating economic growth and generating global inflation. Ultimately, it is the most persistent but least understood factor underlying virtually everything weve been warning you about here in Money and Markets: It is behind food prices ..... It is behind the cycle of debt...... It is behind a new crisis in the Persian Gulf..... It is behind Peak Oil ...... This is just a small sampling of the massive scope and overpowering momentum of the population explosion. And what weve told you about in Money and Markets is just a sneak preview of its consequences...... At some point in the not-too-distant future, this explosion in population, consumption, and the exhaustion of scarce resources will inevitably collide with limits to growth. Brazil, China, India, the United States and most of the worlds economies will reach a breaking point beyond which further acceleration is virtually impossible. Prices will be so high, and incomes so low, that the demand for goods will plunge. Governments will fall. Economies will collapse. Thats when you will see the other side of the parabolic growth curve. Thats when you will see deflation.

State of the World's Future

Larry Edelson | MoneyandMarkets | 14 August 2008

According to a long-term study just released by the U.S. Naval Services Department, a series of tipping points could dramatically alter the global prospects for economic growth and humanity — for the worse.

Right now, for instance, fully half the world is vulnerable to social instability resulting from rising food and energy prices, lack of water, failing state governments, and pollution.

102 countries are at risk of chaos. 46 countries, comprising 2.7 BILLION people, are at risk of armed conflict with lack of adequate natural resources as the root cause for many of them. Another 56 countries, with 1.2 billion people, are at risk of severe social instability.

1996: US Army War College: Parameters: The Culture of Future Conflict: Overpopulation & Resource Scarcity will be the Direct Cause of Confrontation, Conflict, and War

Moved to: * SQ Swans: Hardin & Peters: We Have Met the Enemy; It is Us: Food Aid to Enable Our own Colonisation by Immigration; * US Army War College: Parameters: 1995-96: The Culture of Future Conflict: Overpopulation & Resource Scarcity will be the Direct Cause of Confrontation, Conflict, and War

EcoFeminists Deep Green Ecology Indigenous Rights Application Filed in Norway v. Breivik Supreme Court

EcoFeminists Deep Green Ecology Indigenous Rights Application Filed in Norway v. Breivik Supreme Court

EcoFeminist is a Jus Sanguinis Indigenous European | EcoFeminists Jus Sanguinis Settler Progenitor/s traveled to South Africa as ‘settler’ farmers, soldiers, medical personnel, religious and political administrators, in response to, and as a result of, their Nations Geopolitical ‘Colonial Empire’ Decision-making policies, to find only the Bushman, as indigenous natives | ‘Colonial Empire’ actions were motivated by their decision thousands of years ago to give up their sustainable hunter gatherer / agrarian policies founded upon the Law of Limited Competition, and instead to adopt unsustainable Totalitarian Agriculture policies.

Andrea Muhrrteyn | 10 May 2012 | Norway v. Breivik

A Deep Green Ecology Indigenous Rights application has been filed in the Norway Supreme Court by an African EcoFeminist member of the Radical Honesty culture. The application includes the UN Special Rapporter on Indigenous Rights, James Anyana (http://unsr.jamesanaya.org/) as one of the respondents.

The Norway Supreme Court are asked to approve the African EcoFeminist Applicant to be admitted to the Norway v. Breivik matter as a Jus Sanguinis Radical Honoursty African EcoFeminist White Refugee Applicant.

If approved, the EcoFeminist Amicus Curiae written submissions would (a) address alternative legal arguments to those of both the Prosecution and Defense, i.e. from a Problem Solving Radical Transparency EcoFeminists perspective as opposed to the Prosecution & Defense’s Parasite Leeching Masculine (Reason and Logic) Insecurity Patriarchal perspectives; (b) ‘argue points deemed too far reaching for emphasis by parties intent on winning their particular Parasite Leeching Masculine Insecurity case’ ; (c) ‘apprise the court of Problem Solving Radical Transparency EcoFeminists legal, social, economic, ecological and cultural enquiry implications for its consideration’ to allow the court to base its decision on a larger, more comprehensive, and more accurate reality based natural law deep green ecology legal framework.

The EcoFeminist applicant states that she is a Jus Sanguinis (Right of Blood) descendant of Norwegian artillery officer and citizen: Johan Pieter FÜRSTENBERG, who was born about 1760 in Bergen, Norway and then emigrated to South Africa.

The EcoFeminist applicant states that she is an Indigenous European, because she is Jus Sanguinis (Right of Blood) directly descended from Norwegian, French, Dutch, British and German Settler Progenitor/s who traveled to South Africa as ‘settler’ farmers, soldiers, medical personnel, religious and political administrators, in response to, and as a result of, their Nations Geopolitical ‘Colonial Empire’ Decision-making policies, to find only the Bushman, as indigenous natives.

The EcoFeminist Application states that her predecessors ‘Colonial Empire’ actions were motivated by their decision thousands of years ago to give up their sustainable hunter gatherer / agrarian policies founded upon the Law of Limited Competition, and instead to adopt unsustainable Totalitarian Agriculture policies.

Pentti Linkola: Can Life Prevail?: A Radical Approach to the Environmental Crisis

Pentti Linkola: Can Life Prevail?: A Radical Approach to the Environmental Crisis

Diord Fionn | Ireland First

“If there were a button I could press [to radically reduce world population], I would sacrifice myself without hesitating, if it meant millions of people would die.” - Pentti Linkola, Wall Street Journal Europe, May 1994

“A minority can never have any other effective means to influence the course of matters but through the use of violence.”

“Any dictatorship would be better than modern democracy. There cannot be so incompetent dictator, that he would show more stupidity than a majority of the people. Best dictatorship would be one where lots of heads would roll and government would prevent any economical growth.”

“Foreign affairs: All mass immigration and most of import-export trade must stop. Cross-border travel is allowed only for small numbers of diplomats and correspondents.”

“Science and schooling: Education will concentrate on practical skills. All competition is rooted out. Technological research is reduced to the extreme minimum. But every child will learn how to clean a fish in a way that only the big shiny bones are left over.”

“By decimating its woodlands, Finland has created the grounds for prosperity. We can now thank prosperity for bringing us – among other things – two million cars, millions of glaring, grey-black electronic entertainment boxes, and many unnecessary buildings to cover the green earth. Wealth and surplus money have led to financial gambling and rampant social injustice, whereby ‘the common people’ end up contributing to the construction of golf courses, classy hotels, and holiday resorts, while fattening Swiss bank accounts. Besides, the people of wealthy countries are the most frustrated, unemployed, unhappy, suicidal, sedentary, worthless and aimless people in history. What a miserable exchange.” – Pentti Linkola

Linkola is one of the few voices who advocates:

1. No immigration
2. Downsize population
3. Kill defectives
4. Stop rampant technology

In the eyes of the most credible sources, planet Earth can sustain a half-billion humans without any sizable destruction of our habitat, or any loss in species or stability of our ecosystem. Any numbers higher than that, no matter how much they recycle, will cause environmental chaos. The modern leftist-tinged environmental movement is terrified of telling anyone that they cannot breed and keep buying whatever strikes their fancy, but someone must do this in the future. The sooner we do it, the fewer people in the future will be left without a means of sustenance and thus require termination.

As Linkola himself has said, "We still have a chance to be cruel. But if we are not cruel today, all is lost."

Paul Ehrlich (Population Time Bomb): 7 Steps Toward a Sustainable Society | The Dominant Animal & The State of the World

The ancient saying, "The rich get richer, and the poor get children," has more wisdom in it than does the demographic transition theory.

The moral is surely obvious: never globalize a problem if it can possibly be solved locally. It may be chic but it is not wise to tack the adjective global onto the names of problems that are merely widespread -- for example, "global hunger," "global poverty," and the global population problem."

We will make no progress with population problems, which are a root cause of both hunger and poverty, until we deglobalize them. Populations, like potholes, are produced locally, and, unlike atmospheric pollution, remain local unless some people are so unwise as to globalize them by permitting population excesses to migrate into the better-endowed countries. Marx's formula, "to each according to his needs" is a recipe for national suicide.

We are not faced with a single global population problem but, rather, with about 180 separate national population problems. All population controls must be applied locally; local governments are the agents best prepared to choose local means. Means must fit local traditions. For one nation to attempt to impose its ethical principles on another is to violate national sovereignty and endanger international peace. The only legitimate demand that nations can make on one another is this: "Don't try to solve your population problem by exporting your excess people to us." All nations should take this position, and most do. Unfortunately, many Americans seem to believe that our nation can solve everyone else's population problems.
~ The Feast of Malthus: Living within Limits | There is No Global Population Problem!? ~

Seven Steps Toward a Sustainable Society

Paul Ehlrich | Island Press: Eco-Compass

A central problem of the human predicament discussed in The Dominant Animal: Human Evolution and the Environment is that we’re small-group animals trying to live in ever more gigantic groups - and not doing very well at it. If catastrophe can be avoided, we’re stuck with gigantic groups for a century or more, and very large groups “forever.” It therefore behooves humanity to start asking itself how to maintain the small group coherence and interests that make people comfortable while greatly damping down intergroup competition and substantially enhancing the intergroup cooperation desperately needed to solve the human predicament.

Can human cultural evolution be directed away from its current trajectory toward disaster and diverted toward creating a prosperous and equitable long-term future for society? The answer is, “yes, it could” if the small-group animal “family” attitudes can be properly channeled. The basic requirements would be quite simple - a set of overlapping and intertwined ethical-environmental steps toward sustainability such as suggested below and over the next few weeks here at the “Eco-Compass” blog. Whether such steps will be taken is, of course, an entirely different question. But here’s the first of the steps we should take:


One: Put births on a par with deaths.

Human beings have always fought against early death from accident, hunger and sickness, and in the past century or so have employed improved sanitation and the use of pesticides and antibiotics to good effect in raising life-expectancy. But given the horrendous potential consequences of the explosion of human numbers following reduction of the death rate, we must pay equivalent attention to reducing the birthrate as well. As been done in many family planning programs, the happy family should be promoted as one that limits its numbers. But the change should be in the motivation. Traditionally the small family was supposed to supply a higher standard of living - including more stuff for each individual. The new approach could be to promote it as a multigenerational unit that in each generation limits its size in order to maximize the chances of each following generations retaining a happy, sustainable life style.

To move in that direction, humanity must rapidly expand programs to educate and give job opportunities to women, make effective contraception universally available, and develop public support of population policies. The goal must be to halt population increase as soon as humanely possible, and then start reducing human numbers until births and deaths balance at population size that can be maintained without irreparable damage to our life-support systems.


Two: Put conserving on a par with consuming.

At any given level of technology, there is a trade-off between how many people can be born into a society and the level of per capita physical affluence that can be sustainably supported. The more people there are, the smaller each one’s share of the pie.

One way of dealing with this trade-off would be a cultural shift away from creating ever more gadgets to creating more appreciation and better stewardship for Earth’s aesthetic assets. A high priority should be rethinking how we use the resources available to us - as individuals and societies - manage manufactured and natural capital (our ecological assets) carefully, and distribute their benefits more equitably. Success there, if it were combined with a decline in numbers, should eventually permit most people to live satisfactory lives. Of course, success would require abandoning the insane idea that growth in consumption is automatically good and can continue forever, No physical quantity can do that, including the total bulk of the human population (which at recent exponential growth rates would equal the total mass of the universe in less than 10,000 years).


Three: Transform the consumption of education.

Education is what economists call a “non-rival good” - something that can be consumed without reducing the amount available to others-and as such it is an ideal consumption good for a sustainable society. More quality education could help us solve the human predicament - the combined crises of overpopulation, wasteful consumption, deteriorating life-support systems, declining resources, multiplying weapons of mass destruction, and widening inequity within and between nations. Education reform is also crucial. In the future, both the need for sustainability and the multi-dimensional environmental, social, political, and economic requirements to achieve it must be central elements of education around the world. Unless a much larger fraction of the human population becomes aware of the predicament we all face and its possible solutions, sustainability is unlikely to be reached.

There exists today what I like to call a “culture gap.” When I lived with the Inuit (Eskimos) more than a half century ago every Inuit individual possessed the vast majority of the non-genetic information (culture) available to the Inuit community. Women knew how seal hunting was done; men knew the use of a woman’s knife. Perhaps a shaman had a few secret chants, but in general everyone was “fully educated.” In our global society that has changed completely. Even the most educated people do not possess even one millionth of the non-genetic information housed in human brains, libraries, computer disks, arts, and artifacts. Given the parts, I could not begin to assemble the computer on which I am writing this. How many readers of this blog could explain quantum physics or ecosystem science, or recite the poems of Shakespeare? There is a huge gap between what society knows collectively, and what people know individually. We obviously cannot close the culture gap across the board, but we could narrow it selectively. In short, we must strive to narrow the culture gap in the most crucial areas related to reaching sustainability..


Four: Judge technologies not just on what they do for people but also to people and their life-support systems.

A novel synthetic chemical added to the plastic in a sports bottle may increase its durability or prolong its life. But if it leaches into the bottle’s contents or into the environment and functions in tiny doses as a cancer-causing agent, is the risk worth the benefit? In general, benefit-cost analyses are not done frequently or carefully enough before the introduction of new technologies. Freons (chlorofluorocarbons) looked extremely beneficial until it was discovered they could destroy the ozone layer and with it all life on land. Risk cannot be avoided completely. But a cultural change toward more careful analyses and deployment only of technologies that carry very clear benefits will help humanity keep the odds in its favor. It is an example of where the small group alone just can’t produce the necessary cultural evolution - information from the large-group institutions of governments and international science necessarily must be integrated into the process.


Five: Rapidly expand our empathy.

We’re a small-group animal, trying to live in large groups. Although we no longer can associate exclusively with a clan “family” of, say, 125 relatives, most of us have a group of “pseudokin”—friends and close associates of about the same number. In both cases, we develop a sort of “we” versus “them” culture, with the “themness” increasing with physical and cultural distance.

People are gradually gaining more empathy toward those others distant from us in skin color, gender, religion, class, culture or physical space, but our ability to inflict harm on them has also increased. Cultural evolution is not rapidly enough reducing this discounting by distance (caring less about situations the further away they are). The same can be said about discounting by time—not caring enough about the world we will leave to our children and our descendants in the more distant future. Can affluent people in the West learn to care enough about a starving child in Darfur to take real action to save her? If society takes step five, the answer will be “yes,” and we’ll be on the kind of road that could lead to a level of global cooperation that might allow a billion, perhaps three billion small-group animals to live together sustainably in relative peace.


Six: Decide what kind of world we all want.

What are the ultimate goals of our lives? Are Americans really happier traveling to work an hour or more each day wrapped in a few tons of steel and breathing smog that threatens their lives?

While the U.S. GDP has increased almost five times since 1958, satisfaction, as shown by polls, has not increased at all. The situation in other countries is similar. Must all nations then strive to emulate the American superconsuming life style? Or should all of humanity strive together to seek a more equitable global society, which could replace today’s bipolar super-rich—desperately poor population in which the split widens as growth continues. We could initiate a Millennium Assessment of Human Behavior (MAHB) to begin a discussion of what economic, social, and political systems will best fulfill a small-group animal’s desires as it struggles to live in gigantic groups. How, for example, do we take advantage of the enormous benefits that market mechanisms provide to societies while constraining their propensity to do gigantic damage when unregulated? Starting and maintaining a global cultural discussion is a step that would help determine the kinds of lifestyles people really want., Armed with that knowledge, we could try to establish as accurately as possible the conditions of population size, consumption patterns, economic arrangements, and technologies required to make such lifestyles sustainable.


Seven: Determine the institutions and arrangements best suited to govern a planetary society with a maximum of freedom within the constraints of sustainability.

This is closely related to step six. In the 200,000 year history of Homo sapiens, states are a recent invention, existing for only a tiny fraction of our existence. In their modern form as nation states, they are only a little more than 200 years old. We need to look closely at possible alternatives that could combine greater awareness of the problems of living at a global scale while regaining family-style psychological comfort. More cooperation at a global level is clearly necessary for civilization’s long-term survival.

All seven of the steps could be written of as an exercise in Pollyannaism. “Totally impractical,” people will say, “not gonna happen.” Well, I tend to agree. But there is nothing more impractical than letting our global civilization go down the drain, with billions of people dying. Pundits seem to think we have choices, but they are wrong. If we don’t change our ways, they’ll be changed for us.

Paul R. Ehrlich is Bing Professor of Population Studies and Professor of Biological Sciences at Stanford University. He is the author of hundreds of scientific papers, and numerous books including The Population Bomb and Betrayal of Science and Reason (Island Press, 1997). His latest book is The Dominant Animal: Human Evolution and the Environment, which he co-authored with his wife Anne.

Source: Island Press: Eco-Compass

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The Dominant Animal and The State of the World

According to Paul Ehlrich | ForaTV (01:28:38)

Paul Ehrlich gives a seminar at the Long Now Foundation about the evolution of human culture and its effect on the environment. A perspective of the State of the World, from ecologists, biologists, etc.

Chapters: [chapter link goes directly to Fora.tv page & chapter]
Human Dominance of Earth | Early Human Evolution | Cultural Evolution | Big Cultural Steps | Human Effects on Environment | Population | Global Climate Change | Toxification of Earth | Epidemic Problems | Resource Wars | Changing Human Behaviour | Drilling for Oil | Questions

Source: Fora.TV

American Stonehenge: Monumental Instructions for the Post-Apocalypse || A Population Clock, Calendar and Compass Guidestone

French Riddle of the Lily Pond: In this riddle, the lily pond has a potentially virulent lily that apparently will double in size each day. If the lily grows unchecked it will cover the entire pond in 30 days, choking off all other forms of life in the water by the time it covers the entire pond. If a skeptic waited until 50% of the pond was covered before taking any remedial action to save the pond, when would he act? The answer: on the 29th day of the month! But by then, it would be too late.
~ Revisiting The Limits to Growth: Could The Club of Rome Have Been Correct, After All?, Matthew Simmons; CEO - Simmons & Co. ~

If each human family were dependent only on its own resources; if the children of improvident parents starved to death; if thus, over breeding brought its own "punishment" to the germ line -- then there would be no public interest in controlling the breeding of families. But our society is deeply committed to the welfare state, and hence is confronted with another aspect of the tragedy of the commons.
In a welfare state, how shall we deal with the family, the religion, the race, or the class (or indeed any distinguishable and cohesive group) that adopts over breeding as a policy to secure its own aggrandizement? To couple the concept of freedom to breed with the belief that everyone born has an equal right to the commons is to lock the world into a tragic course of action.
~ Killing Times: The Killing Times are Here || Depopulate or Perish || Tragedy of the Commons ~

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American Stonehenge: Monumental Instructions for the Post-Apocalypse

By Randall Sullivan 04.20.09 | Wired

The strangest monument in America looms over a barren knoll in northeastern Georgia. Five massive slabs of polished granite rise out of the earth in a star pattern. The rocks are each 16 feet tall, with four of them weighing more than 20 tons apiece. Together they support a 25,000-pound capstone. Approaching the edifice, it's hard not to think immediately of England's Stonehenge or possibly the ominous monolith from 2001: A Space Odyssey. Built in 1980, these pale gray rocks are quietly awaiting the end of the world as we know it.

Called the Georgia Guidestones, the monument is a mystery—nobody knows exactly who commissioned it or why. The only clues to its origin are on a nearby plaque on the ground—which gives the dimensions and explains a series of intricate notches and holes that correspond to the movements of the sun and stars—and the "guides" themselves, directives carved into the rocks. These instructions appear in eight languages ranging from English to Swahili and reflect a peculiar New Age ideology. Some are vaguely eugenic (guide reproduction wisely—improving fitness and diversity); others prescribe standard-issue hippie mysticism (prize truth—beauty—love—seeking harmony with the infinite).

What's most widely agreed upon—based on the evidence available—is that the Guidestones are meant to instruct the dazed survivors of some impending apocalypse as they attempt to reconstitute civilization. Not everyone is comfortable with this notion. A few days before I visited, the stones had been splattered with polyurethane and spray-painted with graffiti, including slogans like "Death to the new world order." This defacement was the first serious act of vandalism in the Guidestones' history, but it was hardly the first objection to their existence. In fact, for more than three decades this uncanny structure in the heart of the Bible Belt has been generating responses that range from enchantment to horror. Supporters (notable among them Yoko Ono) have praised the messages as a stirring call to rational thinking, akin to Thomas Paine's The Age of Reason. Opponents have attacked them as the Ten Commandments of the Antichrist.

Whoever the anonymous architects of the Guidestones were, they knew what they were doing: The monument is a highly engineered structure that flawlessly tracks the sun. It also manages to engender endless fascination, thanks to a carefully orchestrated aura of mystery. And the stones have attracted plenty of devotees to defend against folks who would like them destroyed. Clearly, whoever had the monument placed here understood one thing very well: People prize what they don't understand at least as much as what they do.

The story of the Georgia Guidestones began on a Friday afternoon in June 1979, when an elegant gray-haired gentleman showed up in Elbert County, made his way to the offices of Elberton Granite Finishing, and introduced himself as Robert C. Christian. He claimed to represent "a small group of loyal Americans" who had been planning the installation of an unusually large and complex stone monument. Christian had come to Elberton—the county seat and the granite capital of the world—because he believed its quarries produced the finest stone on the planet.

Joe Fendley, Elberton Granite's president, nodded absently, distracted by the rush to complete his weekly payroll. But when Christian began to describe the monument he had in mind, Fendley stopped what he was doing. Not only was the man asking for stones larger than any that had been quarried in the county, he also wanted them cut, finished, and assembled into some kind of enormous astronomical instrument.

What in the world would it be for? Fendley asked. Christian explained that the structure he had in mind would serve as a compass, calendar, and clock. It would also need to be engraved with a set of guides written in eight of the world's major languages. And it had to be capable of withstanding the most catastrophic events, so that the shattered remnants of humanity would be able to use those guides to reestablish a better civilization than the one that was about to destroy itself.

Monumental Precision

Built to survive the apocalypse, the Georgia Guidestones are not merely instructions for the future—the massive granite slabs also function as a clock, calendar, and compass.

1. The monument sits at the highest point in Elbert County and is oriented to track the sun's east-west migration year-round.

2. On an equinox or solstice, visitors who stand at the west side of the "mail slot" are positioned to see the sun rise on the horizon.

3. An eye-level hole drilled into the center support stone allows stargazers on the south side to locate Polaris, the North Star.

4. A 7/8-inch hole drilled through the capstone focuses a sunbeam on the center column and at noon pinpoints the day of the year.

Fendley is now deceased, but shortly after the Guidestones went up, an Atlanta television reporter asked what he was thinking when he first heard Christian's plan. "I was thinking, 'I got a nut in here now. How am I going get him out?'" Fendley said. He attempted to discourage the man by quoting him a price several times higher than for any project commissioned there before. The job would require special tools, heavy equipment, and paid consultants, Fendley explained. But Christian merely nodded and asked how long it would take. Fendley didn't rightly know—six months, at least. He wouldn't be able to even consider such an undertaking, he added, until he knew it could be paid for. When Christian asked whether there was a banker in town he considered trustworthy, Fendley saw his chance to unload the strange man and sent him to look for Wyatt Martin, president of the Granite City Bank. The tall and courtly Martin—the only man in Elberton besides Fendley known to have met R. C. Christian face-to-face—is now 78. "Fendley called me and said, 'A kook over here wants some kind of crazy monument,'" Martin says. "But when this fella showed up he was wearing a very nice, expensive suit, which made me take him a little more seriously. And he was well-spoken, obviously an educated person." Martin was naturally taken aback when the man told him straight out that R. C. Christian was a pseudonym. He added that his group had been planning this secretly for 20 years and wanted to remain anonymous forever. "And when he told me what it was he and this group wanted to do, I just about fell over," Martin says. "I told him, 'I believe you'd be just as well off to take the money and throw it out in the street into the gutters.' He just sort of looked at me and shook his head, like he felt kinda sorry for me, and said, 'You don't understand.'" Martin led Christian down the street to the town square, where the city had commissioned a towering Bicentennial Memorial Fountain, which included a ring of 13 granite panels, each roughly 2 by 3 feet, signifying the original colonies. "I told him that was about the biggest project ever undertaken around here, and it was nothing compared to what he was talking about," Martin says. "That didn't seem to bother him at all." Promising to return on Monday, the man went off to charter a plane and spend the weekend scouting locations from the air. "By then I half believed him," Martin says. When Christian came back to the bank Monday, Martin explained that he could not proceed unless he could verify the man's true identity and "get some assurance you can pay for this thing." Eventually, the two negotiated an agreement: Christian would reveal his real name on the condition that Martin promise to serve as his sole intermediary, sign a confidentiality agreement pledging never to disclose the information to another living soul, and agree to destroy all documents and records related to the project when it was finished. "He said he was going to send the money from different banks across the country," Martin says, "because he wanted to make sure it couldn't be traced. He made it clear that he was very serious about secrecy." Before leaving town, Christian met again with Fendley and presented the contractor with a shoe box containing a wooden model of the monument he wanted, plus 10 or so pages of detailed specifications. Fendley accepted the model and instructions but remained skeptical until Martin phoned the following Friday to say he had just received a $10,000 deposit. After that, Fendley stopped questioning and started working. "My daddy loved a challenge," says Fendley's daughter, Melissa Fendley Caruso, "and he said this was the most challenging project in the history of Elbert County."

Construction of the Guidestones got under way later that summer. Fendley's company lovingly documented the progress of the work in hundreds of photographs. Jackhammers were used to gouge 114 feet into the rock at Pyramid Quarry, searching for hunks of granite big enough to yield the final stones. Fendley and his crew held their breath when the first 28-ton slab was lifted to the surface, wondering if their derricks would buckle under the weight. A special burner (essentially a narrowly focused rocket motor used to cut and finish large blocks of granite) was trucked to Elberton to clean and size the stones, and a pair of master stonecutters was hired to smooth them. Fendley and Martin helped Christian find a suitable site for the Guidestones in Elbert County: a flat-topped hill rising above the pastures of the Double 7 Farms, with vistas in all directions. For $5,000, owner Wayne Mullinex signed over a 5-acre plot. In addition to the payment, Christian granted lifetime cattle-grazing rights to Mullinex and his children, and Mullinex's construction company got to lay the foundation for the Guidestones. With the purchase of the land, the Guidestones' future was set. Christian said good-bye to Fendley at the granite company office, adding, "You'll never see me again." Christian then turned and walked out the door—without so much as a handshake. From then on, Christian communicated solely through Martin, writing a few weeks later to ask that ownership of the land and monument be transferred to Elbert County, which still holds it. Christian reasoned that civic pride would protect it over time. "All of Mr. Christian's correspondence came from different cities around the country," Martin says. "He never sent anything from the same place twice."

The astrological specifications for the Guidestones were so complex that Fendley had to retain the services of an astronomer from the University of Georgia to help implement the design. The four outer stones were to be oriented based on the limits of the sun's yearly migration. The center column needed two precisely calibrated features: a hole through which the North Star would be visible at all times, and a slot that was to align with the position of the rising sun during the solstices and equinoxes. The principal component of the capstone was a 7\8-inch aperture through which a beam of sunlight would pass at noon each day, shining on the center stone to indicate the day of the year. The main feature of the monument, though, would be the 10 dictates carved into both faces of the outer stones, in eight languages: English, Spanish, Russian, Chinese, Arabic, Hebrew, Hindi, and Swahili. A mission statement of sorts (let these be guidestones to an age of reason) was also to be engraved on the sides of the capstone in Egyptian hieroglyphics, classical Greek, Sanskrit, and Babylonian cuneiform. The United Nations provided some of the translations (including those for the dead languages), which were stenciled onto the stones and etched with a sandblaster. By early 1980, a bulldozer was scraping the Double 7 hilltop to bedrock, where five granite slabs serving as a foundation were laid out in a paddle-wheel design. A 100-foot-tall crane was used to lift the stones into place. Each of the outer rocks was 16 feet 4 inches high, 6 feet 6 inches wide, and 1 foot 7 inches thick. The center column was the same (except only half the width), and the capstone measured 9 feet 8 inches long, 6 feet 6 inches wide, and 1 foot 7 inches thick. Including the foundation stones, the monument's total weight was almost 240,000 pounds. Covered with sheets of black plastic in preparation for an unveiling on the vernal equinox, the Guidestones towered over the cattle that continued to graze beneath it at the approach of winter's end. The monument ignited controversy before it was even finished. The first rumor began among members of the Elberton Granite Association, jealous of the attention being showered on one of their own: Fendley was behind the whole thing, they said, aided by his friend Martin, the banker. The gossip became so poisonous that the two men agreed to take a lie detector test at the Elberton Civic Center. 

The scandal withered when The Elberton Star reported that they had both passed convincingly, but the publicity brought a new wave of complaints. As word of what was being inscribed spread, Martin recalls, even people he considered friends asked him why he was doing the devil's work. A local minister, James Travenstead, predicted that "occult groups" would flock to the Guidestones, warning that "someday a sacrifice will take place here." Those inclined to agree were hardly discouraged by Charlie Clamp, the sandblaster charged with carving each of the 4,000-plus characters on the stones: During the hundreds of hours he spent etching the guides, Clamp said, he had been constantly distracted by "strange music and disjointed voices."

The unveiling on March 22, 1980, was a community celebration. Congressmember Doug Barnard, whose district contained Elberton, addressed a crowd of 400 that flowed down the hillside and included television news crews from Atlanta. Soon Joe Fendley was the most famous Elbertonian since Daniel Tucker, the 18th-century minister memorialized in the folk song "Old Dan Tucker." Bounded by the Savannah and Broad rivers but miles from the nearest interstate—"as rural as rural can be," in the words of current Star publisher Gary Jones—Elberton was suddenly a tourist destination, with visitors from all over the world showing up to see the Guidestones. "We'd have people from Japan and China and India and everywhere wanting to go up and see the monument," Martin says. And Fendley's boast that he had "put Elberton on the map" was affirmed literally in spring 2005, when National Geographic Traveler listed the Guidestones as a feature in its Geotourism MapGuide to Appalachia. But many who read what was written on the stones were unsettled. Guide number one was, of course, the real stopper: maintain humanity under 500,000,000 in perpetual balance with nature. There were already 4.5 billion people on the planet, meaning eight out of nine had to go (today it would be closer to 12 out of 13). This instruction was echoed and expanded by tenet number two: guide reproduction wisely—improving fitness and diversity. It didn't take a great deal of imagination to draw an analogy to the practices of, among others, the Nazis. Guide number three instructed readers to unite humanity with a living new language. This sent a shiver up the spine of local ministers who knew that the Book of Revelations warned of a common tongue and a one-world government as the accomplishments of the Antichrist. Guide number four—rule passion—faith—tradition—and all things with tempered reason—was similarly threatening to Christians committed to the primacy of faith over all. The last six guides were homiletic by comparison. protect people and nations with fair laws and just courts. let all nations rule internally resolving external disputes in a world court. avoid petty laws and useless officials. balance personal rights with social duties. prize truth—beauty—love—seeking harmony with the infinite. be not a cancer on the earth—leave room for nature—leave room for nature. Even as locals debated the relative merits of these commandments, the dire predictions of Travenstead seemed to be coming true. 

Within a few months, a coven of witches from Atlanta adopted the Guidestones as their home away from home, making weekend pilgrimages to Elberton to stage various pagan rites ("dancing and chanting and all that kind of thing," Martin says) and at least one warlock-witch marriage ceremony. No humans were sacrificed on the altar of the stones, but there are rumors that several chickens were beheaded. A 1981 article in the monthly magazine UFO Report cited Naunie Batchelder (identified in the story as "a noted Atlanta psychic") as predicting that the true purpose of the guides would be revealed "within the next 30 years." Viewed from directly overhead, the Guidestones formed an X, the piece in UFO Report observed, making for a perfect landing site. Visitors kept coming, but after several failed investigations into the identity of R. C. Christian, the media lost interest. Curiosity flared again briefly in 1993, when Yoko Ono contributed a track called "Georgia Stone" to a tribute album for avant-garde composer John Cage, with Ono chanting the 10th and final guide nearly verbatim: "Be not a cancer on Earth—leave room for nature—leave room for nature." A decade later, however, when comedienne Roseanne Barr tried to work a bit on the Guidestones into her comeback tour, nobody seemed to care. Christian kept in touch with Martin, writing the banker so regularly that they became pen pals. Occasionally, Christian would call from a pay phone at the Atlanta airport to say he was in the area, and the two would rendezvous for dinner in the college town of Athens, a 40-mile drive west of Elberton. By this time, Martin no longer questioned Christian's secrecy. The older man had successfully deflected Martin's curiosity when the two first met, by quoting Henry James' observations of Stonehenge: "You may put a hundred questions to these rough-hewn giants as they bend in grim contemplation of their fallen companions, but your curiosity falls dead in the vast sunny stillness that enshrouds them." Christian "never would tell me a thing about this group he belonged to," Martin says. The banker received his last letter from Christian right around the time of the 9/11 terrorist attacks and assumes the man—who would have been in his mid-eighties—has since passed away.

The mysterious story of R. C. Christian and the absence of information about the true meaning of the Guidestones was bound to become an irresistible draw for conspiracy theorists and "investigators" of all kinds. Not surprisingly, three decades later there is no shortage of observers rushing to fill the void with all sorts of explanations. Among them is an activist named Mark Dice, author of a book called The Resistance Manifesto. In 2005, Dice (who was using a pseudonym of his own—"John Conner"—appropriated from the Terminator franchise's main character) began to demand that the Guidestones be "smashed into a million pieces." He claims that the monument has "a deep Satanic origin," a stance that has earned him plenty of coverage, both in print and on the Web. According to Dice, Christian was a high-ranking member of "a Luciferian secret society" at the forefront of the New World Order. "The elite are planning to develop successful life-extension technology in the next few decades that will nearly stop the aging process," Dice says, "and they fear that with the current population of Earth so high, the masses will be using resources that the elite want for themselves. The Guidestones are the New World Order's Ten Commandments. They're also a way for the elite to get a laugh at the expense of the uninformed masses, as their agenda stands as clear as day and the zombies don't even notice it." Ironically, Dice's message has mainly produced greater publicity for the Guidestones. This, in turn, has brought fresh visitors to the monument and made Elbert County officials even less inclined to remove the area's only major tourist attraction. Phyllis Brooks, who runs the Elbert County Chamber of Commerce, pronounced herself aghast last November when the Guidestones were attacked by vandals for the first time ever. While Dice denies any involvement in the assault, he seems to have inspired it: Spray-painted on the stones were messages like "Jesus will beat u satanist" and "No one world government." Other defacements asserted that the Council on Foreign Relations is "ran by the devil," that the 9/11 attacks were an inside job, and that President Obama is a Muslim. The vandals also splashed the Guidestones with polyurethane, which is much more difficult to remove than paint. Despite the graffiti's alignment with his views, Dice says he disapproves of the acts. "A lot of people were glad such a thing happened and saw it as standing up against the New World Order," Dice says, "while others who are unhappy with the stones saw the actions as counterproductive and inappropriate." Martin winces every time he hears Dice's "Luciferian secret society" take on the Guidestones. But while he disagrees, he also admits that he doesn't know for sure. "All I can tell you is that Mr. Christian always seemed a very decent and sincere fella to me."

Dice, of course, is far from the only person with a theory about the Guidestones. Jay Weidner, a former Seattle radio commentator turned erudite conspiracy hunter, has heavily invested time and energy into one of the most popular hypotheses. He argues that Christian and his associates were Rosicrucians, followers of the Order of the Rosy Cross, a secret society of mystics that originated in late medieval Germany and claim understanding of esoteric truths about nature, the universe, and the spiritual realm that have been concealed from ordinary people. Weidner considers the name R. C. Christian an homage to the legendary 14th-century founder of the Rosicrucians, a man first identified as Frater C.R.C. and later as Christian Rosenkreuz. Secrecy, Weidner notes, has been a hallmark of the Rosicrucians, a group that announced itself to the world in the early 17th century with a pair of anonymous manifestos that created a huge stir across Europe, despite the fact that no one was ever able to identify a single member. While the guides on the Georgia stones fly in the face of orthodox Christian eschatology, they conform quite well to the tenets of Rosicrucianism, which stress reason and endorse a harmonic relationship with nature. Weidner also has a theory about the purpose of the Guidestones. An authority on the hermetic and alchemical traditions that spawned the Rosicrucians, he believes that for generations the group has been passing down knowledge of a solar cycle that climaxes every 13,000 years. During this culmination, outsize coronal mass ejections are supposed to devastate Earth. Meanwhile, the shadowy organization behind the Guidestones is now orchestrating a "planetary chaos," Weidner believes, that began with the recent collapse of the US financial system and will result eventually in major disruptions of oil and food supplies, mass riots, and ethnic wars worldwide, all leading up to the Big Event on December 21, 2012. "They want to get the population down," Weidner says, "and this is what they think will do it. The Guidestones are there to instruct the survivors." On hearing Weidner's ideas, Martin shakes his head and says it's "the sort of thing that makes me want to tell people everything I know." Martin has long since retired from banking and no longer lives in Elberton, yet he's still the Guidestones' official—and only—secret-keeper. "But I can't tell," the old man quickly adds. "I made a promise." Martin also made a promise to destroy all the records of his dealings with Christian, though he hasn't kept that one—at least not yet. In the back of his garage is a large plastic bin (actually, the hard-sided case of an IBM computer he bought back in 1983) stuffed with every document connected to the Guidestones that ever came into his possession, including the letters from Christian. For years Martin thought he might write a book, but now he knows he probably won't. What he also won't do is allow me to look through the papers. When I ask whether he's prepared to take what he knows to his grave, Martin replies that Christian would want him to do just that: "All along, he said that who he was and where he came from had to be kept a secret. He said mysteries work that way. If you want to keep people interested, you can let them know only so much." The rest is enshrouded in the vast sunny stillness. 

Randall Sullivan (randysul@aol.com) wrote about the electric-vehicle company ZAP in issue 16.04. 

Source: Wired

The Humpty Dumpty Economy | The Collapse of '09 | The Quiet Coup: The Wall Street-Washington Corridor Banana Republic

"We are out of money." Barack Obama May 23, 2009: Obama openly says what anyone with common sense has known for quite some time: the US is broke, and will not be able to honor its financial and fiduciary obligations.

“Quantitative Easing” it is called. As a refresher for readers with real lives and better things to do, QE is how central banks describe what is essentially an act of counterfeiting. They buy bonds with money created – electronically – specifically for that purpose. Abracadabra – “money” comes into being.

We thought the Bubble Epoch was the peak in claptrap and illusions. But we were only in the foothills. The feds now pretend to bail out the economy by giving money to companies that pretend to be concerned, run by people who pretend to know what they are doing. And when they run short of money, they create more of it, pretend it is real…and pretend they can tell it what to do.
~ Germany launches Gold-To-Go ATM's | Ladies & Gentlemen: the US Is Insolvent: “We are out of money.” Obama May 23, 09 | Avalanche of Claptrap Illusions ~

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Forecast 2005: The Humpty Dumpty Economy

Jesse's Café Américain

The current trend in the United States economy is not sustainable. This is a realization that will penetrate the national consciousness slowly and unevenly. Most economists agree on how this cycle will end (even if it is only privately), but the great debate is in the details of how, and most importantly, when.

If one does not accept that the situation is unsustainable, and believes that things can continue on endlessly just as they are, with the United States consuming the bulk of the world’s savings and production because of who we are, then perhaps this is symptomatic of the national epidemic we now suffer which the ancient Greeks called hubris.

"Where else will they put their surplus if not our debt? To whom will they sell their goods if not to us? Who will teach them how to live, and govern them?" History shows that even if such trends last far beyond most expectations, eventually a day of reckoning arrives, in some frequently repeated patterns of systemic failure....

Things rarely reach a turning point when we expect it. A true sea change is slow to permeate the mentality of most people, because our experience is that what happened yesterday will happen again tomorrow, and a long cyclical turn occurs gradually and incrementally. We forget what happened even a few years ago.

Predictions of a continuance of recent trends are the common currency of most pundits...

However, and this is a common sense notion that has been nearly forgotten by our generation, we have the ability to act in such a way so as to make the improbable more likely to occur, to tempt fate by our actions. For example, there is a certain probability of sustaining an automobile accident in the normal course of our daily activities. High risk behaviors, such as speeding excessively or drinking while driving, increase the chance of an accident. If one engages in high risk activity, and nothing unusual happens, we become emboldened and think that since we were able to drink moderately and drive last month, so we can drink and drive this month and thereafter. Perhaps next month we drink a little more for an indulgence, and again nothing happens. This cycle continues until something changes our behavior, or simply ends when we literally hit the wall.

It would be our contention that the US is like such a driver, and we have been economically tempting fate with increasingly risky behaviors. We are persuaded that there is almost nothing we cannot do, almost nothing that can happen, that is beyond our control. It is the propensity for people to increase and repeat what they have been doing over time, to tempt fate through repeated and increasingly risky behavior, and to forget the possibility of a sequence of unfortunate events if you will, that gives rise to memorable events in history...

Predicting the failure of a complex system is not easy. One can examine it as a whole, and determine that it will fail, and often calculate what must change in order to allow the system to function more reliably. But it is often beyond our power to calculate exactly how it will fail, and consequently when it will fail.

This does not invalidate the observation that the system will ultimately fail. It merely underscores the unpredictability of timing a failure with the degrees of freedom inherent in a calculation with a large number of exogenous variables. It is not easy to predict exactly when a chronic DWI will demolish their automobile, but it
remains relatively predictable to say that they will do so as long as they maintain
their current mode of behavior....

There are four major types of tipping points:

• Demand: a break in the level of consumption in the US caused by the unwillingness or ability of households to incur further debt to support consumption beyond real wage growth
  
  
• Supply: a major disruption in the supply of an essential commodity like energy, food, or raw materials, or even the realization that a major commodity is in shorter supply than expected, such as silver or oil.
  
  
• Monetary: an inability of foreign central banks to continue to monetize the US trade deficit and budget deficit through the recycling of
  their trade surplus into US debt securities.
  
  
• Systemic failure: the failure of a major counter party that threatens the US financial system, particularly in the hugely leveraged derivatives market.

Two of the seals, Demand and Systemic Failure, have been broken, and the horsemen unleashed. Next comes Monetary, and then Supply, which is a Pale Horse.

There is still time to end this spiral of decline.

Source: Jesse's Americain Cafe

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The Collapse of ‘09

Daily Reckoning | By Gerald Celente

03/19/09 Rhinebeck, New York The "Panic of ‘08" will be followed by "The Collapse of ‘09." In 2008, when the world’s largest financial firms and equity markets crumbled, Wall Street’s woes preoccupied the media.

In 2009, the focus will broaden to include a range of calamities that will leave no sector unscathed. Next in line is retail, which accounts for some 70 percent of consumer spending, 26 percent of which is holiday sales.

After the numbers are tallied to reveal a dismal retail Christmas, more big chain bankruptcies will follow. Besides leaving masses unemployed, defunct retailers will leave behind thousands of empty stores. Who will rent them? Nobody!

Add to these empties commercial space vacated by defunct financial firms and an array of troubled businesses, from restaurants to architectural firms, to high tech operations, to offset printers, etc., etc. The inescapable result (that we predicted over a year ago and is only now being discussed in the business media) is a commercial real estate bust that will be costlier, wreak greater havoc and prove more intractable than the residential market decline.

Because most people don’t live and shop on Wall Street, the "Panic of ‘08" was viewed by Main Street as if from afar - even though many were losing money. But when commercial real estate crashes it will hit much closer to home. The depressive atmosphere of thinly shopped, half-vacant malls will strike emotional chords and all the senses.

In office buildings, vacant floors and empty cubicles will dampen the workday spirit of the still-employed; ever present reminders of laid-off friends and colleagues and of the fragility of employment.

Abandoned, untended business and industrial parks will highlight the already mournful scene. In cities studded with soaring towers and new construction predicated on eternal economic growth, streets lined with "For Rent/For Sale" signs will complement stilled cranes and uncompleted buildings.

As retail and commercial real estate collapse, the credit card sector and all its interrelated processing and back office support businesses will suffer and be forced to scale back. Hordes of consumers who have been living off credit cards and racking up debt to the limit will lack the funds to service their debt… much less pay it off, and they will be forced to default. Given the nearly $3 trillion in consumer debt at risk (excluding auto and mortgage) an inevitable default snowball will add momentum to the in-progress Collapse of ‘09.

While we alone predicted the "Panic of ‘08" (and even took out the domain name "Panicof08.com" on 7 November 2007), we are not alone in predicting a Depression.

The "D" word is being uttered - in some cases by those who have the most to lose and whose best interests are not served by spreading gloom and doom. "The world and country are in a depression," said celebrity tycoon Donald Trump. He then later softened the blow, downgrading it to a "virtual depression."

"Virtual" to the few who will never have to worry where the next dollar will come from, it will be painfully real and hardly virtual to the multitudes who are and will be worrying. The virally proliferating Greatest Depression is the Trend of Trends for 2009.

Even so, beware! Over the course of free-falling 2009, the word from most official sources will be "recession," and from the few mainstream trophy pessimists,
"deep recession."

For example, the oft-quoted naysayer, Nouriel Roubini, New York University professor of economics, forecasts a two year recession … not Depression. On the sunnier side of Wall Street, the Federal Reserve predicts the US economy will contract only through the middle of 2009 and pledged, "In any event, the Committee agreed to take whatever steps were necessary to support the recovery.”

What "steps?" The Bernanke Two-Step? Adjust interest rates or print more money? Neither stopped the credit crisis from worsening, the real estate market from tanking or the stock markets from crashing.

It was Fed finagling, Washington deregulation and Wall Street’s compulsive gambling that created the crisis. To trust or to seriously consider pronouncements, analyses and predictions made by any of these sources is an exercise in willful self-deception. Yet, with pensions, IRAs, 401ks, stocks and mutual funds evaporating, many of those most affected deny reality and take hope that forecasts made by proven incompetents will miraculously restore their losses.

Throughout the many years leading up to what we term the "Greatest Depression," The Trends Research Institute provided copious data and Globalnomic analysis to support our forecasts of economic upheaval. In the past year alone, we have provided so much hard evidence (housings starts, home sales, foreclosures, bankruptcies, bank failures, unemployment figures, stock indices, leading economic indicators, retail sales, etc.) that further elaboration should be superfluous.

Those waiting to hear the "D" word from economic experts, talking heads and TV anchors before taking action will most certainly regret their indecisiveness.

Absent from the economic scenarios ranging from second quarter recovery, deep recession and "virtual" depression are the multiplicity of social, environmental, health, political, emotional/psychological and geopolitical factors that point beyond just Depression. They point to The Decline and Fall of Empire America.

Well before Inauguration Day, Barack Obama was cast as the next Franklin Delano Roosevelt. If he follows in FDR’s footsteps he could freeze deposits by declaring a "holiday" to stop a run on the banks. While FDIC insurance may cover deposits, even after banks reopen, withdrawal amounts may be restricted. (As the Argentine government did in 2001-2002.)

Author’s Note: Suspicious of the soundness of the banking system, I requested to withdraw a substantial sum from our Key Bank account, leaving funds sufficient to cover ongoing business operations. First they tried to dissuade me, then they stonewalled me, and finally they turned openly hostile.

I was forced to sign a series of documents, including one acknowledging that since I was carrying a large sum I could be the target of a robbery. To enhance that possibility, the teller slammed down the bag of cash on the counter and publicly announced the sum.

Despite repeated requests in the days preceding my withdrawal to get the cash in hundreds, they gave it to me in twenties, making for a bag five times the size and more robber-friendly. When I complained to the bank manager who had processed the request, the response amounted to "take it or leave it."

This will not be an isolated event. If you attempt to withdraw a large chunk of money from your account, negotiate the details in advance and anticipate possible hassle and obstruction.

We’ve heard similar accounts from clients and Trends Journal subscribers who, over the past several months, tried to close out mutual funds, 401ks and assorted sinking equities. They were dissuaded, cajoled, belittled and arm-twisted by brokers desperate to keep their accounts. Many caved in under the pressure, didn’t close them and lost most of what they had.

So, we leave you with a Greatest Depression consideration: How safe is your money? How sound is your bank? At the end of November, Citigroup, once America’s largest bank, was on the rocks. Fifty-two thousand employees were laid off. In just three days its stock lost more than half its value. Rumors swirled that Citi was so desperate they were looking to sell or split up the company.

Is your money deposited in a local bank whose reputation you can bank on? Are you with a teetering giant or a poorly-managed regional? If either of the latter, it would be in your best interest to assess the risks.

Take some out if you think there is risk; take it all out if you think there’s high risk. You may consider spreading it around and even banking abroad … after all, this is the Global Age.

Source: Daily Reckoning

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The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

The Quiet Coup: The Wall Street-Washington Corridor Banana Republic

The Atlantic | Simon Johnson

Image credit: Jim Bourg/Reuters/Corbis

One thing you learn rather quickly when working at the International Monetary Fund is that no one is ever very happy to see you. Typically, your “clients” come in only after private capital has abandoned them, after regional trading-bloc partners have been unable to throw a strong enough lifeline, after last-ditch attempts to borrow from powerful friends like China or the European Union have fallen through. You’re never at the top of anyone’s dance card.

The reason, of course, is that the IMF specializes in telling its clients what they don’t want to hear. I should know; I pressed painful changes on many foreign officials during my time there as chief economist in 2007 and 2008. And I felt the effects of IMF pressure, at least indirectly, when I worked with governments in Eastern Europe as they struggled after 1989, and with the private sector in Asia and Latin America during the crises of the late 1990s and early 2000s. Over that time, from every vantage point, I saw firsthand the steady flow of officials—from Ukraine, Russia, Thailand, Indonesia, South Korea, and elsewhere—trudging to the fund when circumstances were dire and all else had failed.

Every crisis is different, of course. Ukraine faced hyperinflation in 1994; Russia desperately needed help when its short-term-debt rollover scheme exploded in the summer of 1998; the Indonesian rupiah plunged in 1997, nearly leveling the corporate economy; that same year, South Korea’s 30-year economic miracle ground to a halt when foreign banks suddenly refused to extend new credit.

But I must tell you, to IMF officials, all of these crises looked depressingly similar. Each country, of course, needed a loan, but more than that, each needed to make big changes so that the loan could really work. Almost always, countries in crisis need to learn to live within their means after a period of excess—exports must be increased, and imports cut—and the goal is to do this without the most horrible of recessions. Naturally, the fund’s economists spend time figuring out the policies—budget, money supply, and the like—that make sense in this context. Yet the economic solution is seldom very hard to work out.

No, the real concern of the fund’s senior staff, and the biggest obstacle to recovery, is almost invariably the politics of countries in crisis.

Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders. When a country like Indonesia or South Korea or Russia grows, so do the ambitions of its captains of industry. As masters of their mini-universe, these people make some investments that clearly benefit the broader economy, but they also start making bigger and riskier bets. They reckon—correctly, in most cases—that their political connections will allow them to push onto the government any substantial problems that arise.

In Russia, for instance, the private sector is now in serious trouble because, over the past five years or so, it borrowed at least $490 billion from global banks and investors on the assumption that the country’s energy sector could support a permanent increase in consumption throughout the economy. As Russia’s oligarchs spent this capital, acquiring other companies and embarking on ambitious investment plans that generated jobs, their importance to the political elite increased. Growing political support meant better access to lucrative contracts, tax breaks, and subsidies. And foreign investors could not have been more pleased; all other things being equal, they prefer to lend money to people who have the implicit backing of their national governments, even if that backing gives off the faint whiff of corruption.

But inevitably, emerging-market oligarchs get carried away; they waste money and build massive business empires on a mountain of debt. Local banks, sometimes pressured by the government, become too willing to extend credit to the elite and to those who depend on them. Overborrowing always ends badly, whether for an individual, a company, or a country. Sooner or later, credit conditions become tighter and no one will lend you money on anything close to affordable terms.

The downward spiral that follows is remarkably steep. Enormous companies teeter on the brink of default, and the local banks that have lent to them collapse. Yesterday’s “public-private partnerships” are relabeled “crony capitalism.” With credit unavailable, economic paralysis ensues, and conditions just get worse and worse. The government is forced to draw down its foreign-currency reserves to pay for imports, service debt, and cover private losses. But these reserves will eventually run out. If the country cannot right itself before that happens, it will default on its sovereign debt and become an economic pariah. The government, in its race to stop the bleeding, will typically need to wipe out some of the national champions—now hemorrhaging cash—and usually restructure a banking system that’s gone badly out of balance. It will, in other words, need to squeeze at least some of its oligarchs.

Squeezing the oligarchs, though, is seldom the strategy of choice among emerging-market governments. Quite the contrary: at the outset of the crisis, the oligarchs are usually among the first to get extra help from the government, such as preferential access to foreign currency, or maybe a nice tax break, or—here’s a classic Kremlin bailout technique—the assumption of private debt obligations by the government. Under duress, generosity toward old friends takes many innovative forms. Meanwhile, needing to squeeze someone, most emerging-market governments look first to ordinary working folk—at least until the riots grow too large.

Eventually, as the oligarchs in Putin’s Russia now realize, some within the elite have to lose out before recovery can begin. It’s a game of musical chairs: there just aren’t enough currency reserves to take care of everyone, and the government cannot afford to take over private-sector debt completely.

So the IMF staff looks into the eyes of the minister of finance and decides whether the government is serious yet. The fund will give even a country like Russia a loan eventually, but first it wants to make sure Prime Minister Putin is ready, willing, and able to be tough on some of his friends. If he is not ready to throw former pals to the wolves, the fund can wait. And when he is ready, the fund is happy to make helpful suggestions—particularly with regard to wresting control of the banking system from the hands of the most incompetent and avaricious “entrepreneurs.”

Of course, Putin’s ex-friends will fight back. They’ll mobilize allies, work the system, and put pressure on other parts of the government to get additional subsidies. In extreme cases, they’ll even try subversion—including calling up their contacts in the American foreign-policy establishment, as the Ukrainians did with some success in the late 1990s.

Many IMF programs “go off track” (a euphemism) precisely because the government can’t stay tough on erstwhile cronies, and the consequences are massive inflation or other disasters. A program “goes back on track” once the government prevails or powerful oligarchs sort out among themselves who will govern—and thus win or lose—under the IMF-supported plan. The real fight in Thailand and Indonesia in 1997 was about which powerful families would lose their banks. In Thailand, it was handled relatively smoothly. In Indonesia, it led to the fall of President Suharto and economic chaos.

From long years of experience, the IMF staff knows its program will succeed—stabilizing the economy and enabling growth—only if at least some of the powerful oligarchs who did so much to create the underlying problems take a hit. This is the problem of all emerging markets.

Becoming a Banana Republic

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies—lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits—such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.



Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

The great wealth that the financial sector created and concentrated gave bankers enormous political weight—a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.


The Wall Street–Washington Corridor

Of course, the U.S. is unique. And just as we have the world’s most advanced economy, military, and technology, we also have its most advanced oligarchy.

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world.

One channel of influence was, of course, the flow of individuals between Wall Street and Washington. Robert Rubin, once the co-chairman of Goldman Sachs, served in Washington as Treasury secretary under Clinton, and later became chairman of Citigroup’s executive committee. Henry Paulson, CEO of Goldman Sachs during the long boom, became Treasury secretary under George W.Bush. John Snow, Paulson’s predecessor, left to become chairman of Cerberus Capital Management, a large private-equity firm that also counts Dan Quayle among its executives. Alan Greenspan, after leaving the Federal Reserve, became a consultant to Pimco, perhaps the biggest player in international bond markets.

These personal connections were multiplied many times over at the lower levels of the past three presidential administrations, strengthening the ties between Washington and Wall Street. It has become something of a tradition for Goldman Sachs employees to go into public service after they leave the firm. The flow of Goldman alumni—including Jon Corzine, now the governor of New Jersey, along with Rubin and Paulson—not only placed people with Wall Street’s worldview in the halls of power; it also helped create an image of Goldman (inside the Beltway, at least) as an institution that was itself almost a form of public service.

Wall Street is a very seductive place, imbued with an air of power. Its executives truly believe that they control the levers that make the world go round. A civil servant from Washington invited into their conference rooms, even if just for a meeting, could be forgiven for falling under their sway. Throughout my time at the IMF, I was struck by the easy access of leading financiers to the highest U.S. government officials, and the interweaving of the two career tracks. I vividly remember a meeting in early 2008—attended by top policy makers from a handful of rich countries—at which the chair casually proclaimed, to the room’s general approval, that the best preparation for becoming a central-bank governor was to work first as an investment banker.

A whole generation of policy makers has been mesmerized by Wall Street, always and utterly convinced that whatever the banks said was true. Alan Greenspan’s pronouncements in favor of unregulated financial markets are well known. Yet Greenspan was hardly alone. This is what Ben Bernanke, the man who succeeded him, said in 2006: “The management of market risk and credit risk has become increasingly sophisticated. … Banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.”

Of course, this was mostly an illusion. Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. AIG’s Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as “picking up nickels in front of a steamroller,” this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG’s sophisticated risk modeling had said were virtually impossible.

Wall Street’s seductive power extended even (or especially) to finance and economics professors, historically confined to the cramped offices of universities and the pursuit of Nobel Prizes. As mathematical finance became more and more essential to practical finance, professors increasingly took positions as consultants or partners at financial institutions. Myron Scholes and Robert Merton, Nobel laureates both, were perhaps the most famous; they took board seats at the hedge fund Long-Term Capital Management in 1994, before the fund famously flamed out at the end of the decade. But many others beat similar paths. This migration gave the stamp of academic legitimacy (and the intimidating aura of intellectual rigor) to the burgeoning world of high finance.

As more and more of the rich made their money in finance, the cult of finance seeped into the culture at large. Works like Barbarians at the Gate, Wall Street, and Bonfire of the Vanities—all intended as cautionary tales—served only to increase Wall Street’s mystique. Michael Lewis noted in Portfolio last year that when he wrote Liar’s Poker, an insider’s account of the financial industry, in 1989, he had hoped the book might provoke outrage at Wall Street’s hubris and excess. Instead, he found himself “knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share. … They’d read my book as a how-to manual.” Even Wall Street’s criminals, like Michael Milken and Ivan Boesky, became larger than life. In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country—and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom—trumpeted on the editorial pages of The Wall Street Journal and on the floor of Congress.

From this confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:

• insistence on free movement of capital across borders;
  
  
• the repeal of Depression-era regulations separating commercial and investment banking;
  
  
• a congressional ban on the regulation of credit-default swaps;
  
  
• major increases in the amount of leverage allowed to investment banks;
  
  
• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
  
  
• an international agreement to allow banks to measure their own riskiness;
  
  
• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.

The mood that accompanied these measures in Washington seemed to swing between nonchalance and outright celebration: finance unleashed, it was thought, would continue to propel the economy to greater heights.


America’s Oligarchs and the Financial Crisis

The oligarchy and the government policies that aided it did not alone cause the financial crisis that exploded last year. Many other factors contributed, including excessive borrowing by households and lax lending standards out on the fringes of the financial world. But major commercial and investment banks—and the hedge funds that ran alongside them—were the big beneficiaries of the twin housing and equity-market bubbles of this decade, their profits fed by an ever-increasing volume of transactions founded on a relatively small base of actual physical assets. Each time a loan was sold, packaged, securitized, and resold, banks took their transaction fees, and the hedge funds buying those securities reaped ever-larger fees as their holdings grew.

Because everyone was getting richer, and the health of the national economy depended so heavily on growth in real estate and finance, no one in Washington had any incentive to question what was going on. Instead, Fed Chairman Greenspan and President Bush insisted metronomically that the economy was fundamentally sound and that the tremendous growth in complex securities and credit-default swaps was evidence of a healthy economy where risk was distributed safely.

In the summer of 2007, signs of strain started appearing. The boom had produced so much debt that even a small economic stumble could cause major problems, and rising delinquencies in subprime mortgages proved the stumbling block. Ever since, the financial sector and the federal government have been behaving exactly the way one would expect them to, in light of past emerging-market crises.

By now, the princes of the financial world have of course been stripped naked as leaders and strategists—at least in the eyes of most Americans. But as the months have rolled by, financial elites have continued to assume that their position as the economy’s favored children is safe, despite the wreckage they have caused.

Stanley O’Neal, the CEO of Merrill Lynch, pushed his firm heavily into the mortgage-backed-securities market at its peak in 2005 and 2006; in October 2007, he acknowledged, “The bottom line is, we—I—got it wrong by being overexposed to subprime, and we suffered as a result of impaired liquidity in that market. No one is more disappointed than I am in that result.” O’Neal took home a $14 million bonus in 2006; in 2007, he walked away from Merrill with a severance package worth $162 million, although it is presumably worth much less today.

In October, John Thain, Merrill Lynch’s final CEO, reportedly lobbied his board of directors for a bonus of $30 million or more, eventually reducing his demand to $10 million in December; he withdrew the request, under a firestorm of protest, only after it was leaked to The Wall Street Journal. Merrill Lynch as a whole was no better: it moved its bonus payments, $4 billion in total, forward to December, presumably to avoid the possibility that they would be reduced by Bank of America, which would own Merrill beginning on January 1. Wall Street paid out $18 billion in year-end bonuses last year to its New York City employees, after the government disbursed $243 billion in emergency assistance to the financial sector.

In a financial panic, the government must respond with both speed and overwhelming force. The root problem is uncertainty—in our case, uncertainty about whether the major banks have sufficient assets to cover their liabilities. Half measures combined with wishful thinking and a wait-and-see attitude cannot overcome this uncertainty. And the longer the response takes, the longer the uncertainty will stymie the flow of credit, sap consumer confidence, and cripple the economy—ultimately making the problem much harder to solve. Yet the principal characteristics of the government’s response to the financial crisis have been delay, lack of transparency, and an unwillingness to upset the financial sector.

The response so far is perhaps best described as “policy by deal”: when a major financial institution gets into trouble, the Treasury Department and the Federal Reserve engineer a bailout over the weekend and announce on Monday that everything is fine. In March 2008, Bear Stearns was sold to JP Morgan Chase in what looked to many like a gift to JP Morgan. (Jamie Dimon, JP Morgan’s CEO, sits on the board of directors of the Federal Reserve Bank of New York, which, along with the Treasury Department, brokered the deal.) In September, we saw the sale of Merrill Lynch to Bank of America, the first bailout of AIG, and the takeover and immediate sale of Washington Mutual to JP Morgan—all of which were brokered by the government. In October, nine large banks were recapitalized on the same day behind closed doors in Washington. This, in turn, was followed by additional bailouts for Citigroup, AIG, Bank of America, Citigroup (again), and AIG (again).

Some of these deals may have been reasonable responses to the immediate situation. But it was never clear (and still isn’t) what combination of interests was being served, and how. Treasury and the Fed did not act according to any publicly articulated principles, but just worked out a transaction and claimed it was the best that could be done under the circumstances. This was late-night, backroom dealing, pure and simple.

Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here. In September 2008, Henry Paulson asked Congress for $700 billion to buy toxic assets from banks, with no strings attached and no judicial review of his purchase decisions. Many observers suspected that the purpose was to overpay for those assets and thereby take the problem off the banks’ hands—indeed, that is the only way that buying toxic assets would have helped anything. Perhaps because there was no way to make such a blatant subsidy politically acceptable, that plan was shelved.

Instead, the money was used to recapitalize banks, buying shares in them on terms that were grossly favorable to the banks themselves. As the crisis has deepened and financial institutions have needed more help, the government has gotten more and more creative in figuring out ways to provide banks with subsidies that are too complex for the general public to understand. The first AIG bailout, which was on relatively good terms for the taxpayer, was supplemented by three further bailouts whose terms were more AIG-friendly. The second Citigroup bailout and the Bank of America bailout included complex asset guarantees that provided the banks with insurance at below-market rates. The third Citigroup bailout, in late February, converted government-owned preferred stock to common stock at a price significantly higher than the market price—a subsidy that probably even most Wall Street Journal readers would miss on first reading. And the convertible preferred shares that the Treasury will buy under the new Financial Stability Plan give the conversion option (and thus the upside) to the banks, not the government.

This latest plan—which is likely to provide cheap loans to hedge funds and others so that they can buy distressed bank assets at relatively high prices—has been heavily influenced by the financial sector, and Treasury has made no secret of that. As Neel Kashkari, a senior Treasury official under both Henry Paulson and Tim Geithner (and a Goldman alum) told Congress in March, “We had received inbound unsolicited proposals from people in the private sector saying, ‘We have capital on the sidelines; we want to go after [distressed bank] assets.’” And the plan lets them do just that: “By marrying government capital—taxpayer capital—with private-sector capital and providing financing, you can enable those investors to then go after those assets at a price that makes sense for the investors and at a price that makes sense for the banks.” Kashkari didn’t mention anything about what makes sense for the third group involved: the taxpayers.

Even leaving aside fairness to taxpayers, the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change. As an unnamed senior bank official said to The New York Times last fall, “It doesn’t matter how much Hank Paulson gives us, no one is going to lend a nickel until the economy turns.” But there’s the rub: the economy can’t recover until the banks are healthy and willing to lend.


The Way Out

Looking just at the financial crisis (and leaving aside some problems of the larger economy), we face at least two major, interrelated problems. The first is a desperately ill banking sector that threatens to choke off any incipient recovery that the fiscal stimulus might generate. The second is a political balance of power that gives the financial sector a veto over public policy, even as that sector loses popular support.

Big banks, it seems, have only gained political strength since the crisis began. And this is not surprising. With the financial system so fragile, the damage that a major bank failure could cause—Lehman was small relative to Citigroup or Bank of America—is much greater than it would be during ordinary times. The banks have been exploiting this fear as they wring favorable deals out of Washington. Bank of America obtained its second bailout package (in January) after warning the government that it might not be able to go through with the acquisition of Merrill Lynch, a prospect that Treasury did not want to consider.

The challenges the United States faces are familiar territory to the people at the IMF. If you hid the name of the country and just showed them the numbers, there is no doubt what old IMF hands would say: nationalize troubled banks and break them up as necessary.

In some ways, of course, the government has already taken control of the banking system. It has essentially guaranteed the liabilities of the biggest banks, and it is their only plausible source of capital today. Meanwhile, the Federal Reserve has taken on a major role in providing credit to the economy—the function that the private banking sector is supposed to be performing, but isn’t. Yet there are limits to what the Fed can do on its own; consumers and businesses are still dependent on banks that lack the balance sheets and the incentives to make the loans the economy needs, and the government has no real control over who runs the banks, or over what they do.

At the root of the banks’ problems are the large losses they have undoubtedly taken on their securities and loan portfolios. But they don’t want to recognize the full extent of their losses, because that would likely expose them as insolvent. So they talk down the problem, and ask for handouts that aren’t enough to make them healthy (again, they can’t reveal the size of the handouts that would be necessary for that), but are enough to keep them upright a little longer. This behavior is corrosive: unhealthy banks either don’t lend (hoarding money to shore up reserves) or they make desperate gambles on high-risk loans and investments that could pay off big, but probably won’t pay off at all. In either case, the economy suffers further, and as it does, bank assets themselves continue to deteriorate—creating a highly destructive vicious cycle.

To break this cycle, the government must force the banks to acknowledge the scale of their problems. As the IMF understands (and as the U.S. government itself has insisted to multiple emerging-market countries in the past), the most direct way to do this is nationalization. Instead, Treasury is trying to negotiate bailouts bank by bank, and behaving as if the banks hold all the cards—contorting the terms of each deal to minimize government ownership while forswearing government influence over bank strategy or operations. Under these conditions, cleaning up bank balance sheets is impossible.

Nationalization would not imply permanent state ownership. The IMF’s advice would be, essentially: scale up the standard Federal Deposit Insurance Corporation process. An FDIC “intervention” is basically a government-managed bankruptcy procedure for banks. It would allow the government to wipe out bank shareholders, replace failed management, clean up the balance sheets, and then sell the banks back to the private sector. The main advantage is immediate recognition of the problem so that it can be solved before it grows worse.

The government needs to inspect the balance sheets and identify the banks that cannot survive a severe recession. These banks should face a choice: write down your assets to their true value and raise private capital within 30 days, or be taken over by the government. The government would write down the toxic assets of banks taken into receivership—recognizing reality—and transfer those assets to a separate government entity, which would attempt to salvage whatever value is possible for the taxpayer (as the Resolution Trust Corporation did after the savings-and-loan debacle of the 1980s). The rump banks—cleansed and able to lend safely, and hence trusted again by other lenders and investors—could then be sold off.

Cleaning up the megabanks will be complex. And it will be expensive for the taxpayer; according to the latest IMF numbers, the cleanup of the banking system would probably cost close to $1.5 trillion (or 10 percent of our GDP) in the long term. But only decisive government action—exposing the full extent of the financial rot and restoring some set of banks to publicly verifiable health—can cure the financial sector as a whole.

This may seem like strong medicine. But in fact, while necessary, it is insufficient. The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.

Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.

Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations.

This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the “efficiency costs” of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.

To ensure systematic bank breakup, and to prevent the eventual reemergence of dangerous behemoths, we also need to overhaul our antitrust legislation. Laws put in place more than 100 years ago to combat industrial monopolies were not designed to address the problem we now face. The problem in the financial sector today is not that a given firm might have enough market share to influence prices; it is that one firm or a small set of interconnected firms, by failing, can bring down the economy. The Obama administration’s fiscal stimulus evokes FDR, but what we need to imitate here is Teddy Roosevelt’s trust-busting.

Caps on executive compensation, while redolent of populism, might help restore the political balance of power and deter the emergence of a new oligarchy. Wall Street’s main attraction—to the people who work there and to the government officials who were only too happy to bask in its reflected glory—has been the astounding amount of money that could be made. Limiting that money would reduce the allure of the financial sector and make it more like any other industry.

Still, outright pay caps are clumsy, especially in the long run. And most money is now made in largely unregulated private hedge funds and private-equity firms, so lowering pay would be complicated. Regulation and taxation should be part of the solution. Over time, though, the largest part may involve more transparency and competition, which would bring financial-industry fees down. To those who say this would drive financial activities to other countries, we can now safely say: fine.


Two Paths

To paraphrase Joseph Schumpeter, the early-20th-century economist, everyone has elites; the important thing is to change them from time to time. If the U.S. were just another country, coming to the IMF with hat in hand, I might be fairly optimistic about its future. Most of the emerging-market crises that I’ve mentioned ended relatively quickly, and gave way, for the most part, to relatively strong recoveries. But this, alas, brings us to the limit of the analogy between the U.S. and emerging markets.

Emerging-market countries have only a precarious hold on wealth, and are weaklings globally. When they get into trouble, they quite literally run out of money—or at least out of foreign currency, without which they cannot survive. They must make difficult decisions; ultimately, aggressive action is baked into the cake. But the U.S., of course, is the world’s most powerful nation, rich beyond measure, and blessed with the exorbitant privilege of paying its foreign debts in its own currency, which it can print. As a result, it could very well stumble along for years—as Japan did during its lost decade—never summoning the courage to do what it needs to do, and never really recovering. A clean break with the past—involving the takeover and cleanup of major banks—hardly looks like a sure thing right now. Certainly no one at the IMF can force it.

In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.

Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you aren’t being fleeced?

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.


Simon Johnson, a professor at MIT’s Sloan School of Management, was the chief economist at the International Monetary Fund during 2007 and 2008. He blogs about the financial crisis at baselinescenario.com, along with James Kwak, who also contributed to this essay.

Source: The Atlantic