lex naturalis - txwikinger's blog Free Software - Law - Politics

The world is in the middle of the worst financial crisis. One would think, it would be time to reflect and change direction. We are standing in front of crossroads which will decide if things will become better or will be even worse. However, the people in power do not seem to understand. In fact, they are still driven by greed. Let's recap what has happened, and how it could happened.

Everybody today blames the US subprime mortgage market for the crisis. However, if those voices would be honest, they would have to admit that they are only telling the half-truth. The truth is, everybody participated in an unsustainable market. Nobody stood up to stop the madness. On the contrary, everybody succumbed the greed and participated.

Yes, the problem started in the subprime mortgage market, but not only there. In fact, the consume society turned into a Faustinian play. I believe, Goethe would be amazed how accurately he described even a society hundreds of years after his own life. Like Faust in his play, people are willing to gamble away their future for instant gratification. This is the real story of the current financial crisis, however, unfortunately, this problem has not been stop, but continue to foster.

It all started with the subprime mortgage. It started with the, in my opinion, legitimate American dream. The dream that if one works hard, they will be able to own their own property. However, unfortunately the dream was perverted by greed. People either wanted this property in form of a house too early, when they were not able to afford it yet, or wanted to much house. Both situations show a form of greed. And greediness stops people making rational decisions. This is where the mortgage brokers enabled this greed to be lived out. They allowed people to take out mortgages, they knew those people would not able to afford.

Why did they do this? Because they were greedy too. Sure they knew, if they were honest to themselves, that most of those mortgages would default. They also knew when that would happen, they would not be able to resell the mortgages they handed out to houser buyer, because nobody would trust them anymore. However, their greed gave them the illusion that they would see it before anybody else and they would be able to step out of this game just in time. Yes, it was a game. It was high-stakes gambling. However, it was even more perverse than going into a casino. At least in a casino, everybody knows that the only winner will be the bank. In the mortgage gamble, nobody really won. Well maybe a few hedge funds that bet on the event of the financial crisis. However, it resumes to be seen if this win will turn out to be a win in the end.

It did not stop with the mortgage lenders. In fact, Wall Street got involved and participated in the greed. Wall Street bought all those bad (or toxic) mortgages and repackaged them in structured instruments called CDOs. The repackaging allowed them to not only hide the origination of the investments, but also hide the risks. In this way, highly toxic mortgages where sold as the safest form of investments. It was a ponzi scheme, that was in no way any better than the one performed by Madoff. However, because of technicalities, it was totally legal. I would call it legalized fraud. Buyers of those investments was given the illusion of a safe investment for something the seller knew was toxic. In all definitions I have learned in my law degree, this is at least misrepresentation, highly likely even fraud.

In this way, the greedy people, house owners, mortgage lenders, Wall Street, etc. did not only gambled away their own future, but also everybody else's future. Why? Because every loan must be balanced out with savings. This is how the financial world works. There must be a balance, otherwise the monetary side increases, while the assets, products etc. stay the same. This means the prices go up, which ends up in inflation. Therefore, all those toxic mortgages where repackages into nice colorful packages and were bought be the savings and investments into pension funds of ordinary people. Insurances invested the insurance premiums of their customers in those packages, because they were greedy too. City councils invested in those CDOs, because they wanted more money for their future budgets.

All of these savings have been eliminated due to the greediness of a lot of people. Some would say the free market has failed and should be eliminated. However, I have to say this opinion is wrong. The free market has worked very well. People have behaved in an unsustainable way. The have lived in an illusion of exponential never ending growth. Not only that, but the believed in a financial perpetuum mobile. The illusion the money somehow growth without anything tangible being produced. The free market bend to a certain extend, but then the branch broke, and balanced the excesses out with the financial crisis. Admittedly, this is a very hard method to heal the patient. However, it does heal the patient. The free market has through the financial crisis balanced the relation of savings and loans again. Without any government intervention this would lead again to a sensible way forward. The only danger is and was the total stoppage of the economy because of the lack of savings available for loans right now. However, this could be dealt with.

Unfortunately, governments, and in particular the US government, have decided, to mess with the free market. This is called bailouts. Bailouts are nothing more or less that continuing the high stakes gambling. In real life, the gamblers have now lost all money, and have to go back to their lives and earn some money with real productivity. Yes, they lost everything they owned. Hopefully, they will learn through this punishment for the future and will act more wisely. Instead, the government has walked beside the gamblers and said: "Well, you have created a mess and lost everything. However, your wife has sold all the food that you need to feed your children for the next two month. Take it and play all or nothing." This is just crazy. The gambling of the entire investment market has just cost most of the future in form of savings and retirement accounts. And now the governments come and put a whole lot of future tax income in a game of all and nothing. Instead of allowing the gambler being punished, they stroke their ego and say: "Everything will be good again. It was only bad luck. Do the same thing again, and everything will be good."

Why does the government thing that the same unsustainable behavior that lead to the financial crisis could bring everybody out of this financial crisis. It beats me. It must be either denial, or they have fallen into the same greediness that lead to the disaster. Either way, the governments are now committing the same fraud that the banks and insurance companies, Wall Street and the mortgage lenders have committed on the common person, to all citizens, and particular to our children. The governments are betting away the future of our children, who will eventually pay for it. And all for the purpose of winning the next election. Let's start a world court and bring all those criminals in front of a judge. That are the crossroads we are standing on.