Discussion Groups / English Usage / May 2009

I'm tired of hearing the problem "defined away". We give the
problem a catchy title "toxic assets", and the problem is half
solved, by identifying the cause of the problem as "toxic assets".
All we have do now is find a way of getting rid of the "toxic
assets", and everyone will live happily ever after. No need to ever
go back and re-think our diagnosis of the cause of the problem,
because after all everyone knows that toxic things are bad, so if
we find "toxic assets" then obviously that's the cause of our
financial crisis. Who would be so absurd to suggest the cause could
be anything else?

Well that's all wrong. The problem isn't some random assets that
just happened to turn toxic, through no fault of anybody, just a
sorry mistake, like food that was carelessly left un-eaten for too
long so that it accumulates growth of toxic bacteria and fungus, or
mayonaise filled sandwiches that are carelessly left out in the sun
too long and develop food-poisening, etc.

The problem is so-called "professional" bankers who borrowed other
people's money to finance their gambling habits, which worked for a
few years as the Ponzi scheme of riding the stock and housing price
"trend" upward seemed to work, but which stopped working as soon as
there was a slow-down in price-rise causing some shrewd gamblers to
pull out of the game by liquidating their "holdings" (gambling
stakes, really), causing a bid/ask imbalance that forced prices to
drop a little bit, causing almost-shrewd gamblers to realize the
bubble might be bursting and liquidate their "holdings" next,
causing a more severe bid/ask imbalance hence a sharp drop of
prices, causing other gamblers who had leverged their borrowed
money via margin-purchases to suffer margin calls whereby they were
*required* to liquidate their "holdings", causing a total collapse
of prices, and here we are.

Also, the problem is large banks and other "investment" companies
which required their funds-managers to speculate on rising prices
rather than make stable long-term investments, with perverse
incentives such as providing huge bonuses for short-term apparent
success but no "claw back" when the short-term situation reverses
and the long-term result in fact turns out to be **negative**. The
funds-managers get to keep their bonuses from the past short-term
apparent success, and the company that paid the bonuses is out both
the bonuses themselves (including bonuses promised in the past but
*paid* in the future, like a week ago with those A.I.G. bonuses)
and the long-term loss of funds caused by the short-sighted
"investment" strategies. (Betting on short-term price rises in a
Ponzi scheme isn't true investment, it's just plan old
**gambling**, with other people's money in this case.) It was
totally incompetant for CEOs and other top staff of these
corporations to provide such incentives and then encourage
short-term speculation instead of sound long-term investment. And
it was blatantly immoral for top ownership/management of these
corporations to promote this kind of gambling on IRA accounts and
the like, where many ordinary people trusted these large
institutions with their personal life-savings.

Also, the problem is government agencies which encouraged and
allowed these abuses of borrowed money to occur, did nothing to
stop the problem before it got "too big to allow to fail", didn't
even set up adequate monitoring of the situation to where anyone in
official agency positions could get a clear picture that things
were wrong **already** three or ten years ago when housing prices
were twice housing value and still gamblers were buying more homes
and banks were granting more sub-prime mortgages for attempts at
purchase of these homes by people who could't afford such an
*expensive* home (at price double or triple actual value). Some
people did figure out something was wrong already ten years ago,
and resported their suspicions to the agencies, but without any
public data available the suspecter couldn't "prove" their claims
to get the attention of the regulators, and without monitoring in
place the regulators had no way to evaluate the claims of
Ponzi-bubble-which-will-burst-eventually.

And, finally, the problem is individuals who failed to follow the
most basic axiom of sound investment:
                   *****     DIVERSIFY     *****
These idiots put *all* their eggs in one basket. Instead of one big
chunk of their life savings in an IRA, another big chunk in
Treasury bonds, another big chunk in insured savings accounts up to
the FDIC limit, another big chunk in precious metals, etc., they
put virtualy *all* their life savings in an IRA, and didn't bother
to ask the IRA manager where the money was in turn really invested,
or didn't understand what the IRA manager said back, or didn't
care, just trusted the "banker" (gambler) to do well with their
life savings. It's almost like giving your life savings to a guy
who makes bets on the horses at Santa Anita, because he's been
reporting that his bets have been paying off and if he can have a
little more of your money he can make larger bets and thereby give
you a larger profit on top of your existing life savings. At least
if you're going to give your live savings to horse-race gamblers,
you ought to split it among several gamblers, so that if one of
them stops winning you won't have lost *all* your live savings.

Then after the problem strikes, the Federal institution folks start
throwing good money (borrowed against future tax revenues) after
bad (money already lost in bonuses paid to funds-managers through
the perverse short-term incentives, and money pulled out by the
very first who saw the impending collapse and liquidated their
holdings while the prices were still relatively high), by claiming
these "investment" companies are "too big to fail", a cliche that
is a complete utter lie. Nothing is too big to fail. Our entire
ecosystem failed several times in the past (end-Permian extinction
being the worst, end-Cretacious extinction that wiped out all
non-avian members of the dinosaur clade being second worst so-far),
and with rainforest destruction and global warming we're headed
toward another entire-ecosystem near-collapse that may rank third
or fourth worst of all time, or might just possibly beat out the
end-Cretaceous extinction if financial/environmental desperation
triggers thermonuclear war between Taliban-controlled Pakistan
circa year 2012 and anti-Taliban India, which draws China into the
local thermonuclear war, which triggers automatic thermonuclear
response by NATO, leading to China retaliating against NATO, with
Russia fearing a pre-emptive strike by NATO or China hence
realizing a use-them-or-lose-them situation and deciding to launch
all their ICBMs and SLBMs before it's too late, resulting in Global
Thermonuclear Exchange and consequent "nuclear winter".

Getting rid of "toxic assets" might seem to fix the problem, for
today and a couple more years, but the real longterm fix is toget
rid of the TOXIC BANKERS by both forcing them into unpaid
retirement NOW and forcing companies to elminate the incentives
that ancouraged up-and-coming business-school graduates to get into
speculative betting on price trends rather than stable long-term
*investent* in the first place. It's like the terrorist
organizations. They can afford to kill off every last one of their
under-age suicide bombers, because dire poverty in those parts of
the world provide no incentive to just get a job and raise a family
instead of joining the suicide-bombing corps. So there will always
be more young children deciding to be suicide bombers because they
get short-term recognition, that is better than what they get in
normal life in poverty, and then death, which is no worse than
starving to death in poverty, and then (they mistakenly believe)
some large number of virgins in some ficticious after-life. Poverty
provides perverse incentives, to turn potential good people into
suicide bombers, so long as such dire poverty continues to exist.
Likewise perverse short-term-investment incentives turns young
potential sound-investment bankers into short-term-profit gamblers,
so long as those perverse "bonus" plans exist.

In conclusion: Get rid of TOXIC BANKERS, not toxic assets. Let the
banks whose top management encouraged gambling to EAT THE TOXIC
ASSETS and not burden the taxpayers with bailing them out. Let
those companies be forced into Chapter 11 bankruptcy and/or
government ownership and total control, and let their assets be
sold at auction for pennies on the dollar to partially pay their
debts, and let the chain reaction of auction-price liquidation
strike those other companies who put too much of their funds in the
badly-managed companies, so that some of them will also go into
Chapter-11 bankruptcy and/or government ownership. Let the "domino
effect" of collapsing companies go as far as it needs to go, to put
*all* such badly managed companies out of business, leaving behind
only the companies that didn't hand their money over to
irresponsible people, who now own the assets of the
badly-managed-now-failed companies.

But don't let this result in dire consequences for ordinary people
who are far removed from the causes of the financial crash. Provide
a safety net for everyone, but with incentives to be productive
rather than incentives to waste one's time for years on end.
Instead of providing extended unemployment benefits, with
incentives to spend all one's time *searching* for a job, wasting
all one's time on job-searching instead of doing anything truly
useful, then *NOTHING* after unemployment benefits run out, with no
incentive to do anything at all except get into organized crime,
the govenment should provide guaranteed minimum-wage
government-funded jobs for *EVERY* legal resident (except any
legally forbidden to have jobs), with no time limit, so long as
each person can't find a better job in private industry then they
can keep their minimum-wage WPA job. This system automatically
adjusts government benefits according to need, without requiring
repeated changes in the law. When there's a recession, more people
take government jobs, so our goverment goes more into debt, then
when the economy improves, most people quit their WPA jobs,
relieving most of that cost, while tax revenues increase, so we
have a budget surplus to pay off what had been borrowed during the
recession. Pass the law once, set up the InterNet-managed WPA once,
and forever afterward that system maintains 100% employment and
productivity through the ups and downs of economic cycles, and
balances going into debt during recession and coming out of debt
during good times, all without further major changes to the law.

P.S. I'm working on an InterNet framework that will support both a
barter system until such time as the WPA money is available, then
can absorb the WPA money when it's available to provide the ability
of barter members to "cash out" all or part of their earnings at
any time they choose. See <http://TinyURL.Com/NewEco>. Ignore the
dichotomy at the start, where I see NewEco as a temporary (interim)
system *until* the InterNet-WPA exists, and pay more attention to
the addenda later when I realized the NewEco "cooperative" system
and the InterNet-WPA could be unified. Eventually I'll get around
to re-organizing that Web page to explain the unification from the
start.

PPS: On 2009.Mar.22, I started programming (using PowerLisp 68k) my
set-barter algorithm, got it basically working Mar.25, ported it to
FreeBSD Unix (using CMU-CL) later Mar.25, and gave a demo to EllenS
(local resident here) Mar.26 afternoon/evening about 6PM, and it
worked great! Next I need to either figure out how to set up TCP
listener-sockets from CMU-CL (on that same Unix machine), or SBCL
(on another machine I also have available for remote use), whereby
I could set up a demo of the set-barter algorithm accessible via
TELNET, or re-organize the business logic to support a proper
transaction mode of operation and interface it to the Web as a CGI
demo, whichever is easier to do quickly. But if anyone wants to see
a demo now, and you're in the local area, e-mail me to arrange a
time you can drop by to visit me and let me show you the demo on my
dialup (VT100) Unix shell account. This algorithm will eventually
be one part of the NewEco. Until then, for transcript of the first
test of the algorthm (in PowerLisp), see:
<http://shell.rawbw.com/~rem/WAP/projectIdeas.html#Coop>
  link:[Set-barter] ->
    <http://shell.rawbw.com/~rem/WAP/barterSets.html>