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De Soto on the Real Cause of the Global Financial Mess
Monday, December 5, 2011 3:30 pm | By Kelsey Zahourek
Peruvian economist, Hernando de Soto, has yet another insightful op-ed in the New York Times, this time dealing with the global financial crisis. In the opinion piece, de Soto explains that the United States and Europe have continually missed opportunities to enact real reforms that would pull the world out of this crisis. Instead of treating the “disease,” which he explains is the lack of knowledge of who owns what assets and therefore risks, lawmakers have focused mainly on the “symptoms”—faulty loans, the mortgage crisis, and rising unemployment.
 
De Soto explains:
 
Had those symptoms been the real cause of the crisis, “vulture capitalists” should have swept in by now. They should have spotted the signals that send knowledge of who is in trouble and — following the laws of supply and demand — picked up on the cheap the potentially lucrative remains of the nonperforming assets and transactions, correcting the deficiencies that led to them…
 
Mechanisms in the United States and Europe to record and signal the crucial knowledge that determines whether it is reasonable to grant private credit — who has the property rights over the assets, equity and liabilities, and therefore holds the risks, and what the opportunities are — are no longer reliable. The knowledge system is broken.
 
De Soto has spent a great deal of his life working with emerging markets to bring those working in the informal sectors of the economy into the formal economy by enacting the very reforms needed to fix much of what ails the current financial system. I encourage you to read the rest of the article here.
 

 

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I'm not certain who this is going to, but here is a portion of a book I'm writing. The title of this chapter is If you could destroy the United States from within, how would you go about it? Clinton/Gore orchestrated passage of the Financial Services Modernization Act of 1999, and subsequent Commodities Futures Modernization Act of 2000. The first allowed derivtives back into our financial system after being banned by Glass-Steagall. The second explicitly made trading these damnable instruments of financial gambling with our national wealth unregulated by the SEC. Clinton would just live to see One World Government, of course, with him as King. Destruction of the US and world finacil markets is a solid first step in that direction. So, that said, here is an excerpt from my book. STEP 2: DESTROY OUR ECONOMY AND FINANCIAL SYSTEM Hand-in-hand with killing our own energy industry is crippling our financial system, re-introducing very dangerous, speculative, non-productive financial “instruments” that allow the gambling away of our national wealth, while simultaneously diverting much needed capital away from investment in real private enterprise and innovation that is and always will be the economic engine that keeps us free and independent. Still believe our financial system mess is all just inept politicians? Think again. Case in point...take a look at Clinton/Gore’s “ Financial System Modernization Act” of 1999 and subsequent “ Commodities Futures Modernization Act” of 2000, not only letting economy-killing derivatives back into play after being banned by Glass-Steagall in 1932, but also making derivative trading explicitly, completely unregulated in any way. Isn’t the second piece of legislation ensuring derivative trading is all done under the cover of darkness really a clear display of consciousness of guilt? Isn’t this an indictment of Clinton/Gore and their Republican Senatorial puppets who authored this terrible legislation, and had to know the damage their financial time bomb would eventually wreak on our financial system? Even the term “derivative” is an enigmatic, confusing, legalistic sort of term meant to keep most Americans completely in the dark about what these side bets really are. Once again, a clear sign of consciousness of guilt on the part of Clinton and his administration. My definition of “derivatives” is “a form of legalized gambling that allows our national financial institutions to place side bets on everything from whether the stock market rises or falls, to whether you will default on your mortgage, and to place these bets with our nation’s wealth, risking everything we have built over the last 235 years in this country”. Derivatives and hedge funds are nothing more than our financial institutions going to the track to bet on the horses, and not always with their money alone...sometimes they gamble with yours and mine. Since all of this abomination is explicitly exempt from SEC scrutiny, how do we know how much of this gambling is with banking and financial institution’s money, and how much is “co-mingled” with our savings and checking accounts? OK, so who among you reading this thinks this is a good idea? If we all know how stupid this is, then how can we believe legislation allowing derivatives back into our financial system, orchestrated by Presidents, Vice-Presidents, using members of Congress to write this garbage is simple ineptitude, and not downright malicious? This sort of gambling with our national wealth was legal prior to the Great Stock Market Crash of 1929, but was banned by the Glass-Steagall Act in 1932. The reason these betting parlors were made illegal is they played a large role in de-stabilizing the nation’s financial system, created big winners and big losers, but in the process undermining Americans’ confidence in the very financial institutions they relied on to protect their money. The damage done by the resurrection of derivative trading, orchestrated and signed into law by Bill Clinton, re-created this unimaginable scheme to make or lose trillions of dollars gambling with America’s national wealth, has yet to be tallied. Why? Because that subsequent bill, “The Commodities Futures Modernization Act” of 2000, specifically exempted derivative trading from SEC regulation and scrutiny. Clinton all the way...operate in the dark, make the whole thing bi-partisan to avoid blame. So far its worked, hasn’t it? Ever hear Bill Clinton’s name on any news source in connection with out of control derivative trading? Hell no. Ever hear Clinton/Gore mentioned in ANY news coverage of the recent financial meltdown? Hell no. The media and our members of Congress blame the banks, blame Lehman, Goldman Sachs, AIG. The Senate debate on financial reform going on right now, is aimed at undoing what Clinton put in place Yet, even our President refuses to mention Bill Clinton. What has become of our country? Is it still our country? Will any of us be able to see our children and grandchildren grow up in peace, or will we all be at the mercy of powerful interests who don’t like the fact that we’re free. Or, will we simply become the United States of China, without a single shot ever having been fired? For the media to not hold Clinton/Gore accountable for this financial disaster is exactly like parents who give their toddler a loaded gun, with the predictable disastrous results... the media blaming the toddler, never mentioning the idiotic parents. Think again about the question, ‘if you wanted to destroy this nation, regardless of motive, how would you go about it’? The destruction of our financial system is a great place to start. That destruction has already begun. There has been all sorts of news coverage about banks not lending, sitting on trillions of dollars in cash. Wonder why? If banks are betting on speculative derivatives and hedge funds...and they are... they have to have cash reserves to cover huge losses in the event their little bets become losers, don’t they? They must have cash reserves to cover their shortages, right? Cash reserves to bet even more on derivative losers, in vain attempts to balance big losses with future gains. What happens when the additional loss-covering bets are also losers? What happens is everything is completely upside down. No money for loans. No money for mortgages. Bank failures. International monetary crises. Chaos, anarchy...all carefully orchestrated so someone can enter the scene with their “solutions” to the world’s economic fiasco? Hmmmm. Somehow this all sounds strangely familiar Anyone need a good “global initiative”?. And what about the fact that every dollar used to gamble on derivatives is one less dollar that could have been invested in growing private business, small and large, in this country, creating real, sustainable, tax-generating jobs so desperately needed right here in this country. Diverting investment capital away from free enterprise is also a very effective way to bring our economy to its knees. The Clinton/Gore orchestrated financial obscenity that are derivatives, resurrected from their 67 year ban enforced by the Glass-Steagall Act, resulted in magnification of the housing bubble that burst, in part causing the financial melt-down of 2007-2008, from which we may never recover. As if bad mortgages weren’t enough to kill the economy, these risky loans were bundled, and re-packaged so derivatives could be created to bet on whether these bad assets would win or lose, leveraging already bad mortgage investment “bundles” into even greater losses. Of course, once again, its worth mentioning that we may never know how bad things really are, because these wonderful derivatives are exempt from SEC scrutiny by legislation signed into law by Bill Clinton. Jeb Bush began working as one of Lehman Brothers’ financial investment strategists in 2007. It was only one year later that Lehman Brothers went belly up, beginning the snow ball that became our national financial melt down. Gee, I wonder...could bad derivative and hedge fund plays be responsible? Is this unparalleled stupidity, or malice?
Dan Meyer / Highlands Ranch, CO December 8, 2011 8:38 pm

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