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Lack of Trust – Caused by Institutional Corruption – Is Killing the Economy

George Washington's picture





 

People Are Losing Trust In All Institutions

The signs are everywhere: Americans have lost trust in our institutions.

The Chicago Booth/Kellogg School Financial Trust Index published yesterday shows that only 22% of Americans trust the nation’s financial system.

Robert Shiller said Monday:

Our whole economy has been affected by variations in confidence. Central banks are sort of trusted, but the actions they have often affect people’s confidence by appearance rather than substance. We’re not in the most trusting mood now.”

The National Journal noted last week:

 

 Lack of Trust   Caused by Institutional Corruption   Is Killing the Economy

 

Seven in 10 Americans believe that the country is on the wrong track; eight in 10 are dissatisfied with the way the nation is being governed. Only 23 percent have confidence in banks, and just 19 percent have confidence in big business. Less than half the population expresses “a great deal” of confidence in the public-school system or organized religion. “We have lost our gods,” says Laura Hansen, an assistant professor of sociology at Western New England University in Springfield, Mass. “We lost [faith] in the media: Remember Walter Cronkite? We lost it in our culture: You can’t point to a movie star who might inspire us, because we know too much about them. We lost it in politics, because we know too much about politicians’ lives. We’ve lost it—that basic sense of trust and confidence—in everything.”

 

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After a 50-year decline, just 14 percent of respondents in a 2011 Gallup Poll said that the federal government could be trusted “a great deal

Gallup reported last month that – for the second year in a row – Americans said that gold is the safest long-term investment.   This  shows that Americans don’t trust the government.  Specifically, as Time Magazine points out:

Traditionally, gold has been a store of value when citizens do not trust their government politically or economically.

Indeed:

  • The U.S. financial system is so corrupt and unregulated that many don’t believe the government and businesses’ promises to follow the rule of law … and simply won’t do business here anymore

It’s not just the U.S.

As the Economist reported in January, trust in institutions is plunging worldwide:

The latest annual “trust barometer” published by Edelman, a PR firm, on January 24th [finds that] overall trust has declined in the leaders of the four main categories of organization scrutinized—government, business, non-governmental organizations and the media. Of the 50 or so countries examined, 11, nearly twice as many as last year, are now judged “sceptical”, with less than 50% of those polled saying they trusted these institutions. Trust in Japanese institutions plunged to 34%, from 51% in 2011, not surprising given the handling by leaders of the Tsunami and its aftermath. But the collapse in trust was even more striking in Brazil, the country in which trust was greatest in 2011, at 80%, but now, following a series of corruption scandals, has slipped to 51% (admittedly, still above America and Britain, among others).

 

This headline slump in trust is due, above all, to the public losing faith in political leaders. In 2011, across all countries, Edelman found that 52% of those polled trusted government; this year, it was only 43%. Government is now trusted less even than the media …. Trust in business fell slightly, from 56% to 53%, as did trust in NGOs, which still remain the most trusted type of institution, at 58%, down from 61% in 2011. As in previous years, the barometer is based on a poll of what Edelman calls “informed people”, which typically means professional and well-educated, though this year for the first time the views of the informed were benchmarked against a poll of the public as a whole. For each institution, the broader public was even less trusting than the informed, with government trusted by 38%, business 47%, NGOs 50% and the media 46%.

Lack of Trust Is Killing the Economy

Top economists have been saying for well over a decade that trust is necessary for a stable economy, and that prosecuting the criminals is necessary to restore trust. Indeed, as we have repeatedly noted, loss of trust is arguably the main reason we are stuck in an economic crisis … notwithstanding unprecedented action by central banks worldwide.

Economist Daniel Hameresh writes:

A number of economists have shown recently that income levels and real growth depend upon trust—trust greases the wheels of exchange.

In 1998, Paul Zak (Professor of Economics and Department Chair, as well as the founding Director of the Center for Neuroeconomics Studies at Claremont Graduate University, Professor of Neurology at Loma Linda University Medical Center, and a senior researcher at UCLA) and Stephen Knack (a Lead Economist in the World Bank’s Research Department and Public Sector Governance Department) wrote a paper called Trust and Growth, arguing:

Adam Smith … observed notable differences across nations in the ‘probity’ and ‘punctuality’ of their populations. For example, the Dutch ‘are the most faithful to their word.’ John Stuart Mill wrote: ‘There are countries in Europe . . . where the most serious impediment to conducting business concerns on a large scale, is the rarity of persons who are supposed fit to be trusted with the receipt and expenditure of large sums of money’ (Mill, 1848, p. 132).

 

Enormous differences across countries in the propensity to trust others survive
today.

 

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Trust is higher in ‘fair’ societies.

 

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High trust societies produce more output than low trust societies. A fortiori, a sufficient amount of trust may be crucial to successful development. Douglass North (1990, p. 54) writes,

The inability of societies to develop effective, lowcost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment in the Third World.

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If trust is too low in a society, savings will be insufficient to sustain positive output growth. Such a poverty trap is more likely when institutions - both formal and informal – which punish cheaters are weak.

Heap, Tan and Zizzo and others have come to similar conclusions.

In 2001, Zak and Knack showed that “strengthening the rule of law, reducing inequality, and by facilitating interpersonal understanding” all increase trust. They conclude:

Our analysis shows that trust can be raised directly by increasing communication and education, and indirectly by strengthening formal institutions that enforce contracts and by reducing income inequality. Among the policies that impact these factors, only education, … and freedom satisfy the efficiency criterion which compares the cost of policies with the benefits citizens receive in terms of higher living standards. Further, our analysis suggests that good policy initiates a virtuous circle: policies that raise trust efficiently, improve living standards, raise civil liberties, enhance institutions, and reduce corruption, further raising trust. Trust, democracy, and the rule of law are thus the foundation of abiding prosperity.

A 2005 letter in premier scientific journal Nature reviewed the research on trust and economics:

Trust … plays a key role in economic exchange and politics. In the absence of trust among trading partners, market transactions break down. In the absence of trust in a country’s institutions and leaders, political legitimacy breaks down. Much recent evidence indicates that trust contributes to economic, political and social success.

Forbes wrote an article in 2006 entitled “The Economics of Trust”. The article summarizes the importance of trust in creating a healthy economy:

Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you’ve persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you’re going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust–now imagine trying to arrange a mortgage.

 

Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it’s rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest.

 

“If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia,” ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade. That suggests that trust is worth $12.4 trillion dollars a year to the U.S., which, in case you are wondering, is 99.5% of this country’s income.

 

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Above all, trust enables people to do business with each other. Doing business is what creates wealth.

 

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Economists distinguish between the personal, informal trust that comes from being friendly with your neighbors and the impersonal, institutionalized trust that lets you give your credit card number out over the Internet.

In 2007, Yann Algan (Professor of Economics at Paris School of Economics and University Paris East) and Pierre Cahuc (Professor of Economics at the Ecole Polytechnique (Paris)) reported:

We find a significant impact of trust on income per capita for 30 countries over the period 1949-2003.

Similarly, market psychologists Richard L. Peterson M.D. and Frank Murtha, PhD noted in 2008

Trust is the oil in the engine of capitalism, without it, the engine seizes up. Confidence is like the gasoline, without it the machine won’t move.

Trust is gone: there is no longer trust between counterparties in the financial system. Furthermore, confidence is at a low. Investors have lost their confidence in the ability of shares to provide decent returns (since they haven’t).

In 2009, Paola Sapienza (associate professor of finance and the Zell Center Faculty Fellow at Northwestern University) and Luigi Zingales (Robert C. McCormack Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business) pointed out:

The drop in trust, we believe, is a major factor behind the deteriorating economic conditions.

 

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As trust declines, so does Americans’ willingness to invest their money in the financial system. Our data show that trust in the stock market affects people’s intention to buy stocks, even after accounting for expectations of future stock-market performance. Similarly, a person’s trust in banks predicts the likelihood that he will make a run on his bank in a moment of crisis: 25 percent of those who don’t trust banks withdrew their deposits and stored them as cash last fall, compared with only 3 percent of those who said they still trusted the banks. Thus, trust in financial institutions is a key factor for the smooth functioning of capital markets and, by extension, the economy. Changes in trust matter.

They quote a Nobel laureate economist on the subject:

“Virtually every commercial transaction has within itself an element of trust,” writes economist Kenneth Arrow, a Nobel laureate. When we deposit money in a bank, we trust that it’s safe. When a company orders goods, it trusts its counterpart to deliver them in good faith. Trust facilitates transactions because it saves the costs of monitoring and screening; it is an essential lubricant that greases the wheels of the economic system.

In 2010, a distinguished international group of economists (Giancarlo Corsetti, Michael P. Devereux, Luigi Guiso, John Hassler, Gilles Saint-Paul, Hans-Werner Sinn, Jan-Egbert Sturm and Xavier Vives) wrote:

Public distrust of bankers and financial markets has risen dramatically with the financial crisis. This column argues that this loss of trust in the financial system played a critical role in the collapse of economic activity that followed. To undo the damage, financial regulation needs to focus on restoring that trust.

They noted:

Trust is crucial in many transactions and certainly in those involving financial exchanges. The massive drop in trust associated with this crisis will therefore have important implications for the future of financial markets. Data show that in the late 1970s, the percentage of people who reported having full trust in banks, brokers, mutual funds or the stock market was around 40%; it had sunk to around 30% just before the crisis hit, and collapsed to barely 5% afterwards. It is now even lower than the trust people have in other people (randomly selected of course).

In his influential 1993 book Making Democracy Work, Robert Putnam showed how civic attitudes and trust could account for differences in the economic and government performance between northern and southern Italy.

Political economist Francis Fukiyama wrote a book called Trust in 1995, arguing that the most pervasive cultural characteristic influencing a nation’s prosperity and ability to compete is the level of trust or cooperative behavior based upon shared norms. He stated that the United States, like Japan and Germany, has been a high-trust society historically but that this status has eroded in recent years.

Chris Farrell notes:

Trust matters. It’s kind of like a recipe or a software protocol that allows for economic exchange and all kinds of innovation.

 

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There’s compelling evidence that both higher levels of trust in institutions and a belief in the general trustworthiness of individuals in society carry large economic benefits. Sociologists, political scientists and economists have all showed in an impressive body of research that higher levels of trust increase trade and even foster economic growth,.

Dallas Fed president Richard Fisher said last year that a growing distrust of the nation’s political institutions is keeping businesses on the sidelines.

Forbes notes in March that a lack of trust was one of the main factors hurting the Greek economy:

There are a number of issues that have contributed and exacerbated the levels of distrust. For instance, Greece, with the help of Goldman Sachs, concealed the state of their finances for over a decade until they ran into this major debt crisis. Because they failed to disclose the extent of their financial problems, the EU and other players in the global credit market are extremely reluctant to cooperate or put faith in the representations made by the Greek leadership.

 

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If the leadership in Athens cannot reestablish trust with the citizenry and develop open and honest communication amongst themselves, their constituents, and the individual leaders of the financial institutions involved, the agreements they make will not even be worth the paper they are written on.

Ken Eisold – an internationally respected authority on the psychodynamics of organizations – writes:

Most of us view trust as valuable and desirable, something that improves the quality of our personal lives.  We seldom take the next step and view it as indispensable, a vital ingredient in society – and in the economy. But all credit is based on trust, and the fundamental problem in a credit crisis is not just the lack of “liquidity” but also the absence of trust, the trust that is essential to all financial transactions.”

But the problem is not that people should be more blindly and naively trusting. The problem – as Eisold points out – is that the institutions have to act in a more trustworthy manner:

The essential point is not that people need to be encouraged to trust. Most of us want to trust and have the basic capacity to trust. We need institutions that are trustworthy.

No Economy-Revving Optimism Without Trust

Economist Robert Higgs – who has studied the effect of World War II on the economy in great detail – argues that it was optimism, rather than stimulus spending, which got us out of the depression:

The performance of the war economy … broke the back of the pessimistic expectations almost everybody had come to hold during the seemingly endless Depression. In the long decade of the 1930s, especially its latter half, many people had come to believe that the economic machine was irreparably broken. The frenetic activity of war production—never mind that it was just a lot of guns and ammunition—dispelled the hopelessness. People began to think: if we can produce all these planes, ships, and bombs, we can also turn out prodigious quantities of cars and refrigerators.

 

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The transformation of expectations—justify an interpretation that views the war as an event that recreated the possibility of genuine economic recovery. As the war ended, real prosperity returned.

Unlike after WWII, Americans now are pessimistic (even though we’ve been various wars against third-rate countries far longer than we were in WWII) and our expectations are stuck in the gutter.

Why?

Perhaps because we don’t trust our government, our big corporations or our other institutions to do anything very helpful for the country. Indeed, we don’t trust our government, big corporations and other institutions to even allow a fair playing field where we have a chance of competing fairly to get ahead on our own initiative.

Why should we work harder, invest more or spend more when we don’t trust that we might have a bright future?

Prosecuting the Criminals Is Necessary to Restore Trust

Nobel prize winning economist Joseph Stiglitz says that we have to prosecute fraud or else the economy won’t recover:

The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that’s really the problem that’s going on.

 

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I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That’s the point. There were victims all over the world.

 

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Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.

Robert Shiller said recently that failing to address the legal issues will cause Americans to lose faith in business and the government:

Shiller said the danger of foreclosuregate — the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of foreclosures and related sales in doubt — is a replay of the 1930s, when Americans lost faith that institutions such as business and government were dealing fairly.

Economists such as William Black and James Galbraith agree. Galbraith says:

There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.

Galbraith also says that economists should move into the background, and “criminologists to the forefront”.

Government regulators know this – or at least pay lip service to it – as well. For example, as the Director of the Securities and Exchange Commission’s enforcement division told Congress:

Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.

Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals – and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future. Indeed, William Black notes that we’ve known of this dynamic for “hundreds of years”. And see this, this, this and this.

And when Zak and Knack – quoted above – discuss “enforcing contracts”, “raising civil liberties”, and “reducing corruption”, they are talking about enforcing the rule of law, which means prosecuting violations of the law. Likewise, when they refer to “enhancing institutions”, they mean regulatory and justice systems which enforce contracts and prosecute cheaters.

And when Zak and Knack promote reduction of inequality, that means prosecuting fraud as well. Specifically, as I recently pointed out, prosecuting fraud is the best way to reduce inequality:

Robert Shiller [one of the top housing economists in the United States] said in 2009:

And it’s not like we want to level income. I’m not saying spread the wealth around, which got Obama in trouble. But I think, I would hope that this would be a time for a national consideration about policies that would focus on restraining any possible further increases in inequality.

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If we stop bailing out the fraudsters and financial gamblers, the big banks would focus more on traditional lending and less on speculative plays which only make the rich richer and the poor poorer, and which guarantee future economic crises (which hurt the poor more than the rich).

 

***

 

Moreover, both conservatives and liberals agree that we need to prosecute financial fraud. As I’ve previously noted, fraud disproportionally benefits the big players, makes boom-bust cycles more severe, and otherwise harms the economy – all of which increase inequality and warp the market.

Of course, it’s not just economists saying this.

One of the leading business schools in America – the Wharton School of Business – published an essay by a psychologist on the causes and solutions to the economic crisis. Wharton points out that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:

According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. “Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG.” The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. “Normal expectations of what is safe and dependable were abruptly shattered,” Sachs noted. “As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred.”

 

People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.

 

He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. “She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.

 

“By no means a sophisticated economist, she knew … that some people had become fantastically wealthy by misusing other people’s money — hers included,” Sachs said. “In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished.”

 

Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to “hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again.” In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.

Note that Sachs urges “hold[ing] the perpetrators of the economic disaster responsible.” In other words, just “looking forward” and promising to do things differently isn’t enough.

As Wall Street insider and New York Times columnist Andrew Ross Sorkin writes:

“They will pick on minor misdemeanors by individual market participants,” said David Einhorn, the hedge fund manager who was among the Cassandras before the financial crisis. To Mr. Einhorn, the government is “not willing to take on significant misbehavior by sizable” firms. “But since there have been almost no big prosecutions, there’s very little evidence that it has stopped bad actors from behaving badly.”***

 

Fraud at big corporations surely dwarfs by orders of magnitude the shareholders’ losses of $8 billion that Mr. Holder highlighted. If the government spent half the time trying to ferret out fraud at major companies that it does tracking pump-and-dump schemes, we might have been able to stop the financial crisis, or at least we’d have a fighting chance at stopping the next one.

Of course, the Europeans have been trying to avoid fraud prosecutions as well.

On the other hand, Iceland has prosecuted the fraudster bank heads (and here and here) and their former prime minister, and their economy is recovering nicely … because trust is being restored in the financial system.

Indeed, even evangelical leader Pat Robertson agrees:

Pat Robertson discussed the banking crisis and glowingly spoke about how Iceland jailed many of the bankers who devastated their nation’s economy by taking out fraudulent loans. Robertson hailed the Nordic nation for its actions and said that Americans should deal with the financial crisis in the same way.

 

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“They are putting people in jail.  Prime ministers are being indicted. They are going after banks. The people said the banks are ripping us off. We don’t like what they did, and they brought our country to ruin. Suddenly, Iceland is turning around and they look like a big success story!”

 

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“We could start putting all of those bankers in jail. There was not one banker prosecuted and so many people were lying, and so-called “no-doc loans” and liars’ loans, and none of them have been held accountable.

 

***

 

Iceland is leading the way and their GDP is growing, and all of a sudden, they were in a terrible mess, terrible mess, and look what is happening!”

 


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Fri, 05/04/2012 - 19:34 | Link to Comment skank
skank's picture

"...because trust is being restored in the financial system."

followed up by... "Pat Robertson agrees:"

niiice   (some sarc)

Jay: No wonder he saw Jesus.
Homey's rockin' the ganj.

Fri, 05/04/2012 - 16:00 | Link to Comment shovelhead
shovelhead's picture

I trust that the SEC would rather look at online porn than do their job locking up fraudsters.

See? Trust in Govt. is not dead.

Seems surreal that we once dumped a president for peeking in Ellsberg's dirty underwear drawer and now the top cops let the theft of investors billions in broad daylight go by without barly a peep. Might as well just send em home to porn watch on their own dime.

Fri, 05/04/2012 - 13:44 | Link to Comment proLiberty
proLiberty's picture

Government institutions are as corrupt and incompetent as they ever were.  The only thing that has really changed is the public's ability (thanks to the net and forums like ZH) to have an open discussion about government institutions without it being moderated, throttled and edited by supporters of big and bigger government in the media.  Government isn't suddenly a failure, it has ALWAYS been a failure.   Government isn't suddenly incompetent, it has ALWAYS been a incompetent.   The truth is that government is only a power-oriented parasite on the private sector.  Rothbard was right, government runs a scam based on welfare and warfare. 

 

Fri, 05/04/2012 - 13:13 | Link to Comment Joebloinvestor
Joebloinvestor's picture

Great article.

There is no fix for loss of confidence.

What do they expect?

$1.6 billion gets stolen and no one gets arrested?

Government OUT OF CONTROL.

Military with no discipline (at least that is the impression).

Then there are the IDIOTS who are in charge of the finances.

Fri, 05/04/2012 - 12:48 | Link to Comment IAmNotMark
IAmNotMark's picture

I have absolute trust in our government, banks, and leaders, both red and blue.

I trust them to screw me, screw you, screw our country, and screw the world.  I trust that they will do anything to maintain power, gain more power, and not give up any power.  I trust that they will lie, cheat, and steal.  I trust that, if needed, they will wage war and kill millions or billions to stay in power.  I trust Romney as much as Obama to continue leading our country in the direction it's going right now.  I trust our government to make things worse over the next several years.

Lack of trust?  I wish I didn't trust our government as much as I do.

Fri, 05/04/2012 - 12:43 | Link to Comment genericwaz
genericwaz's picture

My Name is Dr Larry Kiwesi Frimpong and I am Emeritus Professor of Schadenstats at Andrew de Wyntoun and CEO of Obfustadata International.

 

Obfustadata International is a company specialist in manufacture of obfustats for every occasion. We are in position to give you all percentages necessary to totally bamboozle the end user. We are here creating obfustats for everything all over the place for many years now. All the best governments are using Obfustadata. You will not be needing your own expensive weather stations for collections of data. Our staff here at Andrew de Wyntoun will do all data collections and statistical analysis for you. You want very big lack of trust demographic obfustats? Carbon footprint obfustats? Urban heat island obfustats. Inflation obfustats? Very serious glacier melting obfustats?  Corporate fraud prosecution obfustats? You are only naming it, we are here doing it for you.

 

You want news of my bona fides? Telephone Victoria Menzies at St Serf’s Bursar Office and ask about the Larry Kiwesi Frimpong bonas.

 

Fri, 05/04/2012 - 12:18 | Link to Comment Muppet Pimp
Muppet Pimp's picture

.

Fri, 05/04/2012 - 12:14 | Link to Comment Muppet Pimp
Muppet Pimp's picture

If we were to prosecute the fraud who would pay for the puppets campaigns? Hence, we will not prosecute the fraud ever again.

Fri, 05/04/2012 - 12:06 | Link to Comment aerojet
aerojet's picture

I listened to a Nixon speech last week and was stunned, just simply stunned, by how honest and matter-of-fact it was. And this is Nixon we're talking about!  Today's teleprompter-in-chief cut-out for the elite is not even close.

Fri, 05/04/2012 - 12:41 | Link to Comment IAmNotMark
IAmNotMark's picture

Isn't it sad that we can look at Nixon as a truth-teller compared to the politicians of today.

Fri, 05/04/2012 - 12:04 | Link to Comment lunaticfringe
lunaticfringe's picture

Nobel prize winning economist Joseph Stiglitz says that we have to prosecute fraud or else the economy won’t recover:

 

I don't have a nobel prize. However, I have been stating for four years now that if someone in this sham of a government of ours- does not re-install the rule of law, we are toast. The rule of law was the mechanism that allowed us to distance ourselves from and succeed when all other economies failed. 

Fri, 05/04/2012 - 12:34 | Link to Comment Benjamin Glutton
Benjamin Glutton's picture
Wednesday, May 2, 2012

Bill Black: Geithner Channels Greenspan and Airbrushes Fraud out of our Crises

 

On April 25, 2012, Treasury Secretary Geithner made remarkable statements about the role of elite financial fraud and greed in producing our recurrent, intensifying financial crises.

In this first installment I focus on the first of five problems with Geithner’s claims: (1) he does not understand the causes of prior crises, (2) he does not understand the causes of the ongoing crisis, (3) he does not understand that if he were correct about the first two points our nation would be in even greater peril and the urgency of Geithner leading a radical transformation of finance and regulation would be greater still, (4) he is not correct that we are prosecuting the elite criminals who drove the ongoing crisis, and (5) the media continues its nine-year pattern of failing to challenge Geithner’s fictions and his failures to lead the radical transformation that he should be desperately seeking given his stated beliefs about the causes of financial crises.

Here are the specifics of what Geithner said about financial crises, fraud, and greed.
"The wheels of justice are turning now," Geithner said at an event in Portland after touring a factory there. "They are not turning as fast as people would like, but we have the best system in the world for making sure we can enforce the laws of the land," he said.

Geithner suggested that holding people accountable for the wreckage caused by the recent housing collapse and the ensuing financial meltdown was not that simple since most crises were not caused by criminal activity.

"Most financial crises are caused by a mix of stupidity and greed and recklessness and risk-taking and hope," said Geithner, who helped tackle the crisis for the Bush administration when he was the head of the New York Federal Reserve and has been urging Europe to act more aggressively to contain its debt problems.

 

cont...http://www.capitalismwithoutfailure.com/2012/05/bill-black-geithner-chan...

 

Conclusion:
Geithner is not simply wrong about fraud playing no significant role in prior crises.  His senior staff is also wrong, or unwilling to speak truth to power.  Geithner is not slightly wrong, he is grotesquely wrong.  The fact that he is so wrong a quarter-century after the facts on fraud were made public would be disturbing for any official, but for the U.S. Treasury Secretary who has just seen the global economy crushed by an orgy of accounting control fraud by the world’s most elite bankers it is terrifying.

Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions. [11]

 

 

Fri, 05/04/2012 - 12:21 | Link to Comment JustObserving
JustObserving's picture

Criminals run this country.  Millions of crimes committed during the mortgage crisis but not one prosecution.  Even the Orange man is free.  

The MF Global thievery with $1.5 billion missing (reported on Oct 28, 2011) in segregated accounts and no one charged with a crime yet.

Our corruption is complete.

Fri, 05/04/2012 - 12:09 | Link to Comment Widowmaker
Widowmaker's picture

That graphic illustrates very clearly the incorporated corruption at the top - Banks, President, and Congress.  What do all three have in common -- fraud and failure.

Throw the bums out, light the banks and start the prosecutions.

 

Fri, 05/04/2012 - 11:58 | Link to Comment DeadFred
DeadFred's picture

I saw this first hand when I gave a training course in Ecuador some years ago. Park your car at a store, check around to see if it's safe to get out. Make sure there aren't any empty bags on the seats to tempt someone to break in to see if there's anything in the bag. Take the windshield wipers off and put them in your carrying bag or else they won't be there when you get back.

Greenhouses needed to guarded to be sure the hoses were there the next day. Guards needed to be watched to insure they weren't stealing. Imports needed to be met at the dock or they would disappear. Carry toilet paper with you because there isn't any in the rest rooms. Officials needed to be bribed to get permission to exchange currencies. While I was there a teaching conference was canceled because bus service between the major cities shut down, bandits were hijacking buses to rape, kill and pillage. I was robbed twice in three weeks.

Intelligent, gifted people were left unproductive because simple acts took so much precaution that little could be done. On returning home I truly appreciated the environment of trust but it seems to be disappearing.

The root problem is that people tolerate the corrupt. The head of a major financial institution wouldn't tolerate his employees fleecing the muppets if it meant he would be shunned by others, if his children were ostracized at school as the kids of a ganster and could find a anyone to date. Instead this hypothetical CEO is respected and fawned over simply because he is powerful and filthy rich, never mind his corruption. Collectively we will get what we reward, it has always been that way and always will be.

If gangsters are respected we will get more gangsters.

Fri, 05/04/2012 - 12:11 | Link to Comment aerojet
aerojet's picture

Ecuador, lol.  And yet, every major US city is but a couple steps away from being like that.  South Africa has become like Ecuador, too. The third world, coming to a formerly first-world country near you.

"The head of a major financial institution wouldn't tolerate his employees fleecing the muppets if it meant he would be shunned by others" -- or if he were killed outright by one of those who had been taken for a sucker.

Fri, 05/04/2012 - 11:58 | Link to Comment DeadFred
DeadFred's picture

I saw this first hand when I gave a training course in Ecuador some years ago. Park your car at a store, check around to see if it's safe to get out. Make sure there aren't any empty bags on the seats to tempt someone to break in to see if there's anything in the bag. Take the windshield wipers off and put them in your carrying bag or else they won't be there when you get back.

Greenhouses needed to guarded to be sure the hoses were there the next day. Guards needed to be watched to insure they weren't stealing. Imports needed to be met at the dock or they would disappear. Carry toilet paper with you because there isn't any in the rest rooms. Officials needed to be bribed to get permission to exchange currencies. While I was there a teaching conference was canceled because bus service between the major cities shut down, bandits were hijacking buses to rape, kill and pillage. I was robbed twice in three weeks.

Intelligent, gifted people were left unproductive because simple acts took so much precaution that little could be done. On returning home I truly appreciated the environment of trust but it seems to be disappearing.

The root problem is that people tolerate the corrupt. The head of a major financial institution wouldn't tolerate his employees fleecing the muppets if it meant he would be shunned by others, if his children were ostracized at school as the kids of a ganster and could find a anyone to date. Instead this hypothetical CEO is respected and fawned over simply because he is powerful and filthy rich, never mind his corruption. Collectively we will get what we reward, it has always been that way and always will be.

If gangsters are respected we will get more gangsters.

Fri, 05/04/2012 - 11:52 | Link to Comment TruthHunter
TruthHunter's picture

Have a look at the ones that improved in trust.

 You're kidding, right?  Medical insitutions?

Religion? HMO's? And whats got to be the real zinger...Criminal Justice System?

Is there intelligent life on earth?

Fri, 05/04/2012 - 11:48 | Link to Comment Alcoholic Nativ...
Alcoholic Native American's picture

This economy is a finished game of monopoly, with the winner of giving the losers the privilidge of borrowing to pay rent on Park Place.

 

Fri, 05/04/2012 - 11:39 | Link to Comment WhyDoesItHurtWh...
WhyDoesItHurtWhen iPee's picture

 

 

"Pat Robertson discussed the banking crisis and glowingly spoke about how Iceland jailed many of the bankers who devastated their nation’s economy by taking out fraudulent loans. Robertson hailed the Nordic nation for its actions and said that Americans should deal with the financial crisis in the same way."

While I agree with his statement,  how can anyone trust this Fucker! 

Fri, 05/04/2012 - 11:51 | Link to Comment NotApplicable
NotApplicable's picture

That's exactly why he said it. His backing of a valid idea works as a form of tainting it in the eyes of all others who would never associate with him.

It's all about polluting the signal with noise, by having the wrong person state the right idea. My favorite example was when the CEO of Exxon came out a few years ago claiming that ethanol is just another form of genocide, as it diverts food into the fuel chain, driving up the cost of food (in this case a basic staple) which is felt disproportionately by the poor. My lefty friends that had been trying to communicate this idea previously, well they said not a word in response.

Another example is Palin et al. taking over the Tea Party in order to discredit it.

In other words, it's just another form of trolling.

Fri, 05/04/2012 - 12:21 | Link to Comment Jim in MN
Jim in MN's picture

It's why they sent Pat Buchanan down to fuck over Ross Perot and the Reform Party.

Fri, 05/04/2012 - 11:38 | Link to Comment krispkritter
krispkritter's picture

But this Administration and Wall Street firmly believe in the 'Rule of Law'!

And the second thing they believe in is that 'Rules were made to be broken'!

Fri, 05/04/2012 - 11:38 | Link to Comment Diet Coke and F...
Diet Coke and Floozies's picture

Trust in PM's

Fri, 05/04/2012 - 11:34 | Link to Comment resaci
resaci's picture

Start at the TOP

Throw the BUM out!

STOP the ObamaNation

 

Fri, 05/04/2012 - 11:43 | Link to Comment NotApplicable
NotApplicable's picture

He's nowhere near the top. Not even close.

Hell, he'll never surpass the power that Pappy Bush has today (and he's nowhere near the top either).

Fri, 05/04/2012 - 11:28 | Link to Comment connda
connda's picture

Jon Corzine doing the perp-walk would be a good start to reinstituting trust.  Iceland has it right.  When other sovereigns follow suit, we might just turn the corner and head down a new road.  Until then...

Fri, 05/04/2012 - 11:19 | Link to Comment ebworthen
ebworthen's picture

CORZINED!

Fri, 05/04/2012 - 11:13 | Link to Comment connda
connda's picture

Time to start moving the pessimists in the population into the re-education camps.  A couple of months of PysOps will change these negative ninnies into Obama optimists. 

/sarc off

Fri, 05/04/2012 - 11:12 | Link to Comment RichardENixon
RichardENixon's picture

I'm sorry, but I don't believe a word of this.

Fri, 05/04/2012 - 11:57 | Link to Comment Doubleguns
Doubleguns's picture

Executions. That would work to restore my trust. Make it public too so all can see. I bet it would be more popular than the hunger games.

 

RN would you trust that!!!!

Fri, 05/04/2012 - 11:29 | Link to Comment TheCanimal
TheCanimal's picture

To RichardNixon:  That was funny!  Thank you for making me laugh.

Fri, 05/04/2012 - 11:06 | Link to Comment Manthong
Manthong's picture

And with every day that passes more people learn the truth, the magnitude of the greed, fraud and theft and begin to understand what it has done to their real prospects for prosperity and security.

Sat, 05/05/2012 - 08:31 | Link to Comment Cistercian
Cistercian's picture

Veritas?Quod est Veritas?

Fri, 05/04/2012 - 12:09 | Link to Comment Doubleguns
Doubleguns's picture

Backs against the wall. That is when things will begin to change.

 

http://www.youtube.com/watch?v=Tac20aVyfHY

Fri, 05/04/2012 - 11:36 | Link to Comment idea_hamster
idea_hamster's picture

Interesting to see that all three branches of the Federal Government are now below 50% -- in 2002, only Congress was below par.

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