When I look back, it is in utter amazement at the number of false statements I have been subjected to by financial advisors and even friends. Its an important conclusion when one understands that almost no one, including the experts understand economics or forecasting. Even the most high status Wall Street financial advisor is mostly useless because they work for institutions that follow the pack and are so focused on short term gains that they can not see the forest from the trees. The greatest evidence for this is the most recent financial crisis where all the major Wall Street firms, and many of banks went off the proverbial cliff due to short term incentives.

Financial types can’t see past their next bonus much less the future. People get into this field because they are greedy. That should not be terribly shocking.

Magazines such as Forbes and Fortune take so much advertising that their objectivity is seriously compromised. So who to listen to? I have found several sources, which I have lauded a number of times in this blog, but which I have been surprisingly unable to get friends and acquaintances to read.

Why to people continue to gravitate to corrupt information sources long after they have been proven incorrect in their assertions. Need I remind anyone, Fortune awarded Enron its Most Innovative Company in America Award 6 years in a row. Regardless of past performance, people continue to quote information from these sources to me. It is almost as if no one keeps track.

Generally, I have told people I know about the best sources for financial information, and they are free and easy to find on the internet.

They are:

1. CEPR
2. Dollars and Sense Magazine
3. Michael Hudson

I don’t have to study very hard (although I did study the real estate bubble, but came to same conclusion that CEPR came to but with more rigorous methods) and now forecasting is easy. That is long term forecasting, I don’t believe anyone can say when a particular event is going to happen. However, if you look to the long term, then the specific event date is not all that important. I simply go with these sources, who have yet to be wrong. However, I am still asked what I think about this or that statement made by various corrupt sources such as BusinessWeek or Goldman Sachs.

but on most things I ask “what have my sources written on the topic.” So most of the time I end up contradicting what BusinessWeek or Fortune or Mad Money say based upon the longer term rigorous work of my three sources.

I don’t know what the reticence is to leverage proven resources. I stopped considering the opinion of television or people I know because it was bad for my finances. Most people have absolutely no idea what they are talking about when it comes to the economy, and are primarily repeating things they heard from corrupt information sources. Its like a a Pez dispenser when people talk about projections or investments, except instead a little piece of candy that comes out when they open their mouths, its a little piece of excrement. The financial “professionals” are the absolute worst, primarily because they are on the take, but secondly because most of them don’t understand economics. However it does not come down to simply understanding economics. If you are an economist with three letters after your name that shows academic performance, however, if you work for Wall Street, your PhD is now useless as a signal of quality because you have a very dark master.
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Larry Summers has a PhD in economics, and from a fancy university also. However, if you see this sleazebucket speaking on television cover up the television with something or turn it off. Larry Summers is in the back pocket of big Wall Street money, yet someone also holds a position in the the Obama Administration. This brings us to the next topic…

This is my all accounts a very decent man with an excellent legal mind and strong moral foundation. However, in the area of economics he is out of his depth. He has appointed some of the biggest corrupt sleazbags such as Larry Summers, but also Tim Geithner and many others. His ineptitude in selecting the right people has cost us collectively trillions of dollars. Thus its not enough to have economics knowledge or to not be corrupt, rather in order to be an authority worthy of listening to, you need to be both.

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How False Information is Repeated

However, friends and family are just as dangerous because they repeat false statements that they have read or seen from corrupt information sources. The financial illiteracy and propaganazition is so powerful that I literally will not discuss investments with anyone except people I cam close to primarily because I don’t want to listen to a restatement of information that has not been critically analyzed and originated from a corrupt source. Eradicating poor information sources greatly cuts down on my mental effort and allows me to better allocate my time.

The Way the Game Works

Financial advisors have a song and dance that they like to engage in when the acquire a new client. First they try to dress conservatively and communicate an image of austere integrity. Furthermore the individual you meet attempts to present the idea that they personally pick investments. In fact, when you enter a retail financial services office (which are often in the nicer parts of town), you are in essence entering a completely staged environment which is as fake as movie set. There is no austerity, and certainly no integrity in the financial profession. Secondly, when you deal with a financial adviser at a retail outlet, you are dealing with the bottom rung of the firm, and these advisors essentially have no control over what investments they recommend. They are mainly selected for sales skill, not financial knowledge, because retail investment advisors do not do their own analysis in any case. They are told what to recommend by the real decision makers that work in Manhattan. As shocking as it may seem, in many cases, in addition to making significant fees off of your money, they also are horribly corrupt in that they may recommend investments that the investment bank either further profits from directly, or may be simply assets that sit on the investment banks books that they want to get rid of. This is shocking to many people who trust the “names” of these companies and believe in the advertising. However each of these firms is engaged in consumer fraud, however, because the Securities and Exchange Commission does nothing to regulate this industry, they can get away with anything they like. You can not win in this situation and almost anything they do with your money, short of straight siphoning of accounts is completely legal. Furthermore, the political structures in this country cannot control or regulate the finance industry, as Illinois Dick Durbin once said “The banking industry owns this place.” (speaking of the Senate).

Investment firms are huge incredibly powerful monopolies that do not operate in the normal economy.

Dancing With the Devil

As soon as the customer (or mark in industry parlance) sits down, they will be subjected to a long string of lies. Some of the major lies are in the assumptions that your the customer is expected to accept. Each of these assumptions are untrue, have a very tenuous link to finance, and are designed to maximize the movement of money from your account, and into the financial firm’s account.

Here they are (in no particular order). See the explanations for each below with the matching item number.

1. “I have an MBA (or other degree) in finance and or “I have been working in this field for (insert years) and I am quite experiences.”
2. “We need to develop an investment strategy based upon your risk tolerance. Would you say you are a high, medium or low risk investor?”
3. “Here is a list of (funds-stocks-bonds-whatever) look how well these ones did last year and how well you would have done if you had been in them.”
4. “We are a (insert number) person company and you get access to the research that we perform.”
5. “I can call you when I get hot tips and this can help you rebalance your portfolio to promising opportunities.”
6. You should stay in the market because if you get out now you will miss opportunities for the rebound. Studies show that stocks outperform other assets over the long term.

Here are the reasons why all of these assumptions are false.

1. The education of your advisor or their experience level is not material to the recommendations you will get, because they do not make investment decisions, and are instead provided with a narrow series of options which are sent out to all the retail locations. The degree or other certificate is designed to impress you and nothing more. (see more details on this point and Glass-Steagall at the bottom of this article)
2. This is one of the most important weapons in the bag of tricks of false assumptions of the investment advisor. The whole point of this is to make the investing process seem more difficult than it really is and supports the idea that every investment “strategy” needs to be tailored to clients. We explain further on why this is untrue.
3. This is an old con, there is no evidence that the firm or advisor picked these investments that they are showing you. Any advisor that could consistently pick winning funds could leave the place they work and simply create their own investment company. They are working in a retail sales job because they can not do this…and the geniuses in Manhattan can not do it either. It is a simple thing to go and look to see what did well the year before, and then show people what they could have had. Furthermore, this strategy moves clients into asset bubbles, as sectors tend to increase and then decrease or at least decrease in the appreciation percentage the next year.
4. This is completely untrue as different levels of investors are prioritized in terms of who get what information. Accounts below $500,000 are considered more or less expendable, and often get the worst investments, sometimes that the bank does not want to continue to hold. That is the problem, the investment bank is both providing investment advice and itself speculating on investments, creating huge conflicts of interest all around. The higher your asset level the more important you will be seen and the more likely you will get better advice. However, you have to have a lot of money to be seen as important enough not to burn. There is compelling research on this…none of it published by universities or investment banks. It is called the yield disparity. If you have never heard of it, you should read this post before investing in the stock market. (http://counterecon.com/category/yield-disparity/)
5. This is typically a request to churn your account. Because transaction fees are where the money is often made, your advisor has an incentive to keep bringing you “hot tips.”
6. This is the standard line used after an investor’s portfolio has declined. Rich investors do not “take their losses.” They use inside information to avoid them or let the investment firm know they will be taking their business elsewhere if it does not stop. Have you ever tried negotiating with rich people? I will put it to you this way, all of Beverly Hills uses illegal Mexican gardening services even though the owners are multi millionaires. Secondly, the statement regarding the stock market outperforming other investments is totally false but frequently repeated, because it does not stipulate what type of investor is being discussed. Wealthy investors that gain off of inside trading information or are considered valued accounts by investment companies do do better in the stock market, but this is not representative of all investors. Therefore, the statement is only true for certain classes of investors. Thus the “average” which is often sited does not exist.

More Complex Than it Needs to Be

There is a lot of smoke and mirrors in the finance industry which covers up the fact that not much is going on, and that which is going on is mostly counterproductive. Finance has a series of complex terminology but it is all boils down to a bunch circular techno-babble, developed by money obsessed quantitative types (aka “quants”), managed by slick sociopaths, and pitched by borderline con-men. The vast majority of the finance industry is simply a parasite on the real economy. If it disappeared tomorrow, it would ignite a renaissance in the real economy.

The intent of the finance industry is to make finance so complex and create so many “products” that the typical person needs a “financial advisor” to help them manage their money.

Massive Inefficiency

How inefficient is this system? Lets take the stock market. Many are surprised to learn that only about 1% of money raised by the stock market actually goes to the companies that are raising money (according to the CEPR). The rest of it goes to investment banks, transaction fees and so on (this statistic is for the life of the stock). While it is a terrible deal for companies, companies continue to issue stock and the stock market persists as a way to compensate executives off the books (options are not declared on the income statement or balance sheet).

Stocks: A Fake Alternative

So, stocks are a toxic investment for the vast majority of investors and should not be dabbled in. So that takes out one asset class. Bonds and savings accounts provide very similar returns. Go ahead and select from the low yielding alternatives, however at least you can be pretty much guaranteed not to lose money. Much of the finance industry is enabled by investor greed and a misunderstanding of how capital markets in the US work. Average ordinary people who believe that they can get and deserve strong returns on what is a passive investment are gravely mistaken. Our system distributes high returns to those with significant assets. However, the belief that great returns are available to ordinary people is what lays open the trap that the financial advisors can then enter to sell fool’s gold. The dirty little secret is that you really should not be making a very strong return from what is a passive investment. Good returns are reserved for the wealthy. Everyone else, unless extremely lucky, gets mediocre returns. The main objective is not to lose the money you currently have and to receive a reasonable return. To get that, you don’t need an investment advisor. However, without the small and medium sized investors, the wall street casino ends, so this is hidden from the normal investor.

Con men have an old saying “you can’t cheat an honest man,” this is because all cons are based upon tapping into the greed of the mark, the idea that they will get something for nothing. More honest people outside of the finance industry would make the finance industry considerably smaller.

Reference

This is an excellent book, reading it will tell you more about the financial advisory business than any book on finance. The same tactics used in this book are used by all the major investment companies.

http://www.amazon.com/Big-Con-Story-Confidence-Man/dp/0385495382/ref=sr_1_2?ie=UTF8&s=books&qid=1259188700&sr=1-2

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Under Clinton and the Senate and House, investment advising became even more corrupt because the dividing wall was further eroded by the Glass-Steagall Act. Chuck Collins has a great description of this in his article The Visible Hand – Seven Government Actions that Have Worsened Inequality.

By removing the barriers between banks and securities firms ushered in a new wave of speculative mega-mergers. Firms such as Citigroup, f.P. Morgan Chase and others took advantage of the new rules by forming ].P. Morgan Chase and others took advantage of the new rules by forming mega-conglomerates that financed Enron and other disasters. Repealing Glass-Steagall also exposed small investors to new risks. Glass Steagall had required banks to maintain a firewall between investment bankers (who facilitate deals between banks and corporations) and brokers (who buy and sell securities for investors). Eliminating this firewall gave brokers incentives to lie to investors about the quality of securities in order to promote deals that the bankers were pushing. In one case uncovered by New York State Attorney General Eliot Spitzer, Citigroup CEO Sandy Weill was on AT<&Ts board of directors when he sent an e-mail to Citigroup analyst Jack Grubman asking him to upgrade AT&Ts investment rating as a personal favor. Grubman upped the company's rating just before Citigroup secured a deal to manage the ATT wireless division's initial public offering. Soon after the IPO, Grubman downgraded AT&Ts stock, and the price plummeted. Citigroup reaped over $40 million in fees from managing the IPO, while investors were duped out of millions more. – Chuck Collins

Good vs. Bad Sources

I have lauded three sources a number of times on this blog. I have gone through their past statements and predictions (some going back to 1995) and found them to be remarkably accurate. However, it took us some time to find these sources. When I was younger presented with information sources such as Business Week, Fortune and the Wall Street Journal. I originally figured out The Wall Street Journal was filled with false information when I began working in companies and the articles written by the Journal that covered the companies I was actually consulting in were completely inaccurate. It took me longer to figure out that Fortune and Business Week are also nothing but stenographers for the ultra wealthy and executive class. In addition to being consistently wrong, these magazines don’t really understand the concept of guilt. That is past errors, do not interfere with future forecasts, always produced with great confidence. For instance, Fortune named Enron the most innovative company in the country….6 times in a row. They recently had a cover that discussed how the Social Security System (which is in perfectly fine financial shape as the CEPR has written about and demonstrated, as well as the Office of Management and Budget multiple times) will need to be bailed out. How curious, as Social Security is backed by the US government and has a .07% administration cost. It is the most efficient financial program in the country bar none. However, its administrators also don’t own Ferraris or date supermodels, and they don’t pay for expensive advertisements in business magazines like the big investment banks and mutual funds do. Wall Street wants all that Social Security money to pump up the stock market, so they can skim it. Therefore, Fortune goes ahead and publishes a false article on the topic. Forbes, Fortune, etc…will publish any article for concentrated power because concentrated power will reduce their advertising and their access if they don’t.

Why Can You Trust?

It’s easy to see which media outlets are friends of concentrated power, because they have all the money. They are also wrong most of the time. They are actually paid to mislead because if you can get the masses betting one way, and you are pulling the strings, then you can bet the other, and make a fortune. Think about who was behing all the propaganda surrounding how housing pricing always increase, or how the stock market over time always goes up. Its quite obvious who, the same institutions who benefit from these myths. This is why your cousin, grandmother, niece and nephew all have so many incorrect economic concepts running around in their heads. They have been explicitly placed there by our media system, and unless each of them begin to perform independent research or find the right sources, they will continue to believe false thinks and make bad decisions.

The best quality economic and financial reporting comes from non-corrupt sources. After 15 years or so of being exposed to all a wide variety of economic/business information outlets, I have found three that are consistently right.

These sources, and a rough estimate of their revenues are as follows:

• Center for Economic Policy Research: $1.2 Million
• Michael Hudson N/A (i.e one person)
• Dollars and Sense $400,000

The combined revenues of these outlets, along with Michael Hudson who is part of the The Institute for the Study of Long-Term Economic Trends, but also works independently is most likely somewhere around $2,000,000. (with Dollars and Sense producing an amazing output for their yearly revenues)

Total = $2,000,000

When compared against several of the media outlets that consistently get it wrong, the results are telling.

• Forbes: $700 Million
• Business Week: $500 Million
• Wall Street Journal: $1 Billion

Total $2,000,000,000

That is 1000 times more revenue for corrupt reporting, that pumps up asset bubbles as well as stock options on command, over those principled outfits performing real reporting and investigation. The combined revenues of the bad economic and financial reporting is tremendous. Clearly, if you were in it just of the money, there is a much higher demand for false information (both on the part of consumers and advertisers) than for accurate information. Furthermore, the good sources go beyond basic reporting and question the underlying structure of our systems. This is a big no-no. Chevron, Chase and GM are not paying good money for advertising in media outlets so readers can be made to question things or think outside the box.

So Many Bad Sources

The situation is even more extreme when one considers that there are few quality sources of information, but many more corrupted sources. (Economist, Money, etc..). A detailed analysis on this topic would list all the corrupt sources vs. all the trustworthy sources and perform a division between the two to obtain a proportion. If that were done, the proportion would be even higher than the 1000 to 1 ratio I have listed above.

Conclusion

If you want to find accurate information on economics and business, look for the smaller sources that I have listed above. This is not simply a matter of ideology. Dollars and Sense, CEPR and Michael Hudson all saw and predicted the housing bubble, while other outlets were pumping up the bubble and getting rich off of real estate based advertising dollars. There are at least two reasons to patronize these sources. One is on the basis of their values. However, if you don’t care about that, then read them because they can help protect you from being victimized by institutional propaganda.

Reference

http://www.btobonline.com/apps/pbcs.dll/article?AID=/20090504/FREE/305049963/1109/FREE

This excerpt goes on to explain how the economics profession benefits people who take the opinion of elite power. It is taken from The Nation online. Perelman, who is there for the EPI reception, works at the margins of the discipline; he is one of a few hundred self-described “heterodox” economists at the conference. His last book, Railroading Economics, was about the creation of the “free market mythology,” and his next book is titled The Confiscation of American Prosperity: From Right-Wing Extremism and Economic Ideology to the Next Great Depression. I ask him about how he relates to the so-called mainstream of his profession. “It’s a mafia,” he says quietly, his eyes roving over to the suits spilling out of the Freedom to Choose room. Mafia is probably a tad hyperbolic, but there is undoubtedly something of a code of omertà within the discipline. Just ask Alan Blinder and David Card. Blinder, a renowned Princeton economist and former Clinton economic adviser, has long been a zealous advocate of trade liberalization. But this past March, the Wall Street Journal ran a front-page article on Blinder’s concerns about the massive dislocations that the current trade regime and outsourcing trends might bring for American workers. He suddenly found himself under fire from fellow economists for stepping out of line. Card, a highly esteemed economist at the University of California, Berkeley, caught flak for his heresy not on trade but on the minimum wage. In 1994 he conducted a study to see whether an increase in the minimum wage in New Jersey had the negative effect on employment that basic neoclassical theory would predict. He found it didn’t. In fact, his regression analysis showed that, controlling for other factors, New Jersey gained fast-food jobs after increasing its minimum wage, compared with Pennsylvania, which hadn’t raised wages. The paper attracted a tremendous amount of attention and criticism, and Card himself largely abandoned working on the minimum wage. In a 2006 interview, he explained his decision to leave the topic behind this way: “I’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.” http://www.thenation.com/doc/20070611/hayes

The first time I knew something was wrong with economics statistics is when I read that the inflation rate leaves out house prices over $400,000. However, I never considered how this related to the housing bubble. It’s interesting how we focus on numbers as a society, but very rarely ever noticing if the numbers are actually right. This in highly concerning because we are awash in fake numbers. Most college students are taught to stand in awe of statistics. Statistics demonstrate what is true. I was taught to be impressed with statistical techniques, to pray at the alter of the R squared value. What was left out, is the topic of the bias of the creators of statistics. This is assumed to be a non issue, lets just focus on the math and all the sexy statistics techniques the universities teach. The truth is just the opposite. Excel can calculate the most advanced statistics and using Excel to do this can be taught to surpirsingly young people. However, the truth is sophisticated statistics are not necessary and in most cases are a sign of trouble.

These are exherpts from this article was from Harpers.

http://www.harpers.org/archive/2008/05/0082023

Instead, since the 1960s, Washington has been forced to gull its citizens and creditors by debasing official statistics: the vital instruments with which the vigor and muscle of the American economy are measured. The effect, over the past twenty-five years, has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed. If Washington’s harping on weapons of mass destruction was essential to buoy public support for the invasion of Iraq, the use of deceptive statistics has played its own vital role in convincing many Americans that the U.S. economy is stronger, fairer, more productive, more dominant, and richer with opportunity than it actually is.

In a more consequential move, he asked his second Federal Reserve chairman, Arthur Burns, to develop what became an ultimately famous division between “core” inflation and headline inflation. If the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of “volatility,” categories that happened to be troublesome: at that time, food and energy. Core inflation could be spotlighted when the headline number was embarrassing, as it was in 1973 and 1974. (The economic commentator Barry Ritholtz has joked that core inflation is better called “inflation ex-inflation”—i.e., inflation after the inflation has been excluded.)

In 1983, under the Reagan Administration, inflation was further finagled when the Bureau of Labor Statistics decided that housing, too, was overstating the Consumer Price Index; the BLS substituted an entirely different “Owner Equivalent Rent” measurement, based on what a homeowner might get for renting his or her house. This methodology, controversial at the time but still in place today, simply sidestepped what was happening in the real world of homeowner costs.

Last year, the word “opacity,” hitherto reserved for Scrabble games, became a mainstay of the financial press. A credit market panic had been triggered by something called collateralized debt obligations (CDOs), which in some cases were too complicated to be fathomed even by experts. The packagers and marketers of CDOs were forced to acknowledge that their hypertechnical securities were fraught with “opacity”—a convenient, ethically and legally judgment-free word for lack of honest labeling. And far from being rare, opacity is commonplace in contemporary finance. Intricacy has become a conduit for deception.

Moreover, since the 1990s, the CPI has been subjected to three other adjustments, all downward and all dubious: product substitution (if flank steak gets too expensive, people are assumed to shift to hamburger, but nobody is assumed to move up to filet mignon), geometric weighting (goods and services in which costs are rising most rapidly get a lower weighting for a presumed reduction in consumption), and, most bizarrely, hedonic adjustment, an unusual computation by which additional quality is attributed to a product or service.

“All in all,” Williams points out, “if you were to peel back changes that were made in the CPI going back to the Carter years, you’d see that the CPI would now be 3.5 percent to 4 percent higher”—meaning that, because of lost CPI increases, Social Security checks would be 70 percent greater than they currently are.

The real numbers, to most economically minded Americans, would be a face full of cold water. Based on the criteria in place a quarter century ago, today’s U.S. unemployment rate is somewhere between 9 percent and 12 percent; the inflation rate is as high as 7 or even 10 percent;

Under-measurement of inflation, in particular, hangs over our heads like a guillotine. To acknowledge it would send interest rates climbing, and thereby would endanger the viability of the massive buildup of public and private debt (from less than $11 trillion in 1987 to $49 trillion last year) that props up the American economy. Moreover, the rising cost of pensions, benefits, borrowing, and interest payments—all indexed or related to inflation—could join with the cost of financial bailouts to overwhelm the federal budget. As inflation and interest rates have been kept artificially suppressed, the United States has been indentured to its volatile financial sector, with its predilection for leverage and risky buccaneering.

Arguably, the unraveling has already begun. As Robert Hardaway, a professor at the University of Denver, pointed out last September, the subprime lending crisis “can be directly traced back to the [1983] BLS decision to exclude the price of housing from the CPI. . . . With the illusion of low inflation inducing lenders to offer 6 percent loans, not only has speculation run rampant on the expectations of ever-rising home prices, but home buyers by the millions have been tricked into buying homes even though they only qualified for the teaser rates.” Were mainstream interest rates to jump into the 7 to 9 percent range—which could happen if inflation were to spur new concern—both Washington and Wall Street would be walking in quicksand. The make-believe economy of the past two decades, with its asset bubbles, massive borrowing, and rampant data distortion, would be in serious jeopardy. The U.S. dollar, off more than 40 percent against the euro since 2002, could slip down an even rockier slope.

The conclusion from these paragraphs is inescapable, elites are using phony statistics to accrue more benefits to themselves and to short change the rest of society. Fake inflation numbers hold of people from asking for cost of living adjustments and depreciate their savings over time. This needs to be much more discussed.

Here we go again….every several articles or interviews that we read from Michael Hudson lead to upturning the commonly held beliefs that were inserted in our mind by our propagandized business education, business controlled media, conversation with others or all of the above.

Flimsy Sanity Interview

In this excellent interview with the Flimsy Sanity blog Hudson explains that the very concept of a business cycle was manufactured by those elite interests opposed to government regulation, in order to present economic declines as natural and self correcting. Come to think of it, this reminds us of the advice provided by “investment advisers” and CEOs that the normal investor should not sell investments in bad times, but “hold out for the long haul.” Of course, what do investment advisers and CEOs do themselves? Well, they sell out as soon as they can, using inside information to beat the masses to the sell. Its important for the non-ultra elite to remember, much of the concepts that we think are true, have been implanted in us through a very heavy propaganda effort on the part of the ultra wealthy. This explains why so many people despise unions (while turning a blind eye to executive compensation) think they can personally benefit from investing in stock, and have a natural inclination to be against regulation.

Here is the quote below.

National Bureau of Economic Research by opponents of government regulatory policy. The fantasy is that the economy oscillates in a fairly smooth and regular sine curve. But this always has been a fiction. 19th-century writers didn’t speak of economic cycles, but rather of periodic financial crises. There is a slow buildup, and a sudden plunge, so the shape is ratchet-shaped.

We have reached the final stage of this process – when the financial economy has very little to do with the actual economy. In this model, the financial economy is simply subsidized to continue to exist in its enlarged state. The original concept of the banking and financial system was that it serviced the real economy. With $13 trillion so far pumped into the financial economy and only $400 billion in stimulus for the real economy we can see where the emphasis and political power resides. The main emphasis now is to come to the rescue of asset prices, not workers and not the physical economy. In the new philosophy, manufacturing is optional, however finance is primary.

Real Economy Craters

While the real economy is putting up its worst numbers since World War 2, the stock market has regained some life.

1. The economy is losing 700,000 jobs per month
2. Massive bankings losses continue to be hidden
3. Supposed positive information on housing starts has been completely misinterpreted by analysts that need to go back to school to learn basic analysis

Supported by further decreasing already flexible accounting rules, a number of completely dead banks posted fake pro-forma earnings estimates that many financial anchors on television (who are glorified weathermen and weatherwomen) mistook and misrepresented as harbinger of good things to come. The major networks could hire non-twits to present financial information, however the major networks are themselves part of concentrated power, and concentrated power wants to pump up the banking sector because:

1. The banks are big advertisers
2. The banks know this is a critical time and need more political leverage to prevent a populist revolt – hence the fake pro-forma earnings announcements

It is not clear that any of these anchors are actually voicing their actual views. Like Glen Beck – the Fox News anchor who is an ex-alcoholic born again Mormon with a high school degree who clearly has no idea what he is talking about, talking points are most likely layed out for them. Anchors and commentators are clearly being selected because of their low mental capability and suggestibility. This is so they can be easily manipulated and serve a puppet for what the top advertisers at the network want to be repeated. This approach worked so well with Ronald Reagan, who had Alzheimers disease while in office, and had no idea what was going on for most of his presidency (Footnote1), that the power elite have been copying this strategy over and over.

This woman has no knowledge of finance, economics, history or any other topic related to financial reporting. We know this because we can observe the MSNBC icon in the lower right hand corner. She is most likely fed what to say by an editor or producer who is in constant communication with advertisers. In case anyone thinks this statement has sexist overtones, we have one name that should put an end to that speculation…Jim Cramer. Jim Cramer is no fool (although he appears to have either ADD or a cocaine addiction), however Jim Cramer is a con-artist and is continually being caught either misrepresenting his record or lying. Jim Cramer will pitch any stock or idea if he is paid.

Main Street vs. Wall Street

When this crisis first broke, the issue was framed in a way that supported the notion that Main Street was dependent upon Wall Street (or the real economy was dependent upon the financial economy) and that Wall Street would have to be saved in order to save the real economy. The fact that Wall Street has improved, while the real economy has cratered highlights the disconnect between these two economies. Wall Street is not servicing the real economy, Wall Street is parasitzing the real economy. In fact, Wall Street’s effect on business in the US is almost entirely negative. It promotes concentrations of power through mergers and acquisitions and causing executives to look to their short term stock options over the long term interests of their companies. Unknown to most, Wall Street is actually bad for business and bad for democracy.

A full explanation of the ridiculousness of the US stock market can be found here:

http://counterecon.com/2008/01/11/stock-an-unnecessary-illusion/

What is to Come

Michael Hudson has written extensively on the financialization of societies and how it has marked the decline of many major powers through history. Examples includes Rome, The Netherlands and Britain. Essentially what happens is that as a nation goes through its arc of power, its people and institutions move away from doing things that add value (shipbuilding, manufacturing, etc..) and move into things that are primarily focused on chicanery (real estate speculation, creating bizarre financial products and practicing law). We either collectively put a stop to the financialization of our economy, or we get ready for a steep decline in our living standards. It is that simple.

Footnote on Reagan

Strangely, though almost mentally retarded due to Alzheimers, Reagan is almost considered a god by Republican politicians. Actually Reagan’s complicity with power goes back to his tenure as president of the screen actor’s guild. Placed there by power broker Lew Wasserman of MCA – United Artists, Reagan traded his representation of the actor’s union for roles in Lew Wasserman’s movies. Prior to becoming governor he was a pitchman for General Electric. Thus Reagan began and ended his career as a pawn of the power elite. It is unlikely he hand an understanding of most the things he said.

References

http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/false-hope-in-a-plunging-economy/

http://tpmcafe.talkingpointsmemo.com/2009/04/07/the_disaster_stage_of_us_financialization/

In an earlier article we noted that Hoover Institute was an embarrassment to Stanford. We could not figure out why Stanford would allow such a transparently fraudulent research institute to reside on its campus. Our original interpretation was that Stanford simply took the money and allowed Exxon-Chevron-Halibuton-etc… to place a fake research institute on its campus. However, we learned some discouraging news recently. That is that 25% of Hoover’s operating budget comes from Stanford. There is very little choice but to conclude that Stanford is on board with Hoover’s fascist extreme right research and further that because Hoover taps so many professors from Stanford, that Hoover is in fact partially a false front for Stanford. That is Stanford shared the funding of Hoover with other undemocratic contributors who want false but pro-elite research and media influence.

How the Standford-Hoover Relationship Works

Stanford publishes work through Hoover that would that the top administration wants published, but which would damage Stanford’s academic reputation. What this means is there are some seriously mean and narrow minded people in the Stanford administration-funding system. Like the type of people who used to own slaves, use the term “let them eat cake” talk about their superior “breeding” and invest in South African diamond mines. Those type of people. Hoover not only likes people like Rumsfeld, it is the Stanford administration at the highest levels that supports both his appointment to Hoover as well has his general philosophy of aggressive social Darwinism and corruption. To be direct, Stanford is running Hoover. When we brought this issue up to a person who works at Stanford, they stated that Hoover is not part of the academic Stanford so its not a problem. We believe this is part of the scam. It is deliberately setup that way to make you think there is a separation. In fact this was probably always the purpose of Hoover, since its inception back in 1919. There is a long history of this in politics. When a political candidate wants to run a negative ad against rival, they make sure the ad is released through a non affiliated lobbying group. This way the candidate, that both came up with and produced the commercial has plausible deniability.

Stanford-Hoover’s Positions

Hoover funds global warming denier Thomas Gale Moore, author of “Climate of Fear: Why We Shouldn’t Worry About Global Warming. Global warming deniers are essentially the idiots of the sciences. Laughed at in scientific conferences where they get zero respect, nevertheless, they receive a warm reception at think thanks. The Cato Institute – another faux think tank recently took out an ad stating that concerns about global warming are overblown. Of course, but until recently, they denied it completely. This type of of “research” Stanford can simply not publish from its sciences department. However it is research its wealthy fundraisers and corporate sponsors really want published. So it is released through the Hoover.

Hoover covers its positions with a lot of high sounding language, and they like to use the term “syposium” as a term for what really are just old-boy get togethers. Stanford-Hoover are in favor of a number of not so nice things that would be extremely embarrassing to Stanford if it was known that they Hoover is their lapdog. Things Hoover supports includes:

• Attacking Iran (and therefore taking its oil, as has been one with Iraq) – this is covered up with high sounding papers and conferences on “Democracy in Iran.” In the new Orwellian vocabulary, those countries that you want to separate their resources from, you begin to take a real interest in promoting democracy in that country. This is kind of like the democracy we brought to Iraq – where most the inhabitants preferrred conditions under Saddam Hussain to the US occupation
• Curtailing environmental regulation
• Privatizing schools (the ultra-wealthy are positively furious about having to pay for the education of non ultra-weatlthy children, especially the children of what Stanford-Hoover would call “wet-backs” and “negros.” The ultra-wealthy need a polititically correct term to reduce public funding of education so that only the wealthy can afford to be educated. The term they have settled on is “privatizing schools.”
• Torture (as evidenced by their hiring of one of the main architects of Abu Ghraib – Donald Rumsfled – actually Rumsfeld’s association with Hoover goes way back) One can only conclude that Stanford-Hoover supports torture as this is one of Rumsfeld’s main parts of his resume is promoting torture techniques in the armed forces.

Stanford’s Intensely Fascist Views

We could list more pet issues of Stanford-Hoover, however its quite easy to guess where Stanford-Hoover will end up on any issue. Essentially, any undemocratic policy which benefits elite interests has a special place in Standford-Hoover’s heart. Their history shows they will go to any lengths to falsify research to make the points their monied doners want made. An extra benefit of Hoover’s research is that it is not peer reviewed, which is necessary because Hoover’s work is some of the worst research performed in the country. At Stanford-Hoover, papers are created, and then simply released to the media without any review or oversight. Stanford-Hoover then attempts to shape the discussion based upon this fraudulent research. If any criticism is brought up about the terribly undemocratic viewpoints presented by Hoover, Stanford can simply say – “its not our research and has nothing to do with us”

The whole things is quite a scam Stanford has running.

References

http://www.exxonsecrets.org/html/orgfactsheet.php?id=43

http://www.stanford.edu/group/peace/hoover/HooverArguments.html

Important Information About The Stanford Hoover Connection from Stanford.edu/peace

• Hoover is officially a part of Stanford, like Stanford Linear Accelerator
• In financial terms, all of Hoover’s money is Stanford’s money. Checks are written to “Hoover institution, Stanford university.” The Hoover account is a Stanford account; the Hoover endowment ($60 million) is a Stanford endowment; Stanford owns everything in the Hoover Institution buildings.
• There is significant involvement in the Stanford community. Of the 100 fellows, nearly 60 did some teaching or advising for Stanford students, many of these are as courtesy appointments in which Hoover fellows teach classes for lower pay than a Stanford professor.

Funding

According to Wikipedia these are some of Hoover’s largest contributors. The donations are listed as “charitable contributions” on these foundations’ tax funds, but there is nothing charitable about them. This is money paid to a professional lobbying and pr firm, which is what Hoovers is.

• Archer Daniels Midland Foundation
• ARCO Foundation
• Boeing-McDonnell Foundation
• Chrysler Corporation Fund
• Dean Witter Foundation
• Exxon Educational Foundation
• Ford Motor Company Fund
• General Motors Foundation
• J.P. Morgan Charitable Trust
• Merrill Lynch & Company Foundation
• Procter & Gamble Fund
• Rockwell International Corporation Trust
• Transamerica Foundation

Reference

Like Stanford, most conservatives support slavery in one way or another.

http://onhumannature.wordpress.com/2008/04/02/everyone-wants-a-slave/

There was a huge focus on change during the Obama presidential campaign. However, after being elected, Obama had the opportunity, or at least the perceived opportunity to bring in fresh blood into the senior posts. However, Obama decided to select the same people from previous administrations. This was extremely concerning, particularly for the cabinet positions related to the economy. This is of course because of the deep economic crisis that occurred before Obama took office and was a major contributor to him being able to become elected.

Obama’s Appointments

Obama’s appointments have been the “usual suspects,” and have demonstrated no unique or critical thinking on his part. He seems to have selected people from an extraordinarily narrow group of names. These names seem to have been provided to him by the banking industry. This includes Timothy Geithner (replacing another industry person Hank Paulson who had already provided immense bail-outs to his friends at the major investment banks), and Laurence Summers. Timothy Geithner has done nothing but give more money to banks, with no strings attached, and what Laurence Summers has provided is less clear, however, what is clear is that both these men are totally subordinated to the banking industry. Laurence Summers was instrumental in supporting the Gramm-Leach-Bliley Act, which lifted the six decade restrictions between commercial banking, insurance, and investment services. His statement..

“Today Congress voted to update the rules that have governed financial services since the Great Depression and will replace them with a system for the 21st century. This historic legislation will better enable American companies to compete in the new economy”

It turns out that this legislation was critical in removing the old safeguards and was instrumental in allowing the behaviors that caused the current crisis. Other areas that Laurence Summers bet wrong on include opposing regulation and standards on credit default swaps. This allows companies like AIG to provide insurance on bad mortgage backed securities without having to set any money aside to pay out. AIG, with a book value of $50 billion, now owes $300 billion due to the collapse of the mortgage backed security market. This difference will be picked up by Laurence Summers.

While Laurence Summers was president of Harvard and has quite a reputation as an economist, it is clear that he has cost US taxpayers billions and is wrong on almost every major policy decision he supports. We suspect this is not because Laurence Summers is a stupid man (he was the youngest tenured professor in Harvard’s history), but because he is utterly corrupt. Laurence Summers received millions from hedge funds and well paid speaking engagements at many of the major investment banks.

After seeing this track record, Obama selected him as Director of the National Economic Council. This is how much Obama seems to value track record vs. pedigree. Of course this depends upon how you look at his track record. His track record of being correct is awful, but his track record of supporting policies that are corrupt and enrich elite interests is second to none. This brings up the question…

Does Obama believe or know that he has to appoint a specific number of people from a batch of individuals that are provided to him by corporate representatives. Does his Chief of Staff (Rohm Emanual) have this list compiled for him by corporate doners? Are they first cleared with large corporate interests before they are presented to Obama to he can choose from a preselected group? Has this always been the way political appointments have been done, at least for the very top political appointments. Does Obama realize or at least intuitively know what would happen to him if he were to appoint people from outside of this pre-selected group?

A Democracy Allows Corporations to Control The Appointment Process?

One can question the degree of democracy in a country that both controls the electoral process to the degree that it does, has Madison Avenue produce the political commercials, engages in voter purging, adjusts the votes through computerized machines and after all of this has one final trick up its sleeve:  it then decides for those who are elected who will be appointed to the key positions in the any new administration.

Kennedy was not getting along very well with the Pentagon and Federal Reserve Bank and was not buying into key concepts like “the Domino Theory,” Cuba as a threat to US national security and the Federal Reserve as a private banking entity with government money creation abilities. LBJ proved a compliant president which the Pentagon and Federal Reserve Bank was much more happy with. Obama has to be careful and institute policies that support elite interests, or else…..well lets just say the elite have their methods of limiting someone like Obama. If it were to actually happen, it will be a lone gunman. (its must always always be a lone gunman, or the individual does it to themselves. For instance, the Waco victims were not killed by the FBI, they shot themselves, some of them managed to shoot themselves 9 times.) If anyone ever disagrees with the official story they will be labeled conspiracy nuts. However, given Obama’s complicity with the elite, putting their people in key positions and taking tax-payer money and giving it to Goldman Sacks and so on, he should avoid JFK’s fate.

US History of Political Assassination

The fact is the US conservative power structures (i.e. FBI, Pentagon) kills people that get in the way of the objectives of concentrated power. The following list of people have a number of similarities. First, each of them were opposed to the Vietnam War, each of them had an extensive FBI file on them as well as substantial FBI intimidation (except JFK), and all of them were killed by bullets.

• JFK
• Robert Kennedy
• Martin Luther King
• Malcom X
• John Lennon
• Fred Hampton

The conventional wisdom is that each of these people were killed by lone gunmen (except for Fred Hampton, who was killed in police raid by the Chicago Police Department, after being told, falsely by the way, by the FBI that Mr. Hampton was responsible for the killing of police officers). However, how likely is it that the most influential anti-Vietnam individuals were all killed by lone gunmen? Mathematically, and considering that no pro-Pentagon people were killed, not very likely at all. Simple probability theory would indicate that these people were assassinated by criminal conspiracies by those who were in the power to do so and who found their politics objectionable. Its really not that complicated, once you see the pattern. The government does not have to answer these questions because anyone questioning the official story is marginalized as a conspiracy nut.

The Conspiracy Nut and the Perfectly Rational Institution

The very existence of the concept of a conspiracy nut is in a way a license to kill. However, labeling people as “nuts” is not a new strategy. Interestingly, institutions are never described as nuts. For instance, the Pentagon and defense contractors were at one point performing nuclear testing in the atmosphere, distributing nuclear debris far and wide, but strangely the Pentagon is never described as nut. When some American scientists opposed this, the Pentagon had their passports taken and they were extensively monitored by the FBI. Only individuals are nuts, institutions are perfectly rational.

The Nut Behind the Wheel

When the automobile industry was opposing the introduction of safety belts into cars the industry (specifically GM, Ford and Chrysler, all the same companies now asking for a bail-out) came up with the concept of “the nut behind the wheel.” This was an idea that all traffic fatalities had nothing to do with car design or their safety features, but where simple a feature of “nuts” who were not driving safely. This worked for quite some time, but eventually, the industry lost the fight and began to put safety equipment in their cars. This drastically reduced the fatalities and injuries from vehicles, disproving the nut behind the wheel concept. Institutions will always propose that they are perfectly rational, and that those who oppose them or criticize them are “nuts” or “hippies,” etc… These is nothing new about this strategy, but what is interesting is that it works.

No Prosecution of the Financial Criminal Class?

What is most amazing is that there have been no prosecutions of the people responsible for this crisis. Bernie Madoff perpetuated a large ponzi scheme, however, he is not responsible for the crisis. The culprits are the major financial institutions such as Citibank, Bank of America, Country Wide, Lehman Bros, Goldman Sacks, AIG, etc…along with people like Laurence Summers and Phil Graham that supported legislation that removed necessary financial regulation. The major players a not being prosecuted, but rather are being bailed out. The number of responsible parties reaches far and wide, from the corrupt mortgage broker to President Bush who appointed people with no interest in enforcing financial and accounting laws. None of these people is headed to jail, though this scandal is far greater than the previous accounting scandals that did result in a few criminal prosecutions. Is there some reason Obama is not pushing for investigations of people in this area? Has he concluded that these people helped elect him and will be necessary to help raise money for both his re-election and the reelection of his Democratic majority in congress? Did the Secret Service show him the video of JFK when he came into office and then leave a note on his desk stating “mistakes can happen for those that don’t go along?” Its hard to know, but it is quite suspicious.

Reference

“The Order was for the Treasury to issue silver certificates against all silver held by the government which did not already have certificates against it. The Order was needed due to the passage of Public Law 88-36 which repealed the Silver Purchase Act and other related monetary measures. One result was that after the repeals, only the President could issue new silver certificates.

The Federal Reserve System could replace the certificates, but only in larger denominations. The thrust of the Order returned the authority to issue new silver certificates (and specify denominations) back to the U.S. Treasury.

This executive order allowed for the Federal Reserve System to distribute and exchange currency at lower denominations that met the growing economic need. The authoritative basis for the Order was substantially nullified in 1982 with the passage of Public Law 97-258.

The Order was never directly reversed. However, Section 1(j) of Executive Order 10289, which was added by Section 1(a) of Executive Order 11110, was revoked when Ronald Reagan signed Executive Order 12608 in 1987.[1]” – Wikipedia

In terms of how to begin thinking like this, we offer a quote from Ralph Nader:

“Ralph Nader: One day in the spring, at Princeton, where I went to college, I noticed there were dead birds on the pavement between the campus buildings, where very large trees were. At first I didn’t think much of it, I just said, there’s a blue bird or a robin. They weren’t mutilated in any way, they just were on their back, dead. And, a few days later I saw more such birds, early in the morning before the grounds keepers picked them up. I noticed that during the day, we’d be going from one classroom to another, and the ground keepers would be spraying with huge hoses these trees. It turns out it was DDT. At the time, in the early ’50s, no one thought DDT was dangerous to anybody but insects. Well, it turned out it was dangerous right there to birds. I went down to the Daily Princetonian, the college paper, and tried to persuade them to do a story. I had one of the birds with me to show them, and they said, “Naw, there’s nothing wrong. We have some of the best science professors in the world,” they told me. “Chemistry, Biology, if they had any idea it was harmful, it would be stopped.” Well it continued on for years, into the 60s and even later. And the students would wipe some of it off their face, it would be so thick at times. But that taught me a very important lesson. One, that newspaper people can get very jaded. The editor was a senior, he had his feet on the desk, leaning back in his swivel chair, which is always a sign that curiosity might have dimmed. Second, that you might know something, like an expert chemistry professor, but if you are not interested in a problem, or if you have a dual allegiance like perhaps you might be a consultant to one of the chemical companies that produces the pesticide, you are not going to apply what you know. You are going to be in your little, pigeon-holed specialization, and become one of the world’s experts on some tiny little item. But when it comes to applying it to a problem right where you live and work, you are not necessarily the best person to start the ball rolling. It could be someone who doesn’t have a Ph.D., someone who has a sense of curiosity, and begins to ask questions. That’s why I always say there’s no ticket of admission for active citizenship. Anybody can get through that gate, and anybody can ask that basic question that gets the ball rolling. “

Who Was Adam Smith?

Adam Smith was an economist who lived in the 1700s in Scotland had a great influence on economics through the writing of his book The Wealth of Nations. This book is quoted frequently by business majors and by conservatives as an explanation for how to setup an economic system. His most common quotation is…

It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages. – Adam Smith

One really has to wonder why this paragraph is so compelling. For instance, if someone else were to write a book that contained a paragraph that stated that cheating is good. In fact, let’s take a crack at it ourselves.

It is not from the benevolence of the used car dealer that we purchase cars with rolled back odometers, the oil executive that we receive environmental degredation, or the PR specialist that we receive false information, but from regard for their own self interests. – CounterEcon

The statement above is as true as the paragraph by Adam Smith, it simply focuses on the negatives of self interest. One can find both positive and negative outcomes of selfish behavior, but no sane adult would propose that only positive outcomes sprout from self interest. However, this seems to be the conclusion those that quote this paragraph from A Wealth of Nations seem to have arrived at. If Adam Smith actually thought this, he would not have been the thinker that he was.

US President’s Prefer Adam Smith

And this quote, or even a much shortened version has been used to justify all manner of deregulation and self dealing. In effect, it is philosophical and high minded cover for acting selfishly or in a greedy manner. It has become very fashionable to talk about Adam Smith and it seems to lend instant credibility to the individual. Recent presidential candidate Senator John McCain, stated that if given only one book to read when stranded on a desert island he would read.

If I could only choose one book, I might choose “Wealth of Nations” by Adam Smith, because we may be entering some pretty shaky economic times, and I think that`s probably one of the most seminal works concerning how the economy of the nation and the world functions.

We very much doubt that given John McCain’s history, and his simple minded view of the world combined with his short temper – indicative of impulse control issues, that he could either complete the reading of, or understand The Wealth of Nations. In any case, John McCain is not much of a reader. This would be akin to Dan Quale stating he would like to read a medical book on Biochemistry. It is not going to happen. (This problem of barely literate US presidents goes back for some time. George W Bush could not name any books he read when asked by a reporter several years ago. Ronald Regan was well known for having a low reading ability, could not read the reports given to him and would read Reader’s Digest and confuse articles in it with his CIA briefings. This is not so much snobbery as pointing out that people who can not read the necessary material can be easily controlled by others as they rely upon everything second hand.)

Its an interesting question, why would John McCain recall a book that is extremely unreadable due to the writing at the time (1700s) and a book writen before economics was a formalized area of study, especially when far more approachable books in economics are readily available?

Lets be honest, these men are not readers. As long as we choose leaders who lack the depth and background in the topics they govern, we will continue to get broken and illiterate policies. Intelligence and subject matter expertise are not critical simply for the purposes of status (i.e. the ivy league graduate repeatedly stating that he went to Harvard, which is of little practical consequence as Bush also went to Harvard.) but because knowledge often leads to better outcomes.

Why Reading Adam Smith is Unlikely

The problem is that Adam Smith’s work is very very highly quoted, but very very lightly read. The Wealth of Nations is a 900 page book, and extremely difficult to read. This is primarily because it is written in a dated prose, which seems circuitous by our standards. However, most MBAs and other people that quote Adam Smith, do not have the patience, the time or the reading ability to actually read Adam Smith, and therefore, this quote that you see above it all that the vast majority of people know about Adam Smith.

The end result is that Adam Smith’s work is greatly oversimplified and misunderstood. Adam Smith did not say that all that is needed is self interest in order for an economy to perform well. In fact Adam Smith wrote in a time when Economics was not even a profession, (as he was in some ways considered the father of it) instead Adam Smith is referred to as a “moral philosopher.” Adam Smith’s is so misrepresented, and is so known to be misrepresented among people educated on this topic that there is actually a book about how he is misrepresented called Adam Smith’s Mistake, published in 1990.

http://www.amazon.com/Adam-Smiths-Mistake-Kenneth-Lux/dp/087773593X

Intellectuals and Economists on the Misrepresentation of Adam Smith

Some prominent Economists such as Joseph Stligliz pointed that left to their own devices markets will produce too much of things that hurt other people (such as pollution) and too little of things that help other people (such as research – unlike what is presented in advertising, most research is still funded by the government, private companies have no interest in basic research, and much less interest in any research they can not immediately monetize.)

Noam Chomsky, a very serious intellectual, has repeatedly complained about the misuse of Adam Smith’s work. This quotation is also from Adam Smith, though never quoted. The invisible hand, he wrote, will destroy the possibility of a decent human existence

..unless government takes pains to prevent” this outcome, as must be assured in “every improved and civilized society.” It will destroy community, the environment and human values generally – and even the masters themselves, which is why the business classes have regularly called for state intervention to protect them from market forces

Don’t allow those who can barely read complex writing to misuse Adam Smith to justify policies that only benefit the wealthy at the expense of everyone else. The Theory of Moral Sentiments, also by Adam Smith is filled with discussion on how to create a just society and the importance of the government to help make this so.

There are other areas that Adam Smith showed concern for an overemphasis upon work and division of labor caused a tunnel vision causing negative spillover effects on the other portions of a person’s life.

Misappropriation of Adam Smith

Large numbers of quotes made by Adam Smith which are distinctly opposed to the concentration of economic power are never brought up. In fact, Adam Smith supported unions, and where is this ever noted in discussions about him. See this post for more details on his stance on this topic.

http://counterecon.com/2009/12/12/adam-smith-favored-labor-unions/

What To Do

Question the knowledge of Adam Smith by people that use the “invisible hand” comment. Here are a few questions that are likely to flummox a person attempting to brandish the credibility of a long dead author they know nothing about and who’s books they have not read.

1. What other parts of The Wealth of Nations do you know about?
2. Did Adam Smith ever talk about the downsides to the invisible hand?
3. Are you familiar with Adam Smith’s The Theory of Moral Sentiments where he talks about how important it is to build a just and fair society?
4. If everyone acts selfishly, does this sound like it will result in good outcomes? If I only look out for my interests and ignore yours and everyone else’s, would this make you happy?

If you would like to read Adam Smith, his work is available in PDF format here.

http://www.pdf-search-engine.com/the-theory-of-moral-sentiments–pdf.html

References

http://en.wikipedia.org/wiki/Invisible_hand

http://adamsmithslostlegacy.com/2008/02/adam-smith-is-innocent.html

http://adamsmithslostlegacy.com/2008/02/senator-mccain-chooses-to-read-wealth.html

The Hoover Institute has little to do with serious scholarship, and more to do with neo-con and ultraconservative ideology. Their research is clearly doctrinal and people with independent minds interested in real economics would be good to ignore the Institute’s ‘findings.” Real economists do perform research for them, but when they do, it is to pay the bills and is invalid work they would be embarrassed to have published in peer reviewed periodicals. The institute is aptly named after one of the worst presidents in US history. In terms of ideology a modern renaming could be “The Bush Institute.”

Rummy at Hoover

We wrote an article previously about how Donald Rumsfeld had joined the Hoover Institute and and questioned how any serious institution could take on Rumsfeld as a “Research Fellow” after his track record of being completely incorrect on almost every major point that can be publicly traced to him. We also pointed out how Milton Friedman, the most misguided and flawed (as well as one of the most influential) economists of the 20th century, also worked for decades as Research Fellow at the Hoover Institute.

Donald Rumsfeld, part of the neo-con cabal, habitually wrong about everything he touches and the ultimate political animal. This is the Hoover Institute’s kind of man, one who puts the interests of money and power above all principles and accurate thinking. Rumsfeld was approved by Stanford to return as a senior fellow even after his role in approving torture was well known. The ACLU case against him was filed in 2005.

http://www.aclu.org/safefree/torture/rumsfeld.html

Rumsfeld’s “memo” shows without a shadow of a doubt Rumsfeld was a key architect of illegal US torture policy.

His role is fully explained in Philippe Sands book Torture Team.

http://www.tortureteam.com/

Not happy to have just a few people they have hired (Donald Rumsfeld and Milton Friedman) who supported torture, Stanford-Hoover felt they needed another to complete their rotation, so they hired Bush hand puppet Condoleeza Rice.

http://counterecon.com/2009/05/04/stanford-has-a-taste-for-facsism-and-condi/

So where to Stanford and Hoover stand on torture? Apparently they support it.

Our Visit to Hoover’s Site

We decided to pay the website a visit and really analyze the Hoover Institute, and what we found was interesting. Essentially the articles we found were seriously flawed. Here is one example. One discussed how the income tax share of the wealthiest Americans has increased over time, from 17 percent to 37 percent. What is not brought up but this article is that the income of the wealthiest American has increased far in excess of that, so the argument that the wealthy are more burdened with taxes would be a faulty conclusion. Here is the link to the article.

http://www.hoover.org/research/factsonpolicy/facts/6771827.html

This is very basic analysis that could be performed on the back of a napkin by someone with an elementary knowledge of economics, history and math. However, the Hoover Institute, with many PhD’s on its payroll, got this wrong. As we read more, the plot began to thicken.

Doctrine Presented as Research

We investigated more articles. One of the projects at the Hoover Institute was called the Iran Democracy Project. This project states that it…

“maps out the possible trajectories for transitions to democracy in the Middle East, beginning with Iran.”

This statement is suspicious. Faux think tanks like the Center for a New American Century, which is a Rumsfeld-Cheney-Richard Pearl-Chalabi connected has a similar over interest in Iran. And its not just Iran. This group, along with other neo-cons also has a big interest in how Venezuela is managed and of course was very interested in the political management of Iraq. In fact, the neo-cons are very interested in the politics of countries which have a large amount of oil reserves. Their academic interest does not seem to extend to countries, no matter how poorly managed, that do not have oil reserves. So the question would be…is this really an academic interest at all?

Why the interest in “democracy” in countries with vast oil reserves? Is this just an academic interest on the part of Hoover? Hoover does not get funding from companies that may seek further military expansion into the Middle East in order to steel more oil reserves does it? After all the discussion about not being after Iraq’s oil, the US oil companies now receive 75% of ever dollar of oil removed from Iraq.

Anti Soviet Material

For decades the right wingers (now called neo-cons) petrified Americans with the Soviet Union. When the Soviet Union fell, almost all the “intelligence” presented to the American public about Soviet military strength proved to be false. John LaCarre’s book Russia House (later turned into a movie with Sean Connery and Michelle Pfieffer) discussed this very issue. As with the WMD issue, no appology was issued by the CIA for misinforming the American public after the Soviet’s fall exposed it as a paper tiger, and the CIA reports about them as utterly manufactured.

The habit of using the Soviet Union as a boggie man continues in grand style at the Hoover Institute. We found a Soviet Archives Research Project, which according Hoover…

“Studies the records of the Soviet state and party located in the Hoover Archives. The goal is to understand the workings of the Soviet totalitarianism by studying the world’s best documented dictatorship”

This seems like a strange topic for an economic research institution. However, it makes sense when one considers that conservative think tanks like to label every progressive program as socialist or communist. This project fits with their ideological interest in beating the dead horse of communism. However, if the Hoover institute is interested in totalitarianism there are a few other topics that could be studied but that probably will not be.

• The similarities between the KGB and say, the Patriot Act pushed through by the Bush Administration
• The US support for dictator Pinochet both in terms of economic (through the World Bank, and IMF as well as the University of Chicago economics department) as well as militarily (through training in torture and the sending of “advisers” which always seems to end up with a lot of people dead – see Vietnam.)
• The US support for the dictatorship of El Salvadore both militarily and economically

One might question why the Hoover Institute tends to have an academic interest in the dictatorships of its enemies, but no interest or “archives” of the dictatorships that the US, primarily under conservative administrations, that the US has created and funded.

http://www.hoover.org/research/sovietarchives

Like US foreign policy, Hoover really dislikes communist dictatorships that mistreat their people. Dictatorships that benefit large US economic interests are ok, and of course reducing democracy in the US in order to spread it overseas is ok also. The Hoover Institute’s view on dictatorships is lets say….”variable.” Blink and you might miss the exact principle they are supporting.

Everyone Watch Out, Here Comes the “Hoover Task Force“

Hoover also has things called “Task Forces” (of which Donald Rumsfeld was named to at least one), where they

“recruit extraordinary intellectual talent to…”

and

“….seeks to determine how it can provide meaningful information and advice on public policy.”

This sounds pretty good, until one realizes that they chose Donald Rumsfeld to be part of one of them. Does Donald Rumsfeld have “extraordinary intellectual talent,” or is he more likely simply very political and savvy at political infighting? Donald Rumsfeld has both extensive failures on this resume (the Iraq catastrophy, military privatization debacle, Abu Grade prison and prisoner torture Geneva Convention violations directly authorized by him) as well as massive documented examples of lying. On wonders if lying is a requirement for Hoover as so many of its fellows seem to lie so frequently. However, Rumsfeld a lying grandmaster and in a league of his own. In addition to a resume from hell, he is also guilty of major ethical lapses in holding stock in companies that he directed military contracts to while the head of the Department of Defense. For a man who completed the undergraduate curriculum at Princeton, he says some remarkably stupid things. Here are a few gems of Rumsfeld wisdom.

“Freedom is messy, free people are free to do bad things, but they are also free to do good things like live their lives”

In response to questions regarding the lawlessness and looting that were a direct result of inadequate military planning after the invasion of Iraq.

“We know where they are. They’re in the area around Tikrit and Baghdad and east, west, south and north somewhat.“

In response to a question regarding where WMDs are prior to the invasion of Iraq.

“I worked in private industry in research areas and I learned one thing…you can not allow researchers to eat lunch together, it just does not work.”

However, either the Hoover Institute’s webmaster is overwhelmed, managing the tiny amount of information on this site, or Hoover is attempting to keep a low profile, as Donald Rumsfeld is listed nowhere on the list of contributors to the task forces. He must be part of a “black ops” task force.  How fitting.

http://www.hoover.org/taskforces/members?sortBy=name&c=y

He is also not listed on the fellows page…

http://www.hoover.org/bios?sortBy=name&c=y

If Hoover is so Sophisticated Why do so Many Small Brained Individuals Speak at Hoover Symposiums?

Hoover also has a number of symposiums. How a symposium could include opening comments by Jeb Bush (who shares Dan Quale’s old problem of zoning out during interviews) is a bit confusing. Laura Bush is another person who also provided opening comments, but who would ordinarily not be included in this  type of get together, at least at any other research institution. After going through the minutes, most of the symposiums are simply faux intellectual neo-con and ultraconservative talking points with high sounding titles. Some of them go beyond simply conservative propeganda and move into high camp.

Before he was disgraced for firing DOJ attorneys for not prosecuting Democratic office holders, Alberto Gonzalez stopped in 2005 by and gave a speech where he praised Ronald Reagen for praising former Attorney General Edwin Meese. If you will recall, Edwin Meese’s big contribution to the justice department was his “war on smut.” He thought the Justice Department should be more focused on stopping the distribution of pornography. As you can see we are moving into high comedy here. Alberto then proceeded to ramble on about in a very folksy manner about his new responsibilities at the Justice Department. The transcripts are particularly entertaining. They can be see and laughed be at here.

http://www.hoover.org/research/conferences

Former corrupt head of the Department of Justice, Alberto Gonzalez lent his enormous credibility to another deep and penetrating Hoover symposium proceeding. Here he is sitting next to another not so ethical fellow. Through its association with the elite white collar criminal class, Hoover shows that it has no ethical concerns or standards. Gonzalez was also known as a mentally weak attorney, who was appointed to the head of the DOJ with little qualification, because he was Bush’s personal attorney. Once in office he demonstated he either did not understand constitutional law, or was unconcerned with violating it.

Hoover, Getting it Wrong (again) on Energy Deregulation and Enron

There was also a symposium which attempted to get to the bottom of the California energy crisis back in 2001. The symposium agenda bring up issues like “retail competition” and “industry restructuring.” However, the real problem was a lack of regulation which lead to a phony power crisis due to companies like Reliant and Enron manipulating energy production and distribution (the threats by Grey Davis to sue the Texas energy companies for billions of California losses was the main thing that lead to his recall). However, none of these issues, that were the actual caust, are listed on the conference agenda. Hoover clearly had no interest in holding a symposium on corporate fraud, very possibly because they have friends who worked at Enron or Reliant, and you don’t want to throw stones at your benefactors. Maybe they received a Distinguished Citizenship award from Enron, as Alan Greenspan did, two weeks before Enron declared bankruptcy. Milton Friedman, a now deceased, but at the time an industry shill posing as an economist, shows up invalidating all of the proceedings.

http://www.hoover.org/research/conferences/3043191.html

Hoover thought the problem with the California energy crisis lay in too much regulation. There was a another culprit they did not spend much time talking about that day. Hmmmm…who could it be? This gives you a good idea of how predictive the Hoover Institute is. Their research specializes in looking in all the wrong places.

Hoover as Academic Fraud

In summation, the Hoover Institute is simply a bad joke or an pseudo-academic fraud depending upon how you look at it. In reviewing their material, its entirely doctrinal and is simply a playground for old ideas that have been tried and failed over and over again. Hoover has one thing going for it…a lot of money. When you have a lot of money, you can continue to push bad ideas long after their expiry date. As a general statement, Hoover produces utterly idiotic research. This is because research is not the goal of the Hoover Institute.

Unfortunately, Hoover Institute does contract for individuals with academic credentials, however, you can’t really tell by looking at the research output. Every single subject is clearly supporting some underhanded hyper-conservative policy goal.

• Planning regime change in Iran
• Pushing anti-socialist concepts
• Privatizing schools

Every research conclusion is known before the research is undertaken. If hell were to design a research institute, it would end up not much different from the Hoover Institute. An furthermore, Hoover’s research could just as well have been published at any number of conservative research institutes. According to FAIR.org, which follows think tanks.

“Like Scholotzky’s Delis, the conservative think tanks offer a very limited menu: They publish reports advocating deregulation, privatization, property rights, school choice and a few other topics. And each produces reports that sound the same as others, just as an order at any Scholotzky’s tastes the same.” – http://www.fair.org/index.php?page=1430

Who Sells Their Credentials to Hoover?

One wonders about the integrity of someone who would be a “Fellow” at the Hoover Institute. More than likely, Hoover is simply a payday for academics, who do serious research at their university, and then publish doctrinal drivel for the Hoover Institute for “consulting” fees. Corrupt industry leaders then pitch this “research” in order to gain leverage in affecting policy.

Here are a few logical questions:

• Has any Hoover Institute paper ever been peer reviewed, or do they simply release whatever they like.
• Who funds them? Exxon, Haliburton?

Should an Industry Supported Fake Research Center be Allowed on the Stanford Campus?

Stanford may think its harmless to have a propaganda arm of the super wealthy rather than a research institute. However, we disagree with this assessment. If Stanford allows a fake research center to reside on their campus, what else will Stanford do for cash? For instance, does the medical school have a lower research standard for industry supported biosciences institutes on campus as well? That is, if I pay enough money, can I associate with Stanford and publish false material? How about the actual Stanford department sponsored research, if Merck shows up with enough gold bullion, can results be altered, or negative results “lost?” If so, is there a fee schedule published somewhere? People who propose this would never happen, should consider the precedent Stanford is setting by hosting the Hoover Institute. If its ok for Hoover to fake economic research, why would it not be ok for a Stanford bio-science institute to make up is own pharmaceutical trials?

As a homage to Stanford selling its reputation we created this little advertisement that could be run in different business periodicals. It would cause the endowment to skyrocket like an IPO, allowing Stanford administrators to drive the newest Lambrogini Coutache. However, would this be an advertisement that Stanford would approve of?

We wish that Stanford were merely being duped. However after our initial research into Hoover, we learned that Stanford provides some 25% of Hoover’s $25 million (which is probably $30 million now as the figure is old) operating budget. This means Stanford is completely compliant and endorses what Hoover is doing. This means that some extremely nasty people are high up in the Stanford administration. The type of people who were the slave owners in the old south or slave traders even. Hoover can be interpreted as a false for Stanford, producing fake research that they could not release as it would damage their academic reputation. We will be writing more on the Hoover-Stanford connection.

References

http://www.projectcensored.org/top-stories/articles/13-schwarzenegger-met-with-enrons-key-lay-before-the-california-recall/

http://www.nytimes.com/2005/03/20/arts/20Rich.html

The Elite Consensus, George Draffan