Extraordinary Popular Delusions and the Madness of Crowds

Repeat after me: Bubbles are not wealth! Bubbles are not wealth!

The title of this post is also the name of a book by Charles Mackay. Originally published in 1841, it's a history of man's great delusions through the centuries. The money mania section is fascinating - from John Law's Mississippi Stock scheme to the South Sea bubble to Tulipmania - it's all there. I first read this in 1982 when I started my financial career. It's a life-changing book - not quite up to the Bible but certainly on par with Atlas Shrugged!

What did I learn from Mackay at the tender age of 23? Simple: Bubbles are not wealth!

Remember the internet bubble? That's the one where startup companies that had never made a dime (and didn't even know what dimes looked like) floated stock in much heralded IPO's and watched share values zoom to $200 or $300. Remember that? (And all without the drudgery of products, services or earnings. Those were the days!)

Then, "out of the clear blue sky" the tech bubble burst. (Who'da thunk?) Panic time! In our fraudulent economy, bubbles are all we have and bursting just isn't allowed. We hurriedly refinanced the tech bubble into real property, creating the real estate bubble.

But bubbles are not wealth.

Now the real estate bubble's burst too, so we're frantically refinancing it into this colossal public debt bubble.

But bubbles are not wealth.

The folks at the helm today are the same Wall Street thieves who created these bubbles, only now they're in government instead of working behind the scenes. Their actions, while now "official", are still awful (or is that "offal"?) Hmmm, okay, how about treason? There we go...


Take Hank Paulson - While CEO at Goldman Sachs, he was one of the architects of the SEC's abandonment of the net capital rule - a requirement that investment banks and brokerages hold a certain ratio of capital, thereby limiting leverage and risk. (14:1 was scary enough, but Paulson's infinity-to-one is suicidal. Absent the repeal of this rule, our current predicament would have been impossible. He dreamed this mess up, then he caused it and he happily cashed every paycheck along the way.) I wouldn't mind the $700 million net worth he amassed, had he only done so honestly.

Paulson was elevated to Treasury Secretary by Bush in 2006. It is noteworthy that his three immediate Goldman CEO predecessors followed an identical power path - Jon Corzine went from Goldman CEO to US Senator to governor of New Jersey. Then Stephen Friedman went from Goldman CEO to Chairman of the National Economic Council to Chairman of the President's Foreign Intelligence Advisory Board. Then Robert Rubin went from Goldman CEO to Chairman of the National Economic Council to Treasury Secretary under Clinton.

Then came Paulson.

After Paulson we get Tim Geithner. He worked for Henry Kissinger, then went into management at Treasury, then Joined the Council on Foreign Relations, worked at the International Monetary Fund, and became President of the Federal Reserve Bank of New York.

Geithner (a Paulson protege) was an architect of the Bear Stearns takeover, the bailout of AIG, the sacking of Lehman, and now he's Obama's Secretary of Treasury!

Does anyone miss this pattern? Clinton did it. Bush did it. Obama did it. There may be left and right wings, but it's the same dang bird! Check further back and you'll find that this has been going on for decades. Honesty is not possible within this closed loop power structure. We may elect figureheads, but the bankers run our government, and they're all thieves - bubble blowing thieves.

If we're to stay free, we need to take our lumps and then start over with honest money and limited government. Bubbles are not wealth.

This happened on our watch. We got ourselves here. Even if we didn't participate, we looked the other way as it happened. Now it's up to us to set things right.

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