The Destruction of Economic Facts: Hernando De Soto

BusinessWeek:

he results are hardly surprising. In the U.S., trust has broken down between banks and subprime mortgage holders; between foreclosing agents and courts; between banks and their investors--even between banks and other banks. Overall, credit (from the Latin for "trust") continues to flow steadily, but closer examination shows that nongovernment credit has contracted. Private lending has dropped 21 percent since 2007. Outstanding loans to small businesses dropped more than 6 percent over the past year, while lending to large businesses, measured in commercial loans of more than $1 million, fell nearly 9 percent.

The importance of economic facts may not be obvious to Americans. "What does the fish know about the water in which it swims?" asked Albert Einstein. But it's easy to grasp from the perspective of the developing and former communist countries where I live and work. In these countries, most of our assets and relationships are in the informal sector, outside the legal economy. Because they're not recorded in public memory systems, they cannot be written up as facts and are, in effect, invisible. All we have are shadow markets.

Read the whole story: BusinessWeek

Comments

[Matt12]

04:50 PM on 05/03/2011

U.S. government agencies have been managed by NYC bankers approving all types of illicit so-called trading instruments to make it look, Kosher, as they say. The U.S. government is manipulated and managed by NYC bankers with the same ethical inclinations and candidates the “anti-defamation” leagues have forced on the nation; in the meantime, these same NYC bankers have done away with tax payer’s money. Unemployed Americans have been left to wonder for the next 40 years in sheer poverty, is this fair?

[DanBest]

12:16 PM on 05/03/2011

"... American and European governments allowed economic activity to cross the line from the rule-bound system of property rights, where facts can be established, into an anarchic legal space, where arbitrary interests can trump facts and paper swirls out of control.

This is the real problem. Notice that this article did NOT mention Freddy and Fanny and Barney Frank as the culprits. Anyone who still buys that nonsense has no interest in fixing this problem. Anyone who continues to see debt as the issue has just joined the latest stampede. Nothing gets fixed until you put transparency and reality back into the system. Same for our media.

[TruEngineHearing]

09:28 AM on 05/03/2011

Gad, here's another one... it seems like everyday I am reading some new information that makes me look up and think, "if this is actually true, the world is about to suck like we've never seen before."

OK, so I read this article and now I'm looking up again, and this time I learn that 2 plus 2 equals 4 "in many cases". Terrific - the whole world is becoming Hubble telescopes that can't focus - because our data is flawed.

[ThePeacemakers]

07:06 PM on 05/02/2011

"These securities had slipped outside the recorded memory systems and were no longer easy to connect to the assets from which they had originally been derived. Oh, and their notional value was somewhere between $600 trillion and $700 trillion dollars, 10 times the annual production of the entire world."

"Notional" alright: existing only as an idea or in theory, not in reality

Crime of the century...so far

[tribilin219]

04:47 PM on 05/02/2011

tell it to the GOP, and the koch brothers, and Big Banks and big oil, That want to see this Black man in the white house fail so bad, that they don't care if they bring this country down with him! I voted for Obama, and wish he would have done more by now, cause I know how mush that would hurt all those crooks!

[Miss Muffett]

01:44 PM on 05/02/2011

This is why we need beauracracy. It is the standardization of process that allows these kinds of facts to be easily transferrable and verifiable in what would otherwise be an impossible undertaking.
 
I know we all hate the paperwork and inefficiency that often accompanies beauracracy, but it is by this system alone that the masses are made governable.

[shadow013]

04:12 PM on 05/02/2011

In the case of our financial crisis, it is not the "masses" than need to be made governable. It's the corporate elites who took advantage of deregulation including ending Depression Era Glass-Steagall firewall between commercial and investment-casino banking. Paperwork does not in and of itself create organization. In the case of our financial crisis, there was plenty of paper full of fraud. Special purpose entities as used by Enron are an exampe of paper that misleads. Accuracy and truthfulness are the fundamentals we need.

[Miss Muffett]

04:20 PM on 05/02/2011

A huge portion of what caused this financial crisis was the collapse of the housing market. The fraud associated with the housing market, forclosures, sub-primes, etc, were largely made possible by the creation of MERS (mortgage electronic registry system), which is an entity whose legality is largely contested and pretty controversial.
 
We didnt see this level of gross abuses when the paperwork trail remained in tact as was meant to be in that the local governments, entities, and municipalities were the ones who kept track of that paperwork.
 
The point is, even if paper misleads, there is a trail that allows us to detect that fraud and abuse. Its the paperless process that allows more easily for fudged and inaccurate facts that, when coupled with deregulation, makes factual trails confusing enough to fraud even the most astute among us.

[nypapajoe]

10:39 AM on 05/02/2011

USA Today edit board criticizes GOP for trying to scrap Consumer Financial Protection Bureau: "The 2010 law already places an unprecedented check on the bureau. A 10-member council of financial regulators can veto many bureau actions by a two-thirds vote — a power not granted over any other financial regulator. Republicans, who will vote in committee on the changes Wednesday, want to strengthen that veto power so much that a single council member could delay and threaten just about any bureau action — turning the bureau into an expensive, ineffective pawn of the lenders it would oversee." 

[BannedNBoston]

09:30 AM on 05/02/2011

The Top 10 Ways To Deal With Toxic Assets

The Top 10 Ways To Deal With Toxic Assets This top ten ... Arguably, an asset price must be over-valuated if there are ... Liquidity Guarantee Program (“TLGP”), eliminated a ...
www.fa-mag.com/online-extras/​3957-the-top-10-ways-to-deal-with-toxic-asse

[shadow013]

12:12 AM on 05/02/2011

Obviously US financial products and ratings are at the level of Chinese sulfuric drywall, melamine tainted pet food and lead painted toys. It is the responsibility of government to keep toxic products off the market. We obviously regressed to third world economics. This is one of the best pieces I've read on the subject, and I've read everything from MERS operations manual to Peterson's Congressional testimony to Linda Green robosigned foreclosure documents, etc., etc.

[Social Construct]

04:35 AM on 05/02/2011

Excellent review. I particularly agree with the lack of oversight, or lack of funding, created by deregulation and the not so veiled regulatory capture by corporate extremism. The people crying for less government may come to rue the day. Probably not, but one can hope.

[einzelgaenger]

09:30 PM on 05/02/2011

I liked the piece, too, and find it highly interesting... I'd add, however, that the ability of banks and hedge funds to over-leverage on top of the missing data (without any regulation) made the impact an order of magnitude higher than it had to be.

[Thinklongterm]

08:48 PM on 05/01/2011

This is the land of payday loans, loans against the equity of your car, and rent a wheel. Sad.

[fourtruth]

08:44 PM on 05/01/2011

Its "Godfather" like isn't it? The gangs are taking to the matresses, so to speak!

Corrupt, unethical, immoral Gangs created from blatant de-regulation, non enforcement and 40 years of Reaganomics.

What do we expect from the Preston Bush decendents?

[Mister Bill]

10:05 PM on 05/01/2011

Better response from the Untouchables than we got "The Treasury Department plans to exempt foreign exchange derivatives from new Wall Street reform regulations, a Treasury official said Friday, dismissing concerns that the market prompted $5.4 trillion of emergency support from the Federal Reserve in late 2008." Keep it in the family. This is the playground of George Soros and this is how he will take down the United States economy.

[land2341]

07:59 PM on 05/01/2011

The commentary on this is as sad as the content of the article. What this article tells us is the unvarnished truth about the state of this nation and cannot be refuted. Politics is a toy to the power elite who are really running and ruining the plutocracy we live in. We are now third world america. Soon we will be encouraging our children to emigrate to China to be nannies and housekeepers. It is not any one president who has done this to us, pay attention to who really rules.

[Mister Bill]

10:15 PM on 05/01/2011

And there is not one President this century that has done anything about it. In the year 2025 (that is only 15 years from now) according to the Congressional Budget Office. We will spend as much on entitlements and interest on the debt as what we bring in. That means Social Security, Medicare, Medicaid and unemployment Insurance etc, will be equal to our total income. No Defense, No Non Defense or Discretionary spending. Now is the time to quit spending money that we do not have. Buying votes with the taxpayers dollars has got to stop. Just say no to bankrupting our Country.

[William1950]

10:23 PM on 05/01/2011

or move on to something better...

[sensimilla]

05:08 PM on 05/03/2011

if we can keep ourselves out of TRILLION dollar w4r$, and stop the giveaways to the rich & powerful

We might just be able to eat tomorrow.

[BannedNBoston]

06:22 PM on 05/01/2011

Usury in the Bible: Do Not Charge Interest When Lending to the Poor

God is a compassionate God, and desires us to be compassionate toward others. This is why we are not to profit at the poor’s expense. Usury (lending with interest) charged to someone that can pay us back is acceptable from a Biblical perspective. Usury is wrong when it is charged to someone that cannot afford to pay back the loan with interest. This is where usury has received a bad name through non-Christian practices such as predatory lending and the charging of excessive interest rates. As good stewards we are to seek increase from the resources that God has provided us, but not at the poor’s expense.

EXODUS 22 BIBLE SCRIPTURE Exodus 22:25, “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.

[urweatherman]

08:46 PM on 05/01/2011

What about folks that are not motivated and wish to stay poor so as not to pay interest and recieve all they have for doing nothing? We have too large a victim and dependent class in this country because of exactly this.....

[Social Construct]

04:46 AM on 05/02/2011

The portion of the population in poverty that actually are motivated by "victim and dependent" factors equals such a small percentage as to render it insignificant as far as economics goes. I've encountered exactly 1 family, in my 51 years, that was headed by a person that lived as you describe. Perhaps it's anecdotal evidence, to be sure, but I have yet to see any empirical data suggesting I'm wrong. Historically, though, humans with means have never been able to see those without means other than something less to be pitied or to be scorned. What a shame we haven't progressed much, if any, beyond that.

[KingofthePaupers]

09:12 AM on 05/02/2011

BannedNBoston: "Usury (lending with interest) charged to someone that can pay us back is acceptable"
Jct: No it's not. Thomas 95: Jesus said: If you have money, do not lend it out at interest."
Besides, usury has nothing to do with whether the borrower can pay you back, Ezekiel condemned usury and excessive interest. Interest is on cows and grain that reproduce, usury is on principal that does not have babies so you have to get it out of your neighbor, thus it;s called the mort-gage death-gamble where someone must always fail so the others may survive. See http://johnturmel.com/poembibl.htm

[BannedNBoston]

09:24 AM on 05/02/2011

Hi Kingofthe aupers,
I agree that wasnt quite right for the mortgage situation.
I actually am an Upper Middle Class Poor Person :)

[twoto2]

05:35 PM on 05/01/2011

Not sure we have to move beyond the monetary concept as mush as we a a nation really HAVE to understand that good or great ideas or ways to do things in this world always can be and in this case corrupted. Everything from weak morals and greed to just a amoral personality's can screw up the process. We put ink to paper, call it law and pretend that's the way it's going to be. It's like confusing the law with justice. It's just not the same thing. So, until we all look inside for real, nothing will change. You know like with all those regulations(that nobody was enforcing) was going to stop gambling and schemes on Wall Street or any other game going on 'out there'.

[William1950]

02:31 PM on 05/01/2011

waiting for an agreement of "The rule of law".. to rewrite economic foundations will be fruitless. The mega bankers and international players who gain from the worlds losses will never willingly give up the power they have accumulated.
face it, capitalism is dying from greed and graft. It is time for humans to move beyond monetary foundations for our civilization...

[fourtruth]

08:50 PM on 05/01/2011

But they were re-written after the Pre-Roaring 20s de-regulation and ultimate Great Depression.

Todays events are not new or special - just history repeating - we forgot.

Ironcially, this time, Obama may save them from jumping out of those windows again - I believe the foundations will be rewritten and will be enforced and I also believe that what you say is - we will be moving into a new industrial revolution with true free markets, not todays twisted corprativism Oligarchy - that consumerism will shift and sustainabilty, economics, society and environment will be put on par with profits. But I dream - why not?

[William1950]

10:21 PM on 05/01/2011

why not .. but actually what i envision is not a new industrial revolution, rather a social and economic revolution, one which will see dramatic social change... an economy based on resources, where we will produce only what is needed... of the highest quality, and where all will partake freely.. where the concept of ownership will be forgotten.. where the concept of money will be likewise forgotten.. sustainability, society and environment... and one world working together for survival and growth..
so now whose dreaming?