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Vivian Norris

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This Economic War Began Long Ago

Posted: 09/22/11 09:35 AM ET

It did not begin with the subprime disaster in 2007, nor the crash and burn of Lehman in 2008, nor are we able to blame any bubbles, be they dot.com or other. This Economic War began with the Asian Financial Crisis back in 1997, if not before. In fact, I would argue that crisis was actually a first great battle which the US appeared to win.

Perhaps you were asleep that late summer, or too absorbed by Princess Diana's car accident (followed soon afterwards by Mother Theresa's death), but one entire part of the world was going through turmoil so intense, that one country, Malaysia, saw its leader virtually close its financial borders.

What I recall from that summer is George Soros furious with then Malaysian leader, Prime Minister Mahathir Mohamad, and the Thai people lining up to donate their personal gold to their government/monarchy (could you imagine Americans lining up to donate their gold? No, it would have to be confiscated) and the severing of the Thai baht from the dollar. I recall a few plane crashes in Indonesia and elsewhere (I believe we lost two heads of Central banks around that time), and folks throughout Southeast Asia and Japan saw their currencies lose value, their stock markets crash and their taking on a huge amount of debt. In fact, many people believe that the crisis was the result of a disturbingly unequal lender-borrower relationship in which asset prices were forced up to less than realistic levels due to a huge amount of unsustainable leveraging.

Hmmm... sounds familiar, a bit like the US? We are just passing the ball of debt around from one part of the world to another.


The IMF response to the Asian crisis was to impose strict policies some believe made the crisis worse, or in fact caused it. The US response was a flooding of the world with dollars by then head of the Fed, Alan Greenspan. We had the bailout of Long-Term Capital Management around this time. The disturbing reality of LTCM, and of much of the US investment, supplying of dollars to Asia, was that the combination of heavy leveraging with an arbitrage, carry-trade approach to "investing" carried both so little and so much risk (a lot for them little for the lenders) that it effectively slowed down growth in parts of Southeast Asia, and debilitated currencies which and shifted wealth to the beneficiaries of that arbitrage, some hedge funds in the US.

Has no one ever taught these folks (or these days, computers) that arbitrage is basically getting something for nothing and that, ultimately, you have to pay the piper?

Arbitage (def.) - an arbitrage is a transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit at zero cost.

This victory in the first battle bought the US and Europe more time in the ever-continuing war. And who was the real enemy? The elephant in the room? I don't think we were at war against Indonesia, or simply trying to impoverish the Philippines.

Ultimately the time came for the US and Europe and the unsustainable there is no there there investment world in which people became filthy rich off of fees paid for creating no real value. The slicing and dicing and re-packaging and flipping, swapping etc is just another passing on of this ball of debt.

debt Noun/det/
1. Something, typically money, that is owed or due

And it will, eventually, come due.

The economic war would then mutate again and new alliances would be formed and broken and recreated. The money would move from London to New York to Singapore to Los Angeles to Beijing. But is this government policy, or private banks, or a combination of both? And how does the West position itself in a world of mega national state banks such as those in China and sovereign wealth funds which are huge and may not have the same interests as the US, France, UK etc? Or has a discrete Sino-US agreement been reached, while the Europeans reach out to the great wealth of Qatar (Parisbas anyone?). And are we selling our souls in the process? Or did that already happen long long ago?

But mostly, why is it still being called a crisis when in fact, there is a war going on? And there are winners and losers in these wars. One only needs to follow the money, the power, the decision-makers and their backers (lobbyists) to see how this flow of public monies reaches private pockets. How can we say this is a free-market system when there is so much manipulating going on? I get the feeling that being clever enough to figure out a way to basically always make something and never really lose (arbitrage), in which there is actually not a lot of risk but no risk, has somehow replaced real visionary intelligence and the creation of real value. In other words, we have been so clever that we were really stupid.

This is not sustainable. The war has to stop.

Today we are seeing European banks attacked just as US banks were attacked, currencies and moving up and down and high frequency trading and speculating are pushing bank stocks up and down by several percentage points per day. This is not an economy, this is a war. But the war has no clear sides, except the side of greed.

But even as we in the West suffer, there are parts of the world that are growing and dynamic. Will they repeat our, and their, own past mistakes or will they build more sustainable economies? And will we choose something more solid, a more equal and fair way of helping people participate and build real value instead of a dangerous continuation of this widening wealth gap which is ruining the US?

We do not know one another anymore. We have built high walls, take private transport, send our children to private schools, are whisked past the real world... or we are on the other end and are finally so angry that we are out in the streets furious and yelling #occupywallstreet! And it is not limited to the US, and people will keep taking to the streets of Madrid and Cairo and London until something changes.

Until we find some common ground and begin a real dialogue again, there is no democracy in America, and there is no free market system dominating anywhere. This economic war needs to end, first at home. If we take care of one another, then we will be stronger. What makes America great is the very fact that we are ALL Americans and as Elizabeth Warren said a few days ago, "Nobody got rich on his (her) own". Not in America. Not anywhere. Even if they stole it, they stole it from someone.

Now it's time to give it back. Be it taxes, charges on financial transactions, truly fair regulation to stop manipulations, and no more off-shoring of wealth by US corporations.

As President Obama so rightly said, "This is not class warfare. This is math". Brush up on your math, MBA boys, because your future depends on it, and somebody is way ahead of you.

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