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Moats: Money

06/03/10 7:55AM By David Moats
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(HOST) Commentator David Moats, who is editorial editor of the Rutland Herald, says history shows us that we've been down the road of financial excesses before.

(MOATS) One of the great things about reading history is you realize that, as bad as things are now, they were just as bad in the past, or worse.  So I was struck, when I was reading about the era of Andrew Jackson, to learn about the fury caused at the time by the banks.  Wild speculation had created havoc in the economy, and one critic denounced what he called "fictitious capital."

What a great phrase!

We're living in an era of fictitious capital, when banks have driven the economy into the ground through investments that were mostly fictions.  There were fraudulent mortgages.  Then there were bonds based on the mortgages.  And there were derivatives based on the bonds, all of it creating wealth out of nothing.

People are angry about all of this, as they were in Andrew Jackson's time, partly because speculators who know how to play the game have been soaking up billions of dollars while millions of people have been thrown out of work.

In 1833 one critic charged that the "monied class ... though they produced none of the objects of wealth ... of themselves became mighty instruments of accumulation."

We have seen the river of wealth in the United States channeled toward the narrowest segment at the top, creating distortions that are dangerous in a democratic society and starving the public sector.  Did you know that the family that founded Wal-mart possessed wealth in 2005 equal to the wealth of the bottom 40 percent of the population?  Some people say, "More power to them."  Others see the creation of a new aristocracy and the impoverishment of the middle class, which is struggling to pay for the basics, like schools.

I've noticed in a lot of commentary about the financial crisis that everyone now uses the term "bet" to describe the kind of investments that are so common today.  As in - the banks placed bets on derivatives, or they bet that the derivatives would fail.  People didn't used to describe investments as bets, even if the element of risk has always been present.  One reason the term "bet" is used is to simplify the explanation of complex transactions.  Another reason is that the ethos of gambling has pervaded our culture so thoroughly that the idea of placing bets is an accepted way of thinking.

But if betting on the spin of a roulette wheel is the model for our economy, we're in really bad shape.  Gambling lacks meaning or content beyond the bet itself.  It's not about a productive or creative use of money.  It's pure speculation.

Congress and the President have taken on the realm of fictitious capital to impose rules on a sector of the economy that has become a "mighty instrument of accumulation" based on nothing more useful than the spin of a roulette wheel.

We've been fighting this fight since the time of Andrew Jackson and before.  Reading about the battles under way in the1830s shows it's still a fight worth having.
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