In light of Obama's recent statements on his intentions to expand and accelerate spending in order to accelerate recovery I felt the following quote was appropriate:
Albert Einstein
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Urban Survival...
Memories of Monopoly
As I was contemplating my navel Wednesday, along with the fine print of the 'financial reform' proposals from the Obama administration, which seem to boil down to more government - and in particular more power for the Fed - I was struck by something: Why not bust up the Fed? Or at least bust up the problematic banks and paper-slinging outfits?
We already have a prototype for monopoly busting in America - in the break-up of AT&T - a move which arguably was a pretty good one, if you can remember at the back to 1974.
The country's present financial condition is indeed precarious, and as our predictive linguistics pals reassure us, they're about to get a whole order of magnitude worse when commercial real estate and Derivatives Crisis II show up in a month or three, so what's the structural solution to what ails us?
When I read about the trillions of dollars worth of bailouts, TARP'ing and so on, I keep coming back to the fundamental design pattern at the root of where we are: The whole notion of too big to fail.
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The engineering concept is well known and well documented: It's under "single point of failure". Look up SPOF and you'll find all kinds of good science on mean time between failures and so on.
You want the answer to the nation's financial crisis - both now and going forward? It's right there in Wikipedia...but too many of the so-called 'economists' who believe in Keynesian horse pooty and that inflation is somehow acceptable (e.g. trashing purchasing power to pay those who demand interest/rent on money) have never studied outside of their own inbred boxes. So here's the lesson...ready?
The strategy to prevent total system failure is
Reduced Complexity
Complex systems shall be designed according to principles decomposing complexity to the required level.
Redundancy
Redundant systems include a double instance for any critical component with an automatic and robust switch or handle to turn control over to the other well functioning unit (failover)
Diversity
Diversity design is a special redundancy concept that cares for the doubling of functionality in completely different design setups of components to decrease the probability that redundant components might fail both at the same time under identical conditions.
Transparency
Whatever systems design will deliver, long term reliability is based on transparent and comprehensive documentation.
Next time you hear about a company that is "too big to fail" - remember, there is an alternative to printing up a whole bushel basket of money and laying the debt involved off on our kids and grand kids: Simple bust up the "too big" operation into a series of smaller ones that are NOT too big to fail. And then stand back and let the market forces work things out as they will. Failure is both episodic and necessary...it's the humus on the forest floor of economics. Has everyone forgotten that?
Seemed to work for the regional Bell operating companies after the AT&T break-up, no?
It's like Harold Geneen - once CEO of ITT - said: "The only unforgivable sin in business is to run out of cash." We have a whole country right there, right now.
Absent a little new thinking (which is laughably absent) where we're going is horrifically clear...although the train coming down that track will be another month or three before it runs us over. That gives you just time to read "Hyperinflation: The story of 9 Failed Currencies".
What both the Fed and the White House seem to miss is that no matter how much Tarp & Talk goes on TV, where the rubber meets the road, credit card companies are still in the tightening mode, as this NY Times article points out.
You saw the latest May traffic stats out of the Port of Los Angeles? Imports down 18%.
Gee, here's a startling thought: No money, no room on the credit cards means no import demand. Radical, huh? When future history is written look for something that says "One of the dumbest moves was to cut credit card limits at exactly the moment people needed additional purchasing power to propel the country out of recession and to hang onto their homes."
We either break up banker cartels, or we write off America via hyperinflation. It's this latter course that's now baked in the cake seemingly.
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Why we're not applying established monopoly-busting as was applied to AT&T to these financial outfits that have America by the financial nuts is plain crazy. Here lately I'm becoming convinced that crazy, with a strong minor in denial psychology and complete ignorance of design patterns and interdisciplinary studies, is a mandatory prerequisite to holding office or being a mainstream sell-out economist.
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