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Peanuts and Collateralized Debt Obligations by Al, Πλάτων, and Tom

Jul 24th, 2009 | By | Category: Features


I was approached by three spirits yesterday.  It was quite a sight.  Albert Einstein, Plato, and Thomas Jefferson approached me and told me a story.  It was quite a sight.  Why they chose me, I don’t have a clue; except that they arrived on bicycles.  Einstein looked comfortable, but the other two seemed a little iffy.  I guess it was because they had to learn how to ride in the spirit world on bicycles lacking matter.  In any event, this is what they told me.  I have translated the story into an essay here to eliminate the mathematical formulas, the philosophical ramblings, and the “my son” and “young man” stuff.

Here is what they told me:

The peanut-related salmonella scare and the current financially-based economic crisis have much in common. How so?, you ask.

Let’s begin with the economic problem. The current wisdom is that the problem has its roots in poor lending practices for home mortgages. This is only marginally true. The mortgages themselves, although substantial, do not constitute enough financial loss to wreak such havoc. Additionally, the problems started after only a portion of the mortgages were in default. More accurately, the economic crisis has its roots in the monopolization of capital and the disproportional growth of the financial sector in the American and world economies. It was only after this bad debt (more accurately, the anticipation of bad debt) was mixed in with other debt obligations into packages that were enormously large that the problem really arose. The mortgage debt was the bacteria that spoiled the whole batch of debt. If this bad debt was being held by local S and L’s and local commercial banks (especially prior to deregulation), then the problem would have been local and isolated. It would have been significant, but not catastrophic or world-wide. But because the debt ended up in the few institutions that conducted most of the financial commerce, the bad seed infected the whole economy. The reason for the crisis then is structural. It is a result of an economy that is highly monopolized and dependent on self-regulating financial institutions. This, in turn, was a result of the death of anti-trust enforcement and regulatory oversight of the financial industry. The latter in the name of the new religion of market worship that started in the 80′s; the former started to slide a little earlier.

Now peanuts. The salmonella problem also is primarily structural. The Peanut Corporation of America has been very very bad, and although they are to blame for starting this problem, the enormity of the problem is structural and a consequence of the corporatized and monopolized food production economy that has evolved in this country. This scenario has played out many times before, usually with beef, and is a consequence of the monopolization of meat processing and distribution in the country (like 3 companies do 60 or 70 percent of the meat production). Make no mistake about it, in a non-monopolized food industry, salmonella would still be a problem (especially with no oversight), but the effects would be local and not as pervasive.

So what does this all mean? We have an economy that is highly monopolized and production is highly centralized with little public oversight. This is a consequence of the powerful ideology of market economics that has evolved in this country, especially since the 1980′s. This has set up the structural condition in which one bad apple will spoil the whole bunch. Unfortunately, the whole bunch is our economy and our food supply. Think of the bad mortgages and salmonella bacteria as the bad apple. If the bad apple were stored in a little bushel (non-monopolized and regulated economy) rather than a city-size warehouse (monopolized and unregulated), then the problem would be small. Throwing the apple into a city-sized warehouse is catastrophic. Now matter how vigilant we are (and the response to these problems is to become more vigilant–not to change the structure), the potential for disaster is great unless true economic reform is instituted.

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