What Is a 'Credibility Trap'

A credibility trap is when the lies and the corruption become so widespread and embedded in a system that they become self-sustaining to the point of moral bankruptcy.

It is when almost half of all Congressmen remain in the Capitol after leaving office so that they can make many millions per year peddling influence and crafting loopholes for corporations who are offering huge sums to gain advantage through manipulating the tax and regulatory laws, or eliminating them altogether.

It is when politicians leave office voluntarily once they have gained enough name recognition and contacts so they can cash in. 

It is when a ruling class forms, and becomes insulated from their constituents.  It begins to act for itself, paying lip service to their oaths and obligations, with no consequence or shame.

It is when the government by example breeds lawlessness.

It is when officials from the Executive Branch move back and forth through a revolving door from corporate institutions in order to make the big payday for their public 'service.'

It is when the truth is led down a blind alley of greed and strangled by expediency. It is when lying and cheating is acceptable, even laudatory, if you are good at it.  And goodness is measured in money.

It is when corporations openly pay large bonuses to their executives who win an influential job in government in order to further the corporation's influence and interests.

It is when there is more moral hazard in not taking the money, than there is in taking it, and even getting caught at it, as long as you have served your masters well.   If you do not take the money, you are a risk, you are not reliable.  You may have a conscience, and you do not have the additional layer of loyalty that comes from complicity.  Morality is bad for business.  And good people are contemptible.

It is when the only tragedy is not to be in the one percent.

If you wish to see a fine example of this type of systemic corruption, watch the movie Serpico, or a good expose of a banana republic or organized crime, or read the book This Town by Mark Leibovich. 

Groupthink rationalizes it, and the fear of ostracism and missing the big payday keeps everyone in line. And once you are part of this type of system, it owns you, whether you are a politician, a journalist, an economist, or a parasitic enabler.   If you are in business, not to join in is a competitive disadvantage.  Bad behaviour drives out the good, and banality unleashing the darkest parts of human nature is in the ascendant.

A credibility trap is when both parties pledges themselves to the powerful, monied interests, thereby putting the business of business ahead of the business of the people.  The society becomes out of balance, and cannot bring itself to right because its leaders have lost their way, and corrupt all who come near them.

It always ends, often from external forces, and too often badly. But while the money is still flowing the band plays on. 

"A credibility trap is a condition wherein the financial, political and informational functions of a society have been compromised by corruption and fraud, so that the leadership cannot effectively reform, or even honestly address, the problems of that system without impairing and implicating, at least incidentally, a broad swath of the power structure, including themselves.

The status quo tolerates the corruption and the fraud because they have profited at least indirectly from it, and would like to continue to do so. Even the impulse to reform within the power structure is susceptible to various forms of soft blackmail and coercion by the system that maintains and rewards.

And so a failed policy and its support system become self-sustaining, long after it is seen by objective observers to have failed. In its failure it is counterproductive, and an impediment to recovery in the real economy. Admitting failure is not an option for the thought leaders who receive their power from that system.

The continuity of the structural hierarchy must therefore be maintained at all costs, even to the point of becoming a painfully obvious, organized hypocrisy.

Gold Daily and Silver Weekly Charts - Begin the Beguine

It is all about the Fed tomorrow and what level of market intervention they will maintain in buying public and private (Treasury and mortgage) debt.

I think a mix of both with a total below $10 billion may be a likely expectation. I think the taper will be slow, and the unwind of the balance sheet even much slower. I think we are looking at quite a few years, and not months. We will know once the economy has actually improved and we are certainly not there yet. Not with a stagnant median wage which dampens consumer demand.

There is a serious risk of a market dislocation, either in the dollar or stocks or both. I have not quite gotten a better feel for which way it will roll as it depends on some exogenous variables that I am insufficiently connected to foresee.

Either way, we can keep reading the short term signs. Gold and silver are coiled and look explosive, but given time. Timing is everything which is why cautious diversity is not a bad idea.

I was rereading some of Roger Babson's writings today, and came across the Babson Boulders of Dogtown which I had not known about that I can remember.

It is seems odd that I had never even heard of them because I had taken frequent car rides past that area while at school along the coast from Boston to Ipswich to visit friends who lived near Crane's Beach.  I remember Rockport and Gloucester quite well, and the obligatory stop at Woodman's Tavern in Essex.

It wasn't like I did not get out on the weekends. I once made the trek to Thoreau's location on Walden Pond and left my own stone on the pile that commemorates it.  I even took the trip to the House of the Seven Gables at Halloween for the witches convention.  That was interesting. 

I am a big enough fan of Babson to have walked his trail if I had known of it when it was handy.  But I did not have an interest in financial things and Roger Babson until after an MBA sparked a keen interest in economics at 40.  Until then it was all gizmos, gadgets and coding.  And the classics, history and literature of course.  But that was due to youthful whimsy, which is why it is the best time for exploring your options, and walking a trail lined by scattered old boulders with carved sayings from a man who had also seen the consequence of human folly approaching.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Tech Charges Higher

Stocks caught a bounce today as the markets wait for news from the FOMC tomorrow on the much awaited taper.

Money is flowing out of bonds into equities as fears cool and the market realizes that it is inevitable that bonds have topped, no matter how slowly the great trend change may come given the Fed's policy of subsidizing rates.   This once again will cause risks to be mispriced alas, and may put forward a rocky path to the unwary investor.

Have a pleasant evening.

Max Keiser and Greg Palast on Larry Summers and the Financial Crisis

"Cynicism masquerades as wisdom, but it is the farthest thing from it. Because cynics don’t learn anything. Because cynicism is a self-imposed blindness, a rejection of the world because we are afraid it will hurt us or disappoint us.”

Stephen Colbert

In our time truth comes from the mouths of comedians, because otherwise no one would take it seriously. 

Here is an interesting discussion that Max Keiser had with investigative reporter Greg Palast about Larry Summers and 'The Endgame Memo.' The interview occurred a few days before Summers withdrew his name from consideration as the next Fed Chairman.

Jeffrey Sachs has previously raised some serious concerns in a video speech to the Philadelphia Fed about his own conversations with the financial leaders of other nations, and the anger which they feel towards the US regarding the rampant financial fraud which caught their own economies in the financial crisis through the promulgation of bad paper and manipulative derivatives.

Obviously I do not know if all of what Palast is saying is correct. But the memo seems to be legitimate.  And it is also puzzling that Obama was pushing Summers so hard against such strong political headwinds, with a track record of serial disasters and potential scandals and conflicts of interest abounding.

Obama and Summers finally withdrew the nomination when faced with a revolt from their own Senators, and the normally complacent economist community, at the idea of placing Summers in charge of the Fed.    

Apparently even the culture of hypocrisy has its limits. 

I just finished reading This Town by Mark Leibovich.   In 1974 roughly 3% of Congressmen stayed in the District as lobbyists after serving their terms.  Today that number is approximately 50% of Senators and 43% of Congressmen who stay in the Beltway to become highly paid lobbyists, fueled by corporate money, cashing in on connections and influence often for the same causes which they fought against while in the Congress.  

“In poor countries, officials receive explicit bribes; in D.C. they get the sophisticated, implicit, unspoken promise to work for large corporations”

Nassim Taleb, The Bed of Procrustes

We have seen the meteoric rise of 'full service firms' that contain former high profile figures of both the Republicans and the Democrats in a partnership of cynicism, raw power, and greed.  Right or left, they offer a one stop shop that can fix any problem, fashion and implement any loophole, and promote aggressive war and excuse genocide with a straight face if there is enough money to be made in it.  

The story in the book is how broadly the politicians are co-opted by the promise of salaries in the tens of millions, even while they are still legislating.  It envelopes the journalist community and the media, and it has gotten completely out of hand. 

It is as if the government has been taken over by an army of Huey Longs of the right and the left, who operate on a principle of shameless self-enrichment.  They bamboozle the public with distracting emotional issues, while allowing the powerful interests which they serve to rob them blind. 

And the extreme moral hazard is that there are rarely any lasting negative consequences for anything if done with the right spin, since cynical competence has become rite of passage in The Club, and the fashionably proper thing to do.  The only sin is virtue, because it is bad for business. 

And if you think movements like the Tea Party are a force for reform through small government and deregulation, the problem is a bipartisan loss of shame, decency, and compassion in the cult of the self,  across the political spectrum.  Deregulation is the first tool of the financiers and their corporations.

Some years ago the French novelist Léon Bloy wrote in The Woman Who Was Poor that 'the only tragedy is that we are not all saints.' What a quaintly funny thought in our cynical culture, to aspire to high ideals and self denial.   Jed Purdy laments this loss of striving for good in his book For Common Things.  We lose our innocence in cynicism.  It is as it is.  And such acquiescence makes one blind to their own hardened hearts, deaf to the agony of the victims, and unmindful of the approaching abyss. 

In our time the prophet is the will to power,  and its god and measure is money.  The only tragedy is not to get filthy, stinking rich, even if it is done over the crushed bodies of innocent people.  And it is not enough to get richer than everyone else, but one must also see the others fail, and to be crushed.   How much more sweet then is the victory.

The suppression and co-opting of the legitimate voices for positive change is perhaps the saddest thing of all.  But it is certainly nothing new to anyone who has even a passing familiarity with the darker passages of history.  And for those who say I would never, the gods first make them mad.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

The American dream is dying on our watch, having been led down a blind alley of powerful self-interests and big money, and strangled.   As Roger Babson said on 5 September 1929, "sooner or later, a crash is coming, and it may be terrific."

Welcome to The Hunger Games.  And may the odds be ever in your favor.