The Economic Crisis as Corruption Scandal

I've been thinking a lot about the American sub-prime mortgage crisis and the following economic crisis that has people all over the world losing their jobs and their homes.

I've decided that the whole thing is actually a disguised corruption scandal.

The problem started when a bunch of con artists discovered the "sub-prime mortgage" scam. You get someone with bad credit into a bad mortgage by selling them the expectation that in a rising housing market, they'll be able to sell the house and make a profit before the mortgage's wicked, crushing interest rates kick in and squash them like a bug.

These scammers are always around, and they're always looking to lure people into giving them money through greed. Sometimes the scams are illegal, but, like those ubiquitous "Money Mart" loan sharking companies, this scam was legal.

But, really, those guys weren't the real bad guys. They couldn't have destroyed the global economy no matter how many sub-prime mortgages they sold. They were making money off of gullible idiots, sure, but not a lot of money. Not in the grand scheme of things. No, the bad guys were working on Wall Street, getting really rich by repackaging turds as gold bullion, and then slipping these turds into the investment stream so quietly that nobody noticed. And then, when people started noticing that their supposedly low-risk investments were actually piles of smelly turds, it was too late. The whole thing came crashing down. With almost a third of the global investments turning out to be turds, the economy just ground to a halt.

The "credit crunch" that followed came partly from the fact that nobody trusted anybody anymore. How could you be sure that you're getting gold when the last time you were handed "gold" it turned into turds? This kind of complete lack of trust is common in poor "developing nations" where corruption is rife, but it really wasn't a part of the Western system until suddenly we all discovered that our system had been rotting out from the inside for years and years.

Just like the corruption you hear about in poor countries, this corruption thrived mainly because the people who could have blown the whistle and stopped the corruption were getting rich by keeping quiet.

Why so much corruption in poor countries but not rich countries? Rich countries, like the USA, normally don't have to worry much about corruption, because turning corrupt doesn't pay enough in comparison to staying honest. You might get more money, but you're also much more likely to get caught, and in a mostly non-corrupt system, getting caught means severe consequences. In poorer countries, turning corrupt pays much, much better than staying honest, and since the whole system has often corrupted (due to no intervention over a long period of time), there are few, if any consequences, even if you do get caught.

Well, the situation on Wall Street during the late 90s and the beginning of the 21st century was an absolutely perfect environment for corruption. Corrupt behaviour payed much, much better than honest behaviour, and since what they were doing was technically not illegal, they didn't have to worry about any personal negative consequences of their behavior. Of course, we've all seen that there were terrible, terrible negative consequences to their behaviour, but they're doing fine.

And the problem is that nobody's been arrested, nobody's going to jail, nobody's even being fined. A couple of financial institutions collapsed, sure, but most of them are being bailed out with American tax dollars.

Well, actually, no, they're being bailed out with imaginary money, money that the American government doesn't actually have, which means they're just printing more money to give to the people who brought the whole system crashing down in the first place.

See why I call it a corruption scandal?

As long as nobody's guilty of anything, the global economy is going to continue to suffer. You don't go to the cops when you think the cops are corrupt. And you aren't going to start investing again when you think the banks are corrupt. Without trust, an economy can't function. And we don't have any trust right now.