Derivatives as Deficit Spending

There is much talk in Washington these days about reducing deficits in order to manage the public debt. However, there has been insufficient processing of the recent recession and no mention of derivatives increasing the marketability of questionable loans and therefore the liquidity of the credit markets has been made. Essentially, taking a junk mortgage and tranching it at AAA is printing money. The underlying economic conditions that would normally be reflected in a AAA instrument do not exist so essentially the difference in marketing the AAA from the junk is new money. Nobody has noticed that.
It is, in fact, borrowed new money since the consequences of mortgage default are amplified and must require extra reserves and possibly public financing. We learned that lesson in the last five years. We just haven't managed to adequately characterize the phenomenon. It is a form of deficit spending.
Now, the Federal Housing Agencies, which effectively are what Fannie Mae and Freddy Mac represent have proposed a derivative for multiunit housing to shore up demand. If it bubbles and bursts we'll all be liable for it and it's completely off ledger. When Pandora's Box was opened, derivatives were found inside.
Driving this insanity is the postindustrial concept of magic money. Everybody should have a nice house in a gated community. Therefore, everybody will have a nice house in a gated community. This is Disneyland after all, isn't it? We do, as a nation, prefer trial and error to doctinaire approaches and we are in the process of proving absolutely that Disneyland is a nice place to visit, but you wouldn't want to live there. You have to pay for those rides and, as the old saying goes, money doesn't grow on trees.
Be well and do good.

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Postindustrialism and Postmodernism

A tremendous number of movers and shakers in this culture of youth have never heard the word postindustrialism and have no idea what it entails, yet it informs the very nature of our existence. Having its roots in the 1950's phenomena of Levittown and Disneyland, of freeways and shopping centers, of computers and television, it is an ill formed vision of the possible that is a Keynesian, oversimplified, and ill thought nightmare of economically unsupportable infrastructure, commercial, and residential blunders that constitute a Grand Design for life in the Future. It is not a workable concept.
Postmodernism has its roots in the liberal vision of a polycultural society of tolerance and participation. It is the wellspring of consumerism, the notion of a shift from production to consumption, formalized in market socialism. While it is European in style and socialist in practice, postmodernism has no necessity of any Marxist influence. I am a postmodernist and I am not by any measure a socialist. I am a pragmatist who sees the hope of the world in Game Theory and Schumpeter.
The critical limit of both postindustrialism and postmodernism is transfer of wealth whether the magic hand of postindustrialism, incidental Keynesian transfer, or the programmatic transfer of postmodernism, socialism. What we are finding is that participation is the limit of transfer of wealt. A socioeconomy generates only so much wealth and so much meaning and they are both zero sum games. We are desperately in need of a new economic model and desolately without one and twenty years away from a Game Theory/Schumpeter synthesis that could provide one. So we stumble on into the 21st century.
Be well and do good.