This is a letter sent to the Obama transition team in december of 2008. I've decided to publish it here as well - because I would like to share the insight I had, with a wider audience.

A luxury-based economy.

There is a serious problem in our economic system which is ingrained in all the Western nations. The problem is that our economies and market forces are largely guided by the fact that people spend money on what they need, and spend a lot less money on what they want. This means that there is more money in jobs which are boring and tedious, and unfulfilling. People work their whole lives at the auto factory, or at the coal mine, or at the pulp mill. Meanwhile those who set about trying to make music, or create film, or do performing art, or write for a living barely scrape by. So, ironically the things which make our world a great place to live are things which people don't support with their money.

There is a way to change this whole dynamic. And that would be for us in our communities to set up a system whereby certain needs are taken care of for free. One area where we have already accomplished this is clothing. Given the incredible expansion of manufacturing overseas in the past several decades, today anyone with a good eye can pick up things here and there over time at thrift stores and garage sales... and her or his clothing budget can be next to nothing. The other two main needs which I would like to see met in a similar manner are food and housing.

If everybody had their basic needs met for free - they would have time to spend developing new skills, and they would start working in trades doing what they were most fond of doing, and spending their money on all these things which are considered luxuries, today. They would travel, they would buy electronic equipment, they would purchase books, they would go to ballets, and operas. In this manner, the economy would shift from a needs-based economy to a luxury-based economy. And everybody in the country could spend their lives working in professions which were much more fulfilling and exciting - and which gave their lives meaning.

Now, I don't think explicit government-socialist programs are the most efficient way to create this kind of a change... although that might work to a certain degree. It would better to think about how our society could accomplish these things from the bottom up rather than the top down. The way forward would be to gather people from agriculture, and those who are landlords and ask them what they think could be done to achieve these goals.

I hope this idea isn't brushed off by the person who reads it as being hopelessly utopian. I think that anyone who is an elected representative of the people should be thinking about ways to see that the people are nurtured better. It's unfortunate that the left-wing over the past several decades has allowed its ideals and agendas to be conflated with the policies of such nations as the Soviet Union. There's a vast difference here. A good metaphor for Franklin Delano Roosevelt and his policies would be a gardener who goes about giving the plants their basic needs - water, sunlight, and fertilizer... and who in this way helps each plant to grow up and bear fruit, and become what it is according to its nature. The soviet union, and to a lesser degree China, are countries where the gardener goes about tying up each plant and trying to get them to grow in ways which are against their nature.

• read the article here

This problem with the mortgage markets has given me the opportunity to think about how all these things work. According to most sources, the danger facing the country is the lack of money for the commercial paper market - which is where small businesses offer to pay an increased some of money in a day or a week, in return for a smaller amount of money today. From what I have heard - money market funds are the primary source of these short term loans. With all the tumult of late here and there in various markets, one such money market fund "broke the buck" - that is to say that those with money in that fund were sent word that their funds had actually decreased, rather than increased, because of the choices which the fund managers had made. Apparently, this event made other money market fund managers more conservative, and this meant that the pool of money which businesses usually draw on for their daily expenses dried up. This is the thing which folks say could "kill the economy."

But wait a minute here. There's no reason that the commercial paper market couldn't be insulated from the rest of the problems on wall street - for instance, those problems in the mortgage markets. Those businesses which are utilizing this money are happy to support that fund and it's welfare with the usury which they pay. This part of the financial system is healthy, and should remain so.

The mortgage markets, on the other hand, always were an unethical place to invest one's money. There was no transparency. No one who had bought the debt service from the debtors knew about those debtors' situations, and whether the service burdened that person unduly. And predator lenders, in writing up contracts for adjustable rate mortgages, were simply trying to "squeeze blood out of a turnip." Naturally, the home owners would not be able to perform their debt service under those terms... and so the big dreams about all the money that would come from those investments were misguided.

I believe that the solution for all the money investment markets is to create end-to-end transparency. Everyone who purchases the debt service from a debtor, should know enough about that debtor's situation to see whether that person or company is unfairly burdened by her or his commitment, and to see whether the means and the will is there to fulfill the commitment of performing that debt service.

In the short term... I don't see any sense in tossing $700 billion usd at the mortgage markets, if congress is concerned about the commercial paper market. The commercial paper market has the means with which to sustain itself, if those running it get their act together and set things up properly.

This is a recent interview that Bill Clinton gave to John Stewart, in which he explains a very straightforward and sensible answer to this financial market crisis which we are seeing in September of 2008.

Imagine two friends. One is rich and one is poor. The rich person has enough money to build himself a home, and live a lavish life, but the poor person lives in a rustic shack on the edge of town. The rich person offers to help his poor friend to buy a home... but only on the condition that his poor aquaintance make him even richer than he was already. Does this sound fair?

Now as I begin this discussion, let me start by saying that one important idea of mine is that strictly speaking, money is not wealth. Goods and services are wealth. Money is only a way to obtain wealth. The social contract we all adhere to as a society is that people produce goods and services, and in return receive the medium of exchange - cash. The cash allows people to obtain wealth elsewhere. Ok, now that I have explained that idea... let's go on.

We see that banks violate this code of ethics. They don't produce any good or service which adds to the wealth of the community. The house which is there was either built recently, or it was built decades earlier. The consumer or a former consumer is paying or has paid off the construction costs. The banks do not do that. Imagine being a bank - and you have your institution in the middle of a small town with five thousand homes. Imagine having contracts with 700 home owners in that town. Basically that is a money vacuum. Every thirty years, your institution gets to siphon off the current market price of each of those homes. And most of those homes were built long ago, and the construction costs have already been paid off. You didn't have to do anything - you only had to be independently wealthy to begin with. In other words, your economic status itself gives you an income.

Now, if we can agree that a money lending organization is not producing any tangible good or service - that the company is just able to opportunize, because of the lower economic standing of the borrower - then we can ask ourselves "is there anything to keep that money lender in check?" A person who owns a factory has to produce safe, desirable and useful products. If he is not conscientious, he will go out of business and have to sell his equipment. There is no such safeguard with financial institutions, now is there?

During certain times of history some nations created laws to prevent financial institutions from charging "interest" - or as it was called back then "usury." It was considered unethical and unworkable from an economic standpoint to allow wealthy people to do this kind of thing with their money - loan it out, and collect interest on the debt. I think, that given the financial tumult of this moment of history, we ought to look back into those dusty pages of history, and learn why those civilizations chose to do that. I believe we would find a lot of really important economic principles which they understood back then, and it might do us well to recognize some of them still might be important to consider.

As a person who is accustomed to working minimum wage jobs, I have often thought of the home-owner loans system as something of a scam. A renter ends up giving away a high percentage of her or his income, just to pay off the landlord's mortgage. It feels like indentured servitude. It's a very similar system, when you compare it to the serfs who lived on the noble's land, and had to tithe a portion of their crop in order to keep the right to live in their home.

Over these past few years I saw these subprime loans being handed out and I had mixed feelings about it. I knew it was a foolhardy practice. I thought it was great for people who were usually renters, to be able to pour equity into their own homes instead of giving their landlords equity in the house. Zero down loans, from a human perspective, seem to be ideal. Home ownership is really important for the quality of life in a neighborhood. Home owners care about the curb appeal of their house, where, on the other hand, renters have a vested interest in preventing the house from appreciating in value. I also saw though, that the foolish lending practices were going to get the banks into a bind. I chuckled at the poetic justice which would happen that day.

Now, it's happening... hmmm.

Today, it was fascinating to watch Paulson and Bernanke discussing their own proposed solutions with senators on Cspan. I think it is quite ironic for them to be asking Paulson for his best judgement on what possible solutions would be to the current crisis. Paulson was the CEO of Goldman Sachs between 2001 and 2006. He is one of the rogues who has been driving the economy off the cliff. Certainly governing officials shouldn't be asking his advice for how to piece things back together again. At the end of the meeting a very vociferous member of the public was heard to be yelling about the "fox guarding the henhouse" and "no more corporate welfare." Oddly enough, the incongruity of having Paulson up there seems to be better understood by those involved in the rancorous public outcry about this bailout than by the governing officials themselves.

The one thing that really stood out for me during that panel discussion was the myopic view of the situation which Paulson and Bernanke seemed to have. They are nearsighted to the point that they can't see beyond their own noses. The problem was that unscrupulous mortgage brokers were trying to scam home buyers... with small text in their contracts about the mortgage rate adjusting upward at a certain point. As one of the senators pointed out, the solution to the banks' problems would be to refinance the homes, and provide terms of repayment which were within the means of the home buyers. But somehow Paulson and Bernanke don't care about those who are losing their homes to foreclosures (I believe the statistic which came out in this hearing was 10,000 per day in the usa). Somehow Paulson cannot see that the health of the financial markets goes hand in hand with the financial health of those who are paying off the mortgages. How are they going to get their money back, if they don't take care of those who are going to give it to them? This seems like simple logic, to me.

To me, it seems that Paulson's main goal is to opportunize on this disaster and use it as an chance to consolidate more power in the hands of the executive branch of government. President Bush has famously said "I am the decider." And his administration has quite often used disasters as an excuse to concentrate power in the government, and to move towards more authoritarian types of practices. I suppose one has to forgive Bush for this desire of his, since those in the administration have big heads, and believe that the government goverrns. In point of fact, a government is very peripheral to the events happening in any nation... and only steps in when there is a serious problem that the people want their help with. People are those who, with their actions and daily lives create their own communities.

Barack Obama, the current democratic candidate for president seems to understand better that people in the nation have to pull together to create constructive agendas. Those agendas, or as he said "that change" cannot come from the top down.

I realize that it is an unconventional idea that banks should not charge interest on home loans. But it's not that I'm really suggesting it as a way forward; I'm just musing on other ways that we could do things as a society. Certainly a soviet style centralized government housing system was not a workable solution. But why shouldn't used houses depreciate in value, rather than appreciate? Why should a used house cost as much as a new home? The expense of housing is quite a large one. Could people get together in a community and pool their own moneys and build their houses and community infrastructure in an unconventional way? I read a story awhile back about an Amish family's home which was destroyed in a tornado at 3pm on Monday, and by 2 pm on Tuesday it had been rebuilt because over a hundred Amish people had converged to rebuild it. The only expense for that house was the materials. Imagine if you could own a house and pay off the materials cost in a couple of years, and then live without having to pay rent or a mortgage from then on. Wouldn't that be great? I think most of us would choose that option if we had it, and if the home was in a desirable location.

One of the things which is going to happen here that I see on the horizon, is that as it becomes harder and harder for people to be able to borrow money and get a home... manufacturers will start finding ways to make houses a lot more cheaply. For instance, you might see a sudden interest in this technology which allows a house to be built from bottom to top by a computer.

Well, I wrote up a long ugly page-long essay today about my assessment of how we have come into this mess with the financial markets failing in this september of 2008. I narrated all the facts of the circumstances of the past decade. But history will give our children and our grandchildren plenty of that kind of hard-to-read text. I think I'd rather summarize my ideas in only a few words here on my blog:

How does a great depression happen? When bankers are fools. When politicians are fools, and when there is enough rancor directed at the politicians to distract them to the point that they don't give an earnest ear to those who would advise them in the right course.

I imagine the same thing happened during the 1920s, in the usa.

What is the lesson for us? Choose politicians who have good judgement - who will meet the time of trial with wisdom and earnestness. It's not enough for a politician to look pretty or handsome, or talk smoothly. That person's judgement has to be sound.

Along a timeline this is what happened: the foolish people in the Bush administration failed a test of their judgement on september 11th, 2001. They started panicking and acting in an imprudent fashion... then there was public outcry. That public outcry was met with obstinance. That obstinance closed down the lines of communication into the halls of congress. And those who would advise congress about the dangers facing the financial markets were not listened to. And then the markets melt down.

This is a brief and very clear lighthearted explanation about what's happening on Wall Street.