Financial WMD

This page describes the organizational forces that limit change. It explains how to overcome them when necessary.

This page uses an example to illustrate how:

A business can gain focus from targeting key customers,
Business planning activities performed by the whole organization can build awareness, empowerment and coherence.
A program approach can ensure strategic alignment.

This page uses the example of HP's printer organization freeing itself from its organizational constraints to sell a printer targeted at the IBM pc user.
The constraints are described.
The techniques to overcome them are implied.

This web frame explores very significant example real world complex adaptive systems (CAS). It explains how the examples relate to each other, why we all have trouble effectively comprehending these systems and outlines the items we see as key to the system and why. By understanding these summaries you can better frame the interdependencies of important events such as war in Iraq, new iPhone releases or a cancer diagnosis and see how they are impacting you. Example systems frame
Dietrich Dorner argues complex adaptive systems (CAS) are hard to understand and manage. He provides examples of how this feature of these systems can have disastrous consequences for their human managers. Dorner suggests this is due to CAS properties psychological impact on our otherwise successful mental strategic toolkit. To prepare to more effectively manage CAS, Dorner recommends use of: Effective iterative planning and Practice with complex scenario simulations; tools which he reviews. Complexity catastrophes
E. O. Wilson reviews the effect of man on the natural world to date and explains how the two systems can coexist most effectively. Adaptive ecology
Barton Gellman details the strategies used by Vice President Cheney to align the global system with his economics, defense, and energy goals. US vds alignment
Kevin Kruse argues that from 1930 onwards the corporate elite and the Republican party have developed and relentlessly executed strategies to undermine Franklin Roosevelt and the New Deal. Their successful strategy used the credibility of conservative religious leaders to: Demonstrate religious issues with the New Deal. Integrate the corporate elite and evangelicals. Use the power of corporate advertising and Hollywood to reeducate the American people to view the US as historically religious and the New Deal and liberalism as anti-religious socialism. Focus the message through evangelicals including Vereide and Graham. Centralize the strategy through President Eisenhower. Add religious elements to mainstream American symbols: money, pledge; Push for prayer in public school Push Congress to promote prayer Make elections more about religious positions. Following our summary of his arguments RSS frames them from the perspective of complex adaptive system (CAS) theory. Strategy is the art of the possible. But it also depends on persistence. Inventing Christian America
Financial WMD
Matt Taibbi describes the phenotypic alignment of the American justice system. The result he explains relentlessly grinds the poor and undocumented into resources to be constrained, consumed and ejected. Even as it supports and aligns the financial infrastructure into a potent weapon capable of targeting any company or nation to extract profits and leave the victim deflated. Taibbi uses five scenarios to provide a broad picture of the: activities, crimes, policing, prosecutions, court processes, prisons and deportation network. The scenarios are: Undocumented people's neighborhoods, Poor neighborhoods, Welfare recipients, Credit card debtors and Financial institutions. Following our summary of his arguments, RSS comments on them framed by complex adaptive system (CAS) theory. The alignment of the justice system reflects a set of long term strategies and responses to a powerful global arms race that the US leadership intends to win. Aligned justice
Jonathan Powell describes how the government of, the former UK Prime Minister, Tony Blair, actually operated. Powell was Blair's only chief of staff. Mechanics of power
H. A. Hayek compares and contrasts collectivism and libertarianism. Libertarianism
David Bodanis illustrates how disruptive effects can take hold. While the French revolution had many driving forces including famine and oppression the emergence of a new philosophical vision ensured that thoughtful leaders were constrained and conflicted in their responses to the crisis. Voltaire's disruptive network
An epistatic meme suppressed for a thousand years reemerges during the enlightenment. It was a poem encapsulating the ideas of Epicurus rediscovered by a humanist book hunter. Greenblatt describes the process of suppression and reemergence. He argues that the rediscovery was the foundation of the modern world. Complex adaptive system (CAS) models of the memetic mechanisms are discussed. Constraining happiness
Isaacson uses the historic development of the global cloud of web services to explore Ada Lovelace's ideas about thinking machines and poetic science. He highlights the value of computer augmented human creativity and the need for liberal arts to fulfill the process. Complex adaptive system (CAS) models of agent networks and collaboration are discussed. Arts technology & intelligence
Haikonen juxtaposes the philosophy and psychology of consciousness with engineering practice to refine the debate on the hard problem of consciousness. During the journey he describes the architecture of a robot that highlights the potential and challenges of associative neural networks. Complex adaptive system (CAS) theory is then used to illustrate the additional requirements and constraints of self-assembling evolved conscious animals. It will be seen that Haikonen's neural architecture, Smiley's Copycat architecture and molecular biology's intracellular architecture leverage the same associative properties. Associatively integrated robots
Good ideas are successful because they build upon prior developments that have been successfully implemented. Johnson demonstrates that they are phenotypic expressions of memetic plans subject to the laws of complex adaptive systems (CAS). Developing ideas
A government sanctioned monopoly supported the construction of a superorganism American Telephone and Telegraph (AT&T). Within this Bell Labs was at the center of three networks: The evolving global scientific network. The Bell telephone network. And The military industrial network deploying 'fire and missile control' systems. Bell Labs strategically leveraged each network to create an innovation engine. They monitored the opportunities to leverage the developing ideas, reorganizing to replace incumbent opposition and enable the creation and growth of new ideas. Once the monopoly was dismantled AT&T disrupted. Complex adaptive system (CAS) models of the innovation mechanisms are discussed. Strategic innovation
Sven Beckert describes the historic transformation of the growing, spinning, weaving, manufacture of cotton goods and their trade over time. He describes the rise of a first global commodity, its dependence on increasing: military power, returns for the control points in the value delivery system(VDS), availability of land and labor to work it including slaves. He explains how cotton offered the opportunity for industrialization further amplifying the productive capacity of the VDS and the power of the control points. This VDS was quickly copied. The increased capacity of the industrialized cotton complex adaptive system (CAS) required more labor to operate the machines. Beckert describes the innovative introduction of wages and the ways found to mobilize industrial labor. Beckert describes the characteristics of the industrial cotton CAS which made it flexible enough to become globally interconnected. Slavery made the production system so cost effective that all prior structures collapsed as they interconnected. So when the US civil war blocked access to the major production nodes in the American Deep South the CAS began adapting. Beckert describes the global reconstruction that occurred and the resulting destruction of the traditional ways of life in the global countryside. This colonial expansion further enriched and empowered the 'western' nation states. Beckert explains how other countries responded by copying the colonial strategies and creating the opportunities for future armed conflict among the original colonialists and the new upstarts. Completing the adaptive shifts Beckert describes the advocates for industrialization in the colonized global south and how over time they joined the global cotton CAS disrupting the early western manufacturing nodes and creating the current global CAS dominated by merchants like Walmart pulling goods through a network of clothing manufacturers, spinning and weaving factories, and growers competing with each other on cost. Following our summary of Beckert's book, RSS comments from the perspective of CAS theory. The transformation of disconnected peasant farmers, pastoral warriors and their lands into a supply chain for a highly profitable industrial CAS required the development over time: of military force, global transportation and communication networks, perception and representation control networks, capital stores and flows, models, rules, standards and markets; along with the support at key points of: barriers, disruption, and infrastructure and evolved amplifiers. The emergent system demonstrates the powerful constraining influence of extended phenotypic alignment. Globalization from cotton
Roger Cohen's New York Times opinion about the implications of BREXIT is summarized. His ideas are then framed by complex adaptive system (CAS) theory and reviewed. BREXIT
Ed Conway argues that Bretton Woods produced a unique set of rules and infrastructure for supporting the global economy. It was enabled by the experience of Keynes and White during and after the First World War, their dislike of the Gold Standard, the necessity of improving the situation between the wars and the opportunity created by the catastrophe of the Second World War. He describes how it was planned and developed. How it emerged from the summit. And he shows how the opportunity inevitably allowed the US to replace the UK at the center of the global economy. Like all plans there are mistakes and Conway takes us through them and how the US recovered the situation as best it could. And then Conway describes the period after Bretton Woods collapsed. He explains what followed and also compares the relative performance of the various periods before during and after Bretton Woods. Following our summary of his arguments RSS comments from the perspective of Complex Adaptive System (CAS) theory. Conway's book illustrates the rule making and infrastructure that together build an evolved amplifier. He shows the strategies at play of agents that were for and against the development and deployment of the system. And The Summit provides a key piece of the history of our global economic CAS. Bretton woods
The IPO of Netscape is defined as the key emergent event of the New Economy by Michael Mandel. Following the summary of Mandel's key points the complex adaptive system (CAS) aspects are highlighted. New economy
A key agent in the 1990 - 2008 housing expansion Countrywide is linked into the residential mortgage value delivery system (VDS) by Paul Muolo and Mathew Padilla. But they show the VDS was full of amplifiers and control points. With no one incented to apply the brakes the bubble grew and burst. Following the summary of Muolo and Padilla's key points the complex adaptive system (CAS) aspects are highlighted. Housing amplifiers
Satyajit Das uses an Indonesian company's derivative trades to introduce us to the workings of the international derivatives system. Das describes the components of the value delivery system and the key transactions. He demonstrates how the system interacted with emerging economies expanding them, extracting profits and then moving on as the induced bubbles burst. Following Das's key points the complex adaptive system (CAS) aspects are highlighted. Derivative systems
Carl Menger argues that the market induced the emergence of money based on the attractive features of precious metals. He compares the potential for government edicts to create money but sees them as lacking. Following our summary of his arguments RSS frames his arguments from the perspective of complex adaptive system (CAS) theory. With two hundred years of additional knowledge we conclude that precious metals are not as attractive as Menger asserts. Government backed promissory notes are analogous to other evolved CAS forms of ubiquitous high energy transaction intermediates. Emergence of money
Johnson & Kwak argue that expanding the national debt provides a hedge against unforeseen future problems, as long as creditors are willing to continue lending. They illustrate different approaches to managing the debt within the US over its history and of the eighteenth century administrations of England and France. The US embodies two different political and economic systems which approach the national debt differently: Taxes to support a sinking fund to ensure credit to leverage fiscal power in: Wars, Pandemics, Trade disputes, Hurricanes, Social programs; Starting with Hamilton, Lincoln & Chase, Wilson, FDR; Low taxes, limited infrastructure, with risk assumed by individuals: Advocated by President's Jefferson & Madison, Reagan, George W. Bush (Gingrich); Johnson & Kwak develop a model of what the US government does. They argue that the conflicting sinking fund and low tax approaches leaves the nation 'stuck in the middle' with a future problem. And they offer their list of 'first principles' to help assess the best approach for moving from 2012 into the future. They conclude the question is still political. They hope it can be resolved with an awareness of their detailed explanations. They ask who is willing to push all the coming risk onto individuals. Following our summary of their arguments RSS frames them from the perspective of complex adaptive system (CAS) theory. Historically developing within the global cotton value delivery system, key CAS features are highlighted. National debt
The complexity and problems of the US Health network is described in terms of complex adaptive system (CAS) theory. The network: Is deeply embedded in the US nation state. It reflects the conflict between two opposing visions for the US. The emergence of a parasitic elite further constrains the choices. Is incented to focus on localized competition generating massive & costly duplication of services within a historically ineffective physician based health care instead of proven public health strategies. This process drives increasing research & treatment complexity and promotes hope for each new technological breakthrough. Is amplified by the legislatively structured separation and indirection of service development, provision, reimbursement and payment. Is impacted by the different political strategies for managing the increasing cost of health care for retirees. Is presented with acute and chronic problems to respond to. As currently setup the network is tuned to handle acute problems. The interactions with patients tend to be transactional. Includes a legislated health insurance infrastructure which is: Costly and inefficient Structured around yearly contracts which undermine long-term health goals and strategies. Is supported by increasingly regulated HCIT which offers to improve data sharing and quality but has entrenched commercial EHR products deep within the hospital systems. Health care
Deaton describes the wellbeing of people around the world today. He explains the powerful benefit of public health strategies and the effect of growth in material wellbeing but also the corrosive effects of aid. Following our summary of Deaton's arguments RSS comments from the perspective of complex adaptive system (CAS) theory. The situation he describes is complex including powerful amplifiers, alignment and incentives that overlap broadly with other RSS summaries of adaptations of: The biosphere, Politics, Economics, Philosophy and Health care. Improving wellbeing
Donald Barlett and James Steele write about their investigations of the major problems afflicting US health care as of 2006. Problems of US health care
US healthcare is ripe for disruption. Christensen, Grossman and Hwang argue that technologies are emerging which will support low cost business models that will undermine the current network. Applying complex adaptive system (CAS) theory to these arguments suggests that the current power hierarchy can effectively resist these progressive forces. Disrupting health care
Atul Gawande writes about the opportunity for a thirty per cent improvement in quality in medicine by organizing to deploy as agent based teams using shared schematic plans and distributed signalling or as he puts it the use of checklists. With vivid examples from a variety of situations including construction, air crew support and global health care Gawande illustrates the effects of complexity and how to organize to cope with it. Following the short review RSS additionally relates Gawande's arguments to its models of complex adaptive systems (CAS) positioning his discussion within the network of US health care, contrasting our view of complexity, comparing the forces shaping his various examples and reviewing facets of complex failures. Complexity checklists
Friedman and Martin leverage the lifelong data collected on 1,528 bright individuals selected by Dr. Lewis Terman starting in 1921, to understand what aspects of the subjects' lives significantly affected their longevity. Looking broadly across each subject's: Personality, Education, Parental impacts, Energy levels, Partnering, Careers, Religion, Social networks, Gender, Impact from war and trauma; Friedman and Martin are able to develop a set of model pathways, which each individual could be seen to select and travel along. Some paths led to the traveler having a long life. Others were problematic. The models imply that the US approach to health and wellness should focus more on supporting the development and selection of beneficial pathways. Following our summary of their arguments RSS comments from the perspective of CAS theory. The pathways are most applicable to bright individuals with the resources and support necessary to make and leverage choices they make. Striving to enter and follow a beneficial pathway seems sensible but may be impossible for individuals trapped in a collapsing network, starved of resources. Promoting longevity
Gawande uses his personal experience, analytic skills and lots of stories of innovators to demonstrate better ways of coping with aging and death. He introduces the lack of focus on aging and death in traditional medicine. And goes on to show how technology has amplified this stress point. He illustrates the traditional possibility of the independent self, living fully while aging with the support of the extended family. Central planning responded to the technological and societal changes with poorly designed infrastructure and funding. But Gawande then contrasts the power of bottom up innovations created by experts responding to their own family situations and belief systems. Gawande then explores in depth the challenges that unfold currently as we age and become infirm. He notes that the world is following the US path. As such it will have to understand the dilemma of integrating medical treatment and hospice strategies. He notes that all parties involved need courage to cope. He proposes medicine must aim to assure well being. At that point all doctors will practice palliative care. Complex adaptive system (CAS) models of agency, death, evolution, cooperation and adaptations to new technologies are discussed. Agent death
Sonia Shah reviews the millennia old (500,000 years) malarial arms race between Humanity, Anopheles mosquitoes and Plasmodium. 250 - 500 million people are infected each year with malaria and one million die. Malaria
Peter Medawar writes about key historic events in the evolution of medical science. Medical science events
Using John Holland's theory of adaptation in complex systems Baldwin and Clark propose an evolutionary theory of design. They show how this can limit the interdependencies that generate complexity within systems. They do this through a focus on modularity. Modular designed systems
Lou Gerstner describes the challenges he faced and the strategies he used to successfully restructure the computer company IBM. Compartmented systems
Grady Booch advocates an object oriented approach to computer software design. Object based systems
Bertrand Meyer develops arguments, principles and strategies for creating modular software. He concludes that abstract data types and inheritence make object orientation a superior methodology for software construction. Complex adaptive system (CAS) theory suggests agents provide an alternative strategy to the use of objects. Software construction
Tools and the businesses that produce them have evolved dramatically. W Brian Arthur shows how this occurred. Tools
Matt Ridley demonstrates the creative effect of man on the World. He highlights: A list of preconditions resulting in Additional niche capture & more free time Building a network to interconnect memes processes & tools which Enabling inter-generational transfers Innovations that help reduce environmental stress even as they leverage fossil fuels Memetic trading networks
Brynjolfsson and McAfee explore the effects of Moore's law on the economy. They argue it has generated exponential growth. This has been due to innovation. It has created a huge bounty of additional wealth. But the wealth is spread unevenly across society. They look at the short and long term implications of the innovation bounty and spread and the possible future of technology. Following our summary of their arguments RSS comments from the perspective of CAS theory. Brilliant technologies
Salman Khan argues that the evolved global education system is inefficient and organized around constraining and corralling students into accepting dubious ratings that lead to mundane roles. He highlights a radical and already proven alternative which offers effective self-paced deep learning processes supported by technology and freed up attention of teams of teachers. Building on his personal experience of helping overcome the unjustified failing grade of a relative Khan: Iteratively learns how to teach: Starting with Nadia, Leveraging short videos focused on content, Converging on mastery, With the help of neuroscience, and filling in dependent gaps; resulting in a different approach to the mainstream method. Assesses the broken US education system: Set in its ways, Designed for the 1800s, Inducing holes that are hidden by tests, Tests which ignore creativity. The resulting teaching process is so inefficient it needs to be supplemented with homework. Instead teachers were encouraging their pupils to use his tools at home so they could mentor them while they attended school, an inversion that significantly improves the economics. Enters the real world: Builds a scalable service, Working with a real classroom, Trying stealth learning, At Khan Academy full time, In the curriculum at Los Altos, Supporting life-long learning. Develops The One World Schoolhouse: Back to the future with a one room school, a robust teaching team, and creativity enabled; so with some catalysis even the poorest can become educated and earn credentials for current jobs. Wishes he could also correct: Summer holidays, Transcript based assessments, College education; Concludes it is now possible to provide the infrastructure for creativity to emerge and to support risk taking. Following our summary of his arguments RSS frames them from the perspective of complex adaptive system (CAS) theory. Disruption is a powerful force for change but if its force is used to support the current teachers to adopt new processes can it overcome the extended phenotypic alignment and evolutionary amplifiers sustaining the current educational network? Education versus guilds
Amy Chua and Jed Rubenfeld's New York Times opinion based on The Triple Package is summarized. Their ideas are then framed by CAS theory and reviewed. What drives success
Peter Turchin describes how major pre-industrial empires developed due to effects of geographic boundaries constraining the empires and their neighbors' interactions. Turchin shows how the asymmetries of breeding rates and resource growth rates results in dynamic cycles within cycles. After the summary of Turchin's book complex adaptive system (CAS) theory is used to augment Turchins findings. Warrior groups
Through the operation of three different food chains Michael Pollan explores their relative merits. The application of complex adaptive system (CAS) theory highlights the value of evolutionary testing of the food chain. Natural systems
E. O. Wilson & Bert Holldobler illustrate how bundled cooperative strategies can take hold. Various social insects have developed strategies which have allowed them to capture the most valuable available niches. Like humans they invest in specialization and cooperate to subdue larger, well equipped competitors. Insect superorganisms
Computational theory of the mind and evolutionary psychology provide Steven Pinker with a framework on which to develop his psychological arguments about the mind and its relationship to the brain. Humans captured a cognitive niche by natural selection 'building out' specialized aspects of their bodies and brains resulting in a system of mental organs we call the mind. He garnishes and defends the framework with findings from psychology regarding: The visual system - an example of natural selections solutions to the sensory challenges of inverse modeling of our environment; Intensions - where he highlights the challenges of hunter gatherers - making sense of the objects they perceive and predicting what they imply and natural selections powerful solutions; Emotions - which Pinker argues are essential to human prioritizing and decision making; Relationships - natural selection's strategies for coping with the most dangerous competitors, other people. He helps us understand marriage, friendships and war. These conclusions allow him to understand the development and maintenance of higher callings: Art, Music, Literature, Humor, Religion, & Philosophy; and develop a position on the meaning of life. Complex adaptive system (CAS) modeling allows RSS to frame Pinker's arguments within humanity's current situation, induced by powerful evolved amplifiers: Globalization, Cliodynamics, The green revolution and resource bottlenecks; melding his powerful predictions of the drivers of human behavior with system wide constraints. The implications are discussed. Computationally adapted mind
Consciousness has confounded philosophers and scientists for centuries. Now it is finally being characterized scientifically. That required a transformation of approach. Realizing that consciousness was ill-defined neuroscientist Stanislas Dehaene and others characterized and focused on conscious access. In the book he outlines the limitations of previous psychological dogma. Instead his use of subjective assessments opened the window to contrast totally unconscious brain activity with those including consciousness. He describes the research methods. He explains the contribution of new sensors and probes that allowed the psychological findings to be correlated, and causally related to specific neural activity. He describes the theory of the brain he uses, the 'global neuronal workspace' to position all the experimental details into a whole. He reviews how both theory and practice support diagnosis and treatment of real world mental illnesses. The implications of Dehaene's findings for subsequent consciousness research are outlined. Complex adaptive system (CAS) models of the brain's development and operation introduce constraints which are discussed. Conscious access
Reading and writing present a conundrum. The reader's brain contains neural networks tuned to reading. With imaging a written word can be followed as it progresses from the retina through a functional chain that asks: Are these letters? What do they look like? Are they a word? What does it sound like? How is it pronounced? What does it mean? Dehaene explains the importance of education in tuning the brain's networks for reading as well as good strategies for teaching reading and countering dyslexia. But he notes the reading networks developed far too recently to have directly evolved. And Dehaene asks why humans are unique in developing reading and culture. He explains the cultural engineering that shaped writing to human vision and the exaptations and neuronal structures that enable and constrain reading and culture. Dehaene's arguments show how cellular, whole animal and cultural complex adaptive system (CAS) are related. We review his explanations in CAS terms and use his insights to link cultural CAS that emerged based on reading and writing with other levels of CAS from which they emerge. Evolved reading
Read Montague explores how brains make decisions. In particular he explains how: Evolution can create indirect abstract models, such as the dopamine system, that allow Life changing real-time decisions to be made, and how Schematic structures provide encodings of computable control structures which operate through and on incomputable, schematically encoded, physically active structures and operationally associated production functions. Receptor indirection
Richard Dawkin's explores how nature has created implementations of designs, without any need for planning or design, through the accumulation of small advantageous changes. Accumulating small changes
Russ Abbott explores the impact on science of epiphenomena and the emergence of agents. Autonomous emergence
Terrence Deacon explores how constraints on dynamic flows can induce emergent phenomena which can do real work. He shows how these phenomena are sustained. The mechanism enables the development of Darwinian competition. Constraint based phenomena

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This page introduces the complex adaptive system (CAS) theory frame. The theory is positioned relative to the natural sciences. It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents.
John Holland's framework for representing complexity is outlined. Links to other key aspects of CAS theory discussed at the site are presented.

Theory

This web frame explores very significant example real world complex adaptive systems (CAS). It explains how the examples relate to each other, why we all have trouble effectively comprehending these systems and outlines the items we see as key to the system and why. By understanding these summaries you can better frame the interdependencies of important events such as war in Iraq, new iPhone releases or a cancer diagnosis and see how they are impacting you.

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This page presents a search result list covering each linked region of rob's strategy studio.

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Rob's Strategy Studio aims to celebrate and illuminate complex adaptive systems (CAS) just as an art studio does art.

By way of introduction it notes the complex interactions that led to the partnership that discovered the DNA double helix and genetic code.

The page introduces the RSS vision 'I act, therefore I think' approach and the RSS mission.

It describes how many key aspects of the world are CAS including businesses.

Finally the page explains each of the framed pictures displayed at the studio including the other aspects explored in this vision frame.

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This page introduces the programs that the Adaptive Web Framework (AWF) develops and uses to deploy Rob's Strategy Studio (RSS).
The programs are structured to obey complex adaptive system (CAS) principles. That allows AWF to experiment and examine the effects.
A production program generates the web pages.
A testing system tests the production program. It uses a framework to support the test programs. This is AWF's agent programming framework as described in the agent-based programming presentation.
An example of the other AWF agent-based programs that are also described in the frame is the virtual robot.
Finally a strength, weaknesses, opportunities and threats assessment is presented.

Perl

This page introduces a series of asymmetries which encourage different strategic approaches.
The differences found in business, sexual selection, gamete structure, as well as in chess encourage escalations in the interactions.
And yet the systems including these asymmetries can be quite stable.

Asymmetries

This web frame includes a set of presentations about complex adaptive systems (CAS)

Presentations

Financial WMDs

Summary

Charles Ferguson argues that the US power structure has become highly corrupt.

Ferguson identifies key events which contributed to the transformation:

Junk bonds,
Derivative deregulation,
CMOs, ABS and analyst fraud,
Financial network deregulation,
Financial network consolidation,
Short term incentives

Subsequently the George W. Bush administration used the situation to build a global bubble, which Wall Street leveraged. The bursting of the bubble: managed by the Bush Administration and Bernanke Federal Reserve of 1913 was a response to a series of banking panics with the goal of responding effectively to stresses. It setup:

At least 8 and not more than 12 private regional Federal Reserve banks. Twelve were setup
Federal Reserve Board with seven members to govern the system. The President appointed the seven, which must be confirmed by Congress. In 1935 the Board was renamed and restructured.
Federal Advisory Committee with twelve members
Single US currency - the Federal Reserve Note.

; was advantageous to some.

Ferguson concludes that the restructured and deregulated financial services industry is damaging to the American economy. And it is supported by powerful, incentive aligned academics. He sees the result being a rigged system.

Ferguson offers his proposals for change and offers hope that a charismatic young FDR is President Franklin Delano Roosevelt. He is notable for his contributions to the US CAS:

New Deal strategies including:

SSA
FFDCA
IRC

Lend-lease which pushed the US and Japan into World War 2 and helped the US to become the world's predominant military power.
Bretton Woods's agreement which economically constrained any politically driven collapse of the world economy after the war and helped the US to become the world's predominant economic power.

will appear.

Following our summary of his arguments, RSS is Rob's Strategy Studio comments on them framed by complex adaptive system (

CAS) theory. Once the constraints are removed from CAS amplifiers, it becomes advantageous to leverage the increased

Flows of different kinds are essential to the operation of complex adaptive systems (CAS).
Example flows are outlined. Constraints on flows support the emergence of the systems. Examples of constraints are discussed.

flows. And it is often relatively damaging not to participate. Corruption and parasitism is a long term relationship between the parasite and its host where the resources of the host are utilized by the parasite without reciprocity. Often parasites include schematic adaptations allowing the parasite to use the hosts modeling and control systems to divert resources to them. can become entrenched.

Predator Nation

In Charles Ferguson's book 'Predator Nation' he describes the

This page reviews the inhibiting effect of the value delivery system on the expression of new phenotypic effects within an agent.

extended phenotypic alignment around corporate America's 80 yearlong strategies to undermine Franklin Roosevelt's (FDR is President Franklin Delano Roosevelt. He is notable for his contributions to the US CAS:

New Deal strategies including:

SSA
FFDCA
IRC

Lend-lease which pushed the US and Japan into World War 2 and helped the US to become the world's predominant military power.
Bretton Woods's agreement which economically constrained any politically driven collapse of the world economy after the war and helped the US to become the world's predominant economic power.

) New Deal.
It eventually reached from the Republican Party through the global financial network & into Democratic administrations.

Opening Pandora's Box: The era of deregulation, 1980-2000

From 1972 to 1982 America experienced major setbacks:

The fall of South Vietnam
Watergate hearings and resignation of President Nixon
The Yom Kippur War, OPECs first oil embargo causing a recession in the US.
Destabilization of Iran, the fall of the Shah and an Islamic revolution
OPEC tripling oil prices in 1979, leading to stagflation in the US.
Soviet Union invaded Afghanistan

In this period the US is the United States of America. financial network was archaic. The network was separated into parts in the 1930s, by Glass-Steagall Act of 1933 prohibits commercial banks from engaging in the investment business. , to constrain the

This page reviews the strategy of setting up an arms race. At its core this strategy depends on being able to alter, or take advantage of an alteration in, the genome or equivalent. The situation is illustrated with examples from biology, high tech and politics.

infrastructure

flows that enabled the great depression. The parts included:

Commercial banking which was a restrained business paying regular, unexceptional salaries:

New York and Chicago money center banks
Regional and local banks

Residential mortgage

Fannie Mae - which in this period could use its low cost finance to purchase prime rate mortgages.
S&L is savings and loan association. These S&Ls were deregulated by the 1982 Garn-St. Germain act.
s

Mutual funds regulated by the Investment Company Act was developed by Congress and signed into law in 1940 to regulate new investments, such as mutual funds which gave the general public more ability to indirectly purchase securities. Hedge funds are not regulated by the act. The act required public disclosure of the financial health of these investment companies. The act was updated by provisions of Dodd-Frank.
. These are the 'buy' side of securities trading.
Securities industry regulated by the
Securities Act
of 1933 was passed in the aftermath of the Great Depression, to regulate the offer and sale of securities within the US, so as to prohibit fraud and provide investors with significant information about securities being offered for public sale. The act included:
- Commission (SEC) to manage the act including registration of most securities.
and Securities Exchange Act of 1934 was passed in the aftermath of the Great Depression, to regulate securities exchanges and the over-the-counter markets that perform secondary trades of securities. It provided the SEC with broad powers over all aspects of the securities industry. separated into:

Retail brokers - the retail 'sell' side
Investment banks - the whole sale 'sell' side, which were organized as partnerships which pooled the money each partner provided. The partners were required to keep their investments and fees in the firm for decades. This structure limited the amount of capital and risk that the banks would take.

And Ferguson identified fundamental economic shifts occurring at this time:

Asian competition based on just-in-time processes and lean production.
Outsourcing supported by information technology reducing the value of American unskilled labor.
Increased importance of an educated workforce.

Ferguson asserts by 1980 it was clear American economic dominance was over, with:

Productivity growth falling from 3% in the 1960s to 1% by the 1970s.
Radically better quality products from Japan: Cars, IBM compatible mainframe computers, Semiconductors;
Japan responded better to the oil shocks

But it was not obvious what should be done about it. Ferguson argues the US should have: refocused on saving, improved education, information technology, tougher antitrust policy, energy conservation and greater understanding of other nations. But instead President Reagan proposed a simple reassuring alternative strategy: Lower taxes, reduce government regulation, and strengthen the military; a strategy that has constrained all subsequent presidents.

Reagan accomplished many of his goals: Tax cuts and deregulation. But Ferguson argues he:

Did not cut government spending. A recovery was built with deficits. Tax cuts did not pay for themselves as claimed.
Allowed corruption of politics with lobbyists and industry executives running government agencies as their industries increased spending on political donations, lobbying and hiring of officials.
Responded to the 2nd OPEC oil shock's inflation driven collapse of the politically well-connected S&L is savings and loan association. These S&Ls were deregulated by the 1982 Garn-St. Germain act.
s by deregulation - Garn-St. Germain of 1982 was signed by President Reagan in response to the 1979 oil shock inflation driven collapse of the US S&L industry. The S&Ls had previously only been allowed to offer depositors fixed rate loans on fixed length mortgages which could not adapt to the rapid inflation. The S&L depositors responded by switching to higher interest bearing money market funds. The 1982 act deregulated the savings and loan associations and allowed banks to provide adjustable-rate mortgage loans.
act, allowing the S&Ls and their investment bankers to run wild.

By appointing S&L industry lobbyist, Richard Pratt to head the regulator, the Federal Home Loan Bank Board, the regulations against self-dealing were weakened.
Self-dealing allowed S&L owners to raise money with federally insured CDs via Wall Street Brokers who were repaid with fees. By leveraging other people's money and/or credibility, fortunes could be made. Charles Keating leveraged economist Alan Greenspan and Keating's five congressmen: Alan Cranston, John Glenn, John McCain, Donald Riegle, Dennis DeConcini; to sustain his activities.
Establishment of the Resolution Trust Corporation to take over bankrupt S&Ls and sell off their assets at a cost to tax payers of $100 billion, instead of the $10 billion it would have cost to just let them collapse initially without the attempted recovery.
American investment banks eagerly participated in the S&L deregulation providing funds in return for high fees.
Law firms similarly benefited: Jones, Day, Reavis and Pogue; Paul, Weiss, Rifkind, and Kaye Scholer.
Accounting firms: Ernst & Young and Arthur Andersen were later forced to pay high settlements for allowing S&Ls to fake their books.

Junk Bonds, Leveraged Buyouts, and the Rise of Predatory Investment Banking

Michael Milken's research suggested previously unrated companies could have debt underwritten. In 1977 Milken's employer investment bank Drexel Burnham Lambert, started underwriting 'junk' bond issues by unrated companies. Ferguson writes that in an environment where the stock market had fallen severely many public companies were bargains, or could be made attractive by replacing poor management teams, able to be purchased with junk bonds:

Nixon/Ford treasury is the department of the treasury. it is a federal government executive department created by Act of Congress in 1789 to manage government revenue. The Secretary of the Treasury is a Cabinet officer. To support funding of high cost investments: Disaster recovery, Wars, Famines; the treasury can issue debt instruments and manage the national debt.
secretary William Simon leveraged bonds to purchase and flip Gibson Greeting Cards in 1982.
Ted Forstmann's firm flipped 'Dr Pepper'.
The junk bond amplifier induced a bubble which Milken and others fed through fraud.
Junk bonds enabled Green Mail, where boards would use junk bonds to pay corporate raiders is an investment fund that accepts investments from a limited number of accredited individual or institutional investors. Hedge funds are able to use investment methods that are not allowed for other types of fund.
to abandon their takeover bids.
Arbitrage bets on the takeover battles were illegally supported by insider details.
Investment banking's traditional partner based structure and capital base was replaced by short term, one-time transaction fees. Investment banks went public. The bankers were paid a percentage of the immediate deal.

Over time Junk bond financing pushed up the price of stocks which made the initial leveraged buyouts very profitable. Further rounds of junk-bond financed LBOs were induced. A bubble lasted through the 1980s. Milken became a billionaire. Even prison and fines did not impact his wealth. Milken has since setup foundations which fund pro-business academic economists.

Financial Innovation, Derivatives, and the 1987 Market Crash

Ferguson explains how the Wall Street boom aligned with growth in institutional stock portfolios supported by computerized portfolio management. A stock market bubble was induced. Portfolio insurance promised to allow a stock portfolio fund manager to protect against a market fall by buying put options that allow stocks in the portfolio to be sold when their floor is reached. Actually the 'insurer' short sells stock-index futures, since these make the exchange trades managable, for cash at the floor price and then sells the portfolio stocks that have been purchased from the insurance counter party to fully limit the risk. Unfortunately for the insurer, the market exchange was not obligated to buy the stocks in the counter parties portfolio at the price defined in the put and would not if it ran out of liquidity). And the buyers of the stock index futures would sell the underlying stocks to hedge their positions. The portfolio inurance products were enabled by software developed at UC Berkeley by finance professors Hayne Leland and Mark Rubinstein. Once a portfolio manager selected a desired price floor the computers would trade automatically accelerating futures selling as markets fell shifting those positions into cash. But once the hedge strategy was widely adopted it would result in a cascade of adaptive sales unless systemically regulated. If the real stock markets responded by additional selling, a cycle develops and reinforces the selling activity as happened on 'Black Monday', October 19th 1987 when over $50 billion of equity assets were covered by portfolio insurance resulting in a stream of sell orders on the portfolio assets required to lock in the hedges.
was deployed to mitigate the risk. The strategy failed but the crash in 1987 was eventually stabilized by the Fed, under Chairman Alan Greenspan, with a flood of new money. Ferguson concludes that regulation is required since any leveraged financial instrument:

Satyajit Das uses an Indonesian company's derivative trades to introduce us to the workings of the international derivatives system. Das describes the components of the value delivery system and the key transactions. He demonstrates how the system interacted with emerging economies expanding them, extracting profits and then moving on as the induced bubbles burst. Following Das's key points the complex adaptive system (CAS) aspects are highlighted.

Derivatives including CDS is a credit-default swap, nominally insurance where the buyer of the CDS gets paid if the subject of the swap can't meet its obligations. It appears to be insurance but insurance companies must set aside reserves to handle such claims. Britain initially required that insurance buyers also have an insurable interest. That is required in insurance markets to ensure buyers of insurance don't destroy their asset just to obtain the insurance. CDS were not required to do the same, because it was decided they were not insurance which encouraged such abuses and risk taking. Stocks could be sold short when they were backed by CDS. And the swap market is limited making it easy to undermine its liquidity. They carry considerable risk because:

They are governed by the CFMA, which ensures they are unregulated and opaque
The incentives encouraged problems - the more CDS you own the more you benefit from [causing] problems with the 'insured' assets. And unlike traditional insurance you could buy as many CDS as you could afford.

; can cause cascades of selling in a downturn.

Deregulation Triumphant: The Clinton Administration

Ferguson argues that America's strong economic performance in the 1990s was due to: Internet-based innovation and entrepreneurship, venture capital and start-up system; which generated higher economy wide productivity and launched: Amazon, eBay, Yahoo, Google, Craigslist, Facebook and many smaller businesses. And he notes that policy actions by the Clinton administration were catalytic: Privatizing parts of the Internet, reforming the telecommunications sector and constraining Microsoft.

But Ferguson notes the Clinton administration's changes to the regulatory environment enabled the rapid concentration of the industry, the financial bubble and eventually the crash of 2008. And he asserts the administration signalled, is an emergent capability which is used by cooperating agents to support coordination & rival agents to support control and dominance. In eukaryotic cells signalling is used extensively. A signal interacts with the exposed region of a receptor molecule inducing it to change shape to an activated form. Chains of enzymes interact with the activated receptor relaying, amplifying and responding to the signal to change the state of the cell. Many of the signalling pathways pass through the nuclear membrane and interact with the DNA to change its state. Enzymes sensitive to the changes induced in the DNA then start to operate generating actions including sending further signals. Cell signalling is reviewed by Helmreich. Signalling is a fundamental aspect of CAS theory and is discussed from the abstract CAS perspective in signals and sensors. In AWF the eukaryotic signalling architecture has been abstracted in a codelet based implementation. To be credible signals must be hard to fake. To be effective they must be easily detected by the target recipient. To be efficient they are low cost to produce and destroy.
their acquiescence of bad behavior by investment bankers. Deregulation allowed the:

Development of 'innovative' financial instruments that supported the structuring of a securitization value delivery system.
Use of short term cash incentives for every agent in the chain, encouraging conflicts of interest and removing penalties for causing losses.

Taming Mortgages but Creating a Monster

Larry Fink's CMO is a:

Chief medical officer or a
Care maintenance organization or in finance a
Collateralized mortgage obligation. The collateralized mortgage obligation was invented by Larry Fink (BlackRock) and team while they were at First Boston in 1983. The key innovation was that the risk in these contracts was more predictable than in an MBS due to the presence of a trust that guaranteed payments to the bond holders. The risk was separated into tranches with different credit ratings and yields. The structure was used by the banking and securities companies to finance the subprime housing boom.

helped S&Ls is savings and loan association. These S&Ls were deregulated by the 1982 Garn-St. Germain act.
to lend more money to home buyers by allowing banks, such as First Boston, to buy the prime rate mortgages from the S&Ls and sell them, packaged in the CMOs, onto investors.

Ferguson argues there was a flaw in the securitization process, since it disconnected the initial credit decisions from subsequent credit risk and consequences. This could be fixed by making sellers accept some of the impact of any subsequent losses. But Ferguson explains the opposite actually happened with the securitization of sub-prime mortgages. And with hedge funds is an investment fund that accepts investments from a limited number of accredited individual or institutional investors. Hedge funds are able to use investment methods that are not allowed for other types of fund.
trading the ABS is an asset-backed security defined as backed by nonconforming loans rather than Fannie Mae or Freddie Mac quality loans used in original MBS or CMO.
s the opacity and quality of the securities fell. CDS is a credit-default swap, nominally insurance where the buyer of the CDS gets paid if the subject of the swap can't meet its obligations. It appears to be insurance but insurance companies must set aside reserves to handle such claims. Britain initially required that insurance buyers also have an insurable interest. That is required in insurance markets to ensure buyers of insurance don't destroy their asset just to obtain the insurance. CDS were not required to do the same, because it was decided they were not insurance which encouraged such abuses and risk taking. Stocks could be sold short when they were backed by CDS. And the swap market is limited making it easy to undermine its liquidity. They carry considerable risk because:

They are governed by the CFMA, which ensures they are unregulated and opaque
The incentives encouraged problems - the more CDS you own the more you benefit from [causing] problems with the 'insured' assets. And unlike traditional insurance you could buy as many CDS as you could afford.

s, issued by London based AIG Financial Products, were falsely assumed to offset the risk posed by the expanding leverage and falling quality.

The Internet driven innovation justified a spike in startup IPOs. But Ferguson notes only Wall Street analysts' corrupt valuations allowed loss making companies with no route to profitability equity investments when they went public. And established companies used fraudulent accounting, connections and donations to exploit the Internet market bubble: Enron, WorldCom. Enron board member Wendy Gramm, a former Chair of the CFTC is the commodity futures trading commission, the regulator of the futures and options markets, was created in 1974. It enforced the CEA for these commodities.
, was also wife of Senator Phil Gramm of Texas, the chairman of the Senate Banking Committee.

Next wave of Financial Deregulation

The Clinton administration, Congress (Newt Gingrich, Phil Gramm) and the Federal reserve of 1913 was a response to a series of banking panics with the goal of responding effectively to stresses. It setup:

At least 8 and not more than 12 private regional Federal Reserve banks. Twelve were setup
Federal Reserve Board with seven members to govern the system. The President appointed the seven, which must be confirmed by Congress. In 1935 the Board was renamed and restructured.
Federal Advisory Committee with twelve members
Single US currency - the Federal Reserve Note.

(Alan Greenspan) drove financial deregulation with new laws: HOEPA is the home ownership and equity protection act. It was developed by the Republican led Congress and signed ito law by President Clinton in 1994. , repeal of Glass-Stegall Act of 1933 prohibits commercial banks from engaging in the investment business. , CFMA is the commodity futures modernization act which constrained derivative market regulation, catalyzing the derivative fueled housing boom and 2008 recession. It was supported by Senator Phil Gramm and the Republican led Congress, Federal reserve Chairman Alan Greenspan and the Clinton Administration's Treasury Department led by Larry Summers. Former Treasury Secretary Robert Rubin also lobbied to over-rule Brooksley Born, the dissenting chair of the CFTC. President Clinton signed the act into law in 2000. , TRA of 1997 is the Tax Reform Act of 1997. President Clinton reduced several federal taxes and allowed the first $500,000 in gains from selling a house to be nominally tax free if it was rolled into a new house purchase.
; regulatory changes: But none from the Fed to leverage HOEPA, CFTC is the commodity futures trading commission, the regulator of the futures and options markets, was created in 1974. It enforced the CEA for these commodities.
's Brooksley Born overruled on the need for

derivative regulation by Treasury is the department of the treasury. it is a federal government executive department created by Act of Congress in 1789 to manage government revenue. The Secretary of the Treasury is a Cabinet officer. To support funding of high cost investments: Disaster recovery, Wars, Famines; the treasury can issue debt instruments and manage the national debt.
Secretary Rubin, Summers, Greenspan and S.E.C. is the Securities and Exchange Commission. It was provided with power to regulate the securities industry by the Securities act and Securities Exchange act.
chair Levitt; and reduced law enforcement. The weakening of protections was not slowed by a concurrent wave of scandals involving dubious derivatives losses by Gibson cards, Air products, P&G, Sandoz, Orange County, Barings Bank, Daiwa Bank, Sumitomo Bank, LTCM was Long-Term Capital Management, a hedge fund that used Black-Scholes quantitative models to trade in derivatives. The hedge fund's bets failed during the Asian and Russian debt crisis of 1998 and it had to be rescued by the Federal Reserve.
. The chief architects of deregulation were well remunerated: Rubin left the administration to join Citicorp making $120 million there. Larry Summers eventually joined D.E. Shaw making $5.2 million from 2006 to 2008. Other key people from the administration: Laura Tyson, Tom Donilon, Franklin Raines, Michael Froman, David Lipton; left to join banks, hedge funds is an investment fund that accepts investments from a limited number of accredited individual or institutional investors. Hedge funds are able to use investment methods that are not allowed for other types of fund.
and GSE is a Government Sponsored Entity. Fannie Mae and Freddie Mac are examples. s.

After the 2008 financial crisis, AIGs collapse and $10 trillion in losses Greenspan finally admitted there had been "a flaw" in his model!

Structural consolidation

Deregulation, technology and increased capitalization of computerized operations drove broad financial consolidation, creating huge financial conglomerates through mergers and acquisitions.
By the time George W. Bush took office each segment of the US financial network was dominated by an oligopoly of highly collusive large firms:

Investment banking: Merrill Lynch, Goldman Sachs, Morgan Stanley, Lehman Brothers, Bear Stearns; along with subsidiaries of Citigroup, JPMorgan Chase and Bank of America and Europeans: Deutsche Bank, UBS and Credit Suisse.
Securities insurance: MBIA, Ambac; and subsidiaries of AIG [and Berkshire Hathaway].
Securities rating: Moody's, Standard & Poor's, Fitch
Corporate auditing: Arthur Andersen, Deloitte, Ernst & Young, PwC, KPMG,
Global derivative trading: JP Morgan Chase, Goldman Sachs
Consumer credit cards: Visa, Mastercard, American Express
Interstate banking: Bank of America, Citigroup, JP Morgan Chase,
Asset management: Fidelity, Vanguard, Alliance Capital, BlackRock, Pimco, Putnam;

They formed joint industry associations and leveraged shared lobbying and law firms and academic experts.

Incentives

Ferguson notes a trend across the finance network. Prior to the 1970s incentives were long term and demanded caution. But then the nature of the incentives changed:

The New York Stock exchange only allowed private partnerships until 1971. Then it relaxed the rule, just as investment banks started to go public. Bankers started to get annual bonuses and stock options and these were annual and in cash by 2000. Senior bankers were no longer required to place the majority of their own money at risk.
Mortgage securitization disconnected lenders from repayments. It incented volume. And the opacity of the products, the fee structures, and the compensations encouraged bankers to sell junk.
Until the 1970s rating agencies were paid by the buyers of securities they rated. But by 2000 all three agencies were paid by the issuers, and also rated the debt of the banks themselves.
Securities insurance companies adopted the same compensation schemes as the bankers. Losses impacted the company not the sales representatives.
Hedge funds is an investment fund that accepts investments from a limited number of accredited individual or institutional investors. Hedge funds are able to use investment methods that are not allowed for other types of fund.
were compensated by a 2% fee per year of assets managed and 20% of all gains. Losses did not count encouraging the managers to take risks with client money and accept ratings uncritically.
Ferguson asserts regulatory and policy incentives were transformed after the Clinton administration limited enforcement of the law for financial companies.

The Bubble, Part one: Borrowing and lending in the 2000s

Ferguson argues that after the

The IPO of Netscape is defined as the key emergent event of the New Economy by Michael Mandel. Following the summary of Mandel's key points the complex adaptive system (CAS) aspects are highlighted.

dot.com bubble burst in 2000 the Bush administration used tax cuts, federal deficits, a housing bubble, and consumer spending based on second mortgage borrowing to engineer an unsustainable recovery. He laments that there were massive job losses in manufacturing and services where these could be outsourced or automated. The profits from productivity gains were captured by the wealthiest families. Workers' wages stagnated or fell.

A marriage of Convenience Produces a Bubble

Fed rate cuts, between 2000 and 2003, encouraged house prices to rise allowing house owners to capture valuation increases as loans and spend them on capital goods and second homes. This process expanded the economy and helped

A key agent in the 1990 - 2008 housing expansion Countrywide is linked into the residential mortgage value delivery system (VDS) by Paul Muolo and Mathew Padilla. But they show the VDS was full of amplifiers and control points. With no one incented to apply the brakes the bubble grew and burst. Following the summary of Muolo and Padilla's key points the complex adaptive system (CAS) aspects are highlighted.

build a bubble. Ferguson notes that the situation was helped along by frauds against the borrowers who were tricked into using overly expensive loans.

From 2003 to mid-2007 $3 trillion of [ABS is an asset-backed security defined as backed by nonconforming loans rather than Fannie Mae or Freddie Mac quality loans used in original MBS or CMO.
] supported additional expansion globally, leveraging mortgages issued by new lightly regulated mortgage originators. The ABS were repackaged into CDOs by investment banks to expose the high return/risk tranches for investors. The CDO is a:

Care delivery organization in health care.
Collateralized debt obligation in finance. The idea is to transfer the credit risk rather than the loan itself. The bank enters into a CDS on the loans with a SPV. The CDO allows the bank to shift its loans outside the reach of regulators. The CDO also can distribute the risk unevenly by tranching. Equity is most at risk. Then any subordinated debt.

s were sweetened with securities insurance and AAA ratings. Ferguson notes that more than half this increase in lending volume was subprime or equivalent and much of this was defective, depending on people who were speculating, committing fraud or being defrauded. The defective CDOs were driven Ponzi style through the value chain. Ferguson writes of clear evidence that many CEOs and senior executives lied to their investors, auditors, regulators, and the public during and after the bubble. And President Clinton's TRA of 1997 is the Tax Reform Act of 1997. President Clinton reduced several federal taxes and allowed the first $500,000 in gains from selling a house to be nominally tax free if it was rolled into a new house purchase.
encouraged flipping during the bubble. The powerful amplifier pulled in house buyers and then trapped them, or worse in the collapse.

Ferguson notes the massive fraud where realtors, loan brokers and mortgage originators, sales practices and deceptive low initial rate loan structures sustained with refinancing trapped borrowers in unnecessarily expensive and sometimes coerced loan agreements. Illegal immigrants were particularly targets.

Ferguson explains that the FBI was aware of the epidemic of mortgage fraud but they were focused on counterterrorism. And he asserts the George W. Bush Administration deliberately disempowered the investigative and enforcement branches of the SEC is the Securities and Exchange Commission. It was provided with power to regulate the securities industry by the Securities act and Securities Exchange act.
. So mortgage lenders and Wall Street felt immune from criminal sanctions.

Ferguson asks why the mortgage banks & Wall Street tolerated the frauds. He concludes subprime lending was where the interest rates were highest, which allowed investment banks to build products, their investors wanted, with more yield. And this induced very crooked behaviors.

The Rise of Subprime Mortgage Lenders and the Shadow Banking Sector

Most of the loan originators financing mortgages used warehouse loans, is a loan extended from a large bank or Wall Street firm to a nonbank to originate mortgages.
from Wall Street, based on short term credit. They included: New Century, Ameriquest, Golden West Financial, Long Beach Mortgage, WMC and

Countrywide. Ferguson asserts the whole loan origination industry was totally unethical. Most went bankrupt destroying capital but their former executives and sales personnel remain wealthy. Ferguson laments that situation reoccurs throughout the book.

Ferguson notes the unscrupulous manipulation of the buyers by the mortgage VDS.

Once the bubble began rewarding corrupt practices the GSE is a Government Sponsored Entity. Fannie Mae and Freddie Mac are examples. s: Fannie Mae is the coloquial name for the FNMA which is:

The federal national mortgage association, a GSE. It was made a publically traded company by the HUD act of 1968 to remove its debt from the federal budget.
In 1970 FNMA was authorized to purchase conventional mortgages. FHLMC was setup to ensure competition for FNMA in this task.
In 1981 FNMA issued its first designated MBS.
In 1992 the Democratic Congress and President Bush established HCDA which gave FNMA affordable housing goals set annually by HUD with Congressional approval.
In 1999 the Clinton administration put pressure on FNMA to expand loans to low and moderate income borrowers. FNMA took on additional subprime risk.
In 2000 HUD placed anti-predatory lending rules on the affordable housing goals, but these constraints were dropped in 2004. In effect they just pushed mortgage originators to Wall Street finance.
Once mortgage originators started to use warehouse loans, the GSEs lost visibility and control of origination.
The GSEs purchased AAA mortgages from commercial banks. Many of these classifications were fraudulent leaving the GSEs with bad debt. In 2008 to maintain the stability of the global economy the George W. Bush administration seized the GSEs and placed them in conservatorship under the FHFA, ensuring they could not collapse.
In 2010 FNMA's stock was delisted from the NYSE. They still trade over-the-counter.

and Freddie Mac is the Federal home loan mortgage corporation (FHLMC), a GSE.
, happily participated, leveraging their

This page discusses the benefits of bringing agents and resources to the dynamically best connected region of a complex adaptive system (CAS).

central position in the mortgage market.

Wall Street makes a bubble and gives it to the world

Ferguson assesses how the Wall Street firms who purchased the mortgages, securitized them and sold them on to investors could have participated when they understood the toxic nature of the AAA rated assets. He proposes five possibilities:

The bonuses would make each participant fabulously wealthy.
It is hard to fight a team or firm that is being hugely successful, in terms of short term bonuses.
Few people could see the systemic situation.
Once you are participating and realize there are problems identifying them will put you, your team and firm at risk of destruction.
Fraud was not punished. Ferguson explains that no one on Wall Street lost out or was personally punished. "The people responsible for the bubble are still wealthy, out of jail, socially accepted, and either retired or not, as they prefer. Even those who really did lose something -- CEOs, eminences on boards of directors, business unit heads, people such as Richard Fuld, Robert Rubin, Angelo Mozilo, Stan O'Neal, or Joseph Cassano -- are still enormously wealthy as a result of having taken lots of cash out during the bubble, and/or from their severance payments."

Ferguson notes that the George W. Bush administration and Federal Reserve of 1913 was a response to a series of banking panics with the goal of responding effectively to stresses. It setup:

At least 8 and not more than 12 private regional Federal Reserve banks. Twelve were setup
Federal Reserve Board with seven members to govern the system. The President appointed the seven, which must be confirmed by Congress. In 1935 the Board was renamed and restructured.
Federal Advisory Committee with twelve members
Single US currency - the Federal Reserve Note.

supported dangerous strategies by the banks. In 2004 the SEC is the Securities and Exchange Commission. It was provided with power to regulate the securities industry by the Securities act and Securities Exchange act.
allowed the five largest banks: Bear Sterns, Lehman Brothers, Merrill Lynch, Goldman Sachs and Morgan Stanley; to calculate their own leverage limits. These banks used massive leverage, so that when the underlying assets declined by just 3% they went bankrupt unless rescued: Goldman Sachs and Morgan Stanley. Other regulators reduced their risk-analysis and enforcement staff. Ferguson lists examples of the resulting frauds: Charles Schwab sued: BNP Paribas,

Countrywide, Bank of America, Citicorp, Credit Suisse, Deutsche Bank, Goldman Sachs, Greenwich Capital, HSBC is a major financial services and banking corporation. It was originally the Hong Kong Shanghai Bank Corp.
, Wells Fargo, Morgan Stanley, UBS; having analyzed 75,144 loans with 45% failing one of their four tests.

Ferguson describes serious issues he identified at: Bear Stearns which securitized $192 billion, Goldman Sachs's GSAMP, Morgan Stanley which securitized $44 billion in one quarter of 2007; Ferguson notes that his former colleague Laura Tyson, who was a board member of Morgan Stanley, criticized the short sellers is a multi part transaction where:

A borrowed tradable asset (this part of the transaction is not performed in the naked version) is sold under the assumption that the asset is going to fall in price during the period when it has been borrowed.
Once the asset falls in price it is then purchased.
The asset is returned to the lender, with any additional risk premium.
The short seller keeps any profit. If the asset gained value during the period of the short then the seller makes a loss.

of Morgan Stanley stock and said the banks compensation practices did not contribute to its problems!

The Rating Agencies

Ferguson explains that the ratings agencies: Moody's Standard & Poor's and Fitch; run an oligopoly. They encouraged their entrenchment: the SEC recognizing their oligopoly, the NRSRO is nationally recognized statistical rating organizations: Moody's, Standard & Poor's and Fitch;
, government pension funds were required to invest in assets with a high NRSRO rating. But the companies claimed that ratings were just free speech 'opinions,' limiting the legal liabilities. If their power was threatened they would propose adjusting or not rating the assets owned by the combatant.

Additionally the incentives and rewards of the NRSRO are paid by the product issuers. Ferguson writes a cynical partnership ensued: corruption and exploitation; where the ratings agencies issued AAA ratings, and collected fees, on failed junk. They rated expanding volumes of: MBS is mortgage backed security, a bond backed by the monthly payments homeowners make on their residences. It was initially developed by Lew Ranieri at Salomon Brothers.
, ABS is an asset-backed security defined as backed by nonconforming loans rather than Fannie Mae or Freddie Mac quality loans used in original MBS or CMO.
, CDOs, CLOs, auction-rate securities, synthetic securities; given high ratings. Moody's became the most profitable company in the Fortune 500. And all three agencies failed to change the ratings of the investment banks as the banks products' core assets turned to junk.

"Protection" and Financial Weapons of Mass Destruction

In part the continued high ratings could be justified because of CDS is a credit-default swap, nominally insurance where the buyer of the CDS gets paid if the subject of the swap can't meet its obligations. It appears to be insurance but insurance companies must set aside reserves to handle such claims. Britain initially required that insurance buyers also have an insurable interest. That is required in insurance markets to ensure buyers of insurance don't destroy their asset just to obtain the insurance. CDS were not required to do the same, because it was decided they were not insurance which encouraged such abuses and risk taking. Stocks could be sold short when they were backed by CDS. And the swap market is limited making it easy to undermine its liquidity. They carry considerable risk because:

They are governed by the CFMA, which ensures they are unregulated and opaque
The incentives encouraged problems - the more CDS you own the more you benefit from [causing] problems with the 'insured' assets. And unlike traditional insurance you could buy as many CDS as you could afford.

'insurance'. Ferguson argues that AIG was happy to sell its CDS and place itself at extreme risk because:

Complexity and opacity of the market
CEO and board of AIG were picked by Maurice Greenberg to be pliable and clueless.
The CDS business was initially hugely profitable and the same incentives were deployed at AIG, encouraging risky practices. The CDS were issued by London based AIG Financial Products. They generated $8 billion for AIG as well as $3.5 billion in cash bonuses for AIGFP by 2005.

Ferguson laments CDSs reappeared in 2012 in the European sovereign debt crisis.

Financial Culture and Corporate Governance During the Bubble

Ferguson concludes that the cocoon around investment banking executives: James Cayne, Richard Fuld, Stan O'Neal (Still on the board of Alcoa), Robert Rubin; and their boards, the executives huge wealth, perks and power, and the incentive system made them self-obsessed and indifferent to the fate of their companies, employees and customers. Ferguson notes that once Rubin moved from Treasury is the department of the treasury. it is a federal government executive department created by Act of Congress in 1789 to manage government revenue. The Secretary of the Treasury is a Cabinet officer. To support funding of high cost investments: Disaster recovery, Wars, Famines; the treasury can issue debt instruments and manage the national debt.
Secretary to vice chairman of Citigroup he called Peter Fischer at Treasury, asking for help in preventing Enron's credit rating downgrade. Citigroup was a major creditor and Enron was about to go bankrupt. Citigroup was later fined for helping Enron conceal its losses. Rubin was paid $120 million while at Citigroup. Ferguson notes that Rubin is, in 2012, co-chair of the Council of Foreign Relations and a member of Harvard Corporation and was active on the Obama transition team moving in the same old unethical policymakers.

Ferguson explains there was one company whose leaders did not display such hubris. Goldman Sachs were disciplined predators, who consequently made money during the bubble and then from its collapse. He concludes they also lied to Congress in 2010.

All Fall Down: Warnings, Predators, Crises, Responses

By 2002 prominent players were responding to the weaknesses being generated by the bubble: William Ackman 'shorted' MBIA, Magnetar Tricadia Harbinger Capital George Soros and John Paulson bet against mortgage securities at the end of the bubble together making over $25 billion and allowing Wall Street to extend the bubble, Goldman Sachs accurately timed the end of the bubble and made money from the bubble and collapse, J.P. Morgan Chase stayed out of the subprime market, Morgan Stanley leveraged the bubble but miss-timed the end tactically losing $9 billion, In 2004 Robert Gnaizda warned Alan Greenspan of problems with toxic mortgages hoping for action via HOEPA is the home ownership and equity protection act. It was developed by the Republican led Congress and signed ito law by President Clinton in 1994. , The IMF is the International Monetary Fund developed as part of the Bretton Woods agreements to provide liquidity to national gold denominated reserve banks at times of stress in the global financial network - a shortage of a particular currency which was inhibiting trade; in support of a broader Bretton Woods framework designed so as to ensure that currencies did not become misaligned with one another, and were a fair representation of what things were worth. The IMF removed the need for nations to depend on private loans from commercial banks, such as Britain's dependence on J. P. Morgan during the 1920s and 30s. The agreement required each Bretton Woods signatory to provide a capital investment or 'quota' into the fund which would subsequently correspond to the amount that the country could borrow from the fund in times of financial stress. The top four countries and their quotas were set by IMF architect, Harry Dexter White, to match FDR's priorities:

US - $2.9 billion, an amount the FDR administration could transfer from Exchange Stabilization Fund without any need to ask for Congress for funds.
UK - $1.45 billion
USSR - slightly less than UK quota
China - less than USSR.

's Rajan warned central banks of toxic incentives inducing a financial meltdown; while the system resisted the undermining forces: MBIA got the SEC is the Securities and Exchange Commission. It was provided with power to regulate the securities industry by the Securities act and Securities Exchange act.
to investigate Ackman, Greenspan ignored Gnaizda and Rajan while Larry Summers attacked Rajan.

Amateur Hour Meets Let Them Eat Cake: Your Tax Dollars at Work

Ferguson laments that Federal Reserve of 1913 was a response to a series of banking panics with the goal of responding effectively to stresses. It setup:

At least 8 and not more than 12 private regional Federal Reserve banks. Twelve were setup
Federal Reserve Board with seven members to govern the system. The President appointed the seven, which must be confirmed by Congress. In 1935 the Board was renamed and restructured.
Federal Advisory Committee with twelve members
Single US currency - the Federal Reserve Note.

Chair Bernanke and Treasury is the department of the treasury. it is a federal government executive department created by Act of Congress in 1789 to manage government revenue. The Secretary of the Treasury is a Cabinet officer. To support funding of high cost investments: Disaster recovery, Wars, Famines; the treasury can issue debt instruments and manage the national debt.
Secretary Paulson denied the existence of a bubble or risk until too late. Indeed he argues Paulson's Goldman Sachs was part of the lobbying effort that drove: Repeal of Glass-Steagall Act of 1933 prohibits commercial banks from engaging in the investment business. , Banning the regulation of OTC derivatives is the commodity futures modernization act which constrained derivative market regulation, catalyzing the derivative fueled housing boom and 2008 recession. It was supported by Senator Phil Gramm and the Republican led Congress, Federal reserve Chairman Alan Greenspan and the Clinton Administration's Treasury Department led by Larry Summers. Former Treasury Secretary Robert Rubin also lobbied to over-rule Brooksley Born, the dissenting chair of the CFTC. President Clinton signed the act into law in 2000. , relaxing disclosure requirements for mortgage CDO is a:

Care delivery organization in health care.
Collateralized debt obligation in finance. The idea is to transfer the credit risk rather than the loan itself. The bank enters into a CDS on the loans with a SPV. The CDO allows the bank to shift its loans outside the reach of regulators. The CDO also can distribute the risk unevenly by tranching. Equity is most at risk. Then any subordinated debt.

s in 2004, relaxing the SEC is the Securities and Exchange Commission. It was provided with power to regulate the securities industry by the Securities act and Securities Exchange act.
's leverage restrictions on investment banking in 2004. And he notes Bernanke continued Greenspan's refusal to regulate the mortgage industry until 2007. Then the Federal Reserve drafted HOEPA is the home ownership and equity protection act. It was developed by the Republican led Congress and signed ito law by President Clinton in 1994. regulations which were issued in mid-2008 by which time the crisis had developed. Consequently Paulson and Bernanke had little regulatory support (monitoring and constraints) to understand the developing situation. And Ferguson explains the administration had filled the upper ranks of the Treasury, SEC etc. with appointees with little relevant experience necessary to understand the global financial system's complexity and cope with the crisis.

Ferguson accepts that once the crisis became acute, in September 2008, Paulson and Bernanke showed nerve and commitment. But he is scathing about most participants: John Thain; and notes that Hank Paulson and Ben Bernanke did not adequately protect public money used to support the banks or protect the home owners who were impacted by mortgage defaults, foreclosures and unemployment.

Crime and Punishment: Banking and the Bubble as Criminal Enterprises

Ferguson concludes that since the 1980s, much of the American (and global) financial sector has become criminalized, creating an industry culture is how we do and think about things, transmitted by non-genetic means as defined by Frans de Waal. CAS theory views cultures as operating via memetic schemata evolved by memetic operators to support a cultural superorganism. Evolutionary psychology asserts that human culture reflects adaptations generated while hunting and gathering. Dehaene views culture as essentially human, shaped by exaptations and reading, transmitted with support of the neuronal workspace and stabilized by neuronal recycling. Sapolsky argues that parents must show children how to transform their genetically derived capabilities into a culturally effective toolset. He is interested in the broad differences across cultures of: Life expectancy, GDP, Death in childbirth, Violence, Chronic bullying, Gender equality, Happiness, Response to cheating, Individualist or collectivist, Enforcing honor, Approach to hierarchy; illustrating how different a person's life will be depending on the culture where they are raised. Culture:

Is deployed during pregnancy & childhood, with parental mediation. Nutrients, immune messages and hormones all affect the prenatal brain. Hormones: Testosterone with anti-Mullerian hormone masculinizes the brain by entering target cells and after conversion to estrogen binding to intracellular estrogen receptors; have organizational effects producing lifelong changes. Parenting style typically produces adults who adopt the same approach. And mothering style can alter gene regulation in the fetus in ways that transfer epigenetically to future generations! PMS symptoms vary by culture.
Is also significantly transmitted to children by their peers during play. So parents try to control their children's peer group.
Is transmitted to children by their neighborhoods, tribes, nations etc.
Influences the parenting style that is considered appropriate.
Can transform dominance into honor. There are ecological correlates of adopting honor cultures. Parents in honor cultures are typically authoritarian.
Is strongly adapted across a meta-ethnic frontier according to Turchin.
Across Europe was shaped by the Carolingian empire.
Can provide varying levels of support for innovation.
Produces consciousness according to Dennet.

that tolerates or even encourages systematic fraud. This criminal behavior includes:

Deliberate concealment of financial transactions that aid terrorism, nuclear weapons proliferation, and large-scale tax evasion; Matt Taibbi similarly illustrates this using HSBC is a major financial services and banking corporation. It was originally the Hong Kong Shanghai Bank Corp.
.
Assisting in major financial frauds and in concealment of criminal assets; Enron helped by Chase, WorldCom helped by Salomon's Jack Grubman, The
The IPO of Netscape is defined as the key emergent event of the New Economy by Michael Mandel. Following the summary of Mandel's key points the complex adaptive system (CAS) aspects are highlighted.

Internet bubble facilitated by Merrill's Henry Blodget and Morgan Stanley's Mary Meeker, and
Committing frauds that substantially worsened the worst financial bubbles and crises since the Depression; Taibbi describes UBS is Union Bank of Switzerland.
's rigging of LIBOR, the London Interbank Offered Rate has traditionally been set by the British Bankers Association with inputs from the major banks, as the average interest rate estimated to be charged if the major banks borrowed from each other.
and Ferguson its leverage (along with J.P. Morgan Chase) of Bernie Madoff's $19.5 billion Ponzi scheme.

Ferguson describes the prosecutable crimes committed:

Securities fraud
Accounting fraud
Honest services violations
Bribery
Perjury and false statements to federal investigators
Sarbanes-Oxley violations
RICO is the Racketeer Influenced and Corrupt Organizations Act of 1970.
offenses
Federal aid disclosure regulation violations
Personal conduct offenses.

But like Taibbi he notes there were no prosecutions that punished the players themselves!

Agents of Pain: Unregulated Finance as a subtractive industry

Ferguson argues that the corrupt US financial network undermines the financial health of the economy in two major ways:

Destabilization due to financial leverage, volatility, structural concentration, toxic incentives and information management catalyze bubbles and crises along with fraud. They spill over into the broader economy destroying capital.
Parasitism is a long term relationship between the parasite and its host where the resources of the host are utilized by the parasite without reciprocity. Often parasites include schematic adaptations allowing the parasite to use the hosts modeling and control systems to divert resources to them. by the financial sector based on: legal and tax loopholes, constraints on information, barriers to market access, lack of protection for victims, monopoly practices and political subversion. Ferguson laments that the opportunity encourages smart people to participate here rather than in value generating activities.

Ferguson notes that the development of the financial sector has occurred while real economic performance has fallen. Financial gains in the financial sector are skewed towards the top 1% of income earners. Once the financial sector is removed from the US economy statistics real wages are seen to have fallen.

He suggests the costs of financial deregulation have been huge:

Americans observed the value of the homes increase between 2001 and 2005. They responded by leveraging the equity to pay for imported consumer goods, ballooning the trade deficit. After the crash of 2008 they still had the debt (Nov 2016). And a lot of capital had been miss-allocated to excess housing stock and associated infrastructure services.
The federal government spent hundreds of billions to sustain the financial sector, automotive industry, and supporting the unemployed.
Deficits expanded due to Congressional constraints on taxing. Consequently the
Johnson & Kwak argue that expanding the national debt provides a hedge against unforeseen future problems, as long as creditors are willing to continue lending. They illustrate different approaches to managing the debt within the US over its history and of the eighteenth century administrations of England and France.

The US embodies two different political and economic systems which approach the national debt differently:
- Taxes to support a sinking fund to ensure credit to leverage fiscal power in: Wars, Pandemics, Trade disputes, Hurricanes, Social programs; Starting with Hamilton, Lincoln & Chase, Wilson, FDR;
- Low taxes, limited infrastructure, with risk assumed by individuals: Advocated by President's Jefferson & Madison, Reagan, George W. Bush (Gingrich);
Johnson & Kwak develop a model of what the US government does. They argue that the conflicting sinking fund and low tax approaches leaves the nation 'stuck in the middle' with a future problem. And they offer their list of 'first principles' to help assess the best approach for moving from 2012 into the future.

They conclude the question is still political. They hope it can be resolved with an awareness of their detailed explanations. They ask who is willing to push all the coming risk onto individuals.

Following our summary of their arguments RSS frames them from the perspective of complex adaptive system (CAS) theory. Historically developing within the global cotton value delivery system, key CAS features are highlighted.
national debt
grew by 50%.
The US poverty rate has expanded.
The EU is European Union.
leveraged the toxic financial products resulting in a sovereign debt crisis which required massive stimulus spending to counter. This increased EU debt loads between the start of 2008 and 2012: Greece 110% became 170%, Italy 100%, Ireland 70% became 100%, Spain 40% became 60% and Portugal 25% became 110%. This resulted in misery, rioting and increased political extremism.
China had to spend $500 billion stimulating its economy once ten million workers were laid off as a result of the 2008 crash.

All this benefited 50,000 to 100,000 people at the top of the financial services industry who became very wealthy.

Ferguson concludes these results should dispel the fantasy that an unregulated financial industry inevitably channels capital to its best uses. And he notes it was just the latest of a

series including: LTCM was Long-Term Capital Management, a hedge fund that used Black-Scholes quantitative models to trade in derivatives. The hedge fund's bets failed during the Asian and Russian debt crisis of 1998 and it had to be rescued by the Federal Reserve.
and the

The IPO of Netscape is defined as the key emergent event of the New Economy by Michael Mandel. Following the summary of Mandel's key points the complex adaptive system (CAS) aspects are highlighted.

Internet bubble. Then he looks at the details to show the inherent issues:

Rollover Roulette - After deregulation began investment banks started to shift their financing from long to short term because they could borrow short term debt much more cheaply. But Ferguson notes that is much more risky since any liquidity freeze would happen much more rapidly. And they increased the amount, leverage and shortness with time. By 2007 there was $1.7 trillion of debt that turned over daily. Additionally they used mark-to-market accounting in the boom to boost estimated income and bonus payments, until the assets value collapsed. And while short term debt was secured with collateral posted by the banks these safe assets shifted from being Treasury is the department of the treasury. it is a federal government executive department created by Act of Congress in 1789 to manage government revenue. The Secretary of the Treasury is a Cabinet officer. To support funding of high cost investments: Disaster recovery, Wars, Famines; the treasury can issue debt instruments and manage the national debt.
bonds to mortgage debt over this time period. During the fall of 2008 the short term debt markets froze up to escape the obvious bubble. As the investment banks struggled to rollover their debt, the money market funds also froze. The Federal government had to guarantee the money market funds to limit the cascade.
Extreme leverage - was used to increase profits once it was allowed by deregulation:

Repeal of Glass-Steagall Act of 1933 prohibits commercial banks from engaging in the investment business. allowed financial conglomerates access to deposits to support trading and buying.
2004 replacement of rigid numerical leverage constraints by bank estimates resulted in a 50% increase in leverage.
FASB is the Financial Accounting Standards Board. It is a private organization designated to establish financial accounting and reporting standards. and banking regulators allowed banks to use SPE is a special purpose entity. In Europe or India it is termed an SPV. s, SIV is a structured investment vehicle. It is a non-bank established to support a credit spread between longer-term assets: CDOs, ABSs; within its portfolio and short term liabilities that are issued with high leverage.
s etc. to transfer assets from their books to these mini banks. But if the products associated with these mini-banks failed the investment banks had to buy the assets back.

Structural concentration - integration ensured the financial services giants were too big to fail.
Tight coupling - was induced by information technology integrating financial operations across global markets. Regulated banks and unregulated shadow banks were thus linked together with insurance companies and mutual firms. This undermined the risk management strategies deployed by the banks.
Toxic incentives - Ferguson is disappointed that Hank Paulson and Tim Geithner did not constrain the incentive system as a condition of handing over $250 billion to save the financial system, instead of teaching the bankers it was OK to take risks.

Ferguson explains how modern financial services are parasitic is a long term relationship between the parasite and its host where the resources of the host are utilized by the parasite without reciprocity. Often parasites include schematic adaptations allowing the parasite to use the hosts modeling and control systems to divert resources to them. :

Portfolio management - Low cost indexed portfolios typically outperform actively managed assets. Until recently most pension plans and endowments used active management to invest their funds.
High-Frequency trading - Ferguson describes James Simons's Renaissance Technologies strategies as a small tax on use of the stock market with no social benefit or economic utility. Simon's success has made him very wealthy so other large traders are using the strategy making this approach the majority of trading volume.
Obscuring debt - Ferguson uses the example of Goldman Sachs's Greek currency swaps which obscured debt from Greece's books and generated fees for Goldman.
Tax avoidance - Ferguson objects to how: Weakened enforcement, Tax and legal loopholes, Increasing inequality; have focused attorneys and financial advisors on tax avoidance. The effect has been for the 400 wealthiest US families to pay far less tax.
Private equity industry - Ferguson notes that private equity incomes are astronomical. And he sees much of the industry's success coming from hidden government subsidies and tax loopholes, citing the example of CEO Mitt Romney's Bain Capital.

The ivory tower

Ferguson describes the alignment of academia with the US financial network. While he notes that:

'Randomized' clinical trials of drugs when sponsored by pharmaceutical companies, have been found 3.6 times more likely to produce a positive result, and that
Physicians who had financial interests in diagnostic imaging centers were 4.5 times more likely to refer patients to such services; he is far more disappointed by the highly conflicted direction of the economics, business, law, political science and public policy schools.

Ferguson provides a breakdown of this highly influential network. A network that he argues is incented to influence legislation, public debate, regulation, prosecution, class-action lawsuits, antitrust judgements and taxes to the benefit of their sponsors. The network includes:

Academic regulatory consulting firms: Berkeley Research Group leverages Laura D'Andrea Tyson, Analysis Group leverages: Harvard's economics chair John Campbell, MIT is Massachusetts Institute of Technology. health care economist Jonathan Gruber, Columbia business school dean Glenn Hubbard; Brattle Group, Criterion, Compass Lexecon and Charles River Associates.
The Money People: Columbia's Glen Hubbard who co-authored 'How Capital Markets Enhance Economic Performance and Facilitate Job Creation' and lobbies for reduced taxes, Larry Summers who Ferguson argues was brilliant and an unapologetic champion of financial deregulation, Fredric Mishkin who Ferguson criticizes for misleading reports about Icelandic Banks, Richard Portes who Ferguson criticizes for misleading reports about Icelandic Banks, Laura D'Andrea Tyson, Martin Feldstein, Hal Scott, John Campbell; who are associated with academic, legal, regulatory, and policy consulting firms.
Academic administrators and university presidents with major involvement with financial services firms: Brown University president Ruth Simmons, Columbia University's Barnard College president Debora Spar, Smith College's president Carl Christ, MIT is Massachusetts Institute of Technology. President Susan Hockfield.

This cluster of people controls the incentives (scientific papers) and reputations of the network of academics. Ferguson argues that going against these influencers' [& their sponsors'] positions will limit: Advancement, Grants, Access to primary journals, Positions at think tanks etc. Not surprisingly he suggests young academics focus their research and its conclusions to limit these constraints. This has widely skewed academic positions regarding: Executive pay, Conflict-of-interest, Industrial organization, The Financial crisis, Antitrust analysis; (Dec 2016)

America as a rigged game

In 2000 the US is the United States of America. stood pre-eminent with no significant competitors, a peace dividend and low unemployment. But, Ferguson argues that over the last 30 years of Democratic and Republican administrations the US political-economic system has lost its way. The dominant trend is severely negative with declining: Economic competitiveness, Basic fairness, Education, Politics; and concentration of power in: Financial services, Energy, Telecommunications, Media, Retailing, Agribusiness and food; with no increase in efficiency. Small numbers of households have gained most of America's financial wealth.

Ferguson suggests these trends have resulted in the US being controlled by an amoral oligarchy that has progressively corrupted the Federal government and the political system. Better and better for the super-rich. For the bottom hundred million people the situation is not nice.

Ferguson laments America's deterioration is now systemic and structural. He sees both political parties focused on the wealthy few. He notes the Obama administration adopted the same personnel and policies used by the Bush and Clinton administrations ensuring protection and privileges for the financial sector, while ignoring the plight of the Americans whose mortgages are still under water. In consequence nothing has been done about addressing the long-term decline.

Ferguson assumes America still has an open democratic society and change is still possible when the majority decide they have had enough. He can't believe that the 50,000 people in the financial and political elite can hold the majority in check. However he notes there are two difficult hurdles:

The political parties and machinery have been high jacked in a way that will be difficult to recapture. Both parties have the same agenda and are looking to limit the rise of other competitors or true reform efforts.
The corruption goes far beyond the financial services sector. There are allies in: Telecommunications, Energy, Media, Health care, Agribusiness/food. And all these powerful groups benefit from the status quo.

Ferguson presents a model of national decline - a small company or nation develops a superior capability and becomes enormously successful defeating all rivals. But then it begins to decay from within and collapses or is defeated by an aggressive new competitor. He sees corruption as a complacent response to internal threats. Complacency built from global dominance after world war II. And corruption that feeds on its self. Ferguson compares General Motors and Toyota in 1984 to illustrate the effects, but he notes the Japanese were twice as productive in many industries: Steel, Computers. He suggests other countries financed new entries into these industries stimulating innovation.

Ferguson notes that the rise of China, India and other Asian nations offered American industry the option to outsource jobs and cost. He argues that should have caused the US to improve education and skills within its work force but the reverse occurred. Ferguson argues that this failure to respond was due to a lack of changes required in the US government. He asserts this is due to corruption of government being a cheaper and easier way for companies to protect and enhance their markets.

He laments that the Obama administration exemplified the problematic situation. Not one reformer: Simon Johnson, Nouriel Roubini, Paul Krugman, Sheila Bair, Joseph Stiglitz, Jeffrey Sachs, Robert Gnaizda, Brooksley Born, Senator Carl Levin; got a significant position. Obama went with Larry Summers, Gene Sperling, Tim Geithner, Mark Patterson from Goldman Sachs, Gary Gensler from Goldman Sachs, Mary Shapiro, Ben Bernanke, Eric Holder & Lanny Breuer from Covington, Michael Froman & Jacob Lew from Citigroup, Thomas Nides of Morgan Stanley etc. The Obama administration resisted: reform of corporate governance, breaking up of the largest banks, closing legal loopholes; and when reform of financial services finally arrived it Ferguson asserts it was the weak and hugely complicated Dodd-Frank is the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Its titles include:

Financial Stability creates the FSOC and OFR.
Orderly Liquidation Authority

Section 619 is the Volcker Rule: prohibitions on proprietary trading and certain relationships.

Transfer of Powers to the Comptroller, the FDIC, and the Fed
Regulation of Advisers to Hedge Funds and Others - which updated the powers of the Investment Company Act.
Insurance
Improvements to Regulation
Wall Street Transparency and Accountability
Payment, Clearing and Settlement Supervision
Investor Protections and Improvements to the Regulation of Securities
Bureau of Consumer Financial Protection
Federal Reserve System Provisions
Improving Access to Mainstream Financial Institutions
Pay It Back Act
Mortgage Reform and Anti-Predatory Lending Act
Miscellaneous Provisions
Section 1256 Contracts

bill. And the Obama justice department showed

Matt Taibbi describes the phenotypic alignment of the American justice system. The result he explains relentlessly grinds the poor and undocumented into resources to be constrained, consumed and ejected. Even as it supports and aligns the financial infrastructure into a potent weapon capable of targeting any company or nation to extract profits and leave the victim deflated.

Taibbi uses five scenarios to provide a broad picture of the: activities, crimes, policing, prosecutions, court processes, prisons and deportation network. The scenarios are: Undocumented people's neighborhoods, Poor neighborhoods, Welfare recipients, Credit card debtors and Financial institutions.

Following our summary of his arguments, RSS comments on them framed by complex adaptive system (CAS) theory. The alignment of the justice system reflects a set of long term strategies and responses to a powerful global arms race that the US leadership intends to win.

no interest in prosecuting banks or bankers.

Ferguson explains that the:

Earlier 'Liberal' Democratic party had changed its funding sources from unions, working families and the poor to the 'new' Democrat's leverage of Wall Street.
Democrats and Republicans compete for funding from the wealthy so they ensure to fight about social and values issues and leave jobs and finance well alone. Ferguson asserts the strategy is designed to distract the majority of voters from issues of inequality.
High Technology has decided to adjust to the system rather than reform it. They are happy to outsource jobs.

Ferguson concludes that America is developing a 'caste' system where the circumstances of one's birth determine life outcomes. He argues that improving educational opportunities and achievement could turn this around but public school finance being based on local property taxes constrains any response. Inequality is amplified by the education funding mechanism.

He laments that the incentives and corruption in the system are self-reinforcing.

What should be done?

Ferguson lists his reform proposals:

Improving educational opportunity and quality
Bring the financial sector under control
Control the impact of money on US politics
Reform the individual and corporate tax structures
Strengthen antitrust and regulatory infrastructure
Create a universally accessible, high speed broadband Internet.

Ferguson sees a future where American elites fight to retain their power but mass frustration and a major crisis will undermine them. He judges Europe as unstable and fragmented. But he concedes that frustration has so far led to the rise of Michele Bachman, Rick Perry, Ron Paul, Herman Cain, Newt Gingrich, and Sarah Palin. He concedes in 2012 that President Obama appears the least troubling of the candidates for President. He hopes that somewhere in the US is the United States of America. is a courageous young leader in the making, someone who can persuade the American people to rise up and throw the rascals out.

CAS theory views the US nation state as a CAS. Ferguson argues parasites have taken control of this system. Parasitism is a long term relationship between the parasite and its host where the resources of the host are utilized by the parasite without reciprocity. Often parasites include schematic adaptations allowing the parasite to use the hosts modeling and control systems to divert resources to them. is a general problem in CAS. When infected systems persist, competition and internal responses will have limited and stabilized the level of such activity to be bearable by the system. But the transitions Ferguson describes are too recent to ensure stability. America could:

CAS require significant regulation to operate effectively. They are

Plans emerge in complex adaptive systems (CAS) to provide the instructions that agents use to perform actions. The component architecture and structure of the plans is reviewed.

specified memetically and always apply

constraints to the memetic and phenotypic is the system that results from the controlled expression of the genes. It is typically represented by a bacterial cell or the body of a multi-cell animal or plant. The point is that the genes provide the control surface and the abstract recipe that has been used to generate the cell.
processes. It should be no surprise that removing the regulatory constraints causes dramatic amplification effects including damaging positive feedback.

By Jun 2017 financial regulators were seeing indications that they needed to increase protections, but were responding to political pressure to relax the regulations setup after 2008.

Ferguson argues that American ascendency was waning by the 1980s. Certainly the global

This page discusses the effect of the network on the agents participating in a complex adaptive system (CAS). Small world and scale free networks are considered.

economic network was allowing the

This page reviews Christensen's disruption of a complex adaptive system (CAS). The mechanism is discussed with examples from biology and business.

disruption of American economic

Plans are interpreted and implemented by agents. This page discusses the properties of agents in a complex adaptive system (CAS).
It then presents examples of agents in different CAS. The examples include a computer program where modeling and actions are performed by software agents. These software agents are aggregates.
The participation of agents in flows is introduced and some implications of this are outlined.

agents by Japanese and Europeans. But President Reagan responded effectively to the immediate threat with the Plaza accord, replacing Japanese sub-network based supplies with far less competitive Chinese ones. Over time this 'fix' helped China build its export economy so that by 2000 its network of agents was disrupting the US agents. George W. Bush attempted Reagan's solution, telling the Chinese to raise the value of their currency. But China is a nuclear armed nation which refused to submit. Subsequently the derivative weapons the US trained on China backfired on the US mortgage network.
The disruptive amplifier restructured under President Reagan continued to disintermediate businesses which supported middle and working class jobs in the US. A politically expedient fix for this stress was found in the

housing amplifier that Reagan and President George W. Bush both leveraged. It substituted housing capital growth for stagnating wages. For a time the ploy worked politically.

Ferguson is critical of the management of US firms. Christensen's analysis of

This page reviews Christensen's disruption of a complex adaptive system (CAS). The mechanism is discussed with examples from biology and business.

disruption shows that it is a system property that will affect companies with great management.

Ferguson makes clear that the core issue with junk bond catalyzed financing was the lack of regulation, including constraints on incentives. But to RSS is Rob's Strategy Studio other details are also key:

As Ferguson stresses, the Clinton Administration was philosophically New Democrat. Hence it brought together the Southern Democrat views of the US nation with leverage of information technology, Globalization and Wall Street funding. RSS suggests the administration learned a lesson from President Reagan's plunge protection team: Financial services

provide powerful weapons in the competition with other nations. The administration could partner with Wall Street to capture the resources of other nations while weakening them.

Ferguson describes a simple life cycle of a nation state. RSS views the

Peter Turchin describes how major pre-industrial empires developed due to effects of geographic boundaries constraining the empires and their neighbors' interactions. Turchin shows how the asymmetries of breeding rates and resource growth rates results in dynamic cycles within cycles. After the summary of Turchin's book complex adaptive system (CAS) theory is used to augment Turchins findings.

cliodynamic model as more predictive. Each new Federal administration brings a new 'generation' of experiences which often means that awareness of prior traps is forgotten over three generations and so mistakes are repeated. After LBJ is President Lyndon Baines Johnson.
lost the South to the Democratic Party it was likely that electoral defeat would embolden external members of the former Democratic political elite to fight their way into power. When the 'New Democrats' captured control of the central democratic party processes for developing a presidential campaign they cleared the way for a new set of 'southern' memes expressed through, then Arkansas governor, Bill Clinton.

Charles Ferguson's Predator Nation describes the alignment of the major US political parties with Wall Street. This alignment has supported the development of a powerful financial services industry. The resulting inequality and corruption are highlighted in his insightful but disturbing book.

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integrating quality appropriate for each market

This page looks at schematic structures and their uses. It discusses a number of examples:

Schematic ideas are recombined in creativity.
Similarly designers take ideas and rules about materials and components and combine them.
Schematic Recipes help to standardize operations.
Modular components are combined into strategies for use in business plans and business models.

As a working example it presents part of the contents and schematic details from the Adaptive Web Framework (AWF)'s operational plan.

Finally it includes a section presenting our formal representation of schematic goals.
Each goal has a series of associated complex adaptive system (CAS) strategy strings.
These goals plus strings are detailed for various chess and business examples.

Strategy | Design |

This page uses an example to illustrate how:

A business can gain focus from targeting key customers,
Business planning activities performed by the whole organization can build awareness, empowerment and coherence.
A program approach can ensure strategic alignment.

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