Financial WMDs

Summary

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

Predator Nation

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

• The fall of South Vietnam in 1975
  
• Watergate hearings and resignation of President Nixon in 1974
  
• The Yom Kippur War in 1973, OPECs first oil embargo causing a recession in the US.  
• Destabilization of Iran, the fall of the Shah in 1979 and an Islamic revolution
  
• OPEC tripling oil prices in 1979, leading to stagflation in the US. 
  
• Soviet Union invaded Afghanistan in 1979
  

• 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. 
  

• Asian competition based on
  This presentation reviews just-in-time manufacturing with analysis based on complex adaptive system (CAS) theory. 
  
  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. 
  

• 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
  

• 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

• 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 the pooling of money from partners to: buy companies, improve their acquisition's value and sell them again.  They gain competitive advantage from being lightly regulated.  Private equity companies were initially corporate raiders. 
  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. 
  

Financial Innovation, Derivatives, and the 1987 Market Crash

Deregulation Triumphant: The Clinton Administration

• 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

Next wave of Financial Deregulation

Structural consolidation

• 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 catalyzes the purchase of homes and durable goods by spreading out the payment into a series and removing the need to obtain the entire purchase price in advance as described by Gordon.  It is supported by an evolved amplifier, including: a clear benefit to the purchaser, a profit stream captured by the lender, enforceable contractual agreements, within a schematic regulatory framework.  Taibbi describes the amplifier's architecture as deployed by Chase.  Nineteenth century US rural purchases were credit based but with a large initial commitment.  Cash purchases increased between 1890 and 1910.  Between 1910 and 1915 cash purchasing shifted back to leveraging credit.  By 1920 credit accounts were offered at department stores.  Installment plans, provided by finance companies: GMAC; with minimal upfront commitments supported the purchase of costly durable items including automobiles. 
  cards: Visa, Mastercard, American Express
  
• Interstate banking: Bank of America, Citigroup, JP Morgan Chase,
  
• Asset management: Fidelity, Vanguard, Alliance Capital, BlackRock, Pimco, Putnam; 

Incentives

• 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

A marriage of Convenience Produces a Bubble

The Rise of Subprime Mortgage Lenders and the Shadow Banking Sector

Wall Street makes a bubble and gives it to the world

1. The bonuses would make each participant fabulously wealthy is schematically useful information and its equivalent, schematically useful energy, to paraphrase Beinhocker.  It is useful because an agent has schematic strategies that can utilize the information or energy to extend or leverage control of the cognitive niche.   . 
   
2. It is hard to fight a team or firm that is being hugely successful, in terms of short term bonuses. 
   
3. Few people could see the systemic situation. 
   
4. Once you are participating and realize there are problems identifying them will put you, your team and firm at risk of destruction.  
5. 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."  

The Rating Agencies

"Protection" and Financial Weapons of Mass Destruction

1. Complexity and opacity of the market
2. CEO and board of AIG were picked by Maurice Greenberg to be pliable and clueless. 
   
3. 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. 
   

Financial Culture and Corporate Governance During the Bubble

All Fall Down: Warnings, Predators, Crises, Responses

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

Crime and Punishment: Banking and the Bubble as Criminal Enterprises

• 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.  

• 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. 
  

Agents of Pain: Unregulated Finance as a subtractive industry

1. 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. 
   
2. 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 is a power relation within:
   
   • A state in which a group has enough power to enforce its will on other citizens.  If this is a central authority with a cohesive military, it can overpower other warlords and stabilize the society. 
     
   • An economy in which one business has enough share in a market segment to control margins to its advantage.  An economic monopoly can be broadly beneficial: AT&T monopoly, US patent monopoly rights;
     
   practices and political subversion.  Ferguson laments that the opportunity encourages smart people to participate here rather than in value generating activities. 
   

• 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, the 1992 Maastricht Council of Ministers meeting agreed evolution of the ECSC & CAP cartels to include:
  • A single market across the members' countries supporting the transformation of the ECSC.  It maintained the CAP transfers assisting French farmers. 
    
  • A fixed currency 'snake' that allowed the ECSC to operate, binding the deutschmark to the other currencies of participating members: a mini Bretton Woods exchange rate mechanism; that became a single currency, the euro, managed by an independent ECB (based on the independent German Bundesbank). 
    
  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. 
  

• 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 Banking 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 reduces volatility in standard of living by compensating for losses of income during periods of unemployment, for catastrophic losses from disaster, or death of a family income earner as described by Gordon.  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.  Health insurance is treated separately being unusual, since the subscriber is likely to know more about their state of health than the insurer is and the subscriber is more likely to purchase the health insurance when aware of their increased risk.  This behavior collapses the risk pool by: forcing the insurer to increase the premiums, and encouraging healthy individuals to opt out of health insurance coverage. 
  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. 
  

• 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 is the study of trade between humans.  Traditional Economics is based on an equilibrium model of the economic system.  Traditional Economics includes: microeconomics, and macroeconomics.  Marx developed an alternative static approach.  Limitations of the equilibrium model have resulted in the development of: Keynes's dynamic General Theory of Employment Interest & Money, and Complexity Economics.  Since trading depends on human behavior, economics has developed behavioral models including: behavioral economics.   utility.  Simon's success has made him very wealthy is schematically useful information and its equivalent, schematically useful energy, to paraphrase Beinhocker.  It is useful because an agent has schematic strategies that can utilize the information or energy to extend or leverage control of the cognitive niche.    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 is the pooling of money from partners to: buy companies, improve their acquisition's value and sell them again.  They gain competitive advantage from being lightly regulated.  Private equity companies were initially corporate raiders. 
  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

• '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 is the study of trade between humans.  Traditional Economics is based on an equilibrium model of the economic system.  Traditional Economics includes: microeconomics, and macroeconomics.  Marx developed an alternative static approach.  Limitations of the equilibrium model have resulted in the development of: Keynes's dynamic General Theory of Employment Interest & Money, and Complexity Economics.  Since trading depends on human behavior, economics has developed behavioral models including: behavioral economics.  , business, law, political science and public policy schools.   

• 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. 
  

America as a rigged game

1. 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. 
   
2. 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. 
   

• 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 is schematically useful information and its equivalent, schematically useful energy, to paraphrase Beinhocker.  It is useful because an agent has schematic strategies that can utilize the information or energy to extend or leverage control of the cognitive niche.    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.  

What should be done?

• 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. 
  

• Shift wealth is schematically useful information and its equivalent, schematically useful energy, to paraphrase Beinhocker.  It is useful because an agent has schematic strategies that can utilize the information or energy to extend or leverage control of the cognitive niche.    back to the majority, as it has done previously during 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.  
  's New Deal was FDR's political platform to help the poor, support the economy and reform the banking system.  The architects included Henry Morgenthau, Harry Hopkins, and Frances Perkins.  It:
  
  • Included liberal legislation: Emergency Banking Relief Act, Banking Act, SSA, Securities Act, Securities Exchange Act, National Housing Act, NIRA, National Labor Relations Act, FLSA, RTAA, Wealth Tax Act;
    
  • Presidential executive orders,
    
  • Enhanced the role of federal government in promoting economic growth with programs supporting:
    
  • Reformed trade policy with the RTAA. 
    
  • Blocked deflation by limiting economic competition with the NRA. 
    
  • Rural standard of living through electrification with the REA and TVA.  
  • Reduced unemployment with the WPA and CCC.  
  • Made taxation progressive through the Wealth Tax Act, capturing private wealth and allowing income to flow to the emergent middle class. 
    
  , and cohere so that the US can control foreign threats, but it can also 
• Experience 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 replacement of its current power elite with the leadership aims to develop plans and strategies which ensure effective coordination to improve the common good of the in-group.  John Adair developed a leadership methodology based on the three-circles model. 
  of a focused band of war-like outsiders
  
• Become too weak to maintain its control of the
  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 Wal-Mart 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. 
  
  
  global economic network or
  
• Suffer collapse like the UK after the second world war,

• 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. (Dec 2017)

• The 1974 ERISA is the Employee Retirement Income Security Act of 1974 signed by President Ford.  It regulated both pension and health benefit plans once an employer had established one.  It setup the PBGC to support voluntary private defined benefit pension plans.  Where self-funded health plans under ERISA are exempt from a state's insurance regulation there will be no solvency or consumer protection in place to support providers that do business with ERISA plans.  States may consequently require provider networks that do business with employer self-insured ERISA plans be licensed as an insurance company (an HMO, medical insurance plan, preferred provider arrangement or general casualty insurer).  ERISA section 404(a)(1)(B) defines the prudent person rule associating prudence with portfolio theory allowing pension funds to invest in stocks.  The labor department's interpretation of an ERISA employer has been modified to support President Trump's executive order to enable more use of AHPs (Jan 2018). 
  Integration of pension fund assets with stock investing was a powerful
  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. 
  
  evolved amplifier putting retirement funds in play. 
  
• Another major problem was with the
  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. 
  
  
  global regulatory system which Reagan and Prime Minister Thatcher were keen to dismantle.  The UK had already thrown off the constraints on its financial services with the Big Bang.  New York must have watched with despair as its major investment banks setup subsidiaries in London to leverage capital into
  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 product offers. 
• Robert Sapolsky notes that banking, unlike other professions, was found to be undermine the morals provides rules for identifying right from wrong.  It develops in stages with children using play to work out rules of appropriate behavior.  Kohlberg's 1950s experiments using children led him to conclude moral judgement is a cognitive process that develops in three stages.  Sapolsky raises issues with the framework: Its a model, It does not apply to other cultures, Intuition & emotion are as significant as cognition, Moral reasoning doesn't predict moral actions; and notes the capacity of the frontal cortex to regulate emotions and behavior is far more predictive.  The marshmallow test, performed on three to six year olds, actually predicted their subsequent SAT scores at high school, social success and lack of aggression, and forty years on more PFC activation during a frontal task and a lower BMI!  Jonathan Haidt argues people's moral decisions are rationalizations rather than using reasoning. 
  of its employees. 
  

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