The Oil Drum

Derivatives, Ponzi Schemes, CK Liu called it over 4 years ago

This from 2003:

A new economic sector called financial services came into existence. This was the true meaning of the slogan "a strong dollar is in the national interest". Dollar hegemony allowed the United States to levy a tax on the rest of the world for using the dollar, a fiat currency, as the reserve currency for world trade. The livelihood of the world's workers came to depend on US consumers' appetite for debt sustained by loans from the underpaid workers' own governments. Neo-imperialism works by making the world's poor finance the high living of the world's rich. It transcends the Marxist notion of class struggle and surplus value. In neo-liberal globalization, not just labor but even capital comes from the exploited.

What the Wall Street Journal calls mass capitalism would not have been half-bad if it were not for the fact that the hard-earned capital was squandered through fraud and Ponzi schemes. These new ventures financed by fund inflows did strengthened the US economy at first. But as the real economy in the United States did not grow as fast as the inflow of funds, because fewer and few things were being produced in the US, the excess funds soon channeled toward manipulation and fraud on a massive scale, resulting in financial scandals such as LTCM, Enron, WorldCom, Global Crossing, and thousands of less-known bankruptcies.

Much of the disaster came from the smoke and mirrors of so-called financial services, based on minute technical quantitative advantages that seem benign by themselves, but can accumulate into huge profit or loss in hundreds of billions of dollars on the turn of a penny. Hundreds of billions of dollars of investment and credit went up in smoke from fraudulent schemes perpetrated not only by management under the coaching of ever-enterprising investment banks, but also with the active, knowing participation of the banks, robbing workers and retirees the world over of their pensions and life savings.

Domestic jobs in the United States were eliminated by the millions and shipped overseas, while overseas workers were told to be thankful for inhuman wages and sweatshop conditions that at least warded off starvation. Instead of confessing their regulatory failings, US officials such as Alan Greenspan of the Federal Reserve took comfort in the role derivatives played in allegedly smoothing over massive financial shocks in the system, making the damage longer-lasting. Falling wages and worker benefits were cushioned by the wealth effect from speculation by people who could not afford the risk. Now that the US economy is trapped in a prospect of decade-long slow growth with a pending onslaught of deflation, and the hollowing-out of blue-collar manufacturing and white-collar high-tech sectors, Greenspan has told Congress that the threat of deflation remains "remote" and that thinking jobs are better that doing jobs.

http://www.atimes.com/atimes/Global_Economy/EH14Dj02.html