Ousmène Jacques Mandeng and Piroska Nagy-Mohacsi — Cryptocurrencies challenge the status quo

Cryptocurrencies have been the subject of recent attacks by official sector representatives, and the G20 finance ministers will consider regulatory proposals at their next meeting in Buenos Aires. This column argues that while cryptocurrencies present certain risks, they also represent an important innovation that promises to enhance choice and efficiency in monetary transactions. A proportionate, risk-based regulatory approach is required to accommodate differential attitudes and experiences and to avoid stifling innovation and competition. This implies having an open debate before sweeping regulatory action....

Vox.eu — CEPR's Policy Portal
Cryptocurrencies challenge the status quo

Ousmène Jacques Mandeng, Visiting Fellow, LSE Institute of Global Affairs, and Piroska Nagy-Mohacsi, Programme Director, Institute For Global Affairs, London School of Economics

Also

Washington tax authorities are treating crypto-currencies as properties and not money and this means US investors are starting to receive some unexpected and large tax demands.

"Prosecution futures." (ht Yves Smith)

Money laundering. Tick. Ponzi frauds and market manipulation. Tick. Terrorist financing and drug dealing. Tick. Tax evasion? Yes, that too can now get a tick on the checklist of supposed crypto crimes.

Asia Times
US crypto traders liable to capital gain taxes says IRS

Diane Coyle — 'Free' markets

The rhetoric of ‘free markets’ is misleading.

I certainly agree with this last point, as does anybody who (like me) has spent some time as an economic regulator (the UK Competition Commission in my case). Modern economies are highly regulated, and that goes for the Anglo-Saxons as much as anyone else.

The Enlightened Economist

Free’ markets
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Kevin Cashman — Think Uber’s Problems Stop at Its Management and Culture? Think Again.

So, while some have suggested that the solution is simply to stop using Uber (and, ostensibly, to use competitors like Lyft or Gett), this is no solution at all. The solution is making sure that these companies are subject to the same regulations as traditional taxis, as well as that they comply with labor and other laws, which was unsurprisingly absent from the Holder report. This is the innovative idea that is also a solution to many of Silicon Valley’s problems, regardless of the industry.

Uber might not be able to survive if it started caring about the safety of its passengers, the exploitation of its drivers, or the social costs it shifts onto the rest of us, but maybe it shouldn’t. As politicians plot with Silicon Valley to take over public infrastructure and to revamp the fundamental nature of work, maybe Silicon Valley shouldn’t either.

Free rider problem (pun intended).

The Minskys
Think Uber’s Problems Stop at Its Management and Culture? Think Again.
Kevin Cashman, researcher, Center for Economic and Policy Research, Washington, DC

George Lakoff — Success!

Regulations reframed as protections.

George Lakoff
Success!
George Lakoff | Director of the Center for the Neural Mind & Society and retired Distinguished Professor of Cognitive Science and Linguistics at the University of California at Berkeley

George Lakoff — The Public’s Viewpoint: Regulations are Protections

The term “regulation” is framed from the viewpoint of corporations and other businesses. From their viewpoint, “regulations” are limitations on their freedom to do whatever they want no matter who it harms. But from the public’s viewpoint, a regulation is a protection against harm done by unscrupulous corporations seeking to maximize profit at the cost of harm to the public....

It's all in the framing. Don't let them frame you.

George Lakoff
The Public’s Viewpoint: Regulations are Protections
George Lakoff | Director of the Center for the Neural Mind & Society and retired Distinguished Professor of Cognitive Science and Linguistics at the University of California at Berkeley

Jared Bernstein — Imagine that…candidates actually debating substantive differences on economic policy

Democratic candidates, that is.

I think JB needs to spend some time reading Bill Black on control fraud and criminogenic environments.

On The Economy

Imagine that…candidates actually debating substantive differences on economic policy

Jared Bernstein

Valery Kulikov — India Fighting Against Foreign NGOs

Not just Russia.

The development of public diplomacy in world politics, the activities of non-governmental organizations (NGOs) are actively being discussed in public and political circles of various countries. According to some estimates, there are over 60 thousand international NGOs alone in the world today. Many NGOs are indeed non-political civil society institutions, structures of self-organisation of citizens in various spheres of life. 

At the same time, a certain number of NGOs claim the role of umpire in matters of ideology in all of society and public policies, affecting the development of the political situation in a number of countries, interfering in the internal affairs of states, participating, as ordered by the West and especially US intelligence, in changing political powers in governments that are opponents of Washington. In the US intelligence community there are even special inter-agency groups responsible for coordinating the activities of a wide variety of non-governmental actors, particularly focused on Russia. For example, there is a National Intelligence for Russia and Eurasia in the National Intelligence Council (NIC). 

These circumstances are objectively forcing many states, especially those seeking to pursue a policy independent from the US, to closely monitor the activities of NGOs, by opportunely identify their misuse of funds coming from abroad to support political parties and movements and affect the economic policy of the state, all the way to limiting NGOs activities.

And so, the Indian government, as part of the clean-up work in foreign financing of non-governmental organisations recently revoked the licenses of 8975 non-governmental organizations and charities for accounting violations (see ). In the future, organisations deprived of licenses will not be able to receive funds from foreign or domestic sources until a special order of the Indian authorities. The well-known environmental organization Greenpeace (operated in India since 1971) is on this “black list”, in regards to which the government has suspended their license for six months and has frozen the accounts of its Indian branch. In addition, India’s Ministry of Internal Affairs has launched an investigation into the activities of the American charitable Ford Foundation and several other foreign NGOs in the country.

The main complaint of the Indian authorities against the NGOs is their systematic violation of the law on foreign donations, NGO registration rules, failure to submit reports on their activities and revenues, misappropriation of funds, as well as providing charitable support without proper notification of the authorities of the country of India as required by current law. As appears from further clarification published by national authorities concerning the charges brought against the NGOs, for Indian NGOs to receive foreign financing they have to draw up a resolution in accordance with the Law on foreign donations and open special bank accounts. Incidentally the financing of activity of political parties, election campaigns, mass media, state machinery as well as the transfer of funds received by unregistered organisations is strictly forbidden.....

the hasty reaction of the United States and other Western countries in the efforts to strengthen controls concerning NGOs in India and some other countries, particularly in Russia, only reinforces the suspicion that Western “charity” is not selfless....

New Eastern Outlook
India Fighting Against Foreign NGOs
Valery Kulikov

Janet L Yellen — Finance and society

The financial sector is vital to the economy. A well-functioning financial sector promotes job creation, innovation, and inclusive economic growth. But when the incentives facing financial firms are distorted, these firms may act in ways that can harm society. Appropriate regulation, coupled with vigilant supervision, is essential to address these issues.

Unfortunately, in the years preceding the financial crisis, all too many firms took on risks they could neither measure nor manage. Leverage, interconnectedness, and maturity and liquidity transformation escalated to dangerous levels across the financial system. The result was the most severe financial crisis and economic downturn since the Great Depression. Almost 9 million Americans lost their jobs, roughly twice as many lost their homes, and all too many households ended up underwater on their mortgages and overburdened with debt. To be sure, some individuals and families borrowed unwisely, but too often financial institutions encouraged the behavior that resulted in such excessive debt.

In my remarks today I will discuss some important reasons why the incentives facing financial institutions were distorted and the steps that regulators are taking to realign those incentives.

Janet L Yellen: Finance and society 

Speech by Ms Janet L Yellen, Chair of the Board of Governors of the Federal Reserve System, at the “Finance and Society”, a conference sponsored by the Institute for New Economic Thinking, Washington DC, 6 May 2015

Yves Smith — In Rebuke to Cronyistic New York Fed, TBTF Bank Supervision Shifted to Fed Board of Governors

This is pretty huge. Implicit Timmy smackdown.

But after Greenspan's example with regulation, is this really an improvement?

The Wall Street Journal has published an important account of a behind-the-scenes power struggle at the Federal Reserve over authority for regulation. The result that the New York Fed has had significant amounts of its authority shifted to the Board of Governors in Washington, DC. This is a major win for Fed governor Dan Tarullo, who has emerged as one of the toughest critics of big financial firms at the Fed in the wake of the crisis. It is also a loss for the banks, since the New York Fed is widely recognized as close to Wall Street. Moreover, the Board of Governors is more accountable to citizens (its governors are Federal employees, the Board of Governors is subject to FOIA, although confidential supervisory of all financial regulators is exempt), while the regional Feds can best be thought of as public/private partnerships with weak governance structures,* so this move in theory is also a gain in terms of accountability to the public. However, since Greenspan holdover, deregulation enthusiast and Dodd Frank opponent Scott Alvarez remains as the general counsel of the Board of Governors, it’s unlikely that any newfound serious intent by the Board of Governors will go all that far in practice, given the powerful role that Alvarez exerts over matters regulatory. 

Moreover, as proof of how secretive the Fed is and how voters are kept in the dark, this change was designed five years ago and has been in the process of implementation since then. The consequence is that, as the Journal points out, the Congressional committees responsible for bank regulator oversight have wound up directing questions to the New York Fed, and in particular its president Bill Dudley, that should more properly have been aimed at the Board of Governors.

Snake pit.

Naked Capitalism
In Rebuke to Cronyistic New York Fed, TBTF Bank Supervision Shifted to Fed Board of Governors
Yves Smith

Bill Black — Remember When Carmen Segarra Exposed the NY Fed’s Refusal to Stop Goldman Sachs and Banco Santander’s Scam to Inflate Santander’s Capital? How’d that Work Out?

How the US ad world faced financial collapse at the time the Lehman crashed and burned — and could again because the conditions that created the crisis remain in place.

New Economic Perspectives
Remember When Carmen Segarra Exposed the NY Fed’s Refusal to Stop Goldman Sachs and Banco Santander’s Scam to Inflate Santander’s Capital? How’d that Work Out?
William K. Black | Associate Professor of Economics and Law, UMKC

OAN — Pope calls for more market regulation, denies he is Marxist: paper

Pope Francis has called for more regulation of financial markets and rejected suggestions that his criticisms of unbridled capitalism smack of Marxism. 

“Markets and financial speculation cannot enjoy absolute autonomy,” he said in an interview published in La Stampa newspaper on Sunday, calling for greater ethics in the economy and a better distribution of the earth’s resources. 

“We cannot wait any longer to resolve the structural causes of poverty in order to cure our society of an illness that can only lead to new crises,” he said. 

Conservative Catholics, particularly in the United States, have criticized some of his past pronouncements on the economy, with several openly calling him a Marxist. But the Argentine pope said he was just stating Church teachings. 

“If I repeat some sermons by the first fathers of the Church in the second or third centuries about how the poor must be treated, some would accuse me of preaching a Marxist homily,” he said. “The New Testament does not condemn wealth but the idolatry of wealth.”

One America News Network
Pope calls for more market regulation, denies he is Marxist: paper

Via WSJ- Is the Fed finally getting smarter at lending control?

Some good news coming from Pedro da Costa at the WSJ today. Apparently the Fed is now saying publicly that they prefer using their regulatory and supervisory tools to control bank lending than the traditional interest rate/monetary policy tools. 

This is something that WM/MMT has been advocating for a while, since monetary policy can wreak enormous collateral damage on the economy. Capital regulation and supervision on the other hand, are much more precise tools that central banks can use to control lending, so its good to see the Fed moving in this direction. 

From the article:

“Efforts to promote financial stability through adjustments in interest rates would increase the volatility of inflation and employment,” Fed Chairwoman Janet Yellen said in a July speech. “As a result, I believe a macroprudential approach to supervision and regulation needs to play the primary role.”

If I'm reading this correctly, this statement could hint at a paradigm shift at the Federal Reserve Board. For the past several decades we've been stuck in the Miltie Freidman QTM world where interest rate management is a panacea. I've always thought that trying to control bank lending via interest rates is like trying to weed your lawn with a machine gun. So hearing the Fed chair describe supervision and regulation as a new "primary" tool is a welcome sign that the QTM era may be finally coming to an end in the US. 

The article also revealed the cluelessness of the BIS. According to their Chief Economist (and Princeton econ prof): 

"Monetary policy works by either bringing spending forward, deferring spending—and you can bring spending forward by taking on more credit. So expansive monetary policy is pretty much synonymous” with looser financial conditions."

Its good to see that  our central bank is at least marginally more intelligent than the BIS!

Don't 'bank' on that econ textbook

If I had a dollar for every time an economist says something wrong about the modern economy, I'd be able to buy up an entire economics department (a-la Koch brothers).

In many of my previous posts in this blog, I've detailed how economists chronically misunderstand debt, deficits, interest rates, inflation, and trade. But so far I've ignored what is probably the biggest gaping hole of knowledge in the economics profession: the retail banking system. There is almost a laughable difference between the way economists explain banking, and the way that people who actually work in banking know how the system operates.

Economists remain wedded to very outdated, stylized views of banking that ceased to exist a long time ago. The overly simplistic money multiplier is perhaps the most inaccurate of these views. You've probably heard an economist describe banks as special kinds of private businesses that take money from savers/depositors, and recycle that money back into the economy through lending. This is called 'fractional reserve banking', which, like competent leadership of the Washington Redskins, has not existed for decades.

Banks have a very important role in the US economy. The government has empowered them with the ability to make loans based on creditworthiness and public need. In the simplest terms, modern US banks are credit allocation utilities, and serve as our conduits into the federal government's payment system.  Our modern economy would not exist without either of these facilities, especially the payments system. If you have ever used cash, check, debit, or ACH to acquire a good or service, then you have used the federal government's payment system. This payment system consists of wires between banks, which allows the deposits of difference banks to clear at par (face value). For example, if a customer of Bank A writes a $100 check to a customer of Bank B, then $100 is debited from Bank A's dollar account at the Federal Reserve, and credited to Bank B's dollar account at the Federal Reserve. Just like we have tubes and wires for water, sewer, cable, phone and internet, banks are tubes and wires for money. And just as competition among utilities leads to bad outcomes (duplicative infrastructure and poor service), competition among bankers for lower and lower lending standards leads to other bad outcomes (financial crises).

When it comes to lending, this is the arrangement: The federal government allows licensed banks to create an infinite amount of money out of thin air, and charge interest on it. The federal government also allows the liabilities created by individual banks to clear at par with each other, via the interbank payment system (Fedwire), and insures these liabilities (through the FDIC). Depending on the temperament of the bankers, and the state of the economy, banking can be a very easy and profitable enterprise. For example, in the old days of basic S&L banking, people used to joke about the "3-5-3 rule." Bankers would take in deposits at 3% interest, make mortgages at 5% interest, and be on the golf course by 3pm.

In exchange for these privileges, banks have to comply with the regulations that the federal government writes for them. These regulations can be roughly grouped into three categories: prudential (protecting the safety and soundness of the banks themselves), consumer protection (protects consumers from being ripped off by banks, mainly through disclosure requirements), and a group of rules called the 'Bank Secrecy Act', which prevent money laundering, and allow government agencies to monitor and track potential terrorists.

When a US bank makes a loan, the loan officer simply keystrokes a new deposit into an account. So when banks lend, they create their own liabilities, which themselves are not US dollars. This bank money is denominated in US dollars, and is cleared by US dollars, but it is not US dollars. This is crucial to understanding the banking system. Only the US government can create a US dollar, which is its own distinct liability. Banks cannot create US dollars, since dollars are not their liabilities. Banks create bank money, which are their own liabilities. So while bank lending does create new money, it does not create new US dollars. Only deficit spending from the US federal government can create new US dollars. Therefore, the amount of US dollars in the world does not change as the result of bank lending. When a bank orders cash to fill its ATM, its dollar account at the Federal Reserve is debited by the same amount of cash as it receives. The size of this Federal Reserve account is not affected by lending. This is the same account that is used to maintain reserve requirements and make payments to other banks on behalf customers.

For example, if you get a $250,000 home loan at Wells Fargo, you receive $250,000 in your Wells Fargo checking account. This money is your asset, and the bank's liability. In exchange, the bank creates the mortgage, which is their asset and your liability. This is called dual-entry accounting, and is the best way to understand modern banking. When you pay off the mortgage, this process happens in reverse. The deposits created by the loan are destroyed, and the mortgage disappears. Both your and the bank's liability vanish once the mortgage is paid off in full.

Banks are not part of the private sector, since they could not exist without the Federal Reserve System and deposit insurance provided by the FDIC (to say nothing about how the Fed and Treasury rescued the banking system in 1933, 1991, and  2008/9 -plus every time the FDIC puts a failing bank into conservatorship). Banks also do not recycle your deposits into loans. In modern times, banks are infinitely funded, and only rely on deposits as one source of liquidity. This bloody brilliant paper and a video from the Bank of England (the central bank of the UK) confirms exactly what I am saying here.

As members of the Federal Reserve System, banks can always get the reserves they need to meet reserve requirements, from the federal funds market, the discount window, or overdrafts. Since the Fed itself mandates these reserve requirements, the Fed also always provides the reserves necessary for these requirements to be met. Since we are no longer under a gold standard, the Fed does not have to worry about its liabilities (reserves/dollars) being called in for gold, and can therefore flexibly create/lend these reserves as necessary to meet the requirements it imposes. As the requirer and monopoly issuer of these reserves, the Fed always provides them in infinite amounts, but at certain and variable prices which are voted on by the Federal Open Market Committee. This price of these reserves is what people usually refer to as 'interest rates.'

Note that reserve requirements are entirely different from capital requirements. Reserve requirements are about setting monetary policy. Capital requirements are prudential measures intended to maintain the safety and soundness of the banking system.

At its core, retail banking is a simple activity, with best practices that are well known and established. Like other utilities, it should be a boring and marginally profitable enterprise. The US used to have such a simple, sound banking system in the five decades after the Great Depression. Then, when a fever of deregulation took over in the 1980's, banking was unleashed into the wild, rapacious, and highly profitable business of rent extraction that it is today.

If you've reached the end of this blog, congratulations! You now have a better understanding of the banking system than many economists. Now feel free to use that overpriced textbook as kindling or to even out a wobbly chair.

Elena Holodny — This Stanford Economist Has Obama's Attention — And It's Causing A Wall Street Freak-Out

President Obama "invited Admati and five other economists to a private lunch to discuss their ideas." One of those other five economists was the notorious anti-Wall Streeter Paul Krugman. 

In "The Banker's New Clothes: What's Wrong With Banking and What to Do About It," Admati argues (along with coauthor Martin Hellwig) that because banks don't use their own money, they take greater risks and, as a result, "they keep crashing the economy." 

Her solution is to "make banks behave more like other companies by forcing them to reduce sharply their reliance on borrowed money," according to The Times article. She suggests that "large banks should be required to raise at least 30 percent of their funding in the form of equity" — which is "six times more than the current average for the largest American banks."

Business Insider
This Stanford Economist Has Obama's Attention — And It's Causing A Wall Street Freak-Out

Elena Holodny

Bill Black — Geithner’s Single Most Revealing Sentence

[Tim Geithner] did vastly more harm to the Nation as the President of the New York Fed than he did as Treasury Secretary. He was supposed to regulate most of the largest (and most criminal) bank holding companies – and failed so completely that he testified to Congress that he had never been a regulator and that the problem in banking leading up to the crisis was excessive regulation. His statement that he was never a regulator was truthful – but you’re not supposed to admit it, and you’re certainly not supposed to be proud of it. Geithner, Greenspan, and Bernanke are the three Fed leaders who could have prevented the entire crisis by being even modestly effective regulators....

Conclusion

The title of Geithner’s book that he wrote to settle these petty personal scores is a sad testament to his abject failure as a regulator while the NY Fed’s President. He relied on the delusion that banks would self-regulate themselves to safety and soundness through stress tests designed to ensure that even the most fraudulent bank could easily pass the faux stress test. In his book, Geithner was unable to present any action he took as an anti-regulator to warn the Nation about the three fraud epidemics, any effective action he took to stop those frauds, or any action he took to prosecute those frauds. He failed each of the three real “stress tests” that confronted him. Had he passed either of the first two tests we could have avoided the financial crisis. Had he passed the third test at least the fraudulent elite bank CEOs would have been imprisoned and their fraudulent proceeds confiscated so that it was clear that crime did not pay.

Bailing out banks is not hard when a nation has a sovereign currency and the banks’ debts are denominated in that currency. Bernanke, not Geithner, delivered the vast bulk of the real bailout that transferred the banks’ losses on the fraudulent assets to the Fed and allowed Geithner to claim that TARP was “profitable.”

Cronyism and corruption through and through. unless the people at the top are complete morons. But if they are morons, one wonders how so much money flows into their pockets.

New Economic Perspectives
Geithner’s Single Most Revealing Sentence
William K. Black | Associate Professor of Economics and Law, UMKC

Emily Flitter And Douwe Miedema — Bitcoin hit by denial of service attacks as regulators prepare clampdown

Tighter regs coming.

Reuters
Bitcoin hit by denial of service attacks as regulators prepare clampdown
Emily Flitter And Douwe Miedema

The Very Fact That This Topic Has To Be RE-Introduced By Aging Grandparents Today ... Scares The Hell Out Of Me.

   (Commentary posted by Roger Erickson)

Where on Earth have these people BEEN for 150 years?

Let alone 4000 years?

"If you're worried that lions are eating too many zebras, you don't say to the lions, 'You're eating too many zebras.' You have to build a fence around the lions. They're not going to build it."

Judge Richard Posner Questions His Free-Market Faith In "A Failure Of Capitalism"

Ya think?

Show me anything between social-to-subatomic processes that are not hemmed in by regulatory tolerance limits.

BMHOTK!

The very fact that this topic has to be RE-introduced by aging grandparents today, in the AFTERMATH of court cases over disastrous behaviors ... scares the hell out of me.

Are we doomed? Can survive ourselves? Not looking good at this pace.

Enrico Perotti — The roots of shadow banking

The ‘shadow banking’ sector is a loose title given to the financial sector that exists outside the regulatory perimeter but mimics some structures and functions of banks. This column introduces a new CEPR Policy Insight that looks into what we have learned about shadow banking since the Global Crisis. 

Shadow banking operates outside the regulatory perimeter, but it replicates the structure of banking in many ways. As such, its prudential standards should be brought into alignment to avoid further regulatory arbitrage. Shadow banking assets at the time of the crisis had grown larger than the banking sector proper. The rapid withdrawal of funding to this segment played a major role in the credit crunch of 2007-2008.

My new CEPR Policy Insight No. 69 updates and fleshes out the analysis in my June 2012 Vox column (reproduced in full below). The Policy Insight reviews recent work that is finally shedding some light on this ill-defined and poorly understood segment of the financial system.

The Policy Insight offers a structural definition of shadow banking activities, showing that even proper banks use them to avoid stricter capital requirements. The decision by the Basel committee in these days to accept a relaxed definition of the leverage ratio, for which banks lobbied fiercely, appears a serious setback.

Vox.eu
The roots of shadow banking
Enrico Perotti | Professor of International Finance, University of Amsterdam and CEPR Research Fellow

Very simple to understand account of derivates and their role in credit creation.

Our Core Problem? Dumbing Down of Citizens. That's Also Our Core Opportunity.

   (Commentary posted by Roger Erickson)

This is not as simple as most may jump to assume. It's actually very puzzling. So what's the autocatalysis model for this dilemma?



As an aggregate grows, there is no mathematical way for any citizen to know what every other citizen knows.

The resulting dilemma can be viewed two ways:

1) As a mathematically unsolvable dilemma, and a hopeless race to make adequately informed voters; or

2) As an obviously solvable dilemma (given evolution, physiology, & the huge aggregate of cells that makes each of "us"); namely that we needn't be universally informed. Rather, we need only to constantly re-develop ways to regulate affinity, trust and "fidelity" across all the delegated parts of a growing aggregate (our nation), which can only survive through common purpose.

We have to know much, but not all. Only how to maintain coordination.

#2 is the only rational approach to all calls for an "adequately informed" electorate.

EVERY citizen needn't be universally informed, but EVERY CITIZEN MUST BE ABLE TO COORDINATE WITH ANY OTHER CITIZEN, WITH AGILITY.

However, there's a catch. A corollary of #2 is that we must learn to trust and delegate, and NOT to assume we know the operations or context of operations outside of our own area of expertise. Otherwise delegation to teammates doesn't work. A group of ignorant people each assuming they know it all is even worse than an uncoordinated group of fairly knowledgeable people!

Make no mistake. It takes extra work to become fully immersed in the full context of more than one discipline. Most never achieve that. We all are constantly assuming things that we should verify, before committing our aggregate as much as we do.

Many people learn just enough to make themselves dangerous, as misguided voters. It truly is a dilemma, neither as trivial as most think, nor as insolvable as others think. If the tens of trillions of cells in the human body can automatically grow, organize and mobilize themselves - starting from a single egg cell - then so can a nation of mere hundreds of millions.

There obviously has to be some constant balance between education of citizens, and their methods for regulating affinity, trust and fidelity (loyalty to nation).

We know tolerance limits always come in at least pairs. In this case, we can't survive if the average citizen knows too little, yet at the same time we cannot ever achieve the nirvana of every citizen knowing everything. There'd be no time to act, even if the latter were possible, and we'd succumb just for lack of group agility.

So where is the dynamic compromise, and how do we maintain it, as it shifts in all it's countless facets?

War, for example, is too important to be left to the generals. By extension, EVERY process is also too important to be left to the presumed process owner!

Simultaneously, the quality of distributed decision-making includes the factor of tempo, and all of us must constantly act, quickly enough to matter, based on insufficient data, just in order to keep informing the aggregate about changing context! An approximate solution today is better than a supposedly perfect solution next year .. which never comes, because EVERYTHING always changes by the time next year rolls around.

The solution lies in our diversity. By delegating many example processes simultaneously, our numbers eventually define all measures of success, by surrounding success with enough failures to recognize it! Then we, as a social species, rescue most or all of those delegated to tasks with negative results, and accelerate further progress by reassigning them to new exploration, instead of having to grow new citizens from scratch. That's how social species outdo non-social species, and how teams outdo any hermit, no matter heroic the hermit.

Where does this leave us, as a constantly growing aggregate? We're left with a need for large numbers of teams with overlapping areas of expertise. No citizens can be left in isolation, uncoordinated or "left" to own un-aligned cultural processes. And, no "Central Planners" can be allowed to try to micromanage all of us.

The solution is for every set of process experts to be involved with AND ANSWERABLE TO - at least a few other disciplines, and actually an entire spectrum of other process owners. That's the only way to keep all processes dynamically oriented and aligned with unpredictably shifting group or Public purpose. That spectrum of interactions must be non-negligible, different for every discipline, and span everything from nearly complete oversight from "neighboring" disciplines, out to minimal feedback exchange with a "long tail" of citizens in other disciplines. And, that feedback and oversight spectrum must be flexible, able to change at will, in real time.

We could make a cultural regulation song, modeling the total number of cultural parts as the cultural "alphabet," or a-z.

"The i-zone's regulated by the S[j-z-h]-zones,

and the j-zone's regulated by the S[k-z-i]-zones ...

the ... t-zone's regulated by the S[u-z-r]-zones ...

and that's how we survive at all!"

Except the shifting, regulatory connections of an agile aggregate would be better illustrated by a collection of amorphous, social amoebas rather than a fixed-form skeleton.

Does everyone have to know everything? Impossible.

However, can every delegated process owner, in turn, regulate enough of their neighbor's processes to ensure fidelity to group function? Sure. That's how we got this far.

Did anyone expect it could be any other way? That's what a social species does.

This represents the most primitive levels of mathematical grouping, developed centuries ago and considered trivially obvious in many disciplines. The fact that this minimal expression of aggregate logic is not a requirement for either politics or theology is simply astounding.

We cannot survive as a nation if our very politics are dominated by the absolutely most systemically ignorant people among us. If we don't improve politics as-is, it's failings and lacking will be the death of our nation.

Bill Black — How to Prosecute the Elite Bank CEO that Led the Frauds that Drove the Crisis

Step one: Understand the three “control fraud” epidemics that drove the crisis....

There is no fraud exorcist, so fraudulently originated loans stay fraudulent and can only be sold to the secondary market through fraud....

Step 2: Restore the destroyed criminal referral process, restore the partnership with the banking regulatory agencies, and end the partnership with the “perps”....

To produce over 1,000 felony convictions in cases the Department of Justice (DOJ) designated as “major” during the S&L debacle, the Office of Thrift Supervision (OTS) made over 30,000 criminal referrals. In this crisis, which is over 70 times larger than the debacle in terms of losses and fraud, OTS made zero criminal referrals, as did the Office of the Comptroller of the Currency and the Federal Reserve. (The FDIC is smart enough to refuse to answer how many referrals it made.)

New Economic Perspectives
How to Prosecute the Elite Bank CEO that Led the Frauds that Drove the Crisis
William K. Black | Associate Professor of Economics and Law at the University of Missouri-Kansas City in the Department of Economics and the School of Law

Like Sen. Durbin said, "The banks own the place."