My last post rambled from place to place, as out of control as our economy. Here’s what I was trying to say. It’s an ‘opinion piece’ though I have no credentials to have an opinion.
The Securities Exchanges and the Commodities Markets have a time honored place in a bartering economy, moving the ancient central markets of the cities up a level where symbols on pieces of paper or computer screens stand in for the actual companies and goods being exchanged. Prices are negotiated, sales consumated, money changes hands, and the people involved are still called traders. We understand such markets even though there is a degree of separation from the markets where the commodities are things you can touch and feel, maybe even eat. They are actual virtual markets where symbolic value [money] is exchanged for symbolic representations of goods [paper and computer screens], but the connection to real things is always in the background. People buying and selling pork bellies are actually trading with dead animals, whether they ever see them or not.
But there are a cascade of other markets that feed off of these markets that are increasingly removed from the Securities and Commodities Markets where the items traded are disconnected from any palpable goods. The "Commodities" there are created specifically for the purpose of trading. They may be simply numbers, or the direction of a line on a graph, or future weather conditions, or economic forecasts created for an entirely different purpose. They are trading the symbols themselves, rather than symbols as a representation of some actual thing. In fact, they are often trading symbols of symbols.
Citadel made another large bet that the gap between corporate bonds and insurance bought on those bonds, known as credit-default swaps, would narrow. In essence, Mr. Griffin was betting that the economy would strengthen and that the price of insurance on debt would cheapen.
Even worse, the meta-markets interfere with the traditional markets. We’ve seen "financial bubbles" passing through the economic markets like soldiers on parade in Red Square. Enron was the paradigm for meta-marketeers. They finagled a regulatory loophole in the energy market, then ran up the price of energy artificially, making a killing in the process. 
That market [in California] bore no relationship to the actual value of the product being sold. The profit came from consumers using the energy. When the "bubble" burst, the money lost was the Capital of Enron’s investors. Enron collapsed because of mismanagement and corruption, but the method lived on and, in my opinion, caused the "oil bubble" whose bursting finally started the belated landslide of our whole falsely inflated economy.
My point with all of this is simple. We have two problems in our economy. To use Obama’s phrase, we have stopped being the "maker of things." Instead we have become the "consumer of things" made elsewhere. That cannot continue. We can’t trade on the world market when we have nothing real to trade. Obama’s stimulus package is a beginning for us to reenter the world of manufacturing, production, technology, etc. – AKA "real work." But we have a second problem. We have allowed unregulated meta-markets to flourish and become a major industry in their own right. That’s not Capitalism [public ownership of companies, commodities trading], that’s piracy. We’re beginning to hear how our new President is going to deal with these meta-markets, but his "team" is still struggling with how to dein in this out of control, man-made monster. Their road is conceptual, but as of yet, unfocused.
There are two choices. Try to regulate the monster that we’ve allowed to be created, the one that brought us to ruin. Or go back to the last system we had that worked, though it apparently had problems of its own, and then look at those old problems with a new set of glasses. Do we keep fixing the problems of a badly built house? Or do we take it back to the foundation and rebuild it? Concretely, do we bo back to the Glass-Stegall Act [1933] with its rigid control of financial institutions [Commercial Banks, Investment Banks, "Thrifts"] and the Shad-Johnson Accord [1982] that banned unregulated futures altogether. Both of these had problems and overly "tightened" our economy, but they kept us on the straight and narrow.
They were stringent controls, weighted towards the fiscal conservatism of the New Deal aiming to prevent another "Great Depression." They needed to be "loosened," but carefully. They weren’t "loosened," they were "abandoned." In my view, they are our starting point – rigid fiscal conservatism. Then we can "loosen" them responsibly. If we start with our current system, I think it will be like trying to pick up Jello without a spoon. Our current morasse is too fluid and amorphous to handle. And as to our financial industry that will fight tooth and toenail to keep its casino open. Screw ’em. They blew it…
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