The Economy Will Not Recover Until the Economic Criminals are Prosecuted, and There Are Real Investigations Into 9/11 and Other Government Failures → Washingtons Blog
The Economy Will Not Recover Until the Economic Criminals are Prosecuted, and There Are Real Investigations Into 9/11 and Other Government Failures - Washingtons Blog

Saturday, November 13, 2010

The Economy Will Not Recover Until the Economic Criminals are Prosecuted, and There Are Real Investigations Into 9/11 and Other Government Failures

This essay will demonstrate that:
  1. Trust is essential for a stable economy;

  2. Trust is currently at an all-time low;

  3. Launching criminal prosecutions and real investigations is one of the main prerequisites for an economic recovery.
Trust in Government is Necessary for a Stable Economy

A 2005 letter in premier scientific journal Nature reviewed the research on trust and economics:

Trust ... plays a key role in economic exchange and politics. In the absence of trust among trading partners, market transactions break down. In the absence of trust in a country's institutions and leaders, political legitimacy breaks down. Much recent evidence indicates that trust contributes to economic, political and social success.

Forbes wrote an article in 2006 entitled "The Economics of Trust". The article summarizes the importance of trust in creating a healthy economy:

Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you've persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you're going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust--now imagine trying to arrange a mortgage.

Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it's rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest.

"If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia," ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade. That suggests that trust is worth $12.4 trillion dollars a year to the U.S., which, in case you are wondering, is 99.5% of this country's income. ***

Above all, trust enables people to do business with each other. Doing business is what creates wealth. ***

Economists distinguish between the personal, informal trust that comes from being friendly with your neighbors and the impersonal, institutionalized trust that lets you give your credit card number out over the Internet.

Similarly, market psychologists Richard L. Peterson M.D. and Frank Murtha, PhD noted:
Trust is the oil in the engine of capitalism, without it, the engine seizes up.

Confidence is like the gasoline, without it the machine won't move.

Trust is gone: there is no longer trust between counterparties in the financial system. Furthermore, confidence is at a low. Investors have lost their confidence in the ability of shares to provide decent returns (since they haven't).
Two professors of finance pointed out:

The drop in trust, we believe, is a major factor behind the deteriorating economic conditions. To demonstrate its importance, we launched the Chicago Booth/Kellogg School Financial Trust Index. Our first set of data—based on interviews conducted at the end of December 2008—shows that between September and December, 52 percent of Americans lost trust in the banks. Similarly, 65 percent lost trust in the stock market. A BBB/Gallup poll that surveyed a similar sample of Americans last April confirms this dramatic drop. At that time, 42 percent of Americans trusted financial institutions, versus 34 percent in our survey today, while 53 percent said they trusted U.S. companies, versus just 12 percent today.

As trust declines, so does Americans’ willingness to invest their money in the financial system. Our data show that trust in the stock market affects people’s intention to buy stocks, even after accounting for expectations of future stock-market performance. Similarly, a person’s trust in banks predicts the likelihood that he will make a run on his bank in a moment of crisis: 25 percent of those who don’t trust banks withdrew their deposits and stored them as cash last fall, compared with only 3 percent of those who said they still trusted the banks. Thus, trust in financial institutions is a key factor for the smooth functioning of capital markets and, by extension, the economy. Changes in trust matter.

They quote a Nobel laureate economist on the subject:
“Virtually every commercial transaction has within itself an element of trust,” writes economist Kenneth Arrow, a Nobel laureate. When we deposit money in a bank, we trust that it’s safe. When a company orders goods, it trusts its counterpart to deliver them in good faith. Trust facilitates transactions because it saves the costs of monitoring and screening; it is an essential lubricant that greases the wheels of the economic system.
And a distinguished international group of economists (Giancarlo Corsetti, Michael P. Devereux, Luigi Guiso, John Hassler, Gilles Saint-Paul, Hans-Werner Sinn, Jan-Egbert Sturm and Xavier Vives) wrote:
Public distrust of bankers and financial markets has risen dramatically with the financial crisis. This column argues that this loss of trust in the financial system played a critical role in the collapse of economic activity that followed. To undo the damage, financial regulation needs to focus on restoring that trust.
They noted:
Trust is crucial in many transactions and certainly in those involving financial exchanges. The massive drop in trust associated with this crisis will therefore have important implications for the future of financial markets. Data show that in the late 1970s, the percentage of people who reported having full trust in banks, brokers, mutual funds or the stock market was around 40%; it had sunk to around 30% just before the crisis hit, and collapsed to barely 5% afterwards. It is now even lower than the trust people have in other people (randomly selected of course).

Time Magazine pointed out:

Traditionally, gold has been a store of value when citizens do not trust their government politically or economically.
In other words, the government's political actions affect investments, such as gold, and thus the broader economy.

Trust Is At An All-Time Low

Unfortunately, the public's trust in government as a whole (and see this and this), the justice system, bankers, and the corporate media are at all-time lows.


Partly because the government has been repeatedly caught lying.

The government repeatedly said about the subprime crisis, banking crisis, debt crisis, mortgage crisis, and other economic crises:
  • "It's contained"
  • "We've got it under control"
  • "We're going to fix it"
It wasn't, and they didn't ... and so people have lost trust in the government.

But it's not just the economy. The government also got caught making false claims that:
  • That the government doesn't spy on Americans (it did even before 9/11), Americans don't torture, etc.
It is basic human nature that - if you catch someone lying about one topic - you will tend to doubt the truth of what he is saying in other areas as well.

So Americans' loss of trust in the government's political actions have also undermined their trust in the government's statements and actions in the economic field.

But there's another important reason for Americans' lack of trust in our government and our economy: the failure to prosecute the criminals.

Prosecuting the Criminals and Launching REAL Investigations Is Necessary to Restore Trust

One of the leading business schools in America - the Wharton School of Business - has written an essay on the psychological causes and solutions to the economic crisis. Wharton points out that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:

According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. "Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG." The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. "Normal expectations of what is safe and dependable were abruptly shattered," Sachs noted. "As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred."

People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.

He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. "She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty. Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.

"By no means a sophisticated economist, she knew ... that some people had become fantastically wealthy by misusing other people's money -- hers included," Sachs said. "In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished."

Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to "hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again." In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.

Note that Sachs urges "hold[ing] the perpetrators of the economic disaster responsible." In other words, just "looking forward" and promising to do things differently isn't enough.

Economists such as William Black and James Galbraith and Nobel prize winning economists Joseph Stiglitz and George Akerlof agree.

Indeed, polls show that:

  • Americans want those who committed financial fraud to be prosecuted

Remember, distrust in the political actions of government officials undermines the economy as well. Therefore, the economy will not recover until the economic criminals are prosecuted, and there are real investigations into 9/11 (even the 9/11 Commissioners themselves think there should be more investigation: see this and this), the Iraq war, torture, spying on Americans and other government failures.


  1. So well nailed that I can't add really much: trust is crucial both for political and economic well-functioning. Even just for mere routine optimism in general: if leaders are all thieves and compulsive liars, you cannot really feel you are safe on the boat they command, can you?

    But I think there is also something positive about this frustration: the first step to correct a vice is to become aware of it, even if it is frustrating. You cannot change what you don't know about.

  2. Lack of trust in Government and banking. Definitely. You raise a great point.

    Can we at some point also add the lack of trust in the medical and pharmaceutical industries, the Media, the two-party political system, etc? We are all swimming (drowning) in a sea of distrust.

  3. Well said, good post.

    There is a mythological meme making its way around.

    That meme is that regulations were dismantled so badly that there are no laws left to prosecute the banksters with.

    That is false because many strong, good laws are on the books which make prosecution very doable.

  4. Trust has another meaning, that of property held in a protective legal entity. In fact the public trust, as set forth in our legal system, should protect many things that we take for granted: rights to living essentials such as air, water, sanitation; freedom of movement; freedom from slavery; equal access to a fair judicial system; and much more.

    The entire campaign of capitalism, as an ideology, has been aimed at one goal: looting shared rights and properties belonging to the public that are held in trust for them. The public trust, as shared property, is targeted for ownership transfer, item by item. We saw it happen in Argentina, see it now in Greece, will see it soon in Ireland. England sells half of its forests to pay bondholders. The US is the main course for this grandest of thefts, plunder of a kind that used to be called 'rapine'.

    Will we all become slaves? Yes! Will we be charged for the air we breathe? Yes! The powers allied toward theft of those things held in public trust are not only inhumane, they are anti-human. We all sense this. We are marked for slaughter. The trans-national corporations that bought government, worldwide, are as aliens. They mean harm, great and bodily, now.

    Building an inviolable core of things held in public trust was the essence of our Constitution. In that sense it was in every sense a socialist manifesto. We need to reverse centuries of propaganda aimed at shredding the public trust, before it is too late.

    First, jubilee. Then, justice.

  5. Heck they would never prosecute Bush since the Bush family was helping finance Hitler in WWII. Speakin' of the devil Bush was in on the Enron Scam and all the Enron Files were in Building 7. Go figure...
    New book 'Family of Secrets' shows Bush President 1 was at JFK murder and may have run it as pawns for Rothschilds since their Federal Reserve was kilt by JFK's Silver Backed CURRENCY!!!!!

    Rothschild Bankers funded WW II Germans and Allied Bankers via B.I.S. in Basel Switzerland transferring funds the entire war between Nazi Deutch Bank and UK Bank of England extending it.

    War could have ended 1-2 years but Germans Printed Debt Free Currency and Tossed Rothschild Bankers out of Germany so they firebombed all Germans and never bombed factories to extend war 5 years to kill all Germans so no more "Banking Problem Children" left living.

    Read Old book With The New Financial Way to rid parasite Interest Banking here:

    Oh and they invented Interest banking 800 years ago in Italy and Arab Sharia Law forbids Interest Banking so we been shooting Arabs last 800 years too.

    Oh and don't count on the Police or Homeland Security to help with this Mafia, as they are paid to protect the government from you after you see this next video showing CIA and Police bring Coke into the USA Cities:

  6. Will miracles never cease! Next the "adults" in finance and business my re-discover Natural Law!
    So now they think trust may be important! WOW!
    They may even come to realize that morality is objectively knowable! Of course they could have just used a search engine on the web.

    A Proof That Moral Judgments, When Done Correctly, Are Judgments Of Objective fact

  7. This is a great analysis of what has gone wrong in the US. I recently watched the film, Inside Job, and I left the theater thinking that our trust in economic and government institutions has been destroyed. This article says it well.

  8. Roger Erickson: government failures are electoral failures; so this won't happen until enough people look for it in the mirror


→ Thank you for contributing to the conversation by commenting. We try to read all of the comments (but don't always have the time).

→ If you write a long comment, please use paragraph breaks. Otherwise, no one will read it. Many people still won't read it, so shorter is usually better (but it's your choice).

→ The following types of comments will be deleted if we happen to see them:

-- Comments that criticize any class of people as a whole, especially when based on an attribute they don't have control over

-- Comments that explicitly call for violence

→ Because we do not read all of the comments, I am not responsible for any unlawful or distasteful comments.