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Jul-05-2011 19:35printcomments

Induced Fraud

This is the third in a four-part series.

(TEMPE, Az.) - Even as the Berlin Wall was being reduced to rubble, the forces that have since dismantled the US economy were gaining power. Driven by the all-pervasive force of a consensus mindset, US firms embraced financial returns as their sole metric of success.

By that measure, corporate performance steadily improved even as the US economy steadily declined. With the collapse of communism and access to new pools of low-cost labor, firms found themselves forced by competitive forces to move production abroad.

As jobs moved offshore, so did incomes and purchasing power along with know-how, technology and much of our tax base. With only a brief delay, much of the rest of the supply chain also migrated to lower cost economies, including R&D, design and services.

Induced by Consensus Think, policy-makers enacted laws that widened trade deficits and increased US budget deficits. With Washington's embrace of a debt-catalyzed version of prosperity, the financial benefits flowed largely to our most well-to-do on whom we lavished more deficit-financed tax cuts.

In its 24/7 search for value, investment capital does what money does best: It identifies the optimal risk-rated return. Meanwhile, systemic risks grew apace as fiscal foresight was forfeited, crowding out the resources for key social services.

As the financial environment grew steadily more dominant, civil cohesion eroded and environmental health declined. As Wall Street boomed, those values essential to healthy and sustainable communities were sacrificed on the altar of financial returns.

Now the American public is left with the debt while the wealth financed with our full faith and credit flowed largely into the hands of financial sophisticates. Disparities in wealth and income now exceed even the extremes witnessed during the Great Gatsby era of the 1920s.

Count the underemployed and those no longer looking for work and US unemployment levels rival the Great Depression. Only now we face record-level home foreclosures, long-term joblessness, widespread child poverty and an overhang of debilitating debt that ensures an ongoing shortage of fiscal capacity to prime the pump.

With our tax base pushed offshore, the restoration of budget capacity is all but impossible. Meanwhile, the dollar cannot withstand both rising budget deficits and expanding trade deficits. Something must give.

Early symptoms are apparent in crumbling roads and bridges, closed parks, shuttered libraries, deteriorating schools, unaffordable colleges, unaddressed pollution, overcrowded prisons, underserviced veterans, shattered families and the list goes on.

As the value of the dollar declines, conventional economists assure us that US exports will rise, putting Americans back to work. For that prescription to succeed, Americans would need to work for wages and benefits roughly on par with China.

Americans are correct in their widely shared sense that something is fundamentally wrong.

At some point soon, the harsh reality must be faced: Today's widely prevalent "consensus economics" not only does not work, it never could have worked — except to create the results we now see.

In hindsight, it's clear that Americans were induced to embrace financial freedom as a stand-in for personal freedom. Meanwhile, the unbridled pursuit of financial returns emerged as a proxy for the personal pursuit of happiness.

That shared mindset persuaded Americans to grow “funds under management” from $800 billion in 1980 to $16.6 trillion by April 2007. The bulk of those funds were set aside as savings for retirement incentivized at an annual fiscal cost of $150 billion for allowable tax deductions and tax-deferred growth.

Because the US tax code takes its guiding principles to the same consensus mindset, setting funds aside for retirement is seen as a social good meriting a massive subsidy. That subsidy, in turn, pre-empts fiscal resources for other social goods.

Pile up that much money and the impact on Wall Street is like flies drawn to honey. Pension funds became a primary target when Wall Street's consensus-model mavens sought a market for securities backed with subprime mortgages and other forms of debt. In the 1980s, similar debt-backed securities were labeled "junk."

The pillaging of Baby Boomer pensions with mortgage-backed financial junk was a fraud for which Americans still await indictments. Instead, systemic corruption remains ongoing and accountability all but nonexistent. Despite its many foreseeable failures, the consensus mindset that enables such frauds proceeds intact and in plain sight.

Accountability for the corruption of a shared mindset requires transparency and a widely shared grasp of its internalized source. Americans cannot yet see the problem because the problem is the financial lens with which — and through which — they were educated to do their seeing.

Clarity about the internalized nature of this fraud is the first step in freeing ourselves from its grasp. As Americans realize the incapacitating effects of this shared mindset, they will insist on identifying its source. At that point, accountability can commence.

Jeff Gates is author of Guilt By Association—How Deception and Self-Deceit Took America to War. See

This article was first published by Arab News

Here is part 1:

Crisis by consensus - Jeff Gates

Here is part 2:

Imbedded crises - Jeff Gates


Special thanks to:

Jeff Gates is a widely acclaimed author, attorney, investment banker, educator and consultant to government, corporate and union leaders worldwide. To learn more about Jeff's books visit Guilt by Association and

Jeff's latest book is Guilt By Association — How Deception and Self-Deceit Took America to War (2008). His previous books include Democracy at Risk: Rescuing Main Street From Wall Street and The Ownership Solution: Toward a Shared Capitalism for the 21st Century. For two decades, an adviser to policy-makers worldwide. Counsel to the U.S. Senate Finance Committee (1980-87).

For more: information, visit: You can email Jeff Gates at this address:

Americans for a Stronger Israel

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