The first thing we do, let's kill all the economists

The sorry truth is, economists are largely responsible for the crisis. They implemented the mainstream free-market model and it failed.

Over the last 30 years, mainstream economists, with their faux Nobel prizes, were not worried when others whined about unsustainable distortions. The mainstream economists assured the world that their working models could forecast and their monetary tools would ward off any serious instability. Recessions and minor business cycles are normal but there would be no serious economic downturns, financial crises or global panics.

Now we know better. All of the macro economic and financial models constructed with such mathematical elegance over the past three decades failed when applied to the real world. Forget the subprime borrowers, shady lenders and speculating hedge fund managers. The mainstream economists blew it.

To understand how this economic and financial mess happened and speculate when it might be over, you have to go back to the arrogance of a specific group of economists called the “Committee to Save the World.”

That is what Time magazine called then Secretary of Treasury Robert Rubin, Deputy Secretary Larry Summers and Fed Chairman Alan Greenspan, in the late 1990s, when they famously put out financial brush fires in Mexico, Russia, East Asia, Latin America and the United States.

Bailout packages for the lesser countries depended on their opening their markets to Western capital and methods and making themselves vulnerable to exactly the financial pandemic they are now being dragged into.

The Committee to Save the World was supposed to be the cop on the beat. Only now do we know how badly they failed us and the global economy.

The ruling model of how the financial system was supposed to work, what Alan Greenspan called an “ideology” or “conceptual framework,” taught that markets were automatic equilibrating mechanisms that maximize benefits to the community as a whole.

The problem is that even Alan Greenspan, the cock sure oracle of the Fed, now admits that the model is flawed: “The question is whether [a conceptual framework] is accurate or not. And what I'm saying to you is, yes, I found a flaw.”

The flaw that Greenspan admitted to was that self interested bankers will not self-regulate. The incentives when you are dealing with a common good are, as every second semester economics student knows, such that no individual gains from self-regulation while every individual can gain by cheating. That’s why people cheat.

The failure of this free-market ideology has been extremely costly for the US and the world. Mexico previews what is coming.

The Mexican bailout led to a 40 percent drop in real wages and a chaotic, failing state. In Mexico, kidnapping is the newest business model, government is based on graft and corruption and the only economic growth sector is narco-trafficking. All of Mexico’s social strife and “internal wars” are now spilling over into the United States.

The global economy is following Mexico downward, spiraling into a bubble bursting, credit crunching, self-inflicted depression.

This is not a place to tote up all the costs of this crisis. It is enough to quote Dennis C. Blair, the new Director of National Intelligence: the economic collapse is "the primary near-term security concern" for the country and has led to “increased questioning of U.S. stewardship of the global economy.”

When the crisis first hit, Secretary of Treasury Paulson, New York Fed President Timothy Geithner and Fed Chairman Ben Bernanke formed a new “save-the-world” committee. Unfortunately, they continued to implement the deregulation model which, in this case, meant funneling money to the rich expecting trickle-down.

This resurrected committee forced $350 billion on the banking industry and it all trickled up. Robert Rubin, who Marketwatch noted had been chosen as one of the 10 most unethical business people, resigned from Citibank with $116 million of that money.

President Obama has appointed his own reincarnated save-the-world committee. Weirdly, it is made up of, again, Larry Summers, again Timothy Geithner, and again Ben Bernanke. Does the president think these guys have had a change of heart?

Many economists never ascribed to Greenspan’s deregulation ideology, saw the crisis coming and now vigorously disagree with what Larry Summers is doing. These include, my favorites, Joseph Stiglitz, Paul Krugman, Robert Reich, and Robert Kuttner. Also Paul Volcker, who should be moved to the inner circle for he is to Summers and Geithner what a distinguished professor is to an undergraduate and a high schooler.

These economists saw this crisis coming and they now advocate that the Keynesian economics being applied to stimulate the economy also be applied to the repair of the financial system.

Economists should assume responsibility for this crisis which will be over when President Obama finally fires Larry Summers and appoints Paul Volcker as head of the National Economic Council.