1. Neoclassical Economics Is a Cult and a Fraud
Neoclassical economics is a cult, a vestige of Protestantism. The neoclassical economist, aka, Alan Greenspan, says that the markets always function benevolently. This is the classic libertarian view. Libertarian economists use mathematical formulas to prove the goodness of markets. That was the same bogus practice that was used in determining that all housing loans can't go bad at the same time.
The neoclassical view opens up the financial system to bogus risk management!
This neoclassical view has a false faith that there won't be fraud in the system. I would go so far as to say that Alan Greenspan created fraud in the system. As I said here:
3. Greenspan advocated that easy money loans continue at Lincoln savings and loan in the S & L crisis. He was a consultant for Charles Keating, and testified that the bank was fine. He then used this same method of operation in the housing bubble leading up to the financial crisis as Chairman of the Fed. He refused to allow a peek into the derivatives while he was in charge during the big bubble. Those are similar behaviors.
In other words, Greenspan knew the outcome of toxic loans in the days of the S and L crisis and advocated that they continue anyway. He said Lincoln S & L was safe, even though bogus bonds were sold to elderly investors who didn't know they weren't insured. One slit his wrists and left a suicide note saying his government had let him down after he lost it all.
The disturbing conclusion is that, at the highest reaches of economic decision making, the wizard is from the land of fraud, not from the land of Oz. Or one could say that the Wizard of Oz was a fraud, and that Alan Greenspan was that wizard!Greenspan, based on the S & L crisis, knew banks would fail, then, so there is no reason for him to believe the same would not happen in the Ponzi Housing Bubble! Greenspan had to know he was putting the financial system at risk again! He allowed bogus bonds, the CDOs, to be spread far and wide knowing full well what had happened with the bogus bank bonds of Lincoln S & L! Greenspan certified that Lincoln was just fine against the views of the Federal Home Loan Bank who wanted the toxic loans stopped.
Ultimately, Keating was hauled up on racketeering charges for the bogus bonds and sent to prison, and then the pro business Supreme Court overturned the conviction in 2000. The regulators were correct in the first place. But since that overturned conviction of Keating there have been no RICO charges against the investment banks who packaged the bogus fraudulent CDOs!
When Steve Keen says that the Fed and Greenspan had no clue about the deterioration of the financial markets I proved that was wrong. They knew the financial markets were in trouble by data they accumulated, by warnings they gave about the markets in the FOMC minutes of 2007and by the fact that they were involved in the fraud of off-balance-sheet-hiding-of-bad-loans. They ignored the signals, and failed to act forcefully.
But based upon their religion of market goodness, Keen likely interpreted that they had no clue because they didn't believe the markets could go bad. That was their rhetoric and religion, but it doesn't hold up under the examination of Greenspan's deeds:
1. Greenspan manipulated the Savings and Loan scandal as others sought to stop the easy money and predatory loans and shore up the teetering Lincoln Savings and Loan's finances. Supposedly Greenspan felt regret about the Savings and Loan scandal, but it didn't stop him from looking the other way in the Ponzi Housing Bubble in the same manner! The man is a fraud throughout his very being.
2. Greenspan advocated that you get an adjustable loan in the Ponzi Housing Bubble, and then refused to allow an examination of the derivatives behind the easy money loans.
3. Greenspan and the Fed issued warnings that the housing bubble could slow the entire economy in 2007. They knew. He knew.
Want to know what I think of neoclassical economics? It is in and of itself a fraud. It started out as a false view that man is good. Even knowing that the Bible said children speak lies from the womb, the religious neoclassical economists ignored that reality. That opened up the door for the fraudsters to take the doctrine and use it for economic class warfare. Greenspan was just a fraud. Plain and simple.
Clearly the science of the economists, with their tidy equations, was used to establish a religion based upon false assumptions. The folks best at speaking lies from their mothers' wombs went into this field, banking. They served the world of big finance, and while they mostly behaved themselves after the Great Depression, due to REGULATION, they couldn't wait for their opportunity to manipulate banking with the help of elected representatives, such as McCain, Gramm, Clinton and W. Bush.
From a religious perspective, true predestinarians* viewed men as speaking lies from the womb. So, for these economists to build a system where man is good from the womb and thus satisfy Protestant thought to further free and deregulated markets with an invisible hand is quite odd. And even if these economists believed that man was evil from the womb, to make the leap that this evil would only work for good by an invisible hand is impossible in reality and in logic.
The hidden hand is a perversion of predestination which understood the fallen nature of mankind. The hidden hand assumes an inherent goodness in greed, that selfish behavior would work for the good of mankind. But the truth is, selfishness may work in building a better light bulb, but it does not work when it comes to bankers and deregulation.
The hidden hand is not God predetermining the world and its events. The hidden hand is an imaginary process, and is in no way real! It isn't a god and it isn't logic. It is simply a con and a fraudulent way to make some religious people happy with selfishness.
If there is an election of grace, and I believe there is, it doesn't include the economists who put forth a moral framework for the invisible hand of selfish greed. Sorry, that is just disgusting idiocy. Predestination in the hands of a selfish cult lunatic does not negate predestination. If anyone is not predestined, it is a predatory economist and the pundits who try to absolve him of fraud.
But even if you don't have the same religious views that I do, the argument against the neoclassical economists still holds up. They essentially taught that self interest could be fashioned into good in virtually all situations. With banking deregulation and with massive fraud in the world, that view is simply false and repudiated.
Even Washington's blog, where an article there inspired this one, the author admits that a cult leader like the neoclassical economist who tries to make greed holy, and the fraudster (Greenspan) who comes to power in this cesspool of deregulation, are not the spokesmen for religion. They are simply cult economists.
With regard to the fraud of these economists, all models are too simple, and subject to mistaken and even lying assumptions to ever work properly. Modelling without a continual comparison to reality is useless, and even fraudulent. That is what we can learn from the housing bubble and crash.
*The 1646 Baptists of the First London Confession did not consider themselves Protestant and their confession of faith is unique. They viewed Protestant sacralism as being a most aggravated evil. This strongly biblical confession was repudiated by the corrupt 1689 Protestant-like Second London confession.