Saturday, February 5, 2011

Understanding the Bankster Boondoggle

Government is the only institution that can take a valuable commodity like paper, and make it worthless by applying ink.  Ludwig Von Mises
Paper money eventually returns to its intrinsic value ---- zero. Voltaire
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.  Alan Greenspan in 1966
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, (i.e., the “business cycle”) the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.  Thomas Jefferson
I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world - no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men." Woodrow Wilson, after signing the Federal Reserve Act. 

Understanding the Bankster Boondoggle
Understanding the Banksters is not that difficult and is really no different than understanding any other criminal enterprise.
As our fiscal and monetary houses collapse, America is left with the ravages of economic misery, loss of jobs, foreclosures, public debt on steroids and intense voter anger over a level of human suffering in America not experienced since the Great Depression.  However, more and more folks are actually waking up to the poison root that set our destruction in motion – the Federal Reserve fiat monetary system.
It’s also important to know that Congress has also played a critical role in aiding and abetting Wall Street and its legal enabler of public plunder, the Federal Reserve.  Together Congress and the Fed comprise the greatest class of crooks ever to exist in the history of America and all of human history for that matter.  The Banksters are considerably more powerful than Congress because they totally control and own the government, the U.S. Treasury, both political parties and just about everything else.  Thomas Jefferson’s warning that allowing private banks to control the money supply would result in impoverishment is 100% true and tragically, a truth we are only beginning to painfully acknowledge. 
The Constitution specifically states in Article 1, Section 8 that Congress shall have the power to:
“coin  Money, regulate the Value thereof….”
In 1913 Congress outsourced its Constitutional responsibility of coining money to the Federal Reserve.  The Federal Reserve is neither “Federal” nor does it have any reserves.  It’s merely a consortium of 12 private banking houses that hold a legal monopoly over all economic activity, fiscal and monetary policies.  Congress has no legal authority whatsoever to intervene in any activities of the Federal Reserve unless of course Congress makes the decision to take back its Constitutional responsibility that was maliciously and criminally bestowed upon the Banksters, AKA Wall Street DBA the Federal Reserve. 
Congress, however, does have the power to revoke the Federal Reserve’s charter. 
The Federal Reserve was 100% responsible for printing the fiat money that fueled the bubble that resulted in the 1929 stock market collapse and the Great Depression, and it’s also directly responsible for the current financial and economic carnage.  After collapsing the economy in 1929, the Federal Reserve got the U.S. government to seize all privately owned gold in the U.S. in 1933, one of the greatest acts of grand larceny to ever occur on the planet.  These days, nobody knows what ever happened to our “supposed” gold reserves in Fort Knox or even if it’s still there but it’s probably safe to assume that whatever gold existed is now in Bankster hands.  A Google search elicits all kinds of theories.  The government refuses to even discuss the issue.
With the Banksters acquiring in 1913 absolute dictatorial power over money and all economic activity, they feasted like gangster gluttons by manipulating the money supply, printing money and they effectively caused the massive run-up in the stock market that crashed on October, 1929 – the first Federal Reserve created financial bubble.  The Great Depression could not have been possible without the Federal Reserve.  It was America’s first massive economic bubble and it resulted in human misery of Biblical proportions; Wall Street not only took down America, it took down the economies of the entire planet.  The U.S. Bankster inflicted misery reverberated around the globe and plunged the entire world into a deep and agonizing global depression. 
As with all financial collapses, they precede economic collapse; the greatest misery of the Great Depression was not acutely felt by “We the Sheeple” until the early 1930’s. 
Throughout human history central banking monopolies and/or private banking monopolies such as the Federal Reserve have destroyed nations and the prosperity of the people.  Central banking monopolies were spawned by megalomaniac kings, queens, murderous empire builders and warmongering dictators of all stripes.   
Sound hard currency such as gold and silver cannot be manipulated for the benefit of Banksters and government politicos seeking more and more power to oppress and impoverish people.  Sound money tends to restrict abuse by government and tyrants because sound money tends to concentrate in the hand of the people who have a strong revulsion to war and foreign interventionism.   Without a central bank to print paper money, government would not have the power to massively militarize, mobilize and embark on endless genocidal wars simply because “we the people” would never consent to pay the monster taxes required to wage the wars.  Every empire in human history that was built on military conquest eventually bit the dust and peoples were left destitute and subjugated. 
Anyway, this mysterious thing called the Federal Reserve, a middle class prosperity eating monster that came into being in 1913, has been destroying America since its inception.  But most Americans are clueless relative to how the Federal Reserve operates and creates its fiat currency out of thin air. Thomas E. Woods offers a straightforward explanation in his book, Meltdown, A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse.
Although people use the phrase “printing money” as a kind of shorthand for what the Fed does, the Fed increases the money supply not by printing cash and putting it into circulation, but by what are called “open-market operations” which involve the purchase and sale of assets.  Strictly speaking, the Fed can purchase any kind of asset it wants, but it normally purchases government bonds.  If it wants to increase the money supply, it purchases, say, $1 billion in bonds from a bond dealer.  It makes the purchase by writing a check on itself for $1 billion and handing it to a firm like Goldman Sachs in exchange for the bonds.  It creates this $1 billion out of thin air.
That’s precisely how central banks fund murderous war machines that debase the currency, reduce purchasing power and plunder the people.  Without the Federal Reserve and Europe’s central Banksters, there would have been no WWI or WW II.  When the Fed (12 all powerful private banking houses) buys U.S. Treasuries, it is paid interest and presto the government has gob of fiat currency to spend on wars.  But the fiat money also has a multiplier effect because of a key aspect of central banking – fractional reserve banking.
Woods goes on:
Goldman Sachs then deposits this $1 billion check from the Fed in its bank.  That
Bank doesn’t put the $1 billion in a special vault with “Goldman Money” on the door.  Instead, the bank will lend out most of that $1 billion, since the law only requires it to keep a small percentage of its deposits on reserve.

…With a reserve requirement of ten percent, the initial $1 billion will have supported $9 billion in additional lending by the time this process is complete.  All of this $10 billion has been created out of nothing: the initial $1 billion check from the Fed, and the additional $9 billion in loans that fractional-reserve banking makes possible, were produced out of thin air.

The real beef of what Woods is saying is that the Federal Reserve monetary system is specifically designed to exclusively benefit insiders to the detriment of others.
When the government inflates the money supply, the new money does not reach everyone simultaneously and proportionately.  It enters the economy at discreet points.  The earliest recipients of the new money include politically favored constituencies of one kind or another: banks, for example, or firms
with government contracts – in other words, wherever government spends money.  These privileged parties receive the new money before inflation has pushed prices upwards….By the time the new money makes its way through the whole economy, prices will have risen throughout practically all sectors.  But while this process is taking place, the privileged firms that are lucky enough to get the new money early benefit from being able to make their purchases at the previously existing price level-thereby silently looting those from whom they buy.

..Thus, when these favored firms spend this money, they are in effect taking goods out of the economy without providing anything themselves…The money they pay for their goods didn’t originate in a good or service that they themselves had previously provided; it came from nowhere.
Woods goes on to explain how all this fiat money causes inflation and summarizes what is really going on “After encouraging all of these things and severely disrupting the economy, the Fed then has the power to disrupt it further by bailing out the most irresponsible parties”.
Because the Federal Reserve has refused to disclose the recipients of most of the “electronically created” bailout money, many financial analysts have estimated the cost and it runs from a low of $2 trillion to $15 trillion.  This is money that the Fed created out of thin air for the exclusive benefit of Wall Street which, quite frankly, covers the massive losses attributable to Wall Street’s out of control “taxpayer subsidized” derivative gambling addiction.  Barry Ritholtz ( and author of Bailout Nation, has interestingly calculated the damage caused by the Banksters at $12 trillion and counting.
"In just about one short year (March 2008 -  March 2009), the bailouts managed to cost Americans far in excess of nearly every major one time expenditure of the USA, including WW1 & 2 (omitted from graphic), the moon shot, the New Deal, total NASA budgets (omitted from graphic), Iraq, Viet Nam and Korean wars — COMBINED.
206 years versus 12 months. Total cost: ~$15 trillion and counting . . ."
Bloomberg, who has sued the Federal Reserve to disclose recipients of Bankster bailout bucks, estimated the cost in 2/09 at $9.7 trillion.
The stimulus package the U.S. Congress is completing would raise the government’s commitment to solving the financial crisis to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages.
But for those who doubt the “numbers” of Bloomberg, financial analysts like Barry Ritholtz and who accuse them of pulling phony baloney numbers right out of a hat, it is best to go straight to the horse’s mouth for information.  And there is no better source than the U.S. Treasury Department, the order taking waitress for Wall Street’s Banksters and the Federal Reserve.
Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program set up by the Treasury Department, came up with the largest number yet in testimony prepared for delivery Tuesday to a House committee. “The total potential federal government support could reach up to $23.7 trillion,” he stated.
While Barofsky also said that his number of $23.7 million could be exaggerated, it’s irrefutably true that the government always, always vastly under-estimates the cost of everything.  The effects on the purchasing power of the dollar in the bailout of Wall Street to the tune of tens of trillions will be catastrophic. 
What folks need to understand is that Wall Street and the Banksters are the Fed and that the Fed only acts in the best interest of its private shareholders and its partners on Wall Street at the expense of the American people. 
Precisely because Wall Street gamblers are getting monster bailouts (fiat money created out of thin air), the economy continues to rupture but in truth, there isn’t a damn thing the Fed can do to jumpstart the economy simply because the entire system is so totally defunct, so bankrupt, so corrupt and out of whack that for all practical purposes, America no longer even has a viable monetary system to even propel a flourishing and functioning economy. 
The Bankster bailout efforts of Bush/Obama have only intensified the carnage because everything that has been done has been done to increase raw, arrogant and unaccountable Bankster power and their absolute authority to plunder the American people. 
The real estate bubble was a classic Ponzi scheme created by the Federal Reserve and the Banksters for the exclusive profits of Wall Street.  Like all Ponzi scheme, they eventually crash.   Greed and stupidity run deep within the human psyche when a fiat monetary system is on a perceived roll.
Wobbly, corrupt and as fictitious as our fiat monetary system is, it had operated with some level of restraint because the Glass Steagall Act of 1933 imposed federally legislated measures to prevent “Banksters Gone Wild”.  Glass Steagall was designed to protect depositors from “Banksters Gone Wild” by separating investment banking from commercial banking.  The Wall Street Banksters could not function as deposit taking institutions and were also heavily regulated to prevent a rehash of another Bankster inflicted bubble that caused the Great Depression of 1929.  So many banks had failed following the Federal Reserve induced bubble burst in 1929 that the FDIC was created in 1933 to regulate and insure depository institutions.  The goal of Glass Steagall was to separate high risk activities of Wall Street’s gambling houses from deposit taking institutions so that the deposits or ordinary citizens would be exempt from being Wall Street’s monopoly money.
Glass Steagall was abolished when Bill Clinton signed into law the Gramm-Leach-Bliley Financial Services Modernization Act on November 12, 1999.  This act was described by Michel Chossudovsky on 11/12/08 over at Global Research in an article titled “Who are the Architects of the Economic Collapse” as a monetary disaster waiting to happen:
Under the 1999 Financial Services Modernization Act, effective control over the entire US financial services industry (including insurance companies, pension funds, securities companies, etc.) had been transferred to a handful of financial conglomerates and their associated hedge funds….
Lawrence Summers played a key role in lobbying Congress for the repeal of the Glass Steagall Act. His timely appointment by President Clinton in 1999 as Treasury Secretary spearheaded the adoption of the Financial Services Modernization Act in November 1999. Upon completing his mandate at the helm of the US Treasury, he became president of Harvard University (2001- 2006).

Paul Volker was chairman of the Federal Reserve Board in the l980s during the Reagan era. He played a central role in implementing the first stage of financial deregulation, which was conducive to mass bankruptcies, mergers and acquisitions, leading up to the 1987 financial crisis.

Timothy Geithner is CEO of the Federal Reserve Bank of New York, which is the most powerful private financial institution in America. He was also a former Clinton administration Treasury official. He has worked for Kissinger Associates and has also held a senior position at the IMF. The FRBNY plays a behind the scenes role in shaping financial policy. Geithner acts on behalf of powerful financiers, who are behind the FRBNY. He is also a member of the Council on Foreign Relations (CFR)

Jon Corzine is currently governor of New Jersey, former CEO of Goldman Sachs….
Larry Summers became Treasury Secretary in July 1999. He is a protégé of David Rockefeller. He was among the main architects of the infamous Financial Services Modernization Act, which provided legitimacy to inside trading and outright financial manipulation.

"Putting the Fox in Charge of the Chicken Coop"

Summers is currently a Consultant to Goldman Sachs and managing director of a Hedge fund, the D.E. Shaw Group, As a Hedge Fund manager, his contacts at the Treasury and on Wall Street provide him with valuable inside information on the movement of financial markets.

Putting a Hedge Fund manager (with links to the Wall Street financial establishment) in charge of the Treasury is tantamount to putting the fox in charge of the chicken coop.

The Washington Consensus

Summers, Geithner, Corzine, Volker, Fischer, Phil Gramm, Bernanke, Hank Paulson, Rubin, not to mention Alan Greenspan, al al. are buddies; they play golf together; they have links to the Council on Foreign Relations and the Bilderberg; they act concurrently in accordance with the interests of Wall Street; they meet behind closed doors; they are on the same wave length;
they are Democrats and Republicans.
While they may disagree on some issues, they are firmly committed to the Washington-Wall Street Consensus. They are utterly ruthless in their management of economic and financial processes.
Larry Summers, a Clintonista crony and a key player in the Obama administration, served Bankster interests.  The Bush Administration was also heavily loaded up with Banksters.  In fact, all presidential administrations are Bankster owned. 
With their new powers from the Financial Services Modernization Act of 1999, the Banksters really did go wild and were allowed to engage in massive leverage and all kinds of insidious things that would put ordinary folks behind bars. 
In the post financial crash world, much has been written in search of answers and explanations.  However, a stunning insight was offered by the New York Times in an extraordinary piece that pretty much documented that Wall Street got the Bush Administration to further loosen capital requirements and regulations for the Banksters.  Excerpts are as follows:
“We have a good deal of comfort about the capital cushions at these firms at the moment.” — Christopher Cox, chairman of the Securities and Exchange Commission, March 11, 2008.
….three days later, Bear Stearns was forced into a hastily arranged marriage with JPMorgan Chase — backed by a $29 billion taxpayer dowry.
Within six months, other lions of Wall Street would also either disappear or transform themselves…
Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.
On that bright spring afternoon, the five members of the Securities and Exchange Commission met in a basement hearing room to consider an urgent plea by the big investment banks.
They wanted an exemption for their brokerage units from an old regulation that limited the amount of debt they could take on. The exemption would unshackle billions of dollars held in reserve as a cushion against losses on their investments. Those funds could then flow up to the parent company, enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments.
The five investment banks led the charge, including Goldman Sachs, which was headed by Henry M. Paulson Jr. Two years later, he left to become Treasury secretary...
The proceeding was sparsely attended. None of the major media outlets, including The New York Times, covered it.
After 55 minutes of discussion, which can now be heard on the Web sites of the agency and The Times, the chairman, William H. Donaldson, a veteran Wall Street executive, called for a vote. It was unanimous. The decision, changing what was known as the net capital rule, was completed and published in The Federal Register a few months later.
With that, the five big independent investment firms were unleashed.
In loosening the capital rules, which are supposed to provide a buffer in turbulent times, the agency also decided to rely on the firms’ own computer models for determining the riskiness of investments, essentially outsourcing the job of monitoring risk to the banks themselves.
Over the following months and years, each of the firms would take advantage of the looser rules. At Bear Stearns, the leverage ratio — a measurement of how much the firm was borrowing compared to its total assets — rose sharply, to 33 to 1. In other words, for every dollar in equity, it had $33 of debt. The ratios at the other firms also rose significantly….
Drive to Deregulate
The commission’s decision effectively to outsource its oversight to the firms themselves fit squarely in the broader Washington culture of the last eight years under President Bush…
The 2004 decision also reflected a faith that Wall Street’s financial interests coincided with Washington’s regulatory interests.
“We foolishly believed that the firms had a strong culture of self-preservation and responsibility and would have the discipline not to be excessively borrowing,” said Professor James D. Cox, an expert on securities law and accounting at Duke School of Law (and no relationship to Christopher Cox).
“Letting the firms police themselves made sense to me because I didn’t think the S.E.C. had the staff and wherewithal to impose its own standards and I foolishly thought the market would impose its own self-discipline. We’ve all learned a terrible lesson,” he added…
 “With the stroke of a pen, capital requirements are removed!” the consultant, Leonard D. Bole, wrote to the commission on Jan. 22, 2004. “Has the trading environment changed sufficiently since 1997, when the current requirements were enacted, that the commission is confident that current requirements in examples such as these can be disregarded?”
He said that similar computer standards had failed to protect Long-Term Capital Management, the hedge fund that collapsed in 1998, and could not protect companies from the market plunge of October 1987….
Policing Wall Street
A once-proud agency with a rich history at the intersection of Washington and Wall Street, the Securities and Exchange Commission was created during the Great Depression as part of the broader effort to restore confidence to battered investors. It was led in its formative years by heavyweight New Dealers, including James Landis and William O. Douglas. When President Franklin D. Roosevelt was asked in 1934 why he appointed Joseph P. Kennedy, a spectacularly successful stock speculator, as the agency’s first chairman, Roosevelt replied: “Set a thief to catch a thief.”….
Christopher Cox had been a close ally of business groups in his 17 years as a House member from one of the most conservative districts in Southern California. Mr. Cox had led the effort to rewrite securities laws to make investor lawsuits harder to file. He also fought against accounting rules that would give less favorable treatment to executive stock options. ..
“In retrospect, the tragedy is that the 2004 rule making gave us the ability to get information that would have been critical to sensible monitoring, and yet the S.E.C. didn’t oversee well enough,” Mr. Goldschmid said in an interview. He and Mr. Donaldson left the commission in 2005.
Agency’s ’04 Rule Let Banks Pile Up New Debt By STEPHEN LABATON
Published: October 2, 2008

2004?  Wasn’t that a presidential election year?  Could it be that Wall Street and the Banksters were already imploding and needed a massive cover-up - kind of like being at the casino, running out of money and asking the house to increase your line of credit so you can continue to gamble in the hope of wiping out your losses that you don’t have the money to cover anyway? 
When Stephen Labaton speaks of “enabling it to invest in the fast-growing but opaque world of mortgage-backed securities; credit derivatives, a form of insurance for bond holders; and other exotic instruments”, he is referring to complex financial instruments peddled as safe and sound financial vehicles.  Mortgage backed securities are fairly straightforward:  pool mortgages, package them and sell them to victims.
Derivatives, credit default swaps and other Wall Street investment creations were just variations of Wall Street’s animal kingdom consisting of carnivorous monster creatures consuming everything and anything in its path by sucking up vital organs like heart, liver, brain etc. and tossing the picked bones to lesser critters to chew.   Warren Buffett called them “financial weapons of mass destruction”.  According to most reports there are roughly $600 TRILLION of these investment creatures outstanding which is roughly 10 times the total economic output (GDP) of the entire planet. 
Derivatives come in many variations including credit default swaps (CDS), foreign exchange derivatives, commodity derivatives, equity derivatives etc.  Derivative gambling is essentially an unregulated “anything goes” casino where bets are placed on the probability of an event occurring or not occurring and derivatives are really nothing more than private insurance contracts to cover wagers.  Because they are private contracts and are not traded on any regulated exchanges for disclosure purposes, this adds to the element of glamour and secrecy. 
 If you want to invest $10,000 in a high return, high risk investment but don’t like the level of risk you can cover your risk by contracting with me.  While I may only have 2 cents in the bank, I will offer you a guarantee against any losses on your $10,000 investment in exchange for $100.00.  You are happy and pay me my hundred bucks and I now have $100.02 in the bank.  The investment is crap and goes bust.  You ask me to cover the losses.  But I’ve paid myself a $100 bonus, spent it and am back to 2 cents in the bank. 
What have I done?  I illegally operated an insurance business.  The reason the insurance industry is heavily regulated is because it needs reserve cushions to pay claims.  The Banksters fully comprehended that they were buying and selling insurance and they also knew that there were no reserves to pay the claims.  Moreover, Banksters understood full well that they had to sell the scheme to Congress and regulators by avoiding any mention of the word “insurance” so they dubbed their delusion of unknown cosmic origins “Derivatives”. 
Matt Taibbi did a blunt but delicious blockbuster expose’ in Rolling Stones Magazine that explains how our crooked fiat financial system really operates.  Taibbi, a real tiger on reporting on the Bankster carnage, correctly states that you can’t understand the financial carnage without first understanding AIG.  AIG, once a reputable and solid insurance company that insured “real and tangible things” firmly anchored in gravity, jumped into the business of insuring Wall Street’s gambling addiction. 
Goldman Sachs, AKA “Goldmine Sachs” bought a lot of AIG insurance.   AIG was quietly bailed out by the Federal government to the tune of nearly $200 billion.  Nobody knows what AIG did with all that taxpayer cash but it is widely reported that “Goldmine” Sachs reaped at least $20 billion.  Because Goldman has friends in high places (Treasury, Congress, Senate Foreign Relations Committee, all congressional banking committees, Federal Reserve), they had the raw and absolute power to not only save themselves at taxpayer expense but to even further consolidate their enormous powers.  Taibbi’s article “The Big Takeover” starts with “It’s over – we’re officially, royally fucked.  No empire can survive being rendered a permanent laughingstock” and goes on to say:
Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town – and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table.  Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.
That’s it folks – our financial system in a nutshell.  It’s all about Wall Street screwing Main Street, taxpayers and taking down the economy of the entire planet.   Wall Street exists for no reason except to plunder and plunder big.  Taibbi provides considerably more gory details in his must read article that prints out to 20 “must read” pages and he only highlights the really salacious stuff.   The real story goes much deeper. 
The $700 billion initial Bankster Bailout Bill that Congress Critters lovingly embraced was just a tiny drop in the bucket.  Trillions upon trillions have flown out of the Fed’s window and while estimated by various financial pundits to be in the range of $2-15 trillion, nobody knows where this money went either.  Nor does anybody know what AIG did with $200 billion.  What is known is that Wall Street gambling losses were paid by taxpayers and the creation of a big pile of fiat “electronic” money.
Congress doesn’t care.  Those traitorous thieves know who their bosses are and they humbly genuflect while kissing rings of the money gods on Wall Street.  It’s how candidates and RNC/DNC machines get funded.  Yes, there are a few honest folks in Congress.  Cong. Ron Paul introduced a bill to just audit the Fed (not abolish it) – the Federal Reserve Transparency Act or H.R. 1207 - but the bill was squashed.   Can you stop laughing?  Barney Frank, Chairman of the House Financial Services Committee, and Speaker Nancy Pelosi (one of the richest women in Congress) prevented a vote on the stand alone Audit the Fed bill.   Instead, they attached it a bill that greatly expanded Federal Reserve powers and forced Ron Paul to vote against his own bill. 
One thing is absolutely certain, as long as the Federal Reserve exists, it will never ever be audited.
Meanwhile, the Fed and its current crop of co-conspirators, a Democrat controlled Congress, is on a rampage to protect the rich and powerful from losing their money at the casino tables. 
The derivative insurance policies have some other very peculiar attributes.  If you own your home, only you as the owner can legally insure the property.  But what if you could buy insurance on your neighbor’s house?  You could burn your neighbor’s house down and collect the insurance.  In the real world of insurance, multiple policies cannot be written on the same property because insurance companies will only pay on policies owned by owners who paid their insurance premiums.  But in the whacky world of Wall Street insurance, these guys wrote multiple “insurance policy” contracts on the same asset and collected.  In a article titled Here's How Messed Up Our Financial System Is Morgan Housel brings the point home:
See, in everyday life, you can't insure things you don't own. Thankfully, your neighbor can't take out homeowners insurance on your house. If the entire town could buy insurance on one house, they'd have a huge incentive to make sure it was destroyed. They'd burn it down, blow it up, bulldoze it, what have you, pocket gobs of insurance claims for their trouble, and happily move onto the next town. For good reason, laws prohibit this.
With credit default swaps, there are no such laws. Investors can take out infinite amounts of insurance on debt products they don't own. This seriously distorts the motives and incentives between buyers and sellers. CDSes often don't act as insurance, but a tool to manipulate stupidly large amounts of money and rip gaping holes in the financial system, a la AIG (NYSE: AIG). 
it's simply a vast, unregulated game of poker. Spun the other way, CDS buyers have an incentive to make sure underlying debt defaults. They can achieve this by buying CDSes for multiple times a company's debt load and causing a run on its assets. Indeed, this is exactly what many believe ultimately pushed Lehman Brothers into bankruptcy.
Ultimately, the derivative/CDS casino is nothing more than a vast insider market manipulation mechanism that causes great harm to companies and a lot of the harm is based on rumors initiated on Wall Street.  Wall Street has the power to spread panic and then reap vast financial rewards.
But the schemes are even more devious when it comes to Goldman Sachs, the ultimate insider.  When an investment goes bust, its value doesn’t go to zero and may only drop 20-30-40% or so.  Therefore, the payout is never at face value unless of course you are Goldman Sachs or Wall Street connected.  When AIG was going bust and had no cash to pay off the claims on derivative contracts, AIG was actually attempting to negotiate a 40% payoff.  But enter Timothy Geithner who at the time was Chairman of the New York Fed (not yet Treasury Secretary).  Geithner authorized a payout at par or 100%, an act that simply stunned observers.  According to Bloomberg,
Beginning late in the week of Nov. 3, the New York Fed, led by President Timothy Geithner, took over negotiations with the banks from AIG, together with the Treasury Department and Chairman Ben S. Bernanke’s Federal Reserve…. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.
The New York Fed’s decision to pay the banks in full cost AIG -- and thus American taxpayers -- at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III...
But Turbo Timmy and Helicopter Ben weren’t just dealing with the extremely lucrative taxpayer funded casino gambling habits of Wall Street, they were also arranging the public purchase of all the fraudulent mortgage backed securities that Wall Street packaged and sold as AAA securities.  If the Fed didn’t buy back the “trash for cash” mortgage backed securities that Wall Street was already buying back from angry victims who threatened lawsuits and criminal investigations, Wall Street and its bought and paid for credit rating agencies like Moody’s and S & P would be in jail for the crime of the century.   Owning a government certainly has its advantages.
About that Man of Change?  Obama has been bought and paid for.  Like everybody else in DC, Democrat or Republican, they are owned by the Banksters.  Ron Paul is the only exception and he is especially vilified by both criminal parties.  He pisses off Republicans because he’s strongly and viscerally anti-war and the Democrats hate him because of his moral aversion to spending the nation into bankruptcy.  Congressman Ron Paul is getting a lot of attention these days and even some long overdue respect. 
America used to be a place where crooks were locked up in jail but now the grand larcenists occupy the highest echelons of government and industry.  Rich people who made stupid investments used to just lose their money.  Now the rich are on welfare. 
Abby Hoffman:  “America, land of the free.  Free means you don’t have to pay”.
Wall Street never pays for its idiotic blunders because Main Streets covers the losses of high rollers at the biggest casino on the planet.
If America wants honest bankers, we need to let the money manipulators and fraud artists to just go bankrupt and to jail instead of bailing them out.  But God has now entered the scene.  In troubling times seeking out a deity is not unusual.   Lloyd Blankfein, Chairman of Goldman Sachs declared he was doing “God’s work” and the Executive Branch and Congress have only intensified their worship of the planet’s newest deity.  If anything, they are truly prayerful as they utter “May the Lloyd be With You, AMEN”. 
At this writing, Audit the Fed has been killed by Congress and replaced with a mild one time disclosures on several trillion.  The US Senate has passed a sweeping bill that vastly increases the Federal Reserve’s powers to plunder.   Yes, once again Wall Street, the Fed, the Banksters and Congress are celebrating yet another coup that will expedite the wipeout of Main Street and the American middle class.

Thursday, February 3, 2011

Tragedy of the Commons

Tragedy of the Commons

Chapter Nine from the The Noblest Triumph, Property and Prosperity through the Ages by Tom Bethell, a book I highly recommend because it’s rare that an economic analysis ever makes the connection between prosperity and property rights, let alone how collectivization has utterly failed throughout history.


ROBERT OWEN MADE A FORTUNE within a society of private property, and lost it trying to establish a society without property.' But he remained confident throughout his life that what he called the New Moral World would soon appear. In the Communist Manifesto, he was praised for having detected the "decom­posing elements" in society. Friedrich Engels thought him "among the most eminent thinkers of all times." He was a true harbinger of the twentieth century's experiments in the abolition of property. One of the earliest socialists, he was also one of the few who spent his own money on the cause in which he so firmly believed. Whatever his faults, a lack of generosity was not among them.

He was born in 1771, a child of the Industrial Revolution. He went into business with Jeremy Bentham and hobnobbed with the duke of Kent. He claimed that he had spent four days with Thomas Jefferson "in close communion upon the two systems of society," but Jefferson did not record the encounter. Harriet Martineau, the popular expositor of political economy, reported that he was capable of believing "whatever he wished," while Thomas Macaulay "fled at the first sound of his discourse."

Like Bentham, Owen believed that the happiness of the greatest number lOOuId be the goal of society, but this could be achieved only within "a system general cooperation and community of property."2 In one of his many pamphlets, 'The Revolution in the Mind and Practice of the Human Race,", published when he was 78 years old, Owen called private property "an evil of able magnitude, and a never-failing cause of disunion among all classes countries."
After a few years' schooling, he moved to Manchester, and with borrowed capital formed a partnership to manufacture cotton-spinning machinery. This was the heyday of "Manchester liberalism," with the new, and therefore unregulated, Cotton industry rapidly supplanting the old, and highly regulated, wool trade. By the late eighteenth century, technological and economic changes were making the cotton trade one of the great commercial enterprises in the world, and Manchester was at its center. Between 1750 and 1830 the quantity of cotton imported into Britain increased a hundredfold.

On January 1, 1800, he took over the "government" of New Lanark Mills, in Scotland, having purchased it for £60,000 with several partners. Under the previous owner, whose daughter Owen married, the work force included several hundred orphaned children who were procured from the poorhouses of various parishes. Poor relief in Scotland was restricted to those who were permanently unable to provide for themselves, there was no equivalent of the dole, and the poor rates, or taxes, were lower than England's. Situated on the River Clyde, New Lanark was believed to be the largest cotton-spinning establishment in Great Britain. Richard Arkwright, who had patented the spinning jenny, was initially a partner.

With Owen in charge, the labor force increased to about 1,500. "Children were employed from the age of ten, though Owen would have preferred not to take them below twelve'" John F. C. Harrison wrote in Quest/or the Ne1l' Moral World. Until 1816, the hours of labor were thirteen per day; later reduced to twelve, with ten and a half hours of actual labor. Owen calculated that during his 30 years' association with New Lanark, over £300,000 in profits were divided among the partners, over and above the 5 percent paid annually on the invested capital and the cost of his various social experiments. 

 Owen provided housing at low rent, free medical services, a retirement fund and village schools for which there was a nominal charge. These were all based on actuarial principles, and the operation could not be mistaken "for anything other than what it was: a profit-making cotton mill," Harrison added. The equally large mill of Jedediah Strutt in Derbyshire resembled New Lanark, with the same housing, schools, health care and store. But visitors did not flock o see it, as they did to New Lanark, "nor did the Strutts consider their paternalistic efforts the germ of a new system of society."

Owen did a tremendous job of publicizing his reforms. He began to pend more and more time in London, meeting with lords and bishops. All vere impressed by the rich factory owner from the north who was agitating for improved working conditions. The archbishop of Canterbury gave him respectful attention, and the prime minister, Lord Liverpool, found time to see him. The duke of Kent (father of Queen Victoria) seemed to have become almost a confidant, chairing meetings on behalf of Owen's "new views." Owen loved being a lord, and his name-dropping reaches an embarrassing level in his autobiography.

He disputed with Malthus, Ricardo and James Mill, but found these "pushing, busy, and ever active political economists" to be "great talkers upon a false principle": individualism. He purchased 30,000 copies of the newspapers that reported on his meetings, and tirelessly mailed them to magistrates, bankers and bishops. The grand duke Nicholas, later czar of Russia, visited New Lanark, and hearing of the Malthusian theory of population, offered to solve it by transporting two million Englishmen to his native land. The grand duke hoped that Owen would replicate his mill in Muscovy. Owen thanked His Imperial Highness, but "being then independent in pecuniary matters," declined this "most liberal imperial offer."

In 1816, Owen opened his Institute for the Formation of Character, more or less anticipating Soviet developments 100 years later. His faith in human malleability was boundless. "Children are, without exception, passive and wonderfully contrived compounds," he wrote in his "Second Essay on the Formation of Character." They "may be formed collectively to have any human character. And although these compounds, like all the other works of nature, possess endless varieties, yet they partake of that plastic quality which ... may be ultimately moulded into the very image of rational wishes." The character of man was formed for him, not by him, he repeatedly said.

As his wealth increased, so did his independence, and he grew ever more indifferent to public opinion. He denounced "all religions," whose errors had made man "a weak, imbecile animal." Machinery he regarded as mankind's greatest curse. He also believed that people should be put back to work on the land, but not in the old way. Instead, they should live together in a collectivity. Owen's son Robert Dale Owen, returning from a trip abroad at this time, found that Owen was still doing well in business but losing ground "in public estimation." Robert Dale seemed to have picked up no trace of his father's utopianism. "He had been misled by benevolent enthusiasm," Robert Dale wrote of his father, and by his sudden wealth. Having started out with $10 in his pocket, Owen was worth a quarter of a million dollars by the time he was 45. Having overseen his sons' schooling, Owen must have expected that their characters, at least, had been formed for them and not by them. But Robert Dale's traditional views, published in his very readable autobiography Threading My Way (1874), shows that Owen's faith in education did not work out as hoped even within his own family.

One day in 1815, several boatloads of Lutheran schismatics from Wurttemberg sailed down the Wabash River, in Indiana. "Eight hundred strong, clad in the garb of the Fatherland, this quaint company went ashore at a point near the site or the present village of New Harmony," George Lockwood wrote in The New Harmony Movement. They knelt on the bank about a patriarchal leader, and with a song and prayer dedicated 'Harmonie' to the uses of a Christian brotherhood. These were the Rappites-German peasants, primitive Christians, practical communists, and disciples of George Rapp. As an organized protest against the existing state of religion in Germany, they had left the shores of their Fatherland behind them ten years before."

George Rapp believed that Jesus had enjoined a community of goods upon his followers, and it is interesting to see how far he was able to take his disciples in this difficult direction. When the Rappites at first established community of property, a record was made of the amount each had contributed.  This was refunded to anyone who withdrew. But within three years this agreement was abrogate and burned, signifying the Rappites' desire to practice communism to the fullest extent. Initially, marriage was normal among them but that, too, was changed. Those already married moved into houses where the sexes were strictly separated. It is a measure of the obedience that Rapp commanded that this seems to have been accepted without argument. The Rappites distilled whiskey for sale but drank none. Tobacco was also forbidden. They individually confessed their sins to George Rapp.

"From a pecuniary point of view." Robert Dale Owen wrote, the Rappites' experiment in communal living was a "marvellous success." He provides the following figures, and revealing comment: "At the time of their immigration to the United States, their property was worth no more than $25 a head." But 21 years later, a "fair estimate" was $2.000 per capita, children included. This was "probably ten times the average wealth throughout the United States; for at that time each person in Indiana averaged but a hundred and fifty dollars in property, and even in Massachusetts the average fell short of $300." Nonetheless, Robert Dale thought that "intellectually and socially" the community was a failure for it was an “ecclesiastical autocracy” with Rapp its absolute ruler. It was said that Rapp sold the property at Harmony because life had become too easy.  Some believed that the hard work of a new settlement made Rapp's disciples more submissive.

For whatever reason, Rapp’s agent traveled to Scotland and offered the property to Owen. "Here was a village ready built, a territory capable of supporting tens of thousands in a country where the expression of thought was free, and where the people were unsophisticated” son explained to Owen. “Well, Robert” the senior Owen said “what say you-New Lanark or Harmony?”   Robert Dale didn't hesitate: "Harmony."
"Does your father really think of giving up a position like his, with every comfort and luxury and taking his family to the wild life of the far West?" Rapp's agent asked. “He did not know” Robert Dale commented, "that my father's one ruling desire was for a vast theatre on which to try his plans of social reform.”

In the fall of 1823, Owen crossed the Atlantic, taking his other son, William, with him and leaving Robert Dale to manage the Scottish mill.  Owen purchased Harmony for $150,000-half what it was worth, according to Lockwood’s account.  The estate consisted of 30,000 acres, a tenth under cultivation, with 19 detached farms, 600 acres of improved land occupied by tenants, several orchards, and 18 acres of vines.  The village of Harmony included a church; houses of brick, frame and long, and factories with almost off of their machinery intact.

The Heterodox Instinct

Owen believed that society should be reorganized according to a blueprint that has repeatedly recurred in the minds of reformers: private property should be abolished, the family replaced by a larger unit, and religion either revised or abolished completely. In The Socialist Phenomenon, Igor Shafarevitch drew attention to the repetitive way in which these ideas have been proposed, in different countries and centuries. Private property, marriage and religion constituted Owen's "trinity of evils." He was not a man who spent much time with books, and undoubtedly his thoughts on these matters arose independently of any reading. They must reflect, as Shafarevitch has suggested, a deeply embedded heterodox instinct that is relatively common in mankind.

In his Book of the Nell' Moral World, containing the "Rational System of Society," Owen wrote that private property "alienates mind from mind" and produces in its possessors "pride, vanity, injustice and oppression." But the time was rapidly approaching when "the progress of science, and the knowledge of the means to form a superior character for all the individuals of the human race" would render private property "not only unnecessary, but most injurious to all".  The family would give way to a more "scientific" association, ranging in numbers from 500 to 2,000.13 It is characteristic of utopian reformers that the ideal size of their communities is often given precisely. Charles Fourier's phalanx, for example, was supposed to consist of 1,620 people. Followers no doubt believed that some esoteric secret of human society had been discovered. (The first attempt to set up a Fourierist phalanx took place in 1833. "Fourier himself had doubts almost from the beginning. He was soon chiding the disciples for taking liberties with the doctrine; and when the architect built a pigsty with stone walls 18 inches thick and no entrance, Fourier became convinced that he was in the pay of the Saint-Simonians." Jonathan Beecher and Richard Bienvenu, The Utopian Vision ofClwrles FOl/rier (Boston: Beacon Press, 1971),20)

Owen believed that communes should be constructed in squares, or perhaps rectangles. Education would play a major role. Once the communes were up and running, they would reproduce themselves by "swarming." The older way of organizing life would not have to be stamped out-it simply would not survive the competition. "There will be no desire or motive for individual accumulation of wealth," Owen wrote, for all would have sufficient under his plan. Prisons and punishments would no longer be required.

The Radicals in London were scornful.  William Hone wrote in his Reformist's Register: "Robert Owen, Esq., a benevolent cotton-spinner and on s of His Majesty's Justices of the Peace for the County of Lanark, having seen the world, and afterwards cast his eye over his well regulated manufactory in the said county, imagines he has taken a New View of Society, and conceives that human beings are so many plants, which have been out of the earth for a few thousand years and require to be reset. He accordingly determines to dibble them in squares after a new fashion .... I do not know a gentleman in England better satisfied with himself than Mr. Owen. I ask him to let us alone, lest he do us much mischief." Owen's leading principle, "all things in common, turns the whole country into a workhouse."

William Cobbett derided Owen's "parallelogram of paupers," and proclaimed it "a species of monkery." The gentleman "is for establishing innumerable communities of paupers. Each is to be resident in an inclosure somewhat resembling a barrack establishment, only more extensive..I perceive that they are all to be under a very regular discipline; and that wonderful peace, happiness and national benefit are to be the result!””

When he came to the United States, Owen's fame preceded him. In 1825 he addressed the Congress, the Supreme Court and the cabinet. The changes he contemplated were "greater than all the changes which have hitherto occurred in the affairs of mankind," he said. What is surprising is that he was taken so seriously. His wealth surely had much to do with it; one who had done well in business must have known what he was talking about.

Initially, Owen considered that a few years' training would be needed to wean recruits from their old "errors and prejudices." The key would be something called the Pestalozzian system, imported from Switzerland. The "progressive and symmetrical development of all the powers and faculties of the human being” would replace rote learning. Owen was soon joined by a group of scientists and Pestalozzian educators who came down the Wabash River in a vessel known later as the Boatload of Knowledge.

More than anything, Owen was misled by his optimism and his tremendous self-confidence. He simply issued an invitation to "the industrious and well disposed of all nations" to join him at New Harmony, and within a year one thousand adventurers duly arrived. They were quite willing to occupy the Rappite housing, go to assemblies, attend meetings, or do whatever Owen wanted. Most of the time, Owen himself wasn’t even on the premises. Although regarded as a practical Businessman, he was far more interested in theory, even when his own fortune was at stake. He left New Harmony immediately after its founding to go on a speaking tour, and he returned to England later that summer.

The following year he returned with Robert Dale Owen, who recalled that for a time the life was very pleasant-"the common experience of intelligent and well-disposed persons who have joined the Brook Farm or other reputable community." He found the good fellowship and absence of conventionalism charming. Particularly enjoyable was the "absolute freedom from trammels," whether in dress or opinion; the evening gatherings, the weekly discussion meetings, the concerts and the weekly ball, where he found "crowds of young people, bright and genial if not specially cultivated."

The accommodations were primitive, the fare simple, but for the young Owen it was as enjoyable as a summer under canvas. He helped tear down some old cabins, and once worked in the bakery; he even went into the fields and sowed wheat by hand, but this was tiring work. Eventually he busied himself in the school and edited the weekly paper. Then disenchantment set in, as it never did for his father. Robert Dale later referred to his fellow communards as "that heterogeneous collection of radicals, enthusiastic devotees to principle, honest latitudinarians, and lazy theorists, with a sprinkling of unprincipled sharpers thrown in."!?

"No communistic experiment was ever undertaken under more favorable auspices," Morris Hillquit wrote in his History of Socialism in the United States. "The hardships usually attending the first years of pioneer life of every community had been successfully overcome by predecessors, and no debt was weighing on the property."  This may have been a part of the problem, for the spur of necessity was lacking.  But the premise of New Harmony was precisely that the ownership arrangement would promote a cooperative spirit, from which would issue forth cheerful and abundant labor. This was far from being the result, however, as Charles J. Erasmus described in In Search of the Common Good.

Although the one thousand Owenites at New Harmony exceeded the number of Rappites before them, they neither put the factories into operation, nor ever even got farming underway. Without any plan for the selection of members the community ended up with no skilled craftsmen and only 35 farmers. There were members from every state in the union and nearly every country of northern Europe. They shared little or nothing in religion, back­ground, habits, opinions or interests. According to one contemporary, never before had a small communit… consisted of one thousand strangers all oblivious to each other's feelings ....
Freeloaders greatly outnumbered workers and little was accomplished. When the community could not even grow food to sustain itself Owen urged members to cultivate private, household gardens. Owen did not have the kind of charisma to command a community venture of this sort and did not stay on the premises long enough to use what he had. He left his sons in charge of the day-to-day operations, and when funds eventually gave out, the experiment ended. Living off Owen's largesse, the members developed neither social incentives to provision the collective good nor any strong commitment to the group. Most finally decided that they could do better for themselves working individually on the outside. Without previous experience working together, they had convened from all walks of life and all points of the compass, and they dispersed by the same route.

Owen made his great mistake three weeks after the Boatload of Knowledge disembarked. He proposed that the Harmonites should form themselves into a Community of Equality right away, with the property - his property! - to be shared in common. This worried his son, who recalled that the plan originally called for a training period of two or three years. Until then, the community had been run something like a business. A committee estimated the value of each worker's daily contribution, and credit slips for that amount were issued that could be exchanged for goods at community stores. Communards worked for pay, in other words, with remuneration roughly proportional to output.

But Owen, like Rapp before him, was determined to put communism into practice. He couldn't wait to go on to the next stage, with all members provided for, not according to their services, but equally, receiving "as near as can be" similar food, clothing and education; "and as soon as practicable, to live in similar houses, and in all respects to be accommodated alike." The assembly of all the members duly voted that the property was to be held "in perpetual trust for the use of the community." All who signed within three days could join the Community of Equality. Most signed, becoming partners in an enterprise wholly capitalized for them by Robert Owen.
"Liberty, equality and fraternity, in downright earnest!" Robert Dale wrote in dismay. He had been counting on inheriting his father's fortune, not consuming it with a thousand strangers in a two-year spree in the wilds of Indiana. "I made no opposition to all this," he wrote. "I had too much of my father's all-believing disposition to anticipate results which any shrewd, cool­headed business man might have predicted. How rapidly they came upon us'''

Within two weeks of the vote, a majority of the assembly asked Owen's help "for one year in conducting the concerns of the Community." In addition to sharing the property, Owen was now also expected to pay the bills. In return he would be able to tell his guests what to do.  A general sense of relief met Owen’s acceptance.  The New Harmony Gazette reported: “Under the sole direction of Mr. Owen, the most gratifying anticipation of the future may be safely indulged.”                   
There was one little problem: He could tell them what to do, but how could he get them to do it? The members were now co-owners! A contributor to the Gazelle soon complained that "industrious members have been compelled to experience the unpleasant sensation of working for others, who are either unwilling or unable to do their share of the labor" - a plain restatement of the problem encountered at Plymouth Colony. One more attempt was made to keep track of the hours worked, but this was thought "to work injustice, as one worker might do as much in an hour as another might in four."

"You have indolence, or the love of ease among you at New Harmony," a "Friendly Spectator" wrote. "It appears doubtful whether human nature can be brought to such moral perfection as to execute the social system entirely. There must be a controlling motive to urge men to physical exertion. He now has that in the possession of all that his work can give him. In the social [as opposed to the private] system, you must make his disposition so virtuous as to make him feel his responsibility. Can you do this?”

In 1826, the duke of Saxe-Weimar showed up and left a good account, including a revealing glimpse of Owen. In the tavern, he wrote, he struck up a conversation with a plainly dressed man, about 50 years old, who mentioned "the disordered state in which I would find everything." When the duke asked after Mr. Owen, the man announced that he was Mr. Owen. He showed the duke over the premises and pointed out the old Rappite church, now occupied by joiners' and shoemakers' shops, and the mansion where George Rapp himself once lived. Like Lenin in the Kremlin, Owen contented himself with an austere apartment. In the evening he took the duke to an orchestral performance and a recitation of poetry, during which Owen described his plan: "He looks forward to nothing else than to remodel the world entirely; to root out all crime; to abolish punishment; to create similar views and similar wants, and in this manner to abolish all dissension and warfare," the duke recounted. He expressed some doubts to Owen, but made no impression. "He was too unalterably convinced of the result to admit the slightest room for doubt. It grieved me to see that Mr. Owen should be so infatuated by his passion for universal improvement as to believe and assert that he is about to reform the whole world, and yet that almost every member of his society with whom I talked, acknowledged that he was deceived in his expectations, and expressed their opinion that Mr. Owen had commenced on too grand a scale, and had admitted too many members without the requisite selection.”

Owen's money was rapidly running out, and the experiment came to an end a year later, with his farewell address in May, 1827. His intention had been to admit only the qualified, he told the Harmonites, but this was frustrated when the assembly , adopting majority rule, had voted to admit all “preliminary” members.  His optimism nonetheless remained undiminished. Returning to England, he stopped en route to deliver lectures on the New Moral World. In his autobiography, he managed to omit all reference to the New Harmony experience.

Owen generously offered land to those who wanted to set up smaller communes. Several were formed, but all failed. Some leases were obtained by "speculators who care not a whit or co-operative principles, but sought private gain” his son wrote.  “By the speculators he lost in the end a large amount of personal property, of which, under false pretenses, the had obtained control.”   Evidently, a number of people said that they intended to live cooperatively, but within months privatized and sold their property.   Owen had no legal recourse.

 Robert Dale Owen later became a congressman from Indiana, and played a role in founding the Smithsonian Institution. By the time he wrote his autobiography, nearly 50 years after the events described, he had concluded that his father's plan was flawed in its central feature: "I do not believe that any industrial experiment can succeed which proposes equal remuneration to all men, the diligent and the dilatory, the skilled artisan and the common laborer, the genius and the drudge. I speak of the present age; what may happen in the distant future it is impossible to foresee and imprudent to predict. What may be safely predicted is that a plan which remunerates all alike will, in the present condition of society, ultimately eliminate from a cooperative associa­tion the skilled, efficient and industrious members, leaving an inefficient and sluggish residue, in whose hands the experiment will fail. both socially and pecuniarily.”

 Owen spent on New Harmony, "and in meeting his ultimate losses the next year by swindlers, upwards of $200.000” his son wrote.  "Thus, as his property did not then reach a quarter of a million, he was willing to give up more than four-fifths of what he was worth to this great experiment.”  He added the following touching comment: "The remainder, not exceeding $40,000, might have sufficed for a competence, had he been content to live quietly upon it. But it soon melted away in a hundred expenditures for experiments, publications and the like, connected with social and industrial reform. He seems to have felt it to be a point of honor, so long as he had means left, to avert reproach from the cause of co-operation by paying debts left standing at the close of unsuccessful experiments, whenever these had been conducted in good faith.”

The Fate of the Rappites

George Lockwood believed that "ignorance and superstition" had been the most marked characteristics of the Rappite community. Yet when his book was published, in 1905, 80 years after Owen purchased Harmony, the Rappites still survived. Owen's community had lasted for just two years. All the Owenite communities in England and the United States failed within a few years. Most lasted for less than two.

It's worth taking a brief look at the fate of the Rappites After they left Indiana they bought land on the Ohio River. There a new village was built called Economy. In 1832, an "intriguer" from Germany who called himself Count Maximilian joined the community. According to Charles Nordhoff's Communistic Societies of the United States, he advocated "a livelier life" and various other "temptations to worldliness," persuading one-third of the commu­nity to leave with him. The two-thirds who stayed on were prosperous and generous enough to pay these seceders $105,000. Those who left set up another community ten miles way "on communistic principles." They restored marriage, and quickly spent the Rappite money. "After a desperate and lawless attempt to extort more money from the Economy people, which was happily defeated, [the count] absconded with a few of his people in a boat to Alexandria, on the Red River, where he perished of cholera in 1833," Nordhoff wrote.

George Rapp himself died in 1847, aged 90, at the end preaching to the community through an open window. Those elected to succeed him preserved his rules. By 1875, the community's wealth may have amounted to $30 million. A time of bad investments and declining fortunes followed. The dwindling community seems to have quietly privatized itself, and in 1903 the Liberty Land Company of Pittsburgh purchased the entire 2,500 acres of Economy for an estimated $4 million. Six members survived when Lockwood's book was published in 1905. "Before many years have passed." he wrote. "the lands once tilled by the Rappites will be grown over with factories and homes, the last of those who lived and labored in the hope of realizing the communism of the early Christians will be laid to rest under the moundless greensward of the Rappite burying ground, the last dollar of the millions heaped up through the patient labor of the stolid Harmonists will have passed to individual bank accounts.”

The irony was that George Rapp had shown that life without private property is possible, but only if the commune members share an overriding purpose. Probably, religion alone can achieve that, and such a community may also have to be celibate.  If separate families exist, the parental self-sacrifice needed to raise children will not easily coexist with the knowledge that their efforts are subsidizing others. It may be that a religious community not only can live communistically, but must do so: can, because freed from the cares of raising children, members will be able to subordinate the material question; must, because the individual desire for property (beyond personal possessions) might otherwise subvert the religious goal of the community.

Owen strongly disagreed with such notions, needless to say. He knew about the survival of the Rappites and the Shakers, and regarded them as "perhaps the most moral societies known in consequence of their abandonment of private property." But they existed in a "very unnatural and unsatisfactory state," having excluded the "natural enjoyment by which man alone can become satisfied and happy." They had not yet discovered how to "exclude private property and to maintain the natural union of the sexes." It had been utterly beyond their powers to do So.” And so it had. But it had also been beyond his.
"Communities based on religious views have generally succeeded," Charles A. Dana wrote in the New York Sun in 1869. "The Shakers and the Oneida community are conspicuous illustrations of this fact, while the failure of the various attempts made by the disciples of Owen, Fourier and others, who have not the support of religious fanaticism, proves that without this great force the most brilliant social theories are of little avail.”

In a sense, Owen himself had tried to establish a religious community.  A few days after his public denunciation of all religions, he wrote: "On this day, the most glorious the world has seen, the religion of charity, unconnected with faith, is established for ever.” He was in many ways a religious man, at times coming close to speaking of himself as a messiah. In his New Lanark address, he declared that "the minds of all men must be born again ... All things shall pass away, and all shall become new." The path forward was clear: "The period is arrived when I may call numbers to my aid, and the call will not be in vain."

In his eighties, Owen edited the Millennial Gazette and took up spiritualism. According to G. D. H. Cole, "Shakespeare, Shelley, Napoleon, the Duke of Wellington and the prophet Daniel became his familiars." At the very end of his life, in November, 1858, he returned to his Welsh birthplace, visited the house where he was born, tried to see an old friend who had died 20 years earlier, arranged several public meetings, drew up a plan to reorganize the education of the town, and died a few days later.