And Old Pinko drops me an email, because it's about economics, and I post a fair amount about this, but I'm not an economist.

On Truthout, we have an article written by Joshua Holland, Was the "Credit Crunch" a Myth Used to Sell a Trillion-Dollar Scam?.

The thesis here is that there wasn't a credit crunch, but rather that it was all smoke and mirrors in order to steal $350 billion to $750 billion and siphon it off to their friends.

I think that this is wrong for a number of reasons. It's like saying that 911 was a DoJ covert operation, because they wanted toe Patriot act passed.

The DoJ had the Patriot act on their wish list waiting for the right time, just as the Financial industry, in this personified by Henry "Hank" Paulson, is always on the lookout for a big score with other people's money.

I would suggest that this was rather more like Naomi Kline's thesis in The Shock Doctrine, where there is a statistical certainty that something bad will happen somewhere, and the people most interested in enriching themselves have contingencies to both personally profit from the system, and further the cause of Friedman/Rand free marketeers.

The first thing to understand is that even before massive deregulation and the rise of the shadow banking system, fractional reserve banking is a lot like juggling.

Your basic bank has far less money in its accounts that what the account balances say, the rest is out in the form of loans to other people.

It's why even a relatively small run can take a bank down. They borrow short term from their depositors who can generally withdraw money at any time, and lend long term on things like business loans (5 or so years) and mortgages (30 years).

This is very much like juggling, and when you start dropping balls, it's game over.

He contradicts himself, saying that the increase in wealth was false, but the reduction in lending was false.

So, if we don't have a credit crunch, what is all this?

Well, Mr. Holland maintains that:

• Bush and His Evil Minions^™ are lying sacks of sh$@.
• Yeah, I agree with this one. You would have to be blind not to.
• He quotes Dean Baker, who suggests that the real problem is that the American people have lost $6 trillion in home equity and $8 trillion in investments.
• I actually agree here with Mr. Baker. This is the real problem: Phony gains and bubbles created through a shell game that conspicuously resembles the activities of one Charles Ponzi.
• The problem is that the banks bought into this phony economy too, and did not just bankrupt consumers, they bankrupted themselves. As Nouriel Roubini frequently notes, thee regulatory authorities are at least, are addressing a liquidity problem, where the issue is that the cash is just not here at this time, to an insolvency problem, where there are simply no assets of any value to ever dig one's self out.
• He then suggests that there has been no real pullback in loan making, with banks not even loaning to each other.
• This one is just flat out false.  As anyone who has been reading my blog regularly notes, there have been pullbacks in lending across the board.  The most basic of metrics on the willingness to financial institutions to loan, the TED spread, the difference between what banks charge each other for 3 month loans and what the 3 month Treasury note gets, has been at historical highs.  The historical rate has been about 30 basis points (.3%), and just today it went below 100 basis points (1.0%) for the first time since August 15.  The spread for much of that time was well over 200 basis points (2%).  This is a very real increase in risk aversion by the banking industry.

While I agree that with Mr. Holland's prescription, specifically that any aid should be directed toward financial institutions, as opposed to the financial industry (I have suggested that the financial industry is the gangrenous limb of the body economic, and so should be amputated), I think that discussions of a vast conspiracy distract from the solutions, and make the speaker look like a complete tool.

Henry Paulson and his associates are not predators, they are opportunistic scavengers, and they keep things like this in their back pocket for when the inevitable crisis.

These people don't create a crisis to put forward their agenda, that would be an expensive and risky endeavor.  They get their ducks in a row, and wait for a crisis, and then step in with a "solution" that is really a wish list.

This distinction matters, because the vision of the grand criminal mastermind distracts us from the very real activities of the banal vulture.

We are dealing less with Professor Moriarty than we are with Chauncey Gardner.

Cross posted from 40 Years in the Desert.