The US real estate market went to hell when bankers centralized home financing. Before then, local bankers worked with people in their communities. The move to centralized, algorithm driven banking led to the massive increase in foreclosures and the collapse of the real estate market.
Top-down centralization of investing with mortgages put into bizarre, abstract packages led to unrestrained spending and ridiculous valuations of investment portfolios.
Now, French and German European leaders Sarkozi and Merkel are calling for increasing the centralization of control of European economic policies for the 15 European nations.
flickr image By francediplomatie
Centralization worked at the dawn of civilization-- enabling farming to feed the masses, construction of cities to house them. But in today's world, centralization has become a disease that has led to decreased flexibility, decreased creativity and massively diminished use of the resources and knowledge that local wisdom and experience offer.
Centrallization can be effective for manufacturing, as Henry Ford proved almost a century ago. It can be a useful approach to some planning. But we've seen, in recent years, that it can be, beyond ineffective, a destructive and damaging approach to dealing with problems. It can and does create major problems. You don't solve the massive economic problems we're facing with doing more of the same. It is possible for a leader to operate in a bottom-up way. It is possible, probably necessary for problems caused by top-down thinking, decisions and policies to be fixed, healed, resolved with bottom-up approaches.
Part of the problem is that today's leaders are guided and driven by the biggest corporations that have little interest in the bottom-- in the people who are being asked to do all the sacrificing demanded by the World Bank, IMF and the Euro-zone nations. The leaders who are running the show are all from the top-down system and mindset that created the problem. It is unlikely that the current Euro-zone system of leadership and government has the ability to break out of this stuck pattern.
The likely outcome of the further centralization of European policy, and further top-down approaches that parasitize and support the bottom to resolve the problem caused by the top is a collapse of the Euro and probably the end of the Euro zone organization.
When the Euro collapses, the dollar will go up in value as investors race to the more stable currency. This will make it even harder for the US to export and thus, aggravate our imbalanced trade situation. That'll hurt the job market, but help bankers, who surely see this coming and are already investing accordingly.
The US and the federal reserve have responded to European economic crises in the past by pouring trillions into the bottomless Europit. It is likely they'll do that again, which will dilute the value of the dollar to some extent. Perhaps, if they're going to do that, which is highly likely, they should try helping Europe from the bottom up. Give the money to small businesses and individuals, through banks. Do it like Obama did, the one time he followed through on his promises to address the economy in a bottom-up way-- with his "cash for clunkers" program. People would get $4500 for trading in an old car, and the money went to auto companies.
This bottom up approach should be applied to ALL big ticket, multi-billion dollar rescue plans, wherever the money comes from. We've learned that when you give big bucks to big banks it does not help the economy. It simply helps too big to fail companies get bigger. The trick to get the money to the people. Let the banks make modest administration fees and develop new customers. That's the future of saving the world economy. Trust the people.
The Occupy Wall Street movement, with its horizontal democracy, is the solution. It's probably going to take a revolutionary level of change to make the shift from top-down, centralized leadership to the bottom-up, horizontal, decentralized democracy that it's going to take to get us out of this mess we're in.
I am no economist, but this seems like obvious stuff to me. What do you think?