Paul Craig Roberts hits it on the head, again, in his article: Collapse At Hand .

This is one of the best analysis of the financialized economy I've read in a while.

However, way back in February 15, 2009, I wrote a much shorter article in which I gave the same derivative cancellation solution as PCR:

"... Getting back to the derivative crisis; to resolve it, and to save the worldwide economy, Obama must assume FDR-like powers, something he has seemed reluctant to do so far, despite his mandate to do so. The first thing he should do is to declare all derivatives placed outside of legally regulated markets (90% of them are unverified contracts) null and void. These "bets"--worth $180 trillion according the U.S. Office of the Comptroller of the Currency in America alone, and over half a quadrillion dollars worldwide--could not have been made in traditionally regulated markets, because the players had insufficient collateral, i.e. they flouted the law and their fiscal responsibility.

Because for every buyer there is a seller, the amounts lost would zero out and no one would gain an advantage. We would just get to reset the clock. This is as fair as things can be made given where we are. Right now, this enormous sum is only good for driving companies into bankruptcy and tying up the courts for years while the "winners" of these bets squabble over the crumbs of the bankrupt companies. This is already happening with creditors fighting over the last crumbs of Lehman Brothers. This is a pointless and destructive squabble and the administration must act to prevent years more of these.



If the parties object to the elimination of their derivative bets, they should be reminded of the penalty for fraud."



As you can see, PCR uses the same logic and solution (though leaving out my prescription for fraud), and almost says the same thing word for word in some places. (You can read the full article here: Saving the Economy Without Spending a Dime).

But that's OK, PCR's article is far more sophisticated and complete than mine - as would be expected from an Assistant Secretary of the Treasury and long time economist.



What's even more interesting is how the size of the derivatives market has continued to grow since I wrote this in early 2009, at the very depths of the last market crash - the market would "turn around" just a month later, thanks to a steady stream of unprecedented bailouts and guarantees begun the previous Fall. One credible analyst said - 2 years ago - that the derivatives market is not $700 trillion worldwide - a figure often quoted by the MSM, but not in this article by PCR, who focused on only American exposure, but 1.2 quadrillion (see here). We can thank the financial industry for making us think in terms of numbers usually reserved for the science of Astronomy. Would that the science of Economics be so sound and accurate! (The science of Economics was hopelessly corrupted beginning in the early 20th century, when the role of Land - in classical economics meaning ALL of nature's resources - was deliberately and completely expunged in neo-classical economics. You can read more about that in Georgist Prof. Mason Gaffney's short book: "The Corruption of Economics." It was no accident the land-grant universities led the way in this).



