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The crisis of Neoliberal capitalism cannot be fully understood unless we grasp three mechanisms It's a classic example of the "Trend Extrapolation Trap." which have been deployed in the fierce defense of its ideology. When its myths, based on exploitation rather than production, spread to the common person (in the form of illusory home equity extraction, etc.), the system becomes overloaded and meltdown ensues. Everyone is trying to take someone else for a ride:

1. Perverse Incentives: Simulacra of value are substituted for real-world productivity making unproductive speculation, cronyism, deliberate fraud, and deception by design preferable because one can profit without any "skin in the game." Accountability becomes either an impediment or a sucker's proposition. This is reinforced by modes of thinking and plans of action which socialize losses and privatize gains, shifting of risk to taxpayers, and encouraging state-banker-dealer collusion.

2. Rational Disincentives: The gradual punishment (in relative terms) and destruction of support for production, integrity and accurate accounting places people who pursue these principles at a competitive disadvantage. When deployment of capital for speculation (i.e. unearned capital gains) is taxed at half the rate of production (i.e. earned income), then productivity is disincentivized. Unregulated "creative" accounting puts honest business at a disadvantage. Inflated earnings and hidden liabilities both make a company appear more profitable, and create competitive pressure toward collusion and deliberate fraud. The "rational" weight of various disincentives for honest and healthy commercial exchange buoys the market rationality for risky speculation.

3. The Substitution of Low-Risk Fantasy for Reality. These perverse incentives--propagated not just by financial and regulatory structures but by the mass media/marketing propaganda system described above--led the American citizenry to believe this simulacrum of value could be a low-risk, productive, "rich" way of life. Since simulacra require agreement (or at least passive complicity), we might ask why the motto of the age became "If it sounds to good to be true, it MUST be true."

Part of the answer lies in the apparently low-risk ease of profiting from real estate and financial speculation. Since organisms are selected to avoid undue risk (that is, investing significant assets and time in projects with unknown outcomes) and favor the security of the status quo, then the appeal of a seemingly secure, low-risk system which offered vast profits for modest investments of capital was overpoweringly "obvious." That it was all a fantasy based on lies was clearly visible, but the risks were so low and the rewards so high that the American people willingly substituted a fantasy for reality.

Any successful simulacrum rests on its ability to "make natural" (and thus rational) its assumptions and mechanisms. Thus what essayist Zeus Yiamouyiannis has described as the Quadrillion Dollar Scam has been constructed on the accounting conceit that debt is an asset.

Anatomy of a Quadrillion Dollar Scam: Assessing the Damage and Making Our Way in a Post-Gluttony Era

This essay was first published on www.oftwominds.com in June 2009, and is reprinted here by permission of the author, Zeus Yiamouyiannis, Ph.D.; copyright 2009, all rights reserved in all media.

Introduction:

Debts are never assets, yet debts have been defined as assets by banks, investment houses, credit card companies, and brokers. If these entities or persons loan you money, they call the resulting debt on your part an asset for them, because you will ostensibly pay them back the principal, with interest, creating profit for them. If you give them money, they must pay you interest (no matter how small), and hence they consider your money a liability. They offset that liability by loaning your money to others at higher interest and pocketing the difference. This used to be what banks