I’ve been taking in a lot of information this weekend about more Wall street failures such as  Bernard L. Madoff’s 50 Billion dollar Ponzi Scheme that went bust this week along with of  Marc S. Dreier and fleeing Investors Put a Strain on Funds have left me with the impression that there’s no real money in Wall Street, anymore (if there ever was). Meanwhile, as bad as the situation is here - it’s just as bad in Europe, according to Paul Krugman (seePaul  Krugman: European Crass Warfare) and European macro algebra (wonkish) works out the math for what the European Union needs to do.

I have been thinking about what we can learn from all of this - from what is happening around us now - and what just happened earlier this year and last.

Would a Web Analytics type approach work in helping us see how we can avoid making even bigger mistakes than we already have? I believe so.

All there ever was, as far as I could see, is liquidity, and that’s mostly dried up.  Maybe the whole thing about Wall Street was a scam, at least, for the last several years.

In fact, over a year a ago, I was working on this very problem about liquid assets, having spoke to a friend, Valeria Maltoni about it but can’t find the post I wrote - that it doesn’t actually matter how much money there really is in the world - as long as you can get at the money you think you have when you need it.

Remembering back to last year, as I was walking by a new building under development in Brooklyn near where I had a studio, I wondered where the money was coming from to build all this real estate popping up, everywhere I looked - and how many people could afford to live in it.

I reasoned that value was created when some one could convince a community of influentials that you had something of value - and the system could easily be gamed (ie: you could inflate the value of Art, for example, and in a way, you could do the same for Energy - and that, in fact, did happen with Enron, and later with the price of Oil).

I also reasoned that value of Art in Museums was created by communities of “influentials” and that, fundamentally, this is the root of all value.   In fact, it was a fundamental reason why Barack Obama won the election (as I also read this over the weekend - and it’s supported by this story about Obama’s friends - Obama’s Friends Form Strategy to Stay Close.

Weather we call it a “market” or a group of influentials - value, I believed, was created when you got enough people who had influence to agree on something, anything.   Just the act of agreeing could “create value out of nothingness” up to a point.   That point is liquidity.

You can create value up the point you can get money to back your ideas - but at some point - if that dries up - and it did - then you have - well … what we have now … and maybe, deflation that goes with it (and the hyper inflation that goes with it - they’re both part of the same problem).

But I’m no economist by any means - and I don’t even know if my reasoning would be far different, if I was (an economist).  Judging from Paul Krugman - I’d probably think much the same as I do now, but have a way to prove my ideas with math formulas, as he can.

Anyway, in my reasoning - you could create value and demand, almost infinately, as long as you had liquidity - as a matter of fact, it didn’t matter how much money anyone really had - (in fact, only a fraction of all the money in the world, on the books, actually exists - the rest is IOU’s of one form or another).

You could create real estate (ie: Demand) which increased the value of it and then sell it and use gain more and more assets, highly leveraged assets.  I think that’s what Bernard  Madoff counted on - in fact, that’s what most of Wall Street counted on - they figured that real estate would keep on appreciating - and that there was no  actual real estate bubble - real estate and illiquid assets could be driven up, as long as there was a buyer (China?).   Of course, now we know China is also having a severe recession as we’re seeing an Unexpected Drop in China’s Imports and Exports.

But at some point, the system would have to collapse - in theory - while it could expand infinitely - every leveraged asset put more and more of a “stain” on the financial system - I reasoned - and something would have to give, at some point.

And last week I just learned, as we all did, that the Recession we’re in … guess what - we’ve been in for a year.  What I was wondering about - on a semi concious level - is probably also reflective of what many of us were thinking -hat financial systems follow the laws of gravety as much as anything else in our world does.

And that’s what happened last year and this year with Sub-Prime mortages - which triggered most of the major banks to fail - and the only thing that stopped that from fully happening was the $700 Billion dollar bailout - not that it helped things for the average person, much, if at all.

Now, with a  Second Mortgage Disaster On The Horizon it gets even more tenuous.

The solution here is obvious - though a difficult choice - Federal Government needs to stop the “Alt-A” and “option ARM Mortgages from resetting - I’m not sure how they do it - or even how much it’s going to cost - but whatever it is, it’ll be a lot less than if they let them all reset.  At least, maybe something can be gotten out of the sub-prime mortgage meltdown mess - if we’ve learned anything - and this ties into Web Analytics and predictive analytics - the downturn we have just had WAS PREDICTABLE - in fact

And the next downturn is also PREDICTABLE - and that is the point of this story (see below)

As far as I can see - most of Wall Street is now, effectively, a Ponzi Scheme -  That’s what we’ve collectively learned over the last several months.  I don’t think we can assume anything that has to do with Wall Street is what anyone says it is.

Getting back to Analytics - in Politics of crisis Paul Krugman pointed out exactly what moment effectively delivered the White House to Barack Obama …..(see below)

The ghost of Herbert Hoover comes to the rescue

Just worth pointing out: Henry Paulson’s decision to let Lehman fail, on Sept. 14, may have delivered the White House to Obama.

OK, enough - I just wanted to express some of the ideas I’ve had about the Economy, lately.