Is There A Connection Between Spirituality And A Global Financial Meltdown?

Money and God: are they connected?

I was sitting at home watching one of the TV news magazine shows and they were talking about the global economic meltdown that had occurred over the previous few years.

They detailed how we literally were days away from a complete collapse in which consumers would be unable to withdraw money from their banks; how there wouldn’t be funds for businesses to make payroll; how all financial systems worldwide would screech to a halt.

I’m watching this, thinking to myself, how the hell did this happen?  Whose fault was it?  Was this the work of George Bush?  Does fault lay back further, for example, Bill Clinton?  George Bush, Sr.?  Or even Ronald Reagan?

See an Example of the Top 25

So I began, in earnest, to research the causes of the meltdown.  And the more I peeled back a layer, the further back it took me.  And then I discovered something even more fascinating.  The causes of the entire global economic meltdown could be explained, and easily understood, by anyone who has studied Kabbalah.

I know…it sounds crazy.  Is that really possible?  What is Kabbalah anyway?  In one sentence, Kabbalah are the non-physical laws of the universe. The Kabbalistic laws that I will discuss in relation to the global economic meltdown are:

1) the desire to receive for the self alone

2) planting seeds and the disconnect caused by time, space and motion

3) correction

4) restriction

5) curtains

6) bread of shame

7) and the reality of the 1% versus the 99%.

In order to understand current events, we need to focus on past events and in this particular case, the history of Kabbalistic principles.

Follow @TheKabbalahSecret  

on Instagram

 

#Fiasco #GlobalMeltdown #FinancialCrisis #BankRun  #Kabblah #Spirituality #GodandMoney #ItsaWonderfulLife

We are not born with a clean slate

Before we begin with 52,000 years of world economic history, I want to discuss

the first Kabbalistic principle, the desire to receive for the self alone. 

Kabbalah teaches us that we are not born tabula rosa -- with a clean slate. Rather, we are born with a “tape recording” of sorts -- remnants from previous lives.

One of those remnants is the desire to receive.

 

Kabbalah, by the way, literally means 

"to receive." 

We are hardwired with the desire to receive, it is part of our DNA. 

 

 

Touch an infant's cheek and they will turn towards the touch with their mouth open, to receive food. It's called the root reflex.

One of the ways we test to see if a newborn is "normal" is called the Palmar Grasp Reflex. Touch the baby's palm and it grasps your finger.

 

There is nothing wrong with the desire to receive. 

In fact, Kabbalah teaches that receiving is a necessary component of sharing.  

If you have a problem receiving, odds are you have a problem giving. 

BUT when the desire to receive is for the self alone, with no intention of sharing, Kabbalah teaches that chaos is inevitable.  


Keep the concept of "the desire to receive for the self alone" in your mind, as we take our journey through the economic history of the world.

BARTER NETWORKS

Now, let’s begin at roughly 50,000 BC where the first economic activity is evident with barter networks -- 

 
I trade you this saber skin for that trinket of sea shells. 

However, it’s not 
until 10,000 BC 
when we see the first truly significant event in economic history,the domestication of plants and animals. For the first time in human history, people were tied to land. Economies with tradable goods began to develop.


Another significant development during this Neolithic Revolution was one of the
most extreme examples of the desire to receive for the self alone-- slavery. 

Prior to this period of history, specifically with hunter/gatherer cultures, there was no
economic advantage to "owning" another person. 


While the concept of slavery is repugnant to most human beings today (I say "most" because it is estimated that 30 million people worldwide are still enslaved today), the fact is that slavery was
commonplace among many societies around the globe throughout history.

MERCHANT CAPITALISM

Around 2,000 BC we see the earliest recorded activity of long distance merchant capitalism, conducted by the Assyrians in Mesopotamia (modern day Northern Iraq). 

The Assyrians had an early and crude form of capitalism whereby merchants would buy goods and resell them for a profit. This merchant capitalism greatly expanded during the Roman Empire and the medieval Islamic world during
the 9th Century and more so during the 12th Century in Medieval Europe.
 

Another early form of capitalism was money lending. 

Money lending was almost exclusively between private individuals, and mostly wealthy individuals.  
Very simply, one person would loan money to another person, and charge interest. 

In Ancient Israel, it was against the laws of Moses to charge interest to other Jews, but it was okay to charge interest to “strangers.”

  

At the First Council of Nicaea in 325 AD, which was a council of Christian bishops convened by the Emperor Constantine, Canon 17 was enacted.

Prior to Canon 17, Canon law forbade clergyman from engaging in usury-- defined at that time as charging interest of any kind. 

However, Canon 17 allowed Clergy to charge 1% of interest per month or 12.7% per year. This law was later extended to the laity. 

Subsequently, Popes abolished all secular laws allowing usury, and if you accepted any interest you could not receive sacrament or a Christian burial. It was deemed “detestable to God and man to charge interest. Similarly, interest is also forbidden by the Quran under Islam.

FEUDALISM

During the decline of the Roman Empire (around the 3d Century AD), increased
tax demands by Rome crippled the peasant class by reducing tenant farmer to serfs.
And this leads us into an economic model known as Feudalism. Feudalism was
prominent between the 9th and 15th Centuries. While it has no broadly accepted
definition, feudalism was common in Japan and Europe. There were three basic
components or attributes of Feudalism. First, you had a Lord, a nobleman, who
held huge tracts of land. The Lord granted possession of lands to a Vassal to
exploit, and in return the Vassal would pledge armies for the protection of the
Lord. The actual pieces of land granted to the Vassals were called fiefdoms, or
fiefs. And those fiefs were farmed by peasants known as serfs. The serfs farmed
in exchange for their keep (this is known as subsistence farming). Lord, Vassal
and Serfs were all loyal to the King.

Serfs could not abandon land without permission from the Lord, nor could they
hold title to any lands. There were also peasants known as Freeman, who were
rent paying tenant farmers. They owed little or no service to Lords. In 11th
Century England, 10% of peasants were Freeman. However, Freeman frequently
wound up serfs if economic conditions became harsh– crop failures, for example.
Serfs paid taxes and fees usually by working the fields or in the Lord’s manner for
a certain number of days (the rest of the days they worked to sustain their
families). Fees were normally paid in the form of crops.
Up until the 12th Century, less than 5% of Europe’s population lived in towns.
Skilled workers lived in the town, but still earned their keep from Lords rather than
a real wage.

So, what were the economic implications of feudalism?
For one thing, there was a lack of technological innovation. Since serfs were
merely subsistence farmers working for a Lord, they had no incentive for
technological innovation, nor incentive to cooperate with other serfs. The Lords
had no innovation incentive either since they did not produce goods to sell on the
market. Feudal manners and workers were self-sufficient.

What changed this dynamic? One of the largest transformational events affecting
Feudalism, was the Black Plague, aka The Bubonic Plague. The plague began
around 1346, and quickly killed 1.5 of 4 million Europeans. By 1400, 75-100
million people died worldwide. There would be more outbreaks from time to time,
and, in effect, the plague lasted until the 19th Century. And what does this have to
do with Economics, you might ask?
The plague created a tremendous labor shortage. Family guilds had to train and
hire outside workers, who were now moving into towns for a wage. Even Lords
had to pay to get labor. Birth rates exploded, and child labor became a huge
engine of economic development, as did a more active slave trade. Serfs were now
earning a real wage for their labor instead of simply subsistence farming.

MERCANTILISM

Feudalism had laid some of the foundations necessary for the development of
Mercantilism, our next economic model. A precursor to Capitalism, Mercantilism
is basically trade for profit, but where the government institutes controls to assure
the prosperity and security of the state. Mercantilism began principally as trade
between towns, but it was non-competitive trade since the towns trading with each
other had different goods or services to offer. Then over time, as demand
increased within the respective towns for the same goods and services, the products
and services became homogenized between those towns, thus trade had to spread.
First, county to county, then province to province, and eventually between nations.
What happens when nations become competitive with each other for trade? Often,
it stokes feelings of nationalism and sparks wars.

Among the measures governments took to protect the State, and promote
prosperity within, were: High tariffs to discourage imports; banning gold and
silver exports; limiting wages to keep profits high; forbidding trade with foreign
ships and colonies; and subsidizing home production of manufactured goods. The
State also took the place of local guilds as regulators of the economy. Before the
State usurped that function, there had been a collection of merchants from different
towns, such as the Hanseatic League in Germany, which pooled resources and
instituted regulations for conducting and protecting business. And finally, a vitally
important governmental measure instituted to protect and promote the State, was
the granting of monopolies to merchants that engaged in oceanic voyages-- leading
to colonization.

COLONIZATION

Oceanic voyages, while potentially fantastically profitable, were extremely
dangerous and risky. They required huge investments, and the returns on those
investments could take years to see. Merchants needed to be induced to risk their
fortunes. Kingdoms wanted to not only increase trade, but to extend their nation’s
reach via settlements and colonies. Most importantly, they wanted to mine the
natural resources from those colonies to send back to the motherland-- especially
precious metals such as gold and silver.

So, how did the Crown induce wealthy merchants to invest in these conquests?
One way was to grant Company charters – a monopoly to a company or
association for a number of years on trade within a certain region. With that
Charter came broad legal powers to enforce order in distant lands. There were also
some restrictions that came with the Charter. Colonies couldn’t trade with other
nations. In the case of England’s America, the colonists had to buy back finished
products with a pseudo currency that couldn’t be used anywhere else.

Still, a large number of speculators were needed. Thus was born the Joint Stock
Company, in which risk could be spread among many investors. Investors could
buy into a company and own the right to share in the profits in proportion to their
amount of stock. Britain issued their first joint stock backed charter in 1555, The
Muscovy Company. Other well known charter’s issued were: The East India
Company in 1600; The Hudson’s Bay Company in 1670; and The South Sea
Company in 1711.

So how did all these investors come to invest in these joint stock ventures? How
did they learn of the opportunities? Was it from a “town crier” on a street corner
or notices posted on doors? Very often, it was from within the first “Starbucks.”
In 1652, the first coffee house opened in England called Jonathon’s Coffee House.
Merchants would gather to partake in this new fashionable rage of drinking coffee
and talking business– many joint stock deals were consummated there.
Meanwhile, at another popular coffee house, Edward Lloyd’s, ship captains and
ship owners would also congregate to discuss business. Here, some investors
began gambling on the success of a voyage by ensuring the voyage against loss in
exchange for a premium. The “insurance” business grew in popularity at this
coffee house which later became known as Lloyd’s of London.

The joint stock structure was next adopted by unincorporated companies (those
trading without a royal charter). Previously, investors were buying stock in
companies with which they had a personal link, such as merchants seeking to sell
goods, etc. Now, investors could buy into a company in which they had no link.
Share prices were simply set by whatever price the buyer and seller agreed upon.

So, if you were an investor with no personal link to a company’s core business,
how did you find out about that opportunity? You needed someone with access to
those opportunities that would present them to you. This led to the advent of stock
brokers, who would arrange deals between buyers and sellers of shares, in
exchange for a cut of each transaction. By 1773, these popular brokers at
Jonathon’s coffee house labeled themselves – the stock exchange.
Along with colonization fever came an explosion in the growth of slavery.
Imperial powers such as France, Britain, Spain, Netherlands, Portugal and others
amassed worldwide empires primarily from agricultural plantations using African
slaves.
By 1552, African slaves comprised 10% of the population of Lisbon. Slavery was
a vital part of the Brazilian colonial economy, especially with regards to sugar cane
and mining production. Brazil had obtained 38% of all African slaves traded.

British colonies in the West Indies were unable to match the low cost of Brazilian
sugar in the marketplace. Moreover, Brits had become huge consumers of
product-- averaging 16 pounds per person per year by the 19th Century. This
eventually led, along with pressure from Evangelical reformers back in the U.K., to
intense lobbying by the British government for the Brazilians to end slavery.
However, those lobbying efforts came long after the British themselves had
become the principal purveyors of slaves. In fact, by the time of the Industrial
Revolution, profits from the slave trade and the West Indian plantations
represented 5% of the British economy.

ASSET INFLATED BUBBLES

Now, let’s jump back to the 1600s and a time of increased speculation,
specifically, the Netherlands in 1633. It is here where we witnessed the world’s
first “asset inflated bubble” from 1633-1637. First, what do we mean by an “asset
bubble”? Basically, it’s a sharp increase in the value of an asset which has no
relation to any fundamental economic reason, such as an increase in a product’s
quality or that it fills a needed demand for its use. So what was the first bubble?
Apparently, tulip bulbs. Tulips had become a huge status symbol in Europe, and
especially in the Netherlands. In fact, a single tulip bulb could be a bride’s dowry.
Houses and estates were mortgaged to buy rare bulbs so they could be resold, sight
unseen, to buyers. At its peak, a single bulb could sell for 10 times the annual
income of a skilled craftsman.

The belief was that the high prices would last forever and wealthy Europeans
would flock to buy them. There are, however, some modern scholars that
challenge the notion that there was a wide scale bubble burst in which many people
lost fortunes. Those scholars maintain that it was a relatively small number of
people who traded and lost. But the fact remains, there was an incredible increase
in the price of tulips, and then 4 years later it was gone. Does the psyche behind
that bubble sound familiar? Tulip prices will stay high forever, or “better get in
now while you still can.” As of the date of this publication, think about gold,
internet stocks, and contemporary art. It seems highly likely, that those assets are
experiencing a bubble. Take gold for instance, in October of 2007 gold sold at
$740 an ounce. A year later it was $1000 an ounce. In August of 2011, it sold for
$1800 an ounce. Recently, it has dipped down to roughly $1,720 an ounce, but
still significantly higher than 4 years ago. As for contemporary art, 2011 saw $5.5
billion of art sales in auctions alone, as compared to slightly over $1 billion in
2005.

Back to tulips and how this relates to Kabbalah. Perhaps it is no accident that the
first recorded bubble is literally due to seeds. This brings us to the Kabbalistic
concept of the planting of seeds, and the disconnect caused by time, space, and
motion. Every action we take, and even every thought we have, is a seed planted.
It has a consequence. Something will grow, either positive or negative. It is not a
question of “if,” it is a question of “when”. According to Kabbalah, there is no
such thing as "suddenly," such as: “He had a sudden heart attack”; “She suddenly
fell out of love”; “We suddenly ran out of cash”; or “The bottom suddenly fell out
of the market.” However, because of the existence of time, space and motion
(examples of physical laws of nature), there is often a distance or disconnect
between the planting of a seed and experiencing the fruit or effect of the planting.
And because of this disconnect, we often believe we have “gotten away with
something,” when there is a delay between the planting of a negative seed (a lie, a
crime, gossip, acting for the self alone) and the consequence of that planting.
Kabbalah tells us that we never get away without a reaction from an action. It may
take days, weeks, months, years, or even lifetimes, but there will always be a
consequence. And chaos may seem sudden because time has separated cause from
effect. Similarly, we may not see the benefits for a long time or even in our
lifetime of positive seeds being planted because of the disconnect of time, space
and motion. And just like believing “we got away with something,” in the case of
negative seeds, here we sometimes believe “it doesn’t pay to live by ‘the rules’ or
do the ‘right’ thing,” so we get discouraged and may alter our behavior and
choices. The important Kabbalistic lesson to take away here is that at the time we plant a seed, whether it be in our thoughts or actions, if we plant it without “an
agenda” or without the intention of acting for the self alone or to purposely hurt
another, the effect is irrelevant; we have already taken a step towards lasting
fulfillment.
As we pass through the numerous cycles of economic boom and bust, consider the
planting of a seed (the start of a bubble) and how long it takes before that bubble
bursts. But before we examine some of those other cycles, I want to point out
another significant historical event which fueled the world’s economic engine.
In 1651, the Great Assembly of the Netherlands adopted a Calvinist version of the
Reformation as the State’s religion. Why is that important? Predominantly,
because it removed the Catholic stigma associated with money lending, and
culturally internalized the doctrine of predestination-- namely, if virtuous people
are predestined to be saved in the hereafter, then it’s only logical that success in
this life is an advanced indication of God’s favor.

PAPER MONEY

We skip now to 1716 France, where the crown has incurred massive deficits due to
wars waged by Louis the 14th, as well as the building of extravagant palaces.
Compounding the difficulties, a shortage of precious metals leads to a shortage of
coins minted and, to top it off, creditors want their money back without delay.
France turns to a Scotsman, named John Law, who implements his theory on how
to lower the national debt while stimulating the economy at the same time. With
the Crown’s permission, he forms a National Bank. The Banque Generale, issues
promissory notes as currency – paper money, backed by depositor’s land, gold and
silver. These notes could be traded for whichever precious metal requested upon
the immediate demand of the note holder. The Banque Generale was private, but
75% of The Banks’s capitalization consisted of Government issued notes, and
government accepted notes-- again, paper. France was not the first country to issue
paper money. China issued paper bank notes in 806 AD. Sweden issued paper
money in 1661 and England in 1694. But John Law was in an entirely different
league when it came to finance. If he were alive today, he’d likely be running one
of the investment houses on Wall Street.

Law believed that the more paper money in circulation, the more commerce would
be generated. He allowed people to pay taxes with paper money. He also
instituted many beneficial reforms such as helping peasants, building roads,

abolishing tolls, and offering low interest loans to start new industries. Within two
years, the number of French export ships went from 16 to over 300.

Now, here’s where it gets a bit tricky. After replacing gold with paper credit, Law
allowed holders of Royal debt to replace their notes with shares in speculative
economic ventures. One such popular venture was the Louisiana Company. In
1717, investors, eager to own shares in gold, diamonds, and gems to be harvested
in Louisiana flocked to invest. Shares sold out, and then investors bought shares
from other investors with paper money. By 1719, the value of shares in The
Company rose 36 times their original value with no real riches discovered in
Louisiana. The millions of paper notes traded, even among the working class,
gave rise to a new term-- “Millionaire.” Remember, a precipitous rise in value for
no sound economic reason translates to-- a bubble.

Eventually, John Law effectively controlled all of the trade between France and the
world outside of Europe. He was granted control of French charters for trading
companies to the East and West Indies, China, Africa and the U.S. territories. He
purchased the right to mint new French coins, and to collect most of France’s
taxes. Essentially, he ran Europe’s most successful conglomerate. Law paid for
these privileges by issuing more shares in his companies. The shares could be
bought with notes, either from his bank, or with government debt.

Even though Louisiana never produced real value for France, no precious metals or
gems, the main problem with the system of paper money, was only one fifth of that
paper money was backed by gold. When word spread that there wasn’t enough
gold to back the notes, panic ensued. Fifty people died in a stampede in Paris, to
exchange their notes. The crown tried to stem people from exchanging their notes
by devaluing the price of gold, but that didn’t stop investors from wanting to cash
in their notes. The Government next responded by prohibiting the printing of
paper money, but that didn’t work either. Next they prohibited selling gold.
Finally, they closed the Banque, and seized control of the trading companies. John
Law fled France, disguised as a woman, and died a pauper. This episode was
known as the Mississippi bubble. The experience was so distasteful to the French
that they didn’t issue paper money again until Napoleon needed to fund his war
efforts in 1800.

Meanwhile, over in England in 1720, before the Mississippi bubble burst, shares in
the South Sea Company were also skyrocketing. The South Sea Company, had a
monopoly on British trade from South America to the Pacific. Taking a page from
John Law, the government sought to reduce their national debt by offering to exchange government bondholders shares in The Company. Within 8 months, the
share value increased eight fold. By year’s end, shares were back to their original
value. At the same time, there was a proliferation of unincorporated joint stock
offerings (companies not authorized by royal charter). Many, if not most, of these
offerings were fraudulent.
Arguably, this proliferation of fraudulent offerings led England to pass the “Bubble
Act” in 1720, which restricted the formation of joint stock companies, not
authorized by Royal Charter. I say “arguably” because many scholars believe that
the passage was really not in response to fraud, but to stem competition with the
South Sea Company shares, since the bubble hadn’t burst on the South Sea
Company at the time of The Act's passage. An important consequence of the Act,
was that investors circumvented the law by forming joint stock companies but
calling them something else-- particularly insurance companies.

CAPITALISM

As we move along through history, technological innovation becomes the rage.
The first water powered cloth mill opens in England in 1771. James Watt delivers
the first steam engine to purchasers in 1776. The industrial revolution has begun.
Where land had been the traditional source of wealth and the natural investment for
the wealthy, capital is now placed into manufacturing ventures. Adam Smith
publishes his “Wealth of Nations,” denouncing mercantilism as an inhibitor of
growth, and monopolies as stifling competition. He promotes “laissez faire”
capitalism – the literal translation “let do,” later becomes known as “leave it
alone.” He touts the elimination of all tariffs, regulations, and state interference.
Smith basically decried that public good will follow naturally from the
untrammeled pursuit of private interest. This, by the way, is the exact opposite of
what Kabbalah teaches. In Kabbalah, the untrammeled pursuit of private interest is
known as acting for the self alone. Remember, Kabbalah teaches that that behavior
will inevitably lead to chaos. Well, maybe that’s just a theory. Let’s keep
examining history and you can draw your own conclusions.

With the dawn of the industrial revolution, economic boom is ushered into
England. Investors become eager to invest, and in 1825 the Bubble Act is repealed
in England. Once again, numerous fraudulent schemes evolve and that leads to the
first meaningful and effective regulatory law promulgated in the UK-- The Joint
Stock Companies Act of 1844.
11
What was the economic effect of the Industrial Revolution? The Industrialist
replaced the merchant as the dominant actor in the Capitalist system. Artisans and
guilds declined in prominence. Factories sprang up in cities since new technology
meant that production did not have to be near waterways, and labor was plentiful in
cities. Cash crop production rose to feed a new market rather than the subsistence
farming vital to Feudalism. The rise of commercial agriculture and textile
production encouraged increased mechanization, such as Eli Whitney’s cotton gin
in 1793.

As time passed, wages increased and eventually the standard of living increased
leading to the birth of a middle class. Back in the United States, the war of 1812
had left the U.S. in significant debt, but America still experienced an economic
boom, mostly because of the damage to Europe’s agricultural markets caused by
the Napoleonic wars. The Bank of The United States (there were 2 Federal Banks
in U.S. History, but we are going to skip most of the specifics of their existence)
aided this boom through its lending, which encouraged land speculation. Land was
doubling and tripling. Land sales in 1819 alone totaled 55 million acres. A sudden
and precipitous increase in prices for no reason, sound familiar? The banks
realized they were massively over extended and began to call in their loans. This
led to a panic in 1819, and a widespread distrust of banks as well as the Bank of
the U.S. The Bank of the U.S. had thrived because it had been a depository for
Federal tax revenue. Later, Andrew Jackson instructed the Secretary of the
Treasury to deposit tax revenues in selected State banks, effectively driving the
U.S. Bank into bankruptcy. This also led to the States borrowing large sums from
the London banks. Many States in the U.S. were borrowing to fund infrastructure
investments in canals and railroads, in order to more efficiently get their goods to
markets.

After the Napoleonic wars, the UK rebounded with increased banking, and
increased trade. Their gold and silver reserves rose from 4 million pounds in the
Bank of England in 1821, to 14 million by late 1824. The London banks were also
undergoing in interesting metamorphosis. At the beginning of the 19th Century,
British banks were essentially clubs of very wealthy families. Gradually, they
became joint stock organizations run by professional managers, and accepted
deposits from a large pool of small savers.

On a side note, a slew of the States in America that had borrowed money, would
not raise taxes to cover those debts after yet another panic in 1837. This led to a
wave of defaults of state banks, and even the default of the States of Maryland and Pennsylvania both of which had refused to implement property taxes before they
defaulted.
We’ll jump ahead now to 1861, where Civil War breaks out in the United States.
President Lincoln closes ports in “rebellion areas” to international commerce.
Britain and France have to shift their reliance on cotton to Africa and Asia. This
creates pressure for an Anglo-French controlled Suez Canal, which opens in 1869.
In 1862, The U.S. passes The Homestead Act, hoping to shape the western region
by populating it with farmers. The Northerners wanted not just to create an
Agrarian base, but also wanted to break the institution of slavery and promote the
Union. The U.S. sold 160 acres of public land for $1.25 per acre to anyone who:
didn’t fight against the Union and promised to work the land for 5 years. The offer
was open to immigrants and women. Loans for livestock, seeds, barb wire, etc,
became easy to get and plentiful. Towns borrowed money for roads and buildings.
Speculators, Railroad and Timber companies bribed the residents to get the best
land (many speculators submitted fraudulent claims as well). The lion’s share of
public land went to those Companies and Speculators. In 1869, The Union Pacific
railroad spanned the entire North American continent.

In January of 1887, a major blizzard hit the new west, and thousands of cattle
perished. The harsh winter was followed by a summer drought. International
wheat prices fell 30%. Most of the financing in the Country now comes from the
main financial center, Wall Street. Borrowers default, credit dries up and the focus
of politicians and economists switches to the solvency of U.S. currency.
Consensus arises that gold reserves need to be $100 million.

In 1893, Gold reserves dipped to $80 million. Panic erupted, and investors
frantically seek to exchange their assets for gold. Where have you heard this story
before? 1720 France! But now, 170 years later, over 600 banks, 74 railway
companies, and over 15,000 commercial enterprises fail. Luckily, in 1896 gold is
discovered in Klondike, Alaska, and confidence slowly recovers.

Another interesting economic development in the late 1880s was the extension of
the 14th Amendment of the U.S. Constitution to Corporations. The 14th
Amendment forbids States from denying any persons equal protection of its laws.
It was meant to insure that freed slaves were not denied “life, liberty, or property”
without due process of the law. As for corporations, they originally had very
limited functions within the U.S. They operated under the “privilege” of a state
charter, for a limited time and for limited purposes, with stated capital.

Shareholders were also liable for the corporation’s obligations. At the end of the
Civil War, the U.S. gave huge federal subsidies to the railroads, but lawyers
actively sought to remove the restrictions placed upon those corporations. In
1886, in Santa Clara County v. Southern Pacific Railroad, the Supreme Court
recognized corporations as having the same rights as natural persons to contract, to
buy and sell property, to borrow money, to sue and be sued—and thus to be subject
to the 14th Amendment. But think of this concept carefully for a moment, is a
corporation REALLY a person? A corporation is legally bound to place the
financial interests of its owners above all other interests, including the public good.
It was once allegedly stated by Baron Thurlow: “A corporation has no soul to
save, and no body to incarcerate.”

THE GREAT DEPRESSION

At the turn of the 20th Century, economies were still reliant on horses, wind and
steam power. But by 1929, automobiles, planes, the radio, skyscrapers, ocean
liners, and an array of electrical appliances emerge. Europe declines as the U.S.
soars with its technological industries and financial might. By way of example, in
1880, the U.K.’s share of world trade was over 23%. By 1913, it was down to only
14.1% - Technology, trade, and financial might ushered in the “Roaring Twenties,”
with its unprecedented wealth and excess.
Another significant event in U.S. economic history was the creation of the Federal
Reserve in 1913. It established a central banking system, meant to serve as a
formal “lender of last resort” to banks in the event of a liquidity crisis, like during
panics when depositors seek to withdraw their money faster than banks can pay it
out (commonly referred to as a “run on the banks”). The Federal Reserve was
created in partial response to a severe panic in late 1907, also known as The 1907
Banker’s Panic, in which the NYSE fell 50% from 1906 levels. The Reserve is
also a safe depository for federal monies, and a source of ready capital when the
Federal Government needs to borrow money. All Nationally charted banks had to
become members of the Federal Reserve, and post a set amount of non-interest
bearing reserves. There are 12 member banks, and they are responsible for
regulating the commercial banks within their districts. They are considered nonprofit
since, historically they didn’t pay interest, though they were allowed
dividends limited to 6% per year. But in 2008, Congress granted authority for the
Fed to pay interest on the funds deposited to the reserve. The Fed was also given
the power to "print" money. On a side note, printing money, now referred to as
"quantitative easing," is not done on presses with paper. Rather, creating money
supply is accomplished by the Fed buying short-term federal securities from banks,

and crediting the purchase price to each bank's account in a federal reserve bank.
The selling bank's reserves grow and thus they can lend whatever leverage multiple
allowed by law.
Back to 1917, when another major event in history transpired. In Russia, workers
revolt and overthrow the Tzar. Communism is born. In simplest terms,
communism is a social and economic system whereby the public, “the community”
owns the means of production and distribution of goods and services for the benefit
of the community. This is in direct contravention to capitalism, in which the
private individual owns the means of production and distribution of goods and
services with no obligation towards the public welfare.
If we are all wired with the desire to receive, as the Kabbalists say, then why
wouldn’t communism be the perfect philosophy? It is an entire economic platform
where all needs are met. Everything is provided for the individual. This brings us
to another Kabbalistic principle known as “bread of shame.” Basically, “bread of
shame” is the feeling of discomfort that accompanies unearned good fortune. If
you continually get something for nothing, not only won’t you appreciate it,
eventually you may even grow to resent it and/or the donor or provider.
The problem with communism is that the individual’s drive, their desire to earn, is
not fostered by communism. Pure communism, like pure capitalism will fail—
communism because it fosters bread of shame, and capitalism because it fosters the
desire to act for the self alone. We will discuss more examples of bread of shame
later on.

During the “Roaring Twenties, ” Wall Street went wild. Share prices kept rising
and no one believed they would ever fall. Debt increased to astonishing levels as
did margin trading. Margin trading is when you own shares of stock, let’s say it’s
worth $100K, and the brokerage house or investment bank holding your stock
loans you money against the stock you own to buy more stock. Nowadays,
investment houses will typically loan 50-60% of the value of your shares. If the
price of your stock portfolio declines below your threshold value, you get a
“margin call” requiring you to replenish your account with cash. If you can not
pay the “margin call,” the investment house will sell your stock on the open market
to make up the deficit. In the 1920’s you could routinely buy stocks with 10%
down and the bank would loan the rest. At the same time, Europe entered into a
recession and they could not pay their international creditors with the gold they
had. Also, not surprisingly, U.S. banks were over-extended; confidence weakened
and panic hit again. Depositors began selling stocks, taking money from banks,
and hoarding cash. Banks were toppled in the U.S and Europe.

On October 24, 1929, the stock market crashes. The day becomes infamously
known as “Black Tuesday.” It was the beginning of “The Great Depression,” an
economic calamity which affected basically all Western industrialized nations and
lasted over a decade-- essentially until the outbreak of WWII. Even before Pearl
Harbor, the European Allies looked to the U.S. to help with supplies. After Pearl
Harbor and America’s entrance into the war, the need for workers to make
ammunition, weapons and military air/sea/land crafts contributed to the end of the
Depression by 1941.
So what is a Depression? While there is no generally agreed upon definition, there
are some basic characteristics such as: an extreme form of recession lasting a
prolonged period of time; large increases in unemployment; lack of available
credit; a large number of bankruptcies and bank failures; and deflation. Deflation
is where the price of goods and services decline so your money (if you have any)
actually buys more. In opposition, inflation is a rise in the price of goods and
services so your money buys less.
During the Depression, unemployment in the U.S. hit 25%, and 33% in other
countries. International trade plunged by 50%. Crop prices plunged 60%.
Housing prices declined by almost 80%. As a result of the Depression, capitalism
came under great scrutiny. Fascism rose in several parts of the world. Likewise,
communist and socialist ideologies rose in influence as well.
In 1931 Britain abandoned its gold standard to combat speculators demanding gold
for currency, and thereby threatening the solvency of England’s monetary system.
Obviously, it becomes prohibitively difficult to continuously acquire gold to
exchange for paper when there is too much demand for the exchange. The U.S.
followed suit in 1933.

In 1932-1933 – The Glass-Steagall Acts (GSA) were enacted which imposed
substantial regulations on the financial industry. Banking institutions were given
one year to choose if they wanted to be a commercial bank or an investment bank,
but they could no longer be both. This was to stop investment speculation by
commercial banks. The prior speculation of banks was considered a major cause
of the Great Depression. Banks had bought new issues of stock in companies,
extended unsound loans to those companies, and then encouraged their clients to
buy that stock. After the GSA, only 10% of commercial bank revenue could come
from securities; the one exception being underwriting government bonds. Another
part of the GSA was the formation of the Federal Deposit Insurance Corporation
(FDIC), which insured bank deposits (originally for commercial banks only)
against losses up to a certain amount. In 2010, to quell fears during the global
economic meltdown, the insurance limit on a depositor’s funds was raised from
$100,000 to $250,000. The Federal Reserve Board (the main regulator of U.S.
banks) was responsible for GSA implementation, which turned out to be fairly lax.

KEYENSIAN PHILOSOPHY

In 1938, The U.S. established the Federal National Mortgage Association, aka
Fannie Mae. Previously, the Veteran’s Administration and the Federal Housing
Administration had guaranteed home mortgages. The concept was that Fannie
Mae would buy those mortgages from the banks, which would free up capital for
banks to make more government insured loans. Local banks now had Federal
money to finance home mortgages. The intention was meant to be noble-- increase
home ownership and the availability of affordable housing. It is also important to
note that Fannie could only buy “conforming loans.” Conforming loans are loans
guaranteed or insured by the government, which were originally extended by banks
subject to strict criteria known as the 4 C’s: Credit, Capability, Collateral and
Character. For instance, if you had late payments on a previous mortgage, you
didn’t get a loan. If the principal, interest, property taxes and insurance exceeded
33% of your monthly income, no loan.
In 1944, at the Bretton Woods Conference in New Hampshire, 44 nations agreed to
a system for regulating international monetary relations, thus the International
Monetary Fund, or IMF was born. Countries currencies were pegged against the
U.S. dollar which could then be converted to Gold at a fixed exchange rate.
The fragile recovery from the Great Depression, then WWII, then post-war
reconstruction forced governments to have a close hand in capitalist economies.
Europe and the U.S. saw tough regulations implemented. For example, to prevent
financial conglomerates from amassing too much power the U.S. Congress, in
1956, extended the Glass-Steagall Acts to prevent bankers from underwriting
insurance policies. However, banks could still sell insurance and insurance
products. Protectionist trade tariffs were also introduced.

The 1950s and 60s ushered in a long economic boom in the U.S. and Europe.
Mass consumer goods markets were developed. Keynesian Economics became a
widely accepted method of government regulation. Keynesian philosophy
basically calls for private enterprise, but with an active government and public
sector role. The belief is that governments should stimulate the economy through
monetary policy such as reductions of interest rates and investments in
infrastructure. Keynesian economics certainly did not reign in 1929-- total U.S.
governmental expenditures (federal, state and local) were less than 10% of Gross
National Product (GNP). By the 1970s, they were 33%. GNP is the market value
of goods and services created by citizens in a year whether produced domestically
or nationally. As opposed to Gross Domestic Product (GDP), which is the market
value of only those goods and services which are produced domestically. The
1950s and 60s was also marked by major social safety nets put into place in most
advanced capitalist economies, such as social security, universal healthcare,
Medicaid, and Medicare. Advertising exploded as a way of promoting mass
consumption.

GOVERNMENT SPONSORED ENTERPRISES

In 1968, in order to further promote affordable housing, Congress split Fannie Mae
in two, creating one private corporation and one government owned corporation.
The government owned corporation was Ginnie Mae (Government National
Mortgage Association). GNMA would guarantee certain types of loans so lenders
could resell those loans in capital markets at a good price, and thereby allowing
those lenders to make new loans. Also, the power of the GNMA guarantee would
lower the cost of financing which could then be passed on to consumers (creating
affordable housing). GNMA only guaranteed loans, as well as guaranteed
repayment of securities that were backed by mortgages to government employees
or veterans (the underlying loans contained in the securities were also guaranteed
by other government organizations like the Veterans Association or Federal
Housing Administration). Fannie Mae continued, but in a new form. FNMA
could now buy conventional mortgages (not guaranteed or insured by the
government, but still meeting specified standards) and they were also permitted to
issue securities backed by FNMA guaranteed mortgages. FNMA would only
guarantee mortgages that were “conforming” loans, i.e. extended according to
strict criteria such as documentation requirements, acceptable debt-to-income
ratios, etc.; all part of the “4 Cs.” Fannie Mae is a GSE (government sponsored
enterprise) and has a federal charter, but is OWNED by private investors.
However, in September of 2008, it was taken over in Conservatorship by the U.S.
Government-- at least temporarily.

Another GSE chartered in 1970 is Freddie Mac (Federal Home Loan Mortgage
Corporation). Freddie was set up to provide competition for Fannie Mae and to
further increase funds for mortgage financing and home ownership. It has
essentially the same charter as Fannie Mae—to buy mortgages from S&Ls and
other institutions. Like Fannie Mae, they could also pool the mortgages they
bought from the secondary markets and sell mortgage backed security bonds
(MBS) to investors on open markets.
Freddie makes money mostly by charging a fee to guarantee the principal and
interest on the underlying loans they have purchased (which are then pooled into
MBSs). However, the U.S. Government does not back the loans.
In 1971, several foreign governments insisted on converting U.S. debt to gold. The
U.S. was unable to accommodate the demand. Then President, Richard Nixon,
responded by eliminating such an exchange. The Gold Standard was officially
abandoned in the U.S. (ending the Bretton Woods system).

REAGANOMICS

In 1973, the world experienced a major shortage of oil. OPEC (Organization of
Petroleum Exporting Countries), of which there are currently 12, quadrupled the
price of oil, triggering a worldwide recession and inflation, and eventually
“stagflation” (stagnant growth and high inflation). Interest rates hit 18%. This
contributed to the view that managed or regulated capitalism (Keynesian
Economics) didn’t work. It was time to go back to the philosophy of unfettered
capitalism in which “the market dictates because the market is always right-- it is
self-correcting.” This made conditions ripe for the Margret Thatcher and Ronald
Reagan brand of economics. They set out to remove the regulations enacted
during the previous 40 years. Unions were curbed, state-owned enterprises were
privatized, price and income polices (i.e., wage or price controls) were scrapped,
top tax rates were lowered and regulation of the financial system was progressively
dismantled. The rationale was that, since there were no crises, regulations were
unnecessary. Was that true? Or was that a disconnect due to time, space and
motion? Perhaps there were no crises BECAUSE of regulations. Case in point,
since 1790, the U.S. has experienced 16 significant banking crises. In contrast,
Canada, with its numerous financial regulations and abundant lending, has endured
ZERO banking crises including during the Great Depression!

This leads us into our next Kabbalistic concept, Tikkun, or correction. Have you
ever asked yourself why you are here on earth? Why you were born? What is
your purpose? According to Kabbalah, we are all here for one reason and one
reason only-- to transform ourselves by correcting that which we did not correct in
19
a previous lifetime. Now, you can choose to believe that or not, but one benefit of
that philosophy is how we view obstacles that we encounter. The Kabbalists
believe that what the rest of us call obstacles are not obstacles at all. They are
welcome opportunities sent our way to allow us to transform. So if you are a
person who has no patience, you may very well end up living in Los Angeles,
where you will battle traffic on the 405 Freeway everyday. To you that is an
obstacle, to the Kabbalist, that is an opportunity to correct your impatience. The
Hebrew word Tikkun literally translates to correction. Kabbalah teaches that we
all have our unigue tikkuns that we are born with in order to correct. Usually, they
are the patterns of negative or painful behavior that you keep repeating. If you fail
to correct, more "opportunities" will be sent your way, and they will likely increase
in their severity since you failed to correct previously. The greater the
obstacle/opportunity to overcome, the greater the transformation. Keep this is
mind as we proceed from economic crisis to economic crisis. For instance,
throughout history, do economic crises increase in severity? Do they increase in
frequency over time?

What does this concept of Tikkun have to do with regulations? The Kabbalistic
equivalent of regulation is known as restriction. We said earlier that we are all
born with the desire to receive. Another attribute that we are all born with,
according to Kabbalah, is a reactive nature. It is why we are ALL our own worst
enemy. Kabbalah actually teaches that we are our ONLY enemy, but we're not
going to explore that now. When we are reactive, that's not a choice, it comes
naturally to us. The choice is in resisting or restricting. It may be in letting go: of
anger, jealousy, of “being right,” or “acting for the self alone.” It may be resisting
the urge to do nothing, to be complacent, to be a victim or self-indulgent. The ear
needs an eardrum to resist in order to hear. A light bulb has a positive pole, a
negative pole and a filament. The filament acts as a resistor, pushing back the
positive current so it doesn't connect with the negative current and short circuit.
Without the resistance of the filament, there is no light. And without regulations,
the desire to receive meets the desire to act for the self alone and we have an
economic short circuit. We will talk a lot more about regulations throughout this
lecture.