The big news this week was the sudden exposure of a massive $50 billion Ponzi Scheme run it seems singlehandedly by Bernard Madoff a prominent New York Zionist, financier and philanthropist. The exposure is somewhat surreal while the resulting financial waves seem likely to hit, so we are told, many of the leading names in banking together with many of the most wealthy individuals in the US. There is certainly ample reason to believe that there is much more to the story than meets the eye.

In the same week the surreal dominated the news with US Treasuries briefly touching negative interest rates, the US automaker bailout descending into political farce, Marc Dreier the highly successful New York lawyer is caught trying to con hedge funds out of $380 million and Obama's team talk of which nations the US will leave to collapse in 2009. Of course silence echoes through the corridors of power in relation to the Israeli perpetrated holocaust in Palestine.

Gold and oil rebounded last week from the previous week's lows. The dollar fell last week as the reality of the U.S. budgetary situation sinks in. Most world stock indexes rebounded as well, except the Dow which was virtually unchanged. That in itself seems miraculous given some of the news coming out of the United States last week.

East Asia

China and Japan's economies are sinking fast. No surprise there, as they have been excessively dependent on demand from the United States.

In Japan, confidence among manufacturers dropped more than it has in 34 years.

In China, officials admitted plunging demand has created overcapacity, meaning unemployment is rising. Exports fell last month while domestic retail sales grew at the slowest pace for nine months. Similarly, Chinese energy consumption per unit of GDP fell by 3.46% in the first quarter 2008.

China central bank governor, Zhou Xiaochuan said companies and consumers should be encouraged to upgrade technology to boost domestic demand. He also added that financial institutions should provide sufficient funding. Interestingly this has echoes of the work of Herman Daly who said that developed economies should focus their efforts on technical progress rather than economic growth in order to create a steady state economy.

With a refreshing breath of fresh air and candour, the Chinese banking regulator cautioned Chinese banks against foreign acquisitions as "more losses at financial companies around the world remain to be exposed".


French business confidence, like that in Japan, fell to a 21-year low in November.

Ambrose Evans-Pritchard at the UK Daily Telegraph said that Switzerland may have to print money to stave off deflation as it dropped interest rates to nearly zero. The headline was eye catching but the reality is much less dramatic; although printing money and spending it might be a good idea to create genuine economic activity, the Swiss option is to engage in quantitative easing meaning that it will ensure a sufficient supply of money is available to counteract deflationary pressures. This is essentially the policy being pursued by the US, UK and the Eurozone in their bids to "ensure sufficient liquidity".

The woes of the British Pound continued as it dropped to an all time low against the Euro, with bureaux de change in London paying less than parity for sterling cash in Euros, prompting many to wonder if there is a plan afoot to have the UK enter the Eurozone. Continuing differences of opinion between Britain and Germany as to the appropriate structure and targeting of an economic stimulus package became more public this week. British Prime Minister Gordon Brown seeming to become ever more overbearing towards Angela Merkel and the German finance team. We wonder why Brown is so keen to push this agenda in such brazen style. One can only speculate if it is connected to his announcement that he is working on the Second Stage of the UK bank bailout - forgive us Mr Brown but how do you know there will need to be a Second Stage?

In a statement of unrivaled cynicism UK credit card companies were reported to have bowed to pressure from the Prime Minister when they agreed to limit interest rate increases to twice a year. It is that sort of cynicism that exemplifies the attitude of capitalism to its victims. Credit card interest rates are undoubtedly usurious and would have been treated as criminal not so very long ago yet now the companies are considered to be reasonable when they limit increases in their usury.

In one of those ironic pieces of news, the European Engineering company Siemens agreed to pay $800 million to settle U.S. charges that it violated anti-corruption laws by funding $1.36 billion in bribes to government officials worldwide. The irony of course being that the US is waging wars and running the world's biggest weapons dealing operation, torturing and imprisoning thousands, and protecting the genocidal maniacs in Jerusalem and Tel Aviv with impunity yet their economic hegemony remains unchallenged. The Siemens money will no doubt vanish into government coffers never to be seen again.

South America

Interesting news out of Ecuador, where with plunging oil prices cutting into government revenue, President Rafael Correa announced the intention to default on government bonds, fulfilling a promise to spend money on the poor rather than paying interest to global investors. A decade or two ago, this would have brought in the "jackals" so it will be interesting to see if he can get away with it during the present crisis.

United States

New unemployment claims hit a 26-year high last week in the United States as companies laid more than fifty thousand people off in one week. In a reflection of how Goldman Sachs see the economy in the first quarter of 2009, they predicted that oil prices would fall to $30 a barrel as the global recession bites even harder. Also perhaps predictive of future events, Goldman is advising lenders to 11 US states to purchase credit insurance against those states defaulting on their debt.

Hedge Fund woes continued to mount as Citadel halted investor redemption from its two biggest funds and the Bernard Madoff Ponzi Scheme was exposed causing panic as the extent of potential losses to hedge fund and other investors became apparent.

The US Congress rejected proposals to provide bailout funding to the US auto industry causing the dollar to fall to a thirteen year low against the Yen and oil to drop. Bush immediately countered with a proposal to use funds allocated by Congress for bank bailouts for the car-makers.

An unsettling milestone was reached early last week in the United States, with the news Tuesday that the yield on three-month U. S. Treasury bills briefly dipped below zero. That's right, people were willing to pay the Treasury to keep their money, a frightening sign of deflation. In other words, cash, stocks, commodities, nothing, was seen to be worth holding. If people are willing to get negative interest from lending money, they must be expecting the money to be worth more in the future. Another way of putting it is that they think everything will be worth less in the future. Since the time frame for this debt is three months, one wonders what's in store later this winter.

As the New York Times put it,
In these times, it seems, the abnormal has now become acceptable. As America's debt and deficit spiral from a parade of billion dollar bailouts and stimulus packages, fund managers, foreign governments and big retail investors reckon they will get more peace of mind by stashing their cash, rather than putting it toward any of the higher-yielding risk that is entailed in stocks, corporate bonds and consumer debt.

The rapid decline in Treasury yields - which since summer have headed toward lows not seen since the end of the World War II - also renders the Federal Reserve less effective, as investors and banks stuff the money that the central bank is pumping into the financial system into Treasuries, rather than fanning it out across the broader economy.

"The last time this happened was the Great Depression, when people are willing to accept no return on their money, or possibly even a negative return," said Edward Yardeni, an independent analyst. "If people are so busy during the day just protecting the cash they have, it's not a good sign."
That is one sign that people in the know think things are a lot worse then they are letting on. Another may be the blatant and clumsier than usual political and financial corruption in the United States. While political graft and financial con games have always gone on, Trey Ellis sees the haste and lack of subtlety as a sign that those in power know that time is short, and that if they want to make the cut in the coming crisis, they had better get all the wealth they can right now:
It seemed like a funny joke back when folks were saying that in the movies the only time America elects a black president is either pre-apocalyptic (Morgan Freeman in Deep Impact) or post-apocalyptic (Terry Alan Crews in Idiocracy). It's maybe not so funny anymore.

Wherever you look, people whom you'd hope would have some inside knowledge of the American near future, seem to be losing their minds.

Sure, Governor Blago might have always been a hoodlum numbskull but how else to explain super lawyer Marc Dreier suddenly gambling an insanely lucrative legitimate career to try to con hedge funds out of as much as $380 million? And just yesterday seventy-year-old Wall Street legend Bernard L. Madoff stands accused of one of the most egregious white collar crimes in history -- bilking his investors of as much as $50 billion.

Do they know something we don't know? It's as if the risk of getting caught was outweighed by their panicked desire to get as much as they could before it's all gone.

It's as if the architect of the Titanic, minutes after they brushed the iceberg, said, "Don't mind me, I'm just going out for a smoke," when really, knowing what he knew about the ship's chances, stole into a lifeboat and set off alone into the dark cold waters.
What do the Blagojevich scandal and the Madoff scandal have in common? For one thing, both took common practices too far. For that reason, they will both be convenient scapegoats. The U.S. political system has basically legalized bribery; to be indicted for it is therefore something of an accomplishment. Madoff, the former chairman of the NASDAQ exchange, ran a classic Ponzi Scheme which collapsed, as such schemes inevitably will. Yet the global financial system is a glorified Ponzi scheme which is in the process of inevitable collapse. It is still surprising how many top-level banks around the world, including BNP Paribas and HSBC, gave Madoff their money. That alone tells us that they are all running Ponzi schemes. How different are many hedge funds? There is also the smell of psychopathy about their brazenness and stupid lack of caution. But pure psychopathic behavior differs little from standard practice at the apex of the world financial and political pyramids.

To Trey Ellis's point that those at the top seem to know that time is short and fear getting left behind, Marc Ambinder sees economic fear in the pit of the stomach in Obama's team as well:
It's quite unsettling to talk to members of Barack Obama's transition teams these days, especially those who are helping with the economics portfolio. Without going into details, the sense I get from them is that they are very worried that the economy will get a lot worse before it gets better. Not just worse... a lot worse. As in -- double digit unemployment without the wiggle factors. Huge declines in aggregate demand. Significant, persistent deficits. That's one reason why the Obama administration seems to be open to listening to every economist with an idea and is stocking the staff with the leading lights of the field. In one sense, the general level of concern among Obama advisers and transition staffers is reassuring; they get the magnitude of the problems, and they're not going to assume that, just because the bottom has never dropped out before -- certainly not in the lifetimes of most people doing policy these days, the bottom will never drop out.

Where the discussion isn't going, at least in public, (or the PR level), is the possibility that the first foreign policy crisis the administration will face will be the complete economic collapse of a large, unstable nation.
Like maybe the United States?
To be sure, Pakistan is nearly broke, and U.S. policy makers seem to be aware of that; but a worldwide demand crisis could lead to social unrest in countries like Indonesia and Malaysia, Singapore, the Ukraine, Japan, Turkey or Egypt (which is facing an internal political crisis of epic proportions already). The U.S. won't have the resources to, say, engineer the rescue of the peso again, or intervene in Asia as in 1997.
This is an interesting point when one considers that the Asian economies under the aegis of APEC recently established a $80 billion fund to be available to protect their currencies should the need arise. It would seem the Asia central bankers are aware of situation and have made contingencies.
The public rhetoric from Team Obama seems to treat history as having ended in early October, which is understandable; the priority right now is on the liquidity crisis, the structure of government and the peopling of the administration and the domestic economy. Most of the administration's major policy voices don't have the luxury of time to game out scenarios. Now -- it can fairly be said that Treasury nominee Tim Geithner, himself an assistant secretary for international economic affairs during the Clinton administration, is aware of the precarious state demand in certain critical countries, as is Larry Summers. The question: what's the administration's policy in this area? Which countries can we afford to let fail? Which unstable states would concern us the most? Is there something the U.S. can do, in advance, should do, in advance, to forestall the collapse of other economies?
How nice that they are deciding what countries "we" can "allow to fail." Or that the United States can prevent any other country from economic collapse when it can't prevent its own collapse. The level of hubris is almost beyond comprehension.

Because things are so precarious, those in charge don't want us to know the full extent of the problem, but are having a hard time concealing their fear. Last week, for example, the U.S. Federal Reserve Board continued to refuse to reveal who they lent $2 trillion to or what they got as collateral. Mark Oitmas at Bloomberg:-
The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.

Bloomberg filed suit Nov. 7 under the U.S. Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression.

The Fed responded Dec. 8, saying it's allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests.

"If they told us what they held, we would know the potential losses that the government may take and that's what they don't want us to know," said Carlos Mendez, a senior managing director at New York-based ICP Capital LLC, which oversees $22 billion in assets.

The Fed stepped into a rescue role that was the original purpose of the Treasury's $700 billion Troubled Asset Relief Program. The central bank loans don't have the oversight safeguards that Congress imposed upon the TARP.

Total Fed lending exceeded $2 trillion for the first time Nov. 6. It rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA.

'Been Bamboozled'

Congress is demanding more transparency from the Fed and Treasury on bailout, most recently during Dec. 10 hearings by the House Financial Services committee when Representative David Scott, a Georgia Democrat, said Americans had "been bamboozled."

Bloomberg News, a unit of New York-based Bloomberg LP, on May 21 asked the Fed to provide data on collateral posted from April 4 to May 20. The central bank said on June 19 that it needed until July 3 to search documents and determine whether it would make them public. Bloomberg didn't receive a formal response that would let it file an appeal within the legal time limit.

On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.

In response to Bloomberg's request, the Fed said the U.S. is facing "an unprecedented crisis" in which "loss in confidence in and between financial institutions can occur with lightning speed and devastating effects..."

'Dangerous Step'

"In its considered judgment and in view of current circumstances, it would be a dangerous step to release this otherwise confidential information," she wrote.

New York-based Citigroup Inc., which is shrinking its global workforce of 35,200 through asset sales and job cuts, is among the nine biggest banks receiving $125 billion in capital from the TARP since it was signed into law Oct. 3. More than 170 regional lenders are seeking an additional $74 billion.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system.

The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn't seek money damages.

'Right to Know'

"There has to be something they can tell the public because we have a right to know what they are doing," said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press.

"It would really be a shame if we have to find this out 10 years from now after some really nasty class-action suit and our financial system has completely collapsed," she said.

The Fed lent cash and government bonds to banks that handed over collateral including stocks and subprime and structured securities such as collateralized debt obligations, according to the Fed Web site.

Borrowers include the now-bankrupt Lehman Brothers Holdings Inc., Citigroup and New York-based JPMorgan Chase & Co., the country's biggest bank by assets...

'Complete Truth'

"Americans don't want to get blindsided anymore," Mendez said in an interview. "They don't want it sugarcoated or whitewashed. They want the complete truth. The truth is we can't take all the pain right now..."

The markets this week

Previous week's close This week's close Change % change
Gold ($) 757.10 820.50 63.40 8.37%
Gold (€) 594.64 613.60 18.95 3.19%
Oil ($) 41.76 46.28 4.52 10.82%
Oil (€) 32.80 34.61 1.81 5.52%
Gold:Oil 18.13 17.73 0.40 2.21%
$ / € 0.7855 / 1.2732 0.7478 / 1.3372 0.0377 / 0.0640 4.80% / 5.03%
$ / ₤ 0.6779 / 1.4751 0.6693 / 1.4941 0.0086 / 0.0190 1.27% / 1.28%
$ / ¥ 92.870 / 0.0108 91.125 / 0.0110 1.745 / 0.0002 1.88% / 1.85%
DOW 8,635 8,630 6 0.07%
FTSE 4,049 4,280 231 5.70%
DAX 4,381 4,663 282 6.43%
NIKKEI 7,918 8,236 318 4.02%
BOVESPA 35,347 39,374 4,026 11.39%
HANG SENG 13,846 14,758 912 6.59%
US Fed Funds 0.06% 0.12% 0.06 100%
$ 3month 0.01% 0.01% 0.00 0.00%
$ 10 year 2.71% 2.58% 0.13 4.80%

Bernard Madoff and his Ponzi Scheme

The story of the week, and no doubt for months to come, is the exposure of Bernard Lawrence Madoff and his $50 billion 'Ponzi' scheme. Just how one goes about losing $50 billion is intriguing, we've been looking for ways to make that sort of money for a long time, it looks as if Bernie Madoff had found the answer - get people to give it to you then "lose" it.

The scheme was incredibly simple; Madoff owned and ran a legitimate New York securities brokerage, he made a name for himself pioneering electronic trading and became a pillar of the financial community, he was a political donor, advisor to the Securities and Exchange Commission and noted philanthropist. This gave him his front from which he established and ran what amounted to an unincorporated hedge fund. He attracted investors because he presented an aura of success, of wealth, of confidence and of being an insider; all the classic attributes that draw people like moths to a flame.

These are in fact that same attributes that make the entire investment market work. In admitting that his investment advisory business was a Ponzi Scheme Bernie Madoff was at least more honest that anybody else on Wall Street today. The entire market is a Ponzi Scheme.

Bernie Madoff founded Bernard L. Madoff Investment Securities LLC in 1960. He pioneered electronic trading growing his firm to be one of the principle developers of the NASDAQ (National Association of Securities Dealers Automated Quotations) exchange where he served as chairman of the Board of Directors and on its Board of Governors

Bernard L. Madoff Investment Securities LLC website presents the company as "a leading international market maker" with an "uninterrupted record of growth" and capital of $700 million ranking it in the" top 1% of US Securities firms". The key is said to be the firm's "sophisticated proprietary automation and unparalleled client service delivers an enhanced execution that is virtually unmatched in our industry" enabling deal execution in seconds at fine pricing. The firms big selling point is its "highly automated clearing and settlement systems" which interface with all the major custodian, clearing and settlement systems. The firm stresses that, "Madoff Securities' computerized transaction processing means that the firm can customize client reports and deliver them electronically in whatever format best meets the needs of clients."

This is where things get interesting as all these computational resources seem to have been dedicated solely to the brokerage and remained entirely separate from the investment advisory operation. The investment advisory operation was essentially a hedge fund but reports vary as to whether there were in fact properly constituted hedge funds or a series of individual client accounts purportedly inside Bernard L. Madoff Investment Securities LLC. However, while on adjacent floors, the offices of the brokerage and the offices of investment advisory were not physically connected. The impression given in news reports is that investment advisory had a very small staff which did not know or mix with the brokerage staff.

Madoff was clearly a very shrewd operator. He generated consistent returns of around 12 percent per annum, highly attractive but not so crazy as to attract attention, and he had a reputation for paying out whenever investors sought to redeem. It is reported that a number of major investors as well as regulators audited his firm and found nothing amiss. In a classic move of the con-man, Madoff was notoriously hard to see in recent years, only accepting business via other funds with a close existing relationship. He is also reputed to have turned many people down who wished to invest through him. These are all techniques of charlatans since time immemorial.

There were warnings for those with eyes to see. Despite being a pioneer of electronic trading, Madoff refused to provide clients online access to their accounts.

"This was extremely secretive, even for the non-transparent world of hedge funds," said Jake Walthour Jr., head of advisory services for Aksia, a New York consulting firm that advised clients not to invest in Madoff's funds. "It was all done almost in fortress fashion to prevent anyone from knowing what was going on."

The Bramdean hedge fun of Nicola Horlick, the UK 'superwoman' financier whose reputed lack of charm but shrewd money sense is often commented upon, invested through a third party fund having never even met Madoff.

Much of the talk in New York focuses on the losses of numerous Jewish charities. What is not yet clear is whether these charities actually invested with Madoff or whether the investments were in fact donations from Madoff to the charities concerned. The latter seems to be the case; this would have enabled Madoff to seem like a generous benefactor when in reality he was donating non-existent securities, the only requirement being that he have enough cash to pay out the annual income attributed to the imaginary securities, thereby maintaining the illusion.

A substantial list of investors who are said to have "lost everything" is available. This seems remarkable because the nature of these investments and the client lists of managers like Bernie Madoff are extremely confidential. The presence of so many wealthy and particularly Jewish names makes us highly suspicious for it ties in just too conveniently with the Obama phenomena.

In his seminal work on psychopaths and the pathology that they create in political systems, Political Ponerology, Andzrej Lobaczewski describes a stage in the progression of pathology of a psychopathic nation state - which the US most certainly is - the "dissimulative phase".
Maintaining the utmost dignity and style, leadership discusses opinions and intentions which are psychologically and morally pathological. Any intellectual connections which might reveal them as such are eliminated, thanks to the substitution of premises operating in the proper subconscious process on the basis of prior conditioned reflexes. The association enters the state wherein the whole has donned the mask of ostensible normality....we shall call such a state the "dissimulative phase" with regard to macro-social ponerogenic phenomena. [...]

Pathocrats' achievement of absolute domination in the government of a country would not be permanent since large sectors of the society would become disaffected by such rule and find some way of toppling it. Pathocracy at the summit of governmental organization also does not constitute the entire picture of the "mature phenomenon". Such a system of government has nowhere to go but down. Any leadership position, (down to village headman and community cooperative managers, not to mention the directors of police units, and special-services police personnel, and activists in the pathocratic party) must be filled by [pathological] individuals ... However, such people become more valuable because they constitute a very small percentage of the population. Their intellectual level or professional skills cannot be taken into account, since people representing superior abilities [and who also fit the requirement of being pathological] are even harder to find. After such a system has lasted several years, one hundred percent of all the cases of essential psychopathy are involved in pathocratic activity; they are considered the most loyal, even though some of them were formerly involved on the other side in some way.

Under such conditions, no area of social life can develop normally, whether in economics, culture, science, technology, administration, etc. Pathocracy progressively paralyzes everything. [...]

Those people who initially found the original ideology attractive eventually come to the realization that they are in fact dealing with something else. The disillusionment experienced by such former ideological adherents is bitter in the extreme. The pathological minority's attempts to retain power will thus always be threatened by the society of normal people, whose criticism keeps growing.

On the other hand, any and all methods of terror and exterminatory policies must therefore be used against individuals known for their patriotic feelings and military training; other, specific "indoctrination" activities ... are also utilized. [Pathological] individuals ... become irreplaceable in either of these activities. The[se include] cases of essential psychopathy, followed by those with similar anomalies, and finally by people alienated from the society in question as a result of racial or national differences.

The phenomenon of pathocracy matures during this period: an extensive and active indoctrination system is built, with a suitably refurbished ideology constituting the vehicle or Trojan horse for the process of pathologizing the thought of individuals and society. The goal is never openly admitted: forcing human minds to incorporate pathological experiential methods and thought-patterns, and consequently accepting such rule. This goal is conditioned by pathological egotism, and thus strikes them as feasible, not just indispensable. Thousands of activists must therefore participate in this work. However, time and experience confirm what a psychologist may have long foreseen. The entire effort produces results so very limited that it is reminiscent of the labors of Sisyphus. It helps bring both a general stifling of intellectual development and deep-rooted protest against affront-mongering "hypocrisy". The authors and executors of this program are incapable of understanding that the decisive factor making their work difficult is the nature of normal human beings.

The entire system of force, terror, and forced indoctrination, or, rather, pathologization, thus proves effectively unfeasible, which causes the pathocrats no small measure of surprise. Reality places a question mark behind their conviction that such methods can change people until they eventually recognize this kind of government as a normal state.

During the initial shock, the feeling of social links are fading; after that has been survived, however, the overwhelming majority of people manifests its own phenomenon of psychological immunization. Society simultaneously starts collecting practical knowledge on the subject of this new reality and its psychological properties. Normal people slowly learn to perceive the weak spots of such a system and utilize the possibilities of more expedient arrangement of their lives. They begin to give each other advice in these matters, thus slowly regenerating the feelings of social links and reciprocal trust. A new phenomenon occurs: separation between the pathocrats and the society of normal people. The latter have an advantage in talent, professional skills, and healthy common sense. They therefore hold certain cards. The pathocracy finally realizes that it must find some modus vivendi or relations with the majority of society: "After all, somebody's got to do the work for us."

There are other needs and pressures, especially from outside. The pathological face must be hidden from the world somehow, since recognition by world opinion would be a catastrophe. Ideological propaganda alone could then prove an inadequate disguise. Primarily in the interests of the new elite and its expansionary plans, a pathocratic state must maintain commercial relations with the countries of normal man. Such a state aims to achieve international recognition as a certain kind of political structure; and it fears recognition in terms of clinical diagnosis.

All this makes pathocrats tend to limit their measures of terror, subjecting propaganda and indoctrination methods to certain cosmetology, and to accord the society they control some margin of autonomous activity, especially regarding cultural life. The more liberal pathocrats would not be averse to giving such a society a certain minimum of economic prosperity in order to reduce the irritation level, but their own corruption and inability to administer the economy prevents them from doing so.

This great societal disease runs its course through a new phase: methods of activity become milder, and there is coexistence with countries whose structure is that of normal man. Anyone studying this phenomenon, who must be a psychopathologist, is reminded rather of the dissimulative state or phase of a patient attempting to play the role of a normal person, hiding the pathological reality although he continues to be sick or abnormal. Let as therefore use the term "the dissimulative phase of pathocracy" for the state of affairs wherein a pathocratic system ever more skillfully plays the role of a normal sociopolitical system with different doctrinal institutions. In this state, people become resistant and adapt themselves to the situation within a country affected by this phenomenon; outside, however, this phase is marked by outstanding ponerogenic activity. The pathological material of this system rather easily infiltrates into other societies, particularly if they are more primitive, and all the avenues of pathocratic expansion are facilitated because of the decrease of commonsensical criticism on the part of the nations constituting the territory of expansionism. [...]

Meanwhile, in the pathocratic country, the active structure of government rests in the hands of psychopathic individuals, and essential psychopathy plays a starring role. Especially during the dissimulative phase, however, individuals with obvious pathological traits must be removed from certain areas of activity: namely, political posts with international exposure, where such personalities could help betray the pathological contents of the phenomenon. They would also have some limited means of exercising diplomatic functions or becoming familiar with the political situation characterizing the countries of normal man. The persons selected for such positions thus have thought-processes more similar to the world of normal people; in general, they are sufficiently connected to the pathological system to provide a guarantee of loyalty. An expert in various psychological anomalies can nevertheless discern the discreet deviations upon which such links are based. [...]

Similar needs apply to other areas as well. The building director for a new factory is often someone barely connected with the pathocratic system but whose skills are essential. Once the plant is operational further administration is taken over by pathocrats, which often leads to technical ruin. The army similarly needs people endowed with perspicacity and essential qualifications, especially in the area of modern weapons. At crucial moments, healthy common sense can override the results of pathocratic drill.[...]

The following questions thus suggest themselves: what happens if the network of ... psychopaths achieves power in leadership positions with international exposure? This can happen, especially during the later phases of the phenomenon. Goaded by their character, such people thirst for just that even though it would conflict with their own life interest, but they are removed by the less pathological, more logical wing of the ruling apparatus. They do not understand that a catastrophe would otherwise ensue. Germs are not aware that they will be burned alive or buried deep in the ground along with the human body whose death they are causing.

If such and many managerial positions are assumed by individuals deprived of sufficient abilities to feel and understand most other people, and who also betray deficiencies in technical imagination and practical skills - (faculties indispensable for governing economic and political matters) this must result in an exceptionally serious crisis in all areas, both within the country in question and with regard to international relations. Within, the situation shall become unbearable even for those citizens who were able to feather their nest into a relatively comfortable modus vivendi. Outside, other societies start to feel the pathological quality of the phenomenon quite distinctly. Such a state of affairs cannot last long. One must then be prepared for ever more rapid changes, and also behave with great circumspection. [...]

The actions of this phenomenon affect an entire society, starting with the leaders and infiltrating every village, small town, factory, or ... farm. The pathological social structure gradually covers the entire country, creating a "new class" within that nation. This privileged class feels permanently threatened by the "others", i.e. by the majority of normal people. Neither do the pathocrats entertain any illusions about their personal fate should there be a return to [true socially beneficial and/or democratic systems.]

A normal person deprived of privilege or high positions goes about performing some work which would earn him a living; but pathocrats never possessed any solid practical talent, and the time frame of their rule has eliminated any residual possibilities of adapting to the demands of normal work. If the laws of normal man were to be reinstalled, they and theirs could be subjected to judgment, including a moralizing interpretation of their psychological deviations; they would be threatened by a loss of freedom and life, not merely a loss of position and privilege. Since they are incapable of this kind of sacrifice, the survival of a system which is the best for them becomes a moral idea. Such a threat must be battled by means of psychological and political cunning and a lack of scruples with regard to those other "inferior-quality" people. [...]

Pathocracy survives thanks to the feeling of being threatened by the society of normal people, as well as by other countries wherein various forms of the system of normal man persist. For the rulers, staying on the top is therefore the classic problem of "to be or not to be".

We can thus formulate a more cautious question: can such a system ever waive territorial and political expansion abroad and settle for its present possessions?

What would happen if such a state of affairs ensured internal peace, corresponding order, and relative prosperity within the nation?

The overwhelming majority of the country's population would then make skillful use of all the emerging possibilities, taking advantage of their superior qualifications in order to fight for an ever-increasing scope of activities; ... The pathocracy's dominance will weaken imperceptibly but steadily, finally leading to a situation wherein the society of normal people reaches for power. This is a nightmare vision.

The biological, psychological, moral, and economic destruction of this majority is thus a "biological" necessity. Many means serve this end, starting with concentration camps and including warfare with an obstinate, well-armed foe who will devastate and debilitate the human power thrown at him, namely the very power jeopardizing pathocrats rule. Once safely dead, the soldiers will then be decreed heroes to be revered in paeans, useful for raising a new generation faithful to the pathocracy.

Any war waged by a pathocratic nation has two fronts, the internal and the external. The internal front is more important for the leaders and the governing elite, and the internal threat is the deciding factor where unleashing war is concerned.[...]

Pathocracy has other internal reasons for pursuing expansionism through the use of all means possible. As long as that "other" world governed by the systems of normal man exists, it inducts into and within the strivings of the non-pathological majority, thereby creating a certain sense of direction. The non-pathological majority of the country's population will never stop dreaming of the reinstallment of the normal man's system in any possible form. This majority will never stop watching other countries, waiting for the opportune moment; its attention and power must therefore be distracted from this purpose, and the masses must be educated and channeled in the direction of imperialist strivings. This goal must be pursued doggedly so that everyone knows what is being fought for and in whose name harsh discipline and poverty must be endured. The latter factor effectively limits the possibility of "subversive" activities on the part of the society of normal people.

The ideology must of course furnish a corresponding justification for this alleged right to conquer the world and must therefore be properly elaborated. Expansionism is derived from the very nature of pathocracy, not from ideology, but this fact must be masked by ideology. Whenever this phenomenon has been witnessed in history, imperialism was always its most demonstrative quality.
Economic factors constitute a non-negligible part of the motivation for this expansionist tendency. Since the managerial functions have been taken over by individuals with mediocre intelligence and pathological character traits, the pathocracy becomes incapable of properly administering anything at all. The area suffering most severely must always be whichever one requires a person to act independently, not wasting time searching for the proper way to behave. Agriculture is dependent upon changing climate conditions and the appearance of pests and plant diseases. A farmer's personal qualities have thus been an essential factor of success in this area, as it was for many centuries. Pathocracy therefore invariably brings about food shortages.

However, many countries with normal man's systems abound in sufficiency as far as industrial products are concerned and experience problems with their food surpluses even though there are temporary economic recessions and the citizens are by no means overworked. The temptation to dominate such a country and its prosperity, that perennial imperialist motive, thus becomes even more strong. The collected prosperity of the conquered nation can be exploited for a time, the citizens forced to work harder for paltry remuneration. For the moment, no thought is given to the fact that introducing a pathocratic system within such a country will eventually cause similar unproductive conditions; after all corresponding self-knowledge in this area is nonexistent. Unfortunately, the idea of conquering rich countries also motivates the minds of many poor non-pathological fellows who would like to use this opportunity to grab something for themselves and eat their fill of good food.

As has been the case for centuries, military power is of course the primary means for achieving these ends. [...]

Law has become the measure of right within the countries of normal human systems. We often forget how imperfect a creation of human minds it really is,... the law furnishes insufficient support for counteracting a phenomenon whose character lies outside of the possibilities of the legislators' imagination. Quite the contrary: pathocracy knows how to take advantage of the weaknesses of such a legalistic manner of thinking.

However, this macro-social phenomenon's internal actions and external expansion are based upon psychological data. As such, regardless of how these data are deformed within the pathocrats' personalities, its cunning is vastly superior to normal people's legal systems. This makes pathocracy the social system of the future, albeit in the shape of a caricature. After all, the future belongs to social systems which are based on an improved comprehension of man; evolution in this direction can, among other things, ensure greater resistance to the expansionary methods this macrosocial phenomenon uses in its quest to dominate the world.
The US would certainly seem to fit the bill. After a period of demonstrably psychopathic behaviour during the Bush presidency we are being treated to the illusion that everything has returned to normal with the election of Obama. It seems that the sudden exposure of Bernard Madoff's Ponzi scheme is part of this illusion; a strategic ploy seeking to convince us that many of the obvious beneficiaries of the insanity of the last 30 years of capitalism are also victims of the financial crisis.

Bernard Madoff is supposed to have pulled off years of financial fraud almost singlehandedly when in reality it would have taken a substantial staff. In the absence of finding his support staff there will be ample reason for speculation as to just who Bernie Madoff worked for and where the money went. Already it is being suggested that he was a Mossad front and that the Obama team are taking real action against the Israel lobby.

We are inclined to speculate slightly differently. It is quite possible and indeed likely that as a wealthy and influential New York Zionist Bernard Madoff has connections with Mossad. It follows that Mossad may have benefited from his Ponzi scheme and may even have provided the resources for him to carry it out for so long. If these speculations are in fact correct then the exposure of Bernard Madoff is part of the same operation; it is, in intelligence parlance, a "limited hang out", designed to deceive.

Such a scenario fits with the "dissimulative phase" of a pathocratic country. There is little doubt that the team Obama is surrounding himself with is as psychopathic as the Bush team and has the same domestic and global agenda. They are seeking to present a normal face to the people of the US while the evidence that they are continuing with the same foreign policy is overwhelming. If Obama and his team had one single ounce of "change" about them, Israel would find itself isolated and pilloried for the holocaust it is perpetrating in Gaza. That it is not points towards the Madoff affair as being far more than it seems and that Israel remains firmly in control in the US.