One of the many financial talking heads suggested this morning that, despite the three days of rally on Wall Street, he remained gloomy. The reason? Because banks, he said, were no longer lending to anyone but those with excellent credit, which has stalled consumer spending. No doubt the irony of what he was suggesting never occurred to him- that it was credit over extension that has brought our banking system to the edge of disaster. What he and others are basically saying is that our entire economy has become dependent upon people borrowing money and spending what they do not have or have not yet earned. It’s really just that simple, and the more you think about it the more disastrous you realize it is. What it really means is that the culture is expecting you, the consumer, to not only live beyond your means, but to subsidize the banking industry. What we are being told is that if we were all to stop borrowing from banks to purchase things and did what our grandparents told us- to save up our paper route money and then buy our new bike- then our economy would collapse. The sad reality is that this is no doubt true for the simple reason that the major banks in our country have done exactly what Bernie Madoff did- they have run a giant Ponzi Scheme. All of our taxpayer “bailout” dollars are doing now is keeping it afloat.

A Ponzi Scheme, by definition, is something that starts out with a reasonable premise that attracts investors which turns out not to be viable. Rather than conceding failure, however, those who run the enterprise keep it afloat by paying existing ones handsome dividends from what they get from the new investors. These satisfied customers then help recruit new ones, and the operators get very aggressive about recruiting new investors and simply keep paying existing dividends with the money new people put it. The scheme goes on until either someone finds out or the pool of new investors dries up. In many cases, as it appears in the Madoff case, the perpetrators convince themselves too and think they only have to get through a short bridge before the idea pans out and everyone gets back on track and then one day they realize they are too far extended to ever get back to viability and they just ride it out to the end. This is exactly what the banks have done.

When you hear the term “toxic asset” all that means is a bad loan. Banks have always made bad loans and have had to foreclose on houses, take creditors to collections, etc, and they simply right off the loss. The reason these are “toxic” however is literally because the bank doesn’t have to money to cover it’s loans. Like the unwitting consumers they prey upon, the banks worked with money they didn’t have, and like Bernie Madoff, the jig is up. The problem for us, however, is not just that there will be some losers, as in the Madoff case, but rather that this practice is so widespread and involves so many institutions, that pulling the plug would mean not just literally having to reinvent how our economy functions and how its institutions function, but who they are. It would be like playing Monopoly and just tilting the board to one side and letting all the pieces slide off and then starting over.

So what this all means in layman’s terms is simply that a bunch of folks in the financial industry figured out how to abuse the unregulated system, how to make money for themselves by writing and selling bad loans, and the only way to save our system if for all of us to go out and buy consumer goods on credit, thus subsidizing the banking industry with our interest payments until they can pave over their mindboggling scam.

In the now immortal words of Jon Stewart, “FUCK YOU!”

If you have never witnessed it yourself, it is a particularly unnerving thing to see rioters coming up the street at you. Predictability is a major part of being civilized, knowing the boundries of behavior, and with rioters there are none. You don’t know if they might simply walk by or yell or smash or turn murderous. This lack of predictability is why those in authority so fear riots- the question of how bad or widespread they might become is unknowable. It is also, needless to say, why they can be so effective and this was certainly the case in Oakland this week. The riots had purpose and, sadly for all of us, they had value.

No one cares about peaceful protests and demonstrations. Cops and politicians just look at their watches and yawn. Protests don’t mean anything and they don’t translate into votes. In fact, as the election of Richard Nixon and re-election of George W. Bush suggest, they have the opposite effect for those who stage them. Few did more to hurt the anti-Iraq war effort than the pink ladies of Berkeley who not only made fools of themselves but of anyone else who wanted to protest that war. Many voices were quieted for fear of being associated with them and their self aggrandizing, lunatic ilk. And, of course, the war went on.

But we can say without much doubt that the Oakland and BART police forces were put on serious notice about the use of force for the very simple reason that they don’t want to trigger a more serious riot- and the strength of that notice is in direct proportion to how serious the first riots were. While it would be nice if it weren’t true, that’s how it works in the real world. Sometimes violence is very effective, and the fact that every law enforcement person in the Bay Area will be thinking long and hard before reaching for their gun is a testimony to that. We don’t know why Johannes Mehserle, the BART cop who murdered Oscar Grant in cold blood, did what he did, but we do know that the courts will take it very seriously. He will not get a slap on the wrist and a good deal of the reason for this is because all involved know that all eyes, both local and national, will be on them. Because of the riots, they will know that they are sitting on a tinderbox over this, and rightly so.

As some have pointed out, there is violence in Oakland every day like the tragic story of the kid shot by a stray bullet while sitting the piano and these acts go almost unnoticed by all but the grieving families. But that is a very, very different thing than a member of law enforcement killing an unarmed civilian- especially one who was clearly complying with the officers’ requests. They are simply not comparable in any way. The larger point is that every young black man in the Bay Area sees himself in the form of Oscar Grant, being handcuffed and held prone before being shot and killed. The riots were how we were all put on notice- law enforcement in particular- that this will not be taken, literally, lying down. And rightly so.

Just as our courts and our laws promote the idea that actions have consequences, so to do riots. The rioters made a point, and again sadly for all of us, it was a point that needed making.

This morning’s news was filled with graphic video images of people being rescued as thousands of gallons of water rushed around their stranded cars. The culprit was a fifty year-old water main that had finally given way- something that should long ago have been replaced. The same is true of the Interstate 35W bridge in Minneapolis, which collapsed into the Mississippi River last summer killing 13 people. At the time of the collapse, crews had brought tons of equipment and material onto the deck for a long overdue repair job that added pressure to the failing bridge. Neglect, neglect by the government who bears the responsibility for our national infrastructure, is culprit in both instances.

Now consider the fiasco that is our national economy, from our manufacturing base to Wall Street. The one constant in all of our failing and failed sectors of the economy is the lack of national leadership to prevent captains of industry and finance from running amok and destroying the very marketplaces they need for survival. With no meaningful emission or environmental standards, the auto industry ignored investing and developing long-term innovations and went after short-term profits with the big vehicles guaranteed to keep us under the yoke of foreign oil producers. The financiers on Wall Street, in banks and all manner of hybrid institutions invented to hide transactions likewise chased quick dollars for themselves, and lied and cheated each other to the edge of oblivion. As Americans, we marketed (lied) each other into a netherworld of “must have” consumer products of dubious use and value from ever more dextrous phones and cameras and music players to laser hair removal to the aforementioned monster trucks and SUV’s. Those who could not afford to keep up were able to tap into unregulated credit markets and went deeper and deeper into debt, and that downward spiraling of debt was extended into the housing market where mortgage brokers happily pocketed a commission to saddle folks with loans that were fast tracked to foreclosure. Again, neglect is the culprit here.

Now, turn to the enormous challenge we now face in Afghanistan in particular and the Middle East in general. After meddling in the Soviet/Afghan war and blithely arming thousands of people from all over the Islamic world via Pakistan to repel the Soviets, we just walked away and left the region in chaos. Out of our mess grew the Taliban, al Queda and all manner of fellow travelers who have now grown into an interconnected web of hostility we have only begun to deal with. All of the above challenges are the fruits of the ideas and convictions and the powerful influence of Ronald Wilson Reagan and it is his legacy that we, as a nation, must now confront for the treacherous poison that it was if we are ever to emerge from this mess. This doesn’t mean the end of free markets, a return to the 1970’s or an invitation to European styled socialism, but it does mean accepting that libertarians are higher than hippies and there needs to be an adult in the room and that government is the only entity that can perform that function.

“Government is not the solution to the problem, government is the problem,” Reagan so famously uttered in his first inaugural speech, and we needn’t have ever looked any further for testimony to the sheer stupidity he brought to every aspect of his presidency. Government is a tool, a mechanism that carries out the designs of political leaders. It’s like saying “the wrench is not the solution, the wrench is the problem.” Reaganism can be accurately described not as any sort of reform but as simply throwing as many perfectly good wrenches out the window as possible. Famously incurious, Reagan lacked the intellectual ability to think out the long term consequences of his stupid ideas, but now we all get to see, taste and smell them ourselves. Capitalism and relatively free markets are one thing, but for almost thirty years, there has been no one minding the store while those that could stuffed their pockets and those that couldn’t slid further and further behind. Now, suddenly, people are looking around the empty shelves and unpaid receipts and credit debt and wonder “what happened here?” Reagan happened, is the answer, and we all just merrily went along with him because the village idiot was cute and funny and sang a nice song. Now we, and our children, are very likely to pay for it in a big way unless Barack Obama really can channel Abraham Lincoln and shepherd American society to “think anew.”