Pre-Occupied with Wall Street: A Systems Thinking Perspective

The Occupy Wall Street movement has grown exponentially over the past week. What began as a movement targeting Wall Street has turned into something larger than just economic circumstances, but encompassing social and environmental concerns.

Let’s take a systems thinking look at just blaming Wall Street, and why Wall Street is only a symptom of the underlying problem.  Furthermore, how do return to a sustainable, robust, economy? The underlying problem is the collusion (whether intended or not) of Wall Street, the Federal Government and the Federal Reserve.  What we see with our eyes is just the greedy Wall Street corporations making a quick buck, benefiting first from artificially low interest rates from Federal Reserve before the crash, and government bailouts after the crash.  Their benefit is to our detriment, as the rest of America is struggling with foreclosures and joblessness.  What we don’t see is the entire system being skewed by the government in favor of these very corporations.

Bill McKibben, co-founder of, said it best in an email to supporters, “For too long, Wall Street has been occupying the offices of our government, and the cloakrooms of our legislatures.  They’ve been a constant presence, rewarded not with pepper spray in the face but with yet more loopholes and tax breaks and subsidies and contracts.”  It goes further into just plain collusion.What are some of these collusive acts?  For one, ratings agencies like Moody’s and Standard and Poor’s are licensed by the Federal Government.  These are the very agencies that gave high ratings to mortgage backed securities which eventually became worthless.  Wall Street made a profit, we suffered a loss via our 401k or retirement funds, because of this systemic scheme.

Fannie Mae and Freddie Mac are other examples of government-corporation collusion, this in front of our very eyes.  These so-called Government Sponsored Enterprises, are the very entities that backed adjustable rate sub-prime loans.  Homeowners were not able to keep up with such loans, thus ending in foreclosure.

But if we trace the Wall Street debacle back far enough, it leads back to the Federal Reserve System.  The Fed is known as quasi-public, quasi-private (can we say government-corporate collusion) institution.  It was the institution that artificially lowered interest rates that allowed for the housing bubble to grow.  Imagine if money wasn’t easily loanable, maybe we would have never seen the severe domino effect of subprime mortgages, ratings agencies, mortgage-backed securities, to the stock market collapse.

So how do we solve this problem of government-corporate collusion and move towards a sustainable economy?  Some suggest we need more regulations on Wall Street.  However, if the collusion is as tight as it has been, I think more regulations would only be to the benefit of Wall Street.  If we use systems thinking, we ultimately see that the corporations “own” the government, and the government “regulates” the corporations.  My question to you is, how do we get out of this circular flow?

Image Credit: Wikipedia

Jonathan Mariano is an MBA candidate with the Presidio Graduate School in San Francisco, CA. His interests include the convergence between lean & green and pursuing free-market based sustainable solutions.

35 responses

  1. Was it the root cause of the housing bubble? No. Was F & F a contributing factor? Yes.

    The root cause was the easy money from the Fed, which allowed F & F and other lenders to give out no doc and subprime loans.

    1. Read the links I provided, instead of reciting political talking points.

      You said, “Was F & F a contributing factor? Yes.” [citation needed]

      Citations are inexpensive on the internet.

      1. Cite as Requested:
        Woods, T. E. (2009). Meltdown: A free-market look at why the stock market collapsed, the economy tanked, and government bailouts will make things worse. Washington, DC: Regnery Pub.

        Book Review:

        I did read the link you provided, and responded with accordingly. This is where systems thinking comes in. On it’s own, Freddie and Fannie did not cause the whole meltdown. More-so, F&F as components of the system, did contribute to the meltdown.

        1. A book review isn’t a citation.

          I wonder about the Presidio’s standards and library if a graduate student thinks that it is.

          An austrian economist circle jerk isn’t relevant to any policy discussion on this planet.

          Feel free to go look up confirmation bias while you are at it. Yours is showing.

        2. The citation comes from the book itself, not the review. The review was provided to at least give you an idea what was contained in the book. IIRC, it’s from Chapter 2. I can get a more precise page number in time, but my book is loaned out to a friend.

          Furthermore, it’s strange that a reader of this site would not welcome the words of an Austrian Economist, not necessarily agree with it. From my understanding, sustainability is about stakeholder engagement. The people you find least relavant are probably the people that need the most engaging.

          As a side note, in regards to the link you posted. If you think that the CRA Thought Experiment is a valid methodological approach, you may find yourself at home with the Austrians perhaps with a bit more rigor. I encourage you to investigate the Austrian method further.

          Anyhow, rather than try to prove this specific point, that F&F contributed to the meltdown, how about we attempt to come to consensus. It is obvious you disagree with that one point. But how about the overall message of my piece? If we use systems thinking, we ultimately see that the corporations “own” the government, and the government “regulates” the corporations. My question to you is, how do we get out of this circular flow?

  2. What would America’s founding fathers think of multinational corporations and financial institutions? How does the ability of corporations and financial institutions to influence our government officials and impact our economy compare to the power of a king on the other side of the Atlantic ocean? How responsive are multinational corporations and financial institutions to the will of the American people? How do the rights and powers of corporations and financial institutions today compare to the rights and powers of corporations at the founding of the nation? There is no doubt that Jefferson, Franklin, Adams, Madison, et al. would be shocked at the amount of power multinational corporations and financial institutions exercise over the American government and economy.

    John Howley

    1. John, Those are some really great questions. I concur, that the Founding Fathers would find the power of Wall Street granted by the government shocking. Thanks for the thought provoking questions.

  3. Perhaps it is time to reinvestigate systemic issues. Perhaps the hierarchy of power and money is not as functional as we had hoped. Organizational structures like Co-ops, worker run organizations, credit unions, etc. in existence today give us a glimpse at alternative ways to organize and maybe it could work better. Richard Wolff talks about this in a number of ways in his book in an interesting way. “Capitalism fits the fan”.

    1. Ana: Thanks for the link to Capitalism Hits the Fan. I agree, that the way “capitalism” has been practiced today (corporatism) consolidates power and money towards Wall Street. I conjecture that we were truly to practice “capitalism” in a way that protects personal liberty and property, rather than confiscates our property and it give to the rich via subsidies and grants, we wouldn’t have the problems we have today.

      Time to reinvesitgate indeed!!

  4. Jonathan,

    I agree with you about lack of systems thinking leading to the present crisis. Unfortunately this has repeated itself many times in the past and will continue to do so again in the future (

    Gandhi said, “Be the change you want to see”, and to me this works only with a global/systems view. Thanks for asking a really important question.

  5. “There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves Orcs.”

    -John Rogers

      1. I think the idea is that anyone who talks about free markets is a Randroid, that libertarian and Randroid are interchangeable, and that all libertarians are “pot-smoking Republicans.” I’ve coined the term “marcosecond” for the interval of time between a mention of libertarianism at Daily Kos and the first appearance of the phrase “pot-smoking Republican” — usually from someone who thinks it’s witty and original.

        Never mind that the stereotypical Randroid wouldn’t have much use for someone like you who portrays big business as the primary beneficiary of big government, and sees government as an instrument of plutocratic rule.

        Never mind that there are left-wing free market libertarians who see corporate power and concentrated wealth as the primary economic evils of our time.

        None of that matters. Any reference to free markets means you’re a Randroid and an Gordon Gekko clone, on the very rational principle that “Ick — I don’t like it!” and “It sounds like some people I don’t like.” You know, the same reasoning process by which Birchers denounce as “commies” anyone who sounds at all left-wing.

        1. Ahh. Thanks for sharing that. It’s akin to stereotyping or to use a stronger word prejudice.

          It’s funny, I have never read any of Rands books.

  6. Mr. Mariano,

    Thanks for the article.

    In some ways the Fed acts as an intermediary between Washington and Wall Street. And there is a tug of war between the private banks which own and operate the fed, with their financial interests on Wall street and over sees – and Congress. The primary functional role of the American people at the time of Policy decision is reduced to that of a spectator. Congress is on the other side of the tug of war but they have very little sway, they don’t even have the power to audit the Fed. The Fed and the Private banks and their interests on Wall Street have the lobbyists, they have the Corporations, the talking heads, they are the 1000lb titan on the other side of the rope.

    It is my opinion that it isn’t so much a circular flow as much as it is a Hierarchical structured system. The object in this system with the most weight and the least amount of accountability is the Privately owned Federal Reserve. Their business is Money, not freedom and liberty. They do not operate in the interest of the American people – that’s simply not part of their business model. They provide the foundation, they empower wall street, they direct the lobbyists. From this source everything branches out into more diverse functions of lesser weight. All of which support the greater system, all of which can be traced back to the top of the pyramid – the Fed.

    They have their tentacles in everything, for instance the corporate funding of candidates running for office. Look at which candidates get the most corporate funding vs. funding from individuals. It’s interesting. And who gets the most funding from Active Military Personnel.

    My point is, maybe it’s not circular, maybe it’s a hierarchical system just like any other, the sick thing is that it’s Clearly not a function of the United States at the top, it’s a privately owned organization.

    2 cents.

    1. Hi Dalton,

      Thanks for the comment digressing on ownership of the Fed. Yes, perhaps it is more of a hierarchy rather than a circular flow (pun intended)! By any chance, do you have any links or sources that depict the interconnectedness/collusion of the Fed?


      1. Thanks Jonathan, always site your sources! and here they are:

        The Federal Reserve system is made up of member banks per

        2,900 of the nations 7,700 commercial banks are members. [same source]

        law states that member banks must purchase shares equal to 3% of their capital. [same source]

        the largest share holders of these 2,700 member banks are:
        1. Bank of America – $1,082B or about 20%
        2. JP Morgan – $1013B or about 20%
        3. Citigroup – $706B or about 15%
        4. wachovia – $472B or about 8%
        5. Wells Fargo – $403B or about 8%
        6. Goldman Sachs Group, Inc about 6%
        [ ]
        The board of governors, acts as a third party liaison between the Treasure/Senate etc and the larger member banks.

        One example in line with my previous comments. Goldman Sachs donated $994,795 to Obama’s campaign. I’m not saying that’s right wrong or indifferent. But if you analyze the function of this effort (the political donations) what is the role of this corporate entity in the greater political system? Will the outcome of an election effect their bottom line?

        Further investigate the lobbyist efforts of Goldman Sachs. A random starting point for convenience

        I could have picked any bank, Goldman Sachs is just the easiest to pick on per general consensus.

        It’s not a secret that the direction of the fed, it’s strategy in markets and it’s role in the American Economy takes place behind closed doors. This is the area where the substantive statistics lie. We don’t have access to this information. That’s why i support the full audit. Here’s the bill

        Because of the interconnectedness of the Fed in our nations political affairs, a bill like this will never see the light of day.

        Any commonsense American would want to know how the Fed manipulates and inflates our money (not that it’s our money but for brevity) But we can’t. access denied. What if we did know what they did with our money? with this business cycle gone wild, this recession. We would know the root cause in plain numbers. The Fed cannot allow that. If it did, people would want to replace it with a real Government entity, accountable to the people by elected office, that would actually work for the people. The Fed cannot have that.

        1. These are great links. Thanks for sharing them. By any chance, have you come across the book End the Fed?

  7. I haven’t read End the Fed yet, but I’m quite sure i would enjoy it. At face value (the book), i think Ending the Fed is a great idea. There’s an alternative to this form of central banking. A nation’s currency should at least be handled by the state, held accountable to the people. I think that’s plain business sense. Even if you kept this disgusting fiat system in it’s current form, it would be better off controlled by a state system regulated by and accountable to the people. And i think we should shrink government wherever possible. I work for a government contractor and it’s blatantly obvious the private sector does EVERYTHING, better than our government, doesn’t matter what it is.

    Thanks again for the article. I’m glad you’re trying to get people to think, and look at this in a meaningful way. Some people are so firm in their convictions they read these sorts of articles and pick out what they like and don’t like just to reaffirm their previously held convictions. There’s a name for that – cognitive bias. We’re all guilty at times. But i like your approach, challenging the reader to think. As shown above that can be offensive to some people. Americans have lost that critical thinking. We don’t think anymore – “why should i do that?” we’ve become so submissive.

    There’s an alternative.

    Lastly, a short excerpt from our history, i think it has become relevant again;

    The Second Bank of the United States was authorized for a twenty year period during James Madison’s tenure in 1816. As President, Jackson worked to rescind the bank’s federal charter. In Jackson’s veto message, the bank needed to be abolished because:

    It concentrated the nation’s financial strength in a single institution.
    It exposed the government to control by foreign interests.
    It served mainly to make the rich richer.
    It exercised too much control over members of Congress.
    It favored northeastern states over southern and western states.
    Banks are controlled by a few select families.
    Banks have a long history of instigating wars between nations, forcing them to borrow funding to pay for them.

    [ ]

  8. To addressed the substantive question you raised, I think that to some extent the problem is solving itself — in a very disruptive and potentially catastrophic way — through the terminal crises of corporate capitalism.

    Peak Oil is drastically increasing the cost of economic centralization and large firm size and market area.

    The state is hitting the wall of fiscal crisis, so that 1) it cannot afford the enormous levels of permanent deficit spending required to offset corporate capitalism’s chronic tendencies toward overaccumulation and underconsumption, and 2) it cannot keep up with big business’s exponentially increasing demand for the subsidized inputs required for profitability.

    The digital/network revolution is rendering the copyright monopoly — the form of artificial property right currently most central to corporate capitalism’s extraction of rents — unenforceable.

    And it’s also shifting the balance of power toward a networked, asymmetric model of resistance against centralized institutions: the Zapatista global support network, the post-Seattle movement, the Pirate Bay, Wikileaks, the Arab Spring, Madison and OWS. The stigmergic, Bazaar model that Eric Raymond wrote about is common to Linux developer groups, the file-sharing movement, networked radicalism, and Al Qaeda.

    This last suggests the other side of the equation: rendering the corporate state impotent by developing workarounds like free culture and open source, Permaculture, micromanufacturing, encrypted darknet exchange, etc. The corporate and state dinosaurs of the 20th century derived their power from the fact that only giant institutions could afford the enormous capital outlays required to do anything. When a desktop computer is the only capital equipment required to be a publisher or record company, a garage equipped with $10k worth of open-source CNC tools is sufficient to produce most “factory” goods, and the CAD/CAM files can be downloaded from a torrent site, the source of the giant organizations’ power is obliterated.

    1. Thanks Kevin.

      First I’ll start with your last point. I worked as a CNC operator and designor for a small business for 3 years from 2006 to 2009. I ran Solidworks, 3ds Max and others, a CAM program. Our CNC was a $100k machine, 3 axis mill, and it’s capabilities were far too limited to produce “most factory goods” Never mind the fact that to produce anything usable required a good amount of design/engineering and overhead costs not available to most of the people operating $10k CNCs out of their garages. I have also worked with a few very bright folks whom operate CNCs out of their garages. I made a cool key chain with one of them. Different tools for different jobs, unfortunately there’s no magic machine available to create “most” factory goods… Yet…

      What I’m getting at is i think this is great, but the upfront capital required to make useful things is not available to these people. A good portion of “most factory goods” are injection molded polymers, tooling costs for these things is Very expensive, so is the design time. To effectively make usable items the designer/operator needs a working (not necessarily comprehensive) knowledge of tolerances, machine physics, systems analysis, stress analysis. You want it to work after you make it.

      I hope that these innovative small micro shops will impact the market, and lower prices on services and goods but it’s not happening anytime soon. Technology hasn’t quite got there yet.

      And I’m a big fan of the open source lifestyle i think it’s great.

      I hate to use “corporate” and “capitalism” in the same sentence but i completely agree with you in the sense that “Corporatism” has systematically replaced “capitalism” over the course of several decades.

      The government guaranteeing the sub prime loans of Fannie and Freddie while at the same time setting interest rates, And the S&P packaging sub primes’ into a AAA vehicle to be traded on Wall Street. That’s not Capitalism, that’s Corporatism at it’s worst, It’s a combination of central planing and insider trading. The corporations Profit, The rest of America looses. The rules and regulations in place favor the corporations. That is Not a free market.

      The sources that empowers these things, where corporate greed meets government, is the Federal Reserve.

      Create a banking system owned and operated by the American people, and you will have prosperity for the 99%.

      1. “I hate to use “corporate” and “capitalism” in the same sentence but i completely agree with you in the sense that “Corporatism” has systematically replaced “capitalism” over the course of several decades.”

        I just wanted to emphasis this point. Corporatism is totally different than Capitalism. If Michael Moore had named his movie Corporatism rather than Capitalism, I would agree with much of what he had to say.

        Open Source FTW!

    2. “The digital/network revolution is rendering the copyright monopoly — the form of artificial property right currently most central to corporate capitalism’s extraction of rents — unenforceable.”

      I think that’s an oversimplification. And has no substantial affect on the P/L of any big company. Patents on the other hand do to a larger degree. And the current atmosphere in patent law favors big business, and hurts the small innovators immensely. It’s a no compete system. Large companies spending millions on vague patents they will never use, just so that they don’t get sued. And patent trolls, find small companies with great ideas, great products and then sue them until they go under, not to use the patents, but to make money in civil court. Companies like Intellectual Ventures work around the clock seeking out small (or big) innovative businesses to kill.

  9. Jonathan, thanks for this perspective. Even though “systems thinking” can mean a lot of things, and often doesn’t provide a simple way to trace causality, identify culprits, or predict the future, we have to embrace this world view because our failure to do so partly explains today’s converging crises. People who blame the crisis-plex on for instance big government, moral collapse, enemies of America, an ideology, or some other single cause just make the crisis worse.

    In our MBA program, which follows explicitly in the footsteps of BGI’s and yours, we include courses in systems modeling and global systems thinking for just this reason.

    An exciting initiative for contributing crowd-sourced, diverse, dynamic input to the OSW/occupation movement in the area of actions and policy change is “The American People’s New Economic Charter,” , with which I am involved. Through open, collaborative crowd-sourcing, we are hoping to apprehend more of a systems perspective than an ideologically narrower think tank or academically limited university center would produce.

    Keep up the good thinking!

    Ralph Meima
    Director, Marlboro MBA in Managing for Sustainability, Brattleboro, Vermont

    1. Hi Ralph,

      It sounds like you have a wonderful program over yonder. Systems thinking has definitely changed the way I perceive the world.

      The APNEC looks like a fascinating initiative.

      Keep you the good (systems) thinking too!


  10. “If we use systems thinking, we ultimately see that the corporations ‘own’ the government, and the government ‘regulates’ the corporations.”

    State of the World Economy: The Emperor has No Clothes

    While today’s existing global power structure continues to try to conduct business as usual and insist that the economy is in good standing, there is no question that existing systems are unsustainable…

    “My question to you is, how do we get out of this circular flow?”

    Cracking the Code: The Essence of Sustainable Development

    It’s hardly news that after more than two decades of talk about the need for sustainable development, we humans continue to have a poor track record when it comes to achieving sustainable results. How can we implement change while up against the overwhelming current of business as usual? It will take a new perspective, new approaches and different means of leadership.

    For the first time, a condensed & balanced triple-bottom-line set of defining articles, collectively entitled The Fractal Frontier – Sustainable Development Trilogy, is now available for your review. The trilogy examines the reasons for our past failures, a new scientific basis for the essence of achieving sustainable development in the future, the nine universal principles that must be built into any sustainable project, ways to educate, plan and lead teams to achieve sustainable results, and much more…

  11. F&F were a part of the mortgage meltdown, but the other players were:
    1.) People taking out loans they couldnt afford from mortgage brokers/banks who knew they couldnt afford them
    2.) Wall street bundling bad loans into CDOs
    3.) Rating agencies giving AAA ratings to junk CDOs
    4.) I can keep going on about Credit default swaps, etc…

    So I’ve coined a term that underpins my ideology, “Sustainable Libertarian”. The main tenet being that a free-market system operated ETHICALLY is the best form of economic system as long as EXTERNALITIES are taken into account.

    Governments role is to account for all externalities that will be shouldered by the public, and enforce tight regulation to ensure all players operate ethically.

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