Volatility

August 1, 2009

Why Do We Need The Banks?

According to a new report by New York attorney general Andrew Cuomo, nearly 5000 Wall Street cadres were awarded “bonuses” of $1 million or more in 2008. This was their reward for engineering the complete meltdown of the global financial system and extorting trillions of dollars of protection money from the people of America.
 
The worst malefactors could well afford this, as the money was conveyed directly from the taxpayers. Thus Citi, which extracted $45 billion in direct handouts and hundreds of $billions in other forms of welfare spent $5.3 billion of this on bonuses.
 
Bank of America and its acquisition Merrill Lynch also directly collected $45 billion and used $7 billion of that for bonuses.
 
Goldman Sachs collected $10 billion from the TARP, had $12 billion laundered to it through AIG, and an untold (literally, by the secret-keeping Treasury) fortune in other forms of looting, and paid out a relatively meager $4.8 billion of the proceeds.
 
The bonanza was similar for other gangs. JPMorgan got $25+ billion and gave out $8.7 billion of it. For Morgan Stanley the loot was $10 billion, bonus handout $4.5 billion.
 
This bonus bonanza is just the latest in a long, tedious string of government-enabled crimes. All along we’ve been told over and over that putting up with something so revolting is necessary to prevent the total economic collapse of America, and to put us on a footing for “recovery”. Even establishment dissenters like Paul Krugman are still establishment in the end, and toe this party line.
 

You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee.

 
Yet Krugman himself is unable to let cognitive dissonance go so far as to completely deny the obvious

The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us?

First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America..

If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole.

The bottom line is that Goldman’s blowout quarter is good news for Goldman and the people who work there. It’s good news for financial superstars in general, whose paychecks are rapidly climbing back to precrisis levels. But it’s bad news for almost everyone else.

 

If you’re wondering how what’s bad for America can also be good for America, so am I. It’s apparently a mystery decipherable only to those within the system.
 
Meanwhile a report from Ethisphere finds that as of mid-June the TARP has already lost forever $148 billion out of 700. This number is bound to grow, and does not include the trillions in other kinds of Treasury and Fed handouts.
 
Special inspector general for the TARP Neil Barofsky recently mortified the establishment with his worst-case projection that the taxpayers may end up losing $23.7 trillion down this rathole. The corporate media, suitably scandalized, was quick to close ranks and scoff at this. But of course every projection so far by every kind of cornucopian has fallen far short of the true horror, so while we may perhaps take Barofsky’s figure as an upper bound, we can by no means dismiss it as impossible. 
 
Yet we stupid peasants were promised a profit on this “investment”.
 
Why did we make this investment again?
 
What are the banks supposed to do, in the good business civics textbooks?
 
Oh yeah, they’re supposed to facilitate constructive capital flows so that entrepreneurship can flourish, innovation can occur, and we can receive better products at lower prices, better tech for better living, better jobs at better wages and lesser hours…
 
Weren’t these the promises of modern banking, modern capitalism, modern technology? They were.
 
Is this what the banks have delivered?
 
No. As Krugman explains:

Such growth would be fine if financialization really delivered on its promises — if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk. But can anyone, at this point, make those claims with a straight face? Financial firms, we now know, directed vast quantities of capital into the construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect, the industry was selling dangerous patent medicine to gullible consumers.

 

*They presided over the liquidation of the economy. With the advent of financialized globalization, they facilitated the basically treasonous nature of modern wealth. They led the charge of outsourcing, offshoring, the destruction of wages and jobs.
 
*They presided over the binge of monopoly consolidation, furthering wealth concentration and wealth inequality, all against the public interest.
 
*They created the most complex, opaque, mysterious, irresponsible, unfathomable “products” they could.
These complex financial products are inherently dangerous when used as intended. When was the golden time when CDSs were being used responsibly and constructively? If such a time did briefly exist, it was enforced only by regulation, and filled up and shortened by anti-regulatory activity.
The real measure of reckless behavior and abuse isn’t absolute but relative. If everyone in the biz wanted to be what an outside observer would call abusive, then they really weren’t “abusing” but using according to how the culture decreed the baseline would be. Insider ideologues are simply lying  when they try to pretend to draw any distinction between proper use and abuse. These complex instruments are what Buffett called them, and they are a clear and present danger to public health. They are by definition to be abused, and no one can be trusted with them.
*Their bubbles drove up the prices of all staples: food, fuel, shelter, all to feed the greed of speculators and hedonists. Human beings who just wanted a decent life were forced into rat race slavery, or were forced out of society.
 
*They did everything they could to irrationalize and destabilize not just the financial sector, not just the economy as a whole, but society itself.
   
*They gambled, looted, hoarded.
 
Why did we need for these banks to exist again? Why did we allow their crimes?
 
And then we reached the crisis. What has been the narrative of this crisis? What is supposed to redeem these bailouts?
 
We were told this was a liquidity crisis, and that what we needed was to get cash to the banks, they’d resume lending, and all the jobs they failed to create before would suddenly spring into being.
 
(Apologists for the banks nowadays say they never actually promised to lend. And then there’s the misdirection tactic of blaming the government for lying of for confusion. Thus we recently saw henry Paulson grilled on Capitol Hill over his switching from buying toxic paper to cash injections to buying corporate paper…
 
What all this is meant to confuse is that we were sold the entire program on the premise that it would jumpstart lending. Whether or not this was a good idea is not what matters now. (It was of course not a good idea; when your whole problem is your addiction to debt, you don’t solve that by going further into debt.)
 
The banks endorsed this marketing campaign. So when we see what a lie it always was, how the banks did not “lend” and never intended to lend, we see what a Big Lie was the entire premise of the TARP and all its minion welfare programs.
 
That Paulson and Geithner have never been able to settle on a particular tactic for carrying out the looting is irrelevant.)
 
So what have the banks done with the ill-begotten loot? They haven’t leant; they’ve hoarded and used the money for acquisitions. Some openly boasted of their disaster capitalist opportunism.
 
And what did any of this do for us? Not one cent of the money “trickled down”.
 
Now we know that “Too Big To Fail” was always a lie, since propping up these banks hasn’t helped us, it has only harmed us. They have not only stolen trillions, but in the process have further consolidated their position for further adventures in looting. On every front they continue their obstruction front vs. even the most paltry regulation, while they assault consumers with further outrages. They jack up credit rates, refuse to modify mortgages, they have dug in vs. every pathetic attempt to take even an inch from them in the name of the public good.
 
This is, of course, the same public without whose stolen wealth these banks wouldn’t exist at all. The people are now in the position of the victim of highway robbery who is now forced to beg for a crumb from those who stole, and in return is kicked in the face.
 
That’s the utopia of the Too Big To Fail ideology, as espoused by both Washington parties and the corporate mainstream media: a boot kicking us in the face forever, while we’re fleeced of every cent.
 
Letting this vile system of organized crime go down in the first place couldn’t have been worse than the damage we’ve sustained: to our wealth, to our society, to our freedom and dignity. Why should we suffer them to exist?
 
Even if the paramount imperative were to resume the degradation of debt “growth”, this is no longer possible. The banks’ own behavior displays how they know the jig is up. It’s long been clear that the banks, fearing insolvency rather than laboring through illiquidity, don’t want to lend at all. The whole premise of their existence, the exponential debt/growth socioeconomic model, is defunct. There is no longer a real economic basis on which it can be sustained. There is no future here.
 
The system is insolvent. Now they are simply trying to steal as much as they can while the getting is good.
 
The core premise of the Too Big To Fail ideology and the bailout onslaught which has followed from it is that the economy, in order to be restored to health, needs the banks.
 
The contention is that if all the banks collapsed “main street” would get clobbered, that business would suffer and even more jobs would be lost, because there wouldn’t be lending? But they’re not lending now.
 
So it’s clear that anything that would happen from the non-existence of the banks is already happening.
But if the banks have abdicated, then why exactly do we need to loot the country to keep them from failing? (“Failing” – but if they’re failing to lend, haven’t they already failied according to the original premise?)
Why again can’t all federal support be plowed into direct stimulus, and none into financial bailouts?
Why again do we need the banks at all?
Their alleged macroeconomic benefits have proven to be so much vapor. America hasn’t even had any real “growth” in a decade, only debt- and bubble-puffed fictional growth, which has now all vaporized, while wages have continued to decline.
The ONLY benefits have accrued to a handful of criminals and parasites.
The harms are obvious and legion and socialized.
So zero benefit, infinite harm…Why are we even still debating this? Smash the infamous thing. Get rid of the globalized “finance industry” completely.
*We don’t need it at all.
*We’re better off without it.
*It’s definitely not worth keeping at such a price.
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6 Comments

  1. Did you see this story in Mother Jones? I think you might like it..

    http://www.motherjones.com/politics/2009/07/how-you-finance-goldman-sachs%E2%80%99-profits

    I’m a little stunned at the inability of the MSM to understand how we’ve been rooked, but then again, the MSM decided to publish Bush’s press releases almost verbatim in the lead up to the Iraq War….

    Comment by Anne from Chicago — August 1, 2009 @ 5:13 pm

  2. Hi Anne,
    Thanks for the link. This line says it all:

    It makes most of its money speculating, or trading.

    In other words it has no redeeming social value. That’s the legal definition of something which is obscene.

    Yeah, the MSM sucks alright. And they’re still purveyors of those press releases, on the “recovery”, on the wars, on detentions…

    Comment by Russ — August 1, 2009 @ 7:37 pm

  3. I am in the process of moving to a credit union that has no shareholders, that keeps all deposits local (invested in local business) and pays out the proceeds in the form of high interest rates for account holders.

    As far as I’m concerned, franchise banking should be outlawed.

    Another article for you, By Robert Johnson, that speaks to many of the same things you mention here:

    http://www.newdeal20.org/?p=3476

    Comment by juliet — August 2, 2009 @ 3:03 pm

  4. Hi Juliet,

    Thanks for the good read.

    Glad to hear about the credit union. I hope that works out well.

    I’ve sometimes thought Peak Oilers/relocalizers might do well to pool their financial resources in such a way.

    But then we tend to be such ornery, individualist cusses, don’t we? 🙂

    So I guess there’s a social contradiction there.

    Comment by Russ — August 2, 2009 @ 5:50 pm

    • Seriously! The whole yankee “good fences make good neighbors” is a hurdle! I think there is a middle ground, though. What freaks me out about community building is, well, dealing with people! I can do the whole garden, canning, walk to work, eat lots of porridge, split lots of wood thing, no problem, but tell me I have to deal with “other” people all the time and, yikes!, I dunno…
      Glad you liked the article, I felt like it added a new dimension to conversation. Reminds me a bit of Our God That Failed by David Bromwich:
      “The high doctrine of Economic Correctness of the Reagan-Bush-Clinton-Bush years is as bankrupt as Soviet Communism. It is all but officially dead. Why then are the president’s economic advisers paid to prop it up and apply a sickly rouge and embalm it and set it in motion with galvanic shocks to simulate life? All the money proposed to be donated to bankers and brokerage houses to keep their discredited privilege is a proof of religious belief. The hundreds of billions in public funding to indemnify a huddle of private owners represent a sacrifice to our own god that failed — an idol we cannot surrender the habit of adoring. And the plucking of state subsidy out of taxpayer pockets to ensure that nothing is state-owned: a form of savage prayer or burnt offering.”
      A recent one from him here about standing military:
      http://www.huffingtonpost.com/david-bromwich/americas-wars-how-serial_b_242347.html
      Wow, long comment!

      Comment by juliet — August 2, 2009 @ 7:21 pm

      • I saw the Bromwich piece at Tom Dispatch. It really is sickening how the power scum not only refuse to acknowledge the end of empire and growth/debt, but think they’re going to successfully double down on it.

        I don’t know what’s worse, the stupidity or the malevolence.

        Regarding practical preparation vs. dealing with people, I don’t know if you saw Sharon Astyk’s recent complaints about permaculture as a “movement”. I don’t have any personal experience with this (I’ve always considered permaculture a set of practices, not a social philosophy), but she made it sound like an obnoxious New Age cult.

        I’d very much like to get involved with serious people on the level of political activism, but I’m not all that interested in hippie ritual.

        Comment by Russ — August 3, 2009 @ 8:33 am


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