Volatility

September 16, 2009

One Year Since Lehman: Bigger and Failinger

September 15 was hailed as the anniversary of the fall of Lehman, the iconic mediagenic casualty of the financial crash. An anniversary usually means a media excuse to focus on a discrete event while obscuring or lying about a broad trend. So it was this time, as the MSM hit all their points on how letting Lehman go down was a mistake, how this caused the crash, how Henry Paulson and Ben Bernanke set us on the road to recovery, and how we now are in full recovery mode.
 
They don’t deny that nothing has changed since 9/15, that the Too Big To Fail banks are bigger and more concentrated than ever, that TBTF has been officially enshrined as the policy of America, but this is simply accepted as the price of recovery.
 
So we see how nothing changes except the nominal government. Corporations, media, government policy remain constant. For as long as this holds, exploitation and disaster will be constant. For the establishment, there is zero will to undertake the number one imperative pressing upon this country: dismantle the Big Banks.
 
We still make the call: “Too Big To Fail is Too Big To Allow To Exist!” Those who understand the economy and want the best for the people want to tear apart the Big Banks once and for all, as should have been done last year. (They should never have been allowed to exist in the first place.)
 
This could only be beneficial for the people, for the country. And it’s the only bank policy which could be beneficial.
 
But this country is ruled by the finance protection racket. This is the prime, overarching policy of the government. But TBTF was always a lie. The notion was that we needed to bail out Wall St in order to save “Main St”; that if the big Wall St entities went down the contagion would destroy the rest of the economy. It was also claimed that the big banks were leaders in the constructive activities of the economy. But we know by now that these are lies.
 
First, the banks were rescued by the taxpayers, and they’re now flourishing with our money. Yet the real economy (Main Street) continues to tank. Jobs continue to be destroyed and consumer activity is moribund except where the government, as part of the bailouts, is artificially propping up demand (cash for clunkers; homebuyer’s credit). So it seems any contagion wasn’t confined, but allowed to infect the economy while the Wall St vector was rewarded. (This would be in keeping with the disaster capitalist phase of the boom-bust casino capitalism cycle.)
 
Second, we had the resources to prevent any Too Big to Fail effect. The welter of bailouts, the monumental monetary resources deployed: the TARP, the loan guarantees, the loan facilities, and Helicopter Ben’s “quantitative easing” (flooding the bank vaults with free taxpayer money for them to play with any way they please), prove that the government had the resources to do something radically different, to backstop the small Main Street banks, to seed financial alternatives like credit unions, to bolster the real banking activities of real, socially entrepreneurial banking institutions so that these could have continued to service the economy and bolster the precious public confidence even as Wall St crashed and burned. (This crash and burn itself could have been used intrepidly as a confidence builder if it had been turned into the auto da fe it should have been, an ideologically transformational moment.)
 
Meanwhile the stimulus could have been dovetailed with this decentralized levee building, so that the funds went through the bolstered smaller institutions and completely bypassed the quarantined Wall St Sodom, now thrashing in its death throes. So the “bailout”, instead of being the bailout of our oppressors now using our own money as a weapon against us, to enslave us, could have been our self-bailout from the peril we’d been led to by a criminal leadership.
 
We never needed the big banks, ever. They have never acted in any capitalistic, entrepreneurial, creative, innovative, social value-generating fashion, but only in a parasitic rent-seeking one. (The most recent true innovations were credit cards and the ATM.) They’ve acted only to impose a tax on the productive work of society, to increase social costs, complexity, and socialized risk, and obscure as much real market information as possible, the better to perpetrate their securitization frauds. Their political agenda has been to attack all regulation, strip it, and capture the regulators so that any rump regulation which does exist is not enforced. (And the naive still think we can fix this with more regulation….)
 
They’ve sought monopoly, swallowed smaller banks but haven’t replaced these banks’ real services as dedicated lenders. Instead, to quote George Washington:
 
Since Glass-Steagal was repealed in 1999, the giant banks have made much of their money in trading assets, securities, derivatives, and other speculative bets, the banks’ own paper and securities, and in other money-making activities which have nothing to do with traditional depository functions.
 
Now that the economy has crashed, the big banks are making very few loans to consumers or small businesses because they still have trillions in bad derivatives gambling debts to pay off, and so they are only loaning to the biggest players and those who don’t really need credit in the first place….
 
It is simply not true that we need the mega-banks. In fact, as many top economists and financial analysts have said, the “too big to fails” are actually stifling competition from smaller lenders and credit unions, and dragging the entire economy down into a black hole…
 
So we don’t really need these giant gamblers. We don’t really need JPMorgan, Citi, Bank of America, Goldman Sachs or Morgan Stanley. What we need are dedicated lenders.
 
When America was stampeded into the bailouts we were promised that the TARP would strengthen the big banks so they could get back to lending. They weren’t lending anyway in the first place, so that was a lie. Even more of a lie was that they’d lend now, after they had internally collapsed. (I’ll leave aside for now the fact that we cannot continue to run up exponential debt, and that the solution is not more profligate lending, but winding down the debt economy. For today I’ll just take the power structure’s delusions at face value.)
 
But they did not lend, and they will not lend, because they know they’re insolvent. They are insolvent and they are NOT profitable. BofA and Citi were able to post phony profits through shuffling around some numbers in their Byzantine structures, while Goldman simply made December disappear from its books. Even AIG was able to fraudulently account its way to a “profit”.
 
But the bankers know they are insolvent because of the uncanny toxic paper which still saddles their books. Even under the new mark-to-management accounting (i.e. tell any lie you want on your books), they still can’t get rid of it. They won’t get rid of it because they could never sell it at any price which wouldn’t force them to take a big writedown, which would puncture the fantasy Wall St and Washington are peddling. Even the putative Public-Private Investment Partnership (on paper as rank a piece of corrupt skullduggery as you could find) has been moribund. Even at heavily socialized prices no one wants to buy this junk.
 
(I’ve always laughed at how every bank implicitly says every other is lying about its solvency even as it claims to be sound itself. If they believed one another there’d be buyers for this crap paper.)
 
So all the claims of bank soundness and recovery – the bogus profits, the potemkin stress tests, administration and MSM propaganda – and the stock market rally have all been a charade floated on a farce puffed up by a lie. It’s already a new Bubble – a Bailout Bubble, a stock bubble, a quantitative easing bubble (the Fed itself is the biggest and failingest of the Too Big To Fail banks). The hysteria over “recovery” is all fictive. The zombie banks, propped up by the Fed’s vaporous dollars…it’s like a rich girl who thinks she supports herself because she physically hands the check to the landlord, even though it’s daddy’s check (not to mention one of these days the check is going to bounce).
 
The Wall Street wards of the state have been allowed to use our money to fire up the casino again and prepare a new disaster for us. They’re scrambling to blow up other bubbles. Commodity bubbles, Asian bubbles, carbon bubbles, and of course the underlying sovereign debt bubble, the QE bubble….once the creditors get spooked on that one, there’ll be nothing left to do but to fire up the printing presses, and that’ll be the end.
 
We’re just being stood up and tied to the stake before the firing squad of the next crash. Prime mortgages are starting to default. And then there’s the ticking time bombs: commercial real estate, credit card debt, other securities. These are post-bubbles still waiting to burst, even as we blow up new ones. Soon it’ll be the real crash, the terminal crash for this system.
 
Since the banksters know they’ll never return to stodgy old Boring banking (the actual real jobs of bankers who live in a community), and time is limited, they focus on Exciting banking and bonus recidivism. Get while the getting’s good. Their long time professional credo has been “IBG” (“I’ll Be Gone” with the stolen cash once the thing blows up, leaving my victims to pay for the cleanup).
 
IBG is the conscious, premeditated ideology and strategy for the entire sector. The sector is incorrigible. The personnel are objectively antisocial. They are pure sociopaths. When Obama in his Wall St speech the other day was reduced to begging these criminals to act as citizens, he was not only being despicably abject, but he was just as delusional as when he ever thought he could compromise with Republicans. It’s the same delusion when he thinks the existing cadre can ever play any legitimate, constructive role.
 
The finance cadre will not moderate its crimes or cease from its treasonous war on America. They are objective, existential, incorrigible, congenital enemies. It’s what they do. They’ve become psychopathic. There’s no restraint, no shame, no citizenship, no community possible. They will never stop. 
 
There can never be a mutually beneficial compromise between this cadre and the community. That’s why “regulation” while leaving the system fundamentally intact will never work. Obama’s proposals include a Consumer Finance Protection Agency, having the Fed act as the systemic risk regulator it has always refused to be on principle (and which it’s shown zero aptitude to be anyway, given that the Fed itself is the ponzi base of the inverted pyramid), an exchange which would publicly trade some derivatives but provide loopholes for most, and some sort of restrictions on exec pay.
 
These are woefully insufficient even in theory. The CFPA is the only one which is intrinsically a step in the right direction, while letting the Fed be system regulator is absurd, as it drives all the systemic risk of the system. Asking it to police risk would be like asking it to cease functioning at all (this is how its existing cadre would see it; as always, cadres mean everything).
 
Besides, the point is NOT to pretend to have ways to protect against the unravelling of TBTF entities. The point is to dismantle them completely. Too Big To Fail is Too Big To Allow To Exist.
 
As for the derivatives, the ONLY way possible would be to force ALL derivatives to be traded on public exchanges. This would cut down on the “excitement” for the “innovators”? TOUGH. We’ve had enough excitement out of that scum. We don’t need customized derivatives at all. If they insist on betting with one another, let them bet informally. Such bets aren’t legal contracts. Let them figure it out. (I still can’t fathom why the community ever recognized any of these private bets among criminals as legal contracts. It’s a mystery.)
 
Regarding executive pay restrictions, we all know this can be infinitely gamed. You restrict “bonuses”, they jack up base salary. Restrict that, they come up with “consultation fees” or something. Going that route you’ll play whack-a-mole forever. I’m afraid the only remedy for obscene pay (assuming you’re going to leave these cadres in place at all) is better, more fair, more community-oriented taxation.
 
So on paper these are feckless. After what’s happened, that they propose such meager measures proves they’ve learned nothing and forgotten nothing. And then, the history of regulation is such that we can be sure they won’t enforce any regulations they do enact.
 
The Fed already wants to gut anything which encroaches in its turf as fox in the henhouse. That’s how it already scotched the very idea of there ever being any real resolution authority for the “systemically important”, that is Big, finance entities. Instead there’ll be some cosmetic coordinating committee to provide the simulation of independent oversight, but it would have only advisory authority. A fig leaf.
 
We must understand that the Fed is in its bones diametrically opposed to all reform or to any restraint upon the finance racket or its boom/rent -> bust/bailout procedure. It was created in the first place to be the middleman of finance corporatism, to coordinate the cycle of normal casino looting during the booms and disaster capitalist bailout looting during the busts. It is automatically opposed to any public interest policy which would seek to reform bank behavior, moderate the crisis cycle of finance capitalism, or do away with systemic risk and bailouts completely. These are the very reasons the Fed exists. So by definition it cannot be part of a reform offensive.
 
When you consider restraints upon the banks, remember that the Fed is always the most radical bank.
 
Too Big To Fail = Too Big To Allow To Exist. We must break up the rackets. That’s the one and only reform. All the rest is dishonesty, naivete, or cowardice. As I said earlier, we could have done it before.
 
At any rate, now, when we’re not in a “panic”, is a fine time to strike. But of course, in standard heads-I-win tails-you-lose fashion, the temporary lull and false recovery are used as an excuse to do nothing (while during the surface crisis the excuse was that it would aggravate the panic).
 
Although the MSM doesn’t talk about them, other than to trot one out once in awhile like an exotic animal Joan Embery brings onto a talk show, a roster of distinguished economic thinkers agree that the TBTF banks must be broken up. This is the number one social priority. You can find a list of them here.  
 
But what is the corporatist political system doing? Its number one priority is to let the banks further entrench, further concentrate. A year ago there were around a dozen top tier banks. Today Goldman and JPMorgan are dominant, trailed by a bunch of hangers-on, with Citi and BofA each to be called the “Sick Man of Wall Street”, as they used to call the decrepit Ottoman Empire the Sick Man of Europe in fin de siecle times. But these two are only relatively more dependent upon public welfare. NONE of these banks could have existed or can exist on its own. They are all absolute wards of the bailout.
 
They have not changed any practices or done any particular restructuring or streamlining. They remain the same bloated, labyrinthine, reckless, overpaying, hermetic, nihilistic structures they always were. Except for some lower-level people no one lost their jobs, and no one’s pay was cut. The worst criminals in American history get to keep everything they stole and are allowed to steal ever more as the rotten government cheers them on.
 
These monuments to corporate welfare are now permanent quasi-state organs. They receive all funding from the public and get to use it any way they wish, with no restrictions, running up any risks they choose, in order to privately pocket every cent of revenue, and when it all crashes again, the public will make them whole, pay for everything, give them an even bigger cash infusion, and it’ll continue.
 
The choice is to submit forever to the rule of this gangster racket, the permanent round of expropriation, disaster, and impoverishment, or to blast them out of the entrenchments. Take back the country.
 
Too Big To Fail? So far we have failed as a people. Clearly our own government doesn’t see us as all that big, in power or in desert. The question is whether we’ll continue to fail, or whether we’ll decide that the rackets and their paid hacks and goons are not bigger than our will to our future.
 
If we have that will, they’re not too big to topple and smash.    
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2 Comments

  1. Yes, the current strategy of hoping they will self-destruct seems to be backfiring.

    Comment by Yakkis — September 18, 2009 @ 12:59 pm

  2. In the end, as long as they have backing them up:

    1. A kept government.

    2. A printing press.

    3. That the world considers the crap coming off that printing press to be “money”, the big banks will never have to worry.

    Comment by Russ — September 18, 2009 @ 1:17 pm


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