October 7, 2009

Cannibal Banks

Filed under: Bailouts Only Propped Up Zombies, Corporatism, Disaster Capitalism — Tags: — Russ @ 7:55 am
As the trillions pile up, our first thought whenever we hear the word “bank” or the word “bailout” should be to remember that the government sold us this bailout on the premise that it was necessary to get the banks lending again, that getting them lending again was necessary to save Main Street, and that these bailouts would in fact get the banks lending again.
By now all three of these have been proven to be lies. This week the TARP inspector general Neil Barofsky exposed the lies of Bush’s Treasury secretary Henry Paulson. If you’ll recall, Paulson/Bush’s first gambit was to demand a veritable Treasury dictatorship because otherwise the economy would completely melt down within days. They presented a three-page ultimatum. Gullible Congessmen staggered out of the room in a daze, some in tears, all completely defeated psychologically. The end was at hand. They’d give Paulson anything he demanded, as fast as he demanded (as always with disaster capitalism, there was a crazed demand for speed at all costs).
The people immediately, intuitively saw this for the power and money grab it was, and in a rare show of accountability Congress rejected the coup attempt. Now Paulson had to a-politicking. Now he assured everybody that the economy wasn’t about to crater after all, that the banks were fundamentally healthy, that there were only some technical reasons lending had dried up, and that they needed a bailout just as a kind of tune-up. Then lending would resume and all would be well.
Today we know, as Barofsky confirms for us, that this was a lie. The banks were insolvent then and they’re insolvent now. The problem then as now is that their balance sheets are dominated by worthless securities that they refuse, seemingly as a matter of ideology, to write off.
(I still always have to laugh at how the banks all claim these things have value, yet refuse to buy them from one another at these alleged values. So each bank is implicitly calling all the others liars, “but I’m telling the truth!” Uh huh.)
The government’s priority then as now is to allow the banks the full payoff they demand from these casino bets by stealing the money from the taxpayers and handing it over to the banks.
That’s it. That’s all Bush policy was, and it’s all Obama policy is.
If you doubt that, consider the failure of Bush’s political promise: bailouts = lending. What is this technical reason the banks “can’t” lend? What is this “paralysis in debt markets”, as today’s NYT puts it?
It’s precisely that by now all conventional bank activity, and especially lending, are dependent upon securitization and the shadow banking system. Banks don’t know how to function other than by making loans, bundling them into securities, and selling the securities. But so long as all the existing securities lie on the balance sheets as worthless dead weight, there’s no way to restart the securities casino. At this point only the government is propping up what little of a securities market exists at all (primarily through the Fed’s purchase of MBSs from the GSEs). That’s the essence of the protection racket they’re trying to run: Until the government makes them whole on all their existing bets, they refuse to make any new bets, and without these bettors orchestrating everything, the whole system, that is all of its real aspects, will remain frozen.
Now, all of this is based on the fundamental delusion that exponential debt and consumerism can ever be revived by any means. The fact is that the American middle class is extinct. It has long been a zombie lurching along on the artificial stimulus of ever-increasing debt which relied upon ever-increasing supplies of cheap oil and the infinite capability of the government to borrow. All the “growth” of the last decade has been spurious, and all the “prosperity” of middle-class America for the last 30 years has been borrowed from the future (even as real wages and the safety net eroded). Today the bill has come due, and the end of borrowing is at hand. Just as there are no lenders and spenders other than the government, so there are no borrowers other than the government. 
The banks know this, which is why they have no intention of lending under any circumstances. But they still want to extract as much loot as they can while the getting’s good, and the government wants to help them do it. Thus the lie that lending can and must resume. The purpose of all of it is to keep the system centered on the profiteering of the big banks, which is allegedly necessary for the health of society.
But this is the second lie. It’s been a year, and the banks are not lending. They continue to post phony profits, all of it extorted from the people. They continue to exist as loathsome high-maintenance high-expense parasites. But they’re not lending. So it’s been proven beyond any doubt that whatever the lack of Wall St lending was going to do to Main St it has done already, while whatever we’re paying to maintain the Big Banks in existence is money thrown down a rathole.
Main St never needed Wall St’s version of securitized “lending”. What it needs is smaller-scale local and regional lending where the loans make good Real Economy sense and are maintained as loans on the balance sheets of the smaller banks who made them. This makes for a responsible economy all around.
But as the NYT piece shows, the congenital mindset and its lies run deep. It quotes LSU “professor of banking” Joseph Mason: “Given the imperative for securitization markets to fuel bank lending, we won’t have meaningful economic growth until securitization markets are re-established.”
Such an “imperative” does not exist other than through the imposition of this gangster ideology. “Meaningful growth” – does he mean the paper growth of the last decade which has now vaporized? He certainly can’t be referring to growth which created any good, permanent jobs. The fact is, there can never be meaningful growth under financialization. By definition it’s a fraud meant to cover up (1) the fact that there’s no longer and real growth, and (2) the looting of the real economy, for example the hollowing out of manufacturing.
Then we have Treasury cadre Lee Sachs: “It’s very important these markets come back to get credit to businesses and families who need it, and also as a sign of confidence”.
“Confidence” – that’s the key word and the code word. (The platitude about “families” is just obligatory boilerplate.) It’s always the Orwellian sign by which the racketeers recognize one another: Everything in our confidence game depends upon our maintaining the simulacrum of societal “confidence”. (The stock market is the terrorist wing of this confidence racket, using its displays of lack of confidence to punish society anytime government shows any sign of acting in the public interest.)
On a different front, we can see the broad expanse of the rent-seeking net, now that the banks have succeeded in freezing the economy. According to Chris Whalen of Institutional Risk Analytics, “The real economy is shrinking because of a lack of credit”. What this really means is, the bank-driven bubbles bloated up a simulated economy, and now that the banks cannot and will not keep securitizing, this bubble must collapse. It’s true that the banks won’t lend, but this is because they are insolvent, and now exist only as feudal looters and profiteers of disaster. So the deluded expectation that Wall Street lending would save Main Street was not only false, but has allowed Wall St to continue to prey on Main St. For there is still “investment” going on. And where is the money flowing now?
You guessed it – to the banks. The banks won’t lend, they’re hoarding cash, the real economy is shrivelling, so speculation money has nowhere else to go but to the stocks of those very banks. To start the week Wells Fargo was up 7%, while JPM, BofA, and Citi also saw significant gains. The finance sector caused the crash, and are now using crash conditions to suck in all investment and further financialize the economy.
A new Goldman Sachs upgrade of finance stocks helped goose the process (and at the same time attack real banking): “The market has failed to recognize the dramatic improvement in earning power at the large banks vs. the regionals”. Indeed.
That means, everyone has still failed to price in the New Order of Too Big To Fail corporatism. People still don’t understand the magnitude of it, of how an entire civilization has been placed at the disposal and at the mercy of a handful of finance thugs.
It’s a great bet if you’ve got a few bucks and you believe all the lies. By now the government guarantees all bets. By now you’re betting only against complete economic collapse, or Revolution. Anything short of that, you know the taxpayers will be mined to bail you out. The country has been ENSLAVED.
[Here’s something extra to chew on: If you want real Smash the Banks reform, here’s a start – ban credit default swaps completely. We already knew of their malevolence, but we’re still told lies about how they’re somehow necessary. But now that we know how useless the Big Banks themselves are, we should consider how only the Big Banks hold CDSs. According to Fitch’s, the usual gangster gallery of Goldman, JPMorgan, Citi, BofA, and Morgan Stanley, just these five, hold 80% of derivatives risk (assets and liabilities) and 96% of exposure to credit derivatives.
This is a microcosm of everything we’re facing here. Only the Big Banks want CDSs to exist, and CDSs benefit only the Big banks, while, as we saw with AIG, they are a clear and present danger to everyone else.
There are only two things CDSs accomplished: to help crash the economy, and to enable the government to launder handouts through AIG, especially the $12 billion gimmie handed over to Goldman to not only cover its bets but pay off its winnings.]
The sun of the debt surge was shining, and there was the shadow. Now the thunderclouds have effaced the sky, and the shadow’s no longer there. But we’re still here, aren’t we?
And they claim that if we can magically bring back the shadow, through some array of gaslights and dirty mirrors, that’ll make the clouds go away?
Why don’t we take the rain as a cleansing, tend to our neglected soil. The real sun will shine again, soon enough.


  1. That was a brilliant manifesto. Wow.

    Comment by Ian — October 9, 2009 @ 3:32 pm

  2. Thanks Ian. I wish there were nothing like that to write about.

    From here on the people need to figure out how to smash the banks.

    I hope to have some ideas.

    Comment by Russ — October 10, 2009 @ 7:03 am

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