Sunday, June 12, 2016

Lesser Of Two Evils, Wall Street Bankers Or Government?

Wicked Bankers - Who Controls Who?
The worse of two evils? Wall Street bankers or government? While I was pondering this question the other day it did not take long to come up with an answer. Government wins hand down. We elect politicians to lead and guide us, we do not elect or appoint bankers. Government's job and those claiming to be public servants are to protect and defend us, bankers claim no such role in society. Bankers are the snake, the creatures that we know to be poisonous. In theory with an army of dedicated public servants standing at guard, we should be safe from these creatures.Unfortunately,  lawyers and politicians historically garner rather low marks in the eyes of many Americans when it comes to ethics. Ironically we find many politicians flow from prior careers and backgrounds in the legal profession. With this in mind, it is little wonder the 2,300 plus pages called the Dodd-Frank Act partially written by the very banks it is to control is to be our shield from abuse.  

The goal driving this post is to highlight which of these institutions is the lesser of two evils may have become a moot point because over the years the worse fears of many freedom loving people have begun to play out as these two forces of evil have joined together. Years ago President Eisenhower warned the American people about the Industrial Military complex, but nobody warned us an even more evil alliance that of the "Financial-Political Complex." This unholy alliance of the Federal Reserve, the government, and the too big to fail has left the rest of us in a precarious position. Following the 2008 global crisis, the authorities acting primarily to prop up governments and the economy took actions to save the financial system by bringing big banks deeper into the fold.

Politicians And Dignitaries Davos, Switzerland   
Before I  turn my attention towards the crux of our problem a quick volley at the institution filled with so-called "public servants." Over the years my observations have led me to believe that worse things could happen to you then taking a job with the government, after viewing the lifestyles associated with many career paths, politics and the route of working for the government seems to offer both job security and much potential. A career in politics can grant you a lifestyle where you, and often times your family will get to rub elbows with the ultra wealthy and the country's most powerful titans of business and industry. It is not uncommon to see our public servants, some as lowly as a mayor or agency head climbing out of  a limousine, being wined and dined, or on an exotic visit or fact-finding mission at the expense of the taxpayer. 

A career choice within government also has the benefit of sheltering you and extending legal protection that covers you from the responsibilities of your actions. Politicians are often rewarded with generous pensions and superior healthcare benefits far outside the reach of the average citizen. Imagine being flown to retreats at lavish resorts, elegant dinners, and when the gig ends it can be followed by lucrative connections that will serve you after you later move into consulting or the private sector. Our public servants often stay at the best hotels with their beverage of choice waiting in their suite and experience tours of important sites while security closes them to the masses. During your time in government you will carry an aura of power setting you above the common man, like a rock star, you arrive in style, chauffeured about in limousines at the taxpayer's expense. Do not forget the expense accounts, and as you look around you will find more than one building or structure named to salute these grand sacrificing soles who often position themselves to serve and benefit while doing so. 

Just A Thought - So Many Crooks To Watch
It is important to remember politicians and bureaucrats seek increased power and influence, and it now appears these authorities hit the jackpot when following the 2008 financial meltdown they joined with the banks. In doing so they created the "Financial-Political Complex" a group that promotes the current financial policy and supports our "too big too fail" banks. Many people say that the way out of the housing crisis is to let everyone fix their mortgage debt at super low fixed rates, then inflate, inflate, inflate? Well, perhaps the government's way out of its own debt is to secure low fixed rates for itself then inflate away when it becomes necessary. It should not bring comfort to the average man that these two unholy forces have joined together in such an incestuous union.

Who is the principal borrower at today's rates? The banks don't seem to be using the cheap money for their traditional business of lending to small businesses and supporting communities.  It seems it is the government that is doing the borrowing and getting away with amazingly low rates for long-term debt. Banks have been big buyers of government bonds in the past couple of years because of the “carry trade,” this allows them to borrow money from the central banks at low rates and lend it back to the government at a higher yield. In effect, this is a subsidy to the banking sector. Banks may buy even more government bonds in future because international regulations assign a low capital charge to government debt and because banks will be required to hold a store of liquid assets, of which bonds will be a big part. So the government stands behind the banking system, and in turn, the banks are big buyers of government debt.

This financial-political complex is bolstered the general unwillingness of governments to let banks go bust. The argument runs that it is better to intervene heavily in markets rather than do nothing and repeat the mistakes that created the Great Depression. The cumulative effect of steps taken by the authorities over recent years designed to prop up the economy and save the financial system have resulted in the creeping nationalization of markets. Central banks are the biggest players in many rich-world government-bond markets. Equity markets seem to perk up only when central banks are expanding the money supply and companies use the bounty to buy back stock shares at ever-increasing prices. Banks were created to channel funds from savers to borrowers, traditionally from the household sector to companies. Banks main function was to distribute money, and for this minor service they are paid exorbitantly well, allowing and extending their role in the financial sector is fraught with risk.

History suggests that once governments get involved in a sector, they find it hard to withdraw. Given the weak outlook, it is hard to imagine the circumstances in which liquidity support for the banks will be withdrawn or the policy of low-interest rates abandoned. This is a new financial and economic era. QE, ZIRP, and even NIRP haven't forced people to invest better but has had the effect of causing people to scramble for cover. More of the same is not a resolution to deep-rooted problems but does represent the evil character of finance for the moment. We should be very afraid of the "Financial-Political Complex" and the current policies because both have a lot in common with what is known as a Ponzi scheme. This is a reason for caution! Again, history speaks volumes because if it looks like a Ponzi scheme, sounds like a Ponzi scheme, and feels like a Ponzi scheme, then it is probably a Ponzi scheme.


Footnote; The idea the wicked bankers have been brought further into the fold to mask the failings of the government and central banks ties into many of my prior articles. This capital cronyism is a driving force behind growing inequality and has surfaced in recent elections. As always your comments are welcome.

1 comment:

  1. There is no way the US, Japan and many EU countries (PIIGS) can repay their debt.
    We are seeing the CBs of those countries buying back national debt (US Fed 25% of outstanding, BOJ 50% and EU somewhere in the middle.

    Ultimately this debt can only be nationalised/cancelled, as it cannot be resold to the market place without massive collapse in bond markets as yields explode.

    This will eventually result in massive (hyper)inflation as purchasing power of, and confidence in, paper currencies (USD, JPY and Euro) collapses.

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