Reprise: The Quiet Coup d'Etat in the Anglo-American Financial System

 

“The fine thing about pacts with the devil is that when you sign them you are well aware of their conditions.   Otherwise, why would you be recompensed with hell?”

Umberto Eco, The Name of the Rose

 

This is a reprise of an interview with MIT economist Simon Johnson which I first wrote about in February, 2009.

 

I think I ought to republish this as a reminder every few years, until reform has been achieved, or until the Internet as we know it goes dark.

 

Have we heeded Simon Johnson's warning? Has he proven to be prescient? Is crony capitalism and the kleptocracy becoming bolder, more aggressive, ever more demanding?

"I think I'm signaling something a little bit shocking to Americans, and to myself, actually. Which is the situation we find ourselves in at this moment, this week, is very strongly reminiscent of the situations we've seen many times in other places.

But they're places we don't like to think of ourselves as being similar to. They're emerging markets. It's Russia or Indonesia or a Thailand type situation, or Korea. That's not comfortable. America is different. America is special. America is rich. And, yet, we've somehow find ourselves in the grip of the same sort of crisis and the same sort of oligarchs...

But, exactly what you said, it's a small group with a lot of power. A lot of wealth. They don't necessarily - they're not necessarily always the names, the household names that spring to mind, in this kind of context. But they are the people who could pull the strings. Who have the influence. Who call the shots...

...the signs that I see this week, the body language, the words, the op-eds, the testimony, the way they're treated by certain Congressional committees, it makes me feel very worried.

I have this feeling in my stomach that I felt in other countries, much poorer countries, countries that were headed into really difficult economic situation. When there's a small group of people who got you into a disaster, and who were still powerful. Disaster even made them more powerful. And you know you need to come in and break that power. And you can't. You're stuck....

The powerful people are the insiders. They're the CEOs of these banks. They're the people who run these banks. They're the people who pay themselves the massive bonuses at the end of the last year. Now, those bonuses are not the essence of the problem, but they are a symptom of an arrogance, and a feeling of invincibility, that tells you a lot about the culture of those organizations, and the attitudes of the people who lead them...

But it really shows you the arrogance, and I think these people think that they've won. They think it's over. They think it's won. They think that we're going to pay out ten or 20 percent of GDP to basically make them whole. It's astonishing....

...these people are throughout the system of government. They are very much at the forefront of the Treasury. The Treasury is apparently calling the shots on their economic policies.

This is a decisive moment. Either you break the power or we're stuck for a long time with this arrangement."

Bill Moyer's Journal - Interview with Simon Johnson, February, 2009.

Johnson also wrote a piece in the Atlantic Magazine titled The Quiet Coup. It may be worth re-reading.

"I am not so optimistic that this reform is possible, because there has in fact been a soft coup d'etat in the US, which now exists in a state of crony corporatism that wields enormous influence over the media and within the government.

Let's be clear about this, the oligarchs are flush with victory, and feel that they are firmly in control, able to subvert and direct any popular movement to the support of their own fascist ends and unslakable will to power.

This is the contempt in which they hold the majority of American people and the political process: the common people are easily led fools, and everyone else who is smart enough to know better has their price. And they would beggar every middle class voter in the US before they will voluntarily give up one dime of their ill gotten gains.

But my model says that the oligarchs will continue to press their advantages, being flushed with victory, until they provoke a strong reaction that frightens everyone, like a wake up call, and the tide then turns to genuine reform."

As far as I can tell, we are right on track for a very bad time of it. And you might be surprised at how far a belief in exceptionalism and arrogant superiority can go before it finally ends, or more likely, fails.

“Hubris calls for nemesis, and in one form or another it's going to get it, not as a punishment from outside but as the completion of a pattern already started.”

Mary Midgley

US Middle Class Wealth Has Collapsed, Consumed by the Gods of Finance

"As flies to wanton boys are we to the gods.

They kill us for their sport."

William Shakespeare, King Lear

“Reality denied comes back to haunt.”

Philip K. Dick, Flow My Tears, the Policeman Said

Let's file this under 'why aren't people buying things and saving more?'

Yes I know that wealth is not income. That is a small consolation when you don't have much of either.

The Recovery™ is like Equal Justice™ these days of the Pax Americana and Pax Brittanica.

It is reserved for some, and keeps two sets of books.

Median Household Net Worth is back to what it was in the 1960's.

At least we had better music then.

So who are you going to vote for this time?  Bush, or Clinton?

And may the odds be ever in your favour.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

Princes of the Yen: Central Banks and the Transformation of an Economy

"Central banks have the power to create economic, political and social change. This is how they do it."

While I cringed at some of the early parts of the film and the mid-century American attitudes towards the Japanese, even if it was in the aftermath of a long and viciously fought war, I think this documentary provides some valuable insights into the evolution of the modern economy that is Japan.  I direct your attention to the things that we are often saying about different peoples today.

 

I struggle very hard not to judge other periods, cultures, and people with a righteous and twice removed temporal prejudice, enhanced by distance and hindsight.  And I believe such liberality might serve us well, given that we will most likely appear like blundering, hapless baboons to our great grandchildren some day.  What were they thinking!?

 

As a general observation based on experience, people everywhere are just people. Unless you are wearing the goggles of ignorance, fear, and hatred. And wicked men in business and government often encourage that sort of thing for their own ends.   But, in the end, the madness serves only itself.

 

But some cultures do tend to encourage and reward certain traits of personality and behavior more than others.  This has deep roots in their cultural, social, and religious heritage.  So the same economic conditions in two different cultures might provide two very different outcomes.

I recall explaining some of this to a professor from England whom we had in business school.  He could not quite understand how some of the things that were happening in Japan (Japan Inc. as it was known then) that ought not to be occurring in a two party system. The answer of course was that Japan at that time, in the early 1990's, was essentially a single party system with heavy ties to an embedded bureaucracy in partnership with corporate cartels.  And Richard Werner does a fairly good job at describing the evolution and nature of that system.

I think this structure helps to explain the long economic stagnation in Japan that puzzles so many, and has the Keynesians so befuddled.   They have never met any stimulus that they didn't like, even when it was being poured into and abused by a corrupt and inefficient system. 

 

Rather than being naturally more successful at its financial engineering, as fellows like Bernanke have snarkily suggested in their American exceptionalism,  I think it is becoming painfully obvious that the US is 'turning Japanese' in its serial policy errors propagated by an insular, ruling elite and the moneyed interests with their political power.

 

Speaking of financial engineering, Professor Richard Werner has been a long time economic advisor to Japan, and coined the term quantitative easing for his recommendations to them.

 

Japan, and the 'Asian tigers' as well, were mercantilist in their outlook and crony capitalist in their composition.  The enormous amounts of monetary stimulus were dissipated in supporting zombie corporations, a ruling elite, unproductive investments, and widespread soft corruption and insider dealing.

To engage in 'free trade agreements' under these circumstances with other command and control economies is foolish, especially when it puts domestic labor, social services, and the environment at par.  Especially when such processes are disguised under layers of complex rules and commissions, and easily manipulated by global corporations.   These are the bonds of global repression of the common people by concentrated power.

 

It rips the heart out of local autonomy and democracy under the banner of 'competitiveness.' It is corrosive of precious freedoms, and tramples the Constitution. But money has helped to ease the consciences of Western politicians.

Even moreso, can there be any doubt that the US, rather than helping to provide a positive example of a different way to Asia, inculcating freedom through its success of democratic and free markets, is in fact falling into the same model, a kind of a lowest common denominator of inverted totalitarianism under the standard of globalization.

 

I would like to think that Chalmers Johnson would most likely agree that if the Bank of Japan's economists are indeed the 'princes of the yen,' this is because they are now and have long been liege lords in the Empire of the American Dollar and the Anglo-American banking cartel.

Senate Report Reveals Powerful Manipulative Positions of Goldman, JPM In Global Commodities

"We had to struggle with the old enemies of peace--business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob."

Franklin D. Roosevelt

"Why is JP Morgan getting so much heat?   Maybe because it is a massive international crime syndicate."

Matt Taibbi, Talking JPM With Sam Seder

JPM and Goldman sought and obtained manipulative powers in global commodities, even while they were being bailed out on the back of the American people?   Oh no, nothing like this could be true, or so the shills and toadies of the moneyed interests will say.  Just get the government out of our way, and everything will be all right.  The market is naturally rational and efficient, pure and pristine.   No Bank would risk its reputation by doing anything illegal.

Especially when they buy off and intimidate enforcement, write the laws, and do what they will. 

I doubt that anything meaningful will be done about this.  The corruption runs deep.  In corporatism the private and public elites are largely interchangeable.  Different roles, similar objectives.

The politicians may make a good show of it, and talk harshly to their witnesses.  And then take their money, and lick their hands.

But at least we know more about what is true, and what is not.

Perhaps this may help you understand those who do not wish to remain under the power of the Banking cartel, and may be in a better position to do something about it.

Related: Wiseguys: Drawing Parallels Between the Mafia and Wall Street

Dealbook

Senate Report Criticizes Goldman and JPMorgan Over Their Roles in Commodities Market

By Nathaniel Popper and Peter Eavis

November 19, 2014

A two-year Senate-led investigation is throwing back the curtain on the outsize and sometimes hidden sway that Wall Street banks have gained over the markets for essential commodities like oil, aluminum and coal.

The Senate’s Permanent Subcommittee on Investigations found that Goldman Sachs and JPMorgan Chase assumed a role of such significance in the commodities markets that it became possible for the banks to influence the prices that consumers pay while also securing inside information about the markets that could be used by the banks’ own traders

Bankers from both firms, along with other industry executives and regulators, will testify about the allegations at hearings on Thursday and Friday.

The 400-page report, which was made public on Wednesday evening, included case studies on nine different commodities in which banks have taken big positions, including the 100 oil tankers and 55 million barrels of oil storage that were owned by Morgan Stanley, and the 31 power plants owned by JPMorgan at one point.

The subcommittee discussed several reasons that these commodity operations could create problems. The potential for price manipulation and the unfair advantage that banks can gain in these markets were among the top concerns expressed by Senator Levin and Senator John McCain, the top Republican on the subcommittee.

But both senators also echoed previous warnings that the enormous holdings of oil, uranium and other hazardous materials could expose the banks to significant legal liability that could, in turn, lead to runs on the banks.

A 2012 study by the Federal Reserve, cited in the report, found that banks have not put aside enough money and insurance to adequately prepare for the “extreme loss scenarios” involving commodities...

Read the entire article here.

Stock Valuations Outrunning Profits Growth - And the Band Played On

"We are still amazed by the chart [below], but it summarises the problem for those seeking to short stocks with fundamental weaknesses. In the last three years, the MSCI World Index has risen by 38% (11% per annum) whilst reported profits have risen by just 3% (that’s just 1% per annum!). As the events of last month attest, central bank actions–not profits–are driving equities forward."

Andrew Lapthorne, Societe General

This quote is in reference to the first chart below that shows stock prices are outrunning profit growth.   The second chart is the Shiller PE 10 Ratio for US stocks.

Beside the corrupting influence of Big Money on politics and academics, the other pervasive problem in our society is really quite banal, that is, mindlessly managing to the numbers.

Although incentives have always been an issue, in the last thirty years it has become quite fashionable in modern management theory to set a few relatively narrow metrics and judge the performance and rewards of a manager by them and them alone.

While this is not wrong in and of it self, such a philosophy provides a source of great mischief if the metrics are excessively narrow, and therefore obscure the bigger picture and the health of an organization, a company, or even a nation.

I think we are all familiar with how incentives badly designed can drive counter-productive, short term behavior that can actually be destructive of the values of an organization.  I cannot think of a better recent example, other than the widespread fraud and corruption on Wall Street, than the manner in which the Central Banks and their governments are managing The Recovery™.

If employment is a metric, let us foster an economy in which a large number of jobs are created, that are low paying and part time, in order to address the metric of unemployment.  Never mind that this ignores the real reason for concern, ie, the lack of jobs at living wages which will spur aggregate demand.   If unemployment is the only concern, why not just bring back indentured servitude and give everyone a job at below subsistence wages.  Not far off the Japan model at that.

If inflation is a metric, let us follow policies of money printing in order to raise the prices of goods.  Unfortunately this will have price inflation running ahead of the ability of the broad public to pay for the things that they need through wage and income growth.  

See, there is no deflation.  It doesn't matter to the model that the growth in prices is not only artificial, but is in fact increasing the misery of the people by diluting their already reduced incomes with which to purchase necessities.

Now, this would seem to insult common sense.  But in fact if you are a bureaucrat under pressure to please a powerful constituency, and are driven to pursue policies that really do not make sense by any reasonable estimation of 'the public good,' it is tempting to stand fast on your models, and insist that one cannot prove that you are not doing a good job of it. 

 

And it is all so easy to claim well intentioned ignorance, or a lack of relevancy to your responsibilities.  There were executives at Enron who were so incapable, who knew and did so little, that it was a marvel that they were not in nursing homes.

When pressed you can always use discredited theories and perception management to quell those who are calling out the contrariness, at times to the point of madness, of your policy actions.  Prove to me it is a bubble!  Prove to me that people are not just lazy, or incapable of doing useful work!  Prove to me that giving trillions to the Banks is not sound monetary policy.

 

What does it matter, if your bosses are happy, and the perks and prestige, and all important access to the halls of power, are ensured.  At times your conscience may be troubled by the thought that in some of your actions you may have gone too far, and committed acts that could be considered outside of the law.  But you have done it for the good of the system, after all. 

And in that you are above the law, a law maker, not a follower.  A bonus or promotion, or some other visible reward or recognition, may quiet your conscience and concerns.  You are only doing what must be done, as demanded by those who deserve to be followed and obeyed. 

 

You see the excesses, by the really bad ones, but you are not like them.  Some day when you have the power you will set things right, but you must stay within the system to obtain that power.  So you must steel yourself, and be practical, and do what must be done. 

 

And that is easier to do, when there is no metric for human misery and suffering.  The unfortunate are easy to ignore.  No one wishes to see them, or hear them.  And they have little power.

You work hard, and are only human after all.  And for this you are a very important person, well regarded in the Capitol.  You are making money for yourself and your friends, the people who really count.  You are a success!  And all is right with your world.

"When virtue is lost, benevolence appears, when benevolence is lost right conduct appears, when right conduct is lost, expediency appears. Expediency is the mere shadow of right and truth; it is the beginning of disorder."

Lao Tzu

 

No one sits down one day and decides, 'I shall become a monster, and do monstrous things.'

 

And the band played on.

h/t Zerohedge

Shiller PE Ratio

Moyers: Our Democracy Is Flatlined - Moneyed Interests and Politics

"There was a Princeton study by Martin Gilens and Ben Page. The largest empirical study of actual policy decisions by our government in the history of our government. And what they did is they related our actual decisions to what the economic elite care about, what the organized interest groups care about, and what the average voter cares about.

And when they look at the economic elite, you know, as the percentage of economic elite who support an idea goes up, the probability of it passing goes up. As the organized interests care about something more and more, the probability of it passing goes up. But as the average voter cares about something, it has no effect at all, statistically no effect at all on the probability of it passing.

If we can go from zero percent of the average voters caring about something to 100 percent and it doesn't change the probability of it actually being enacted. And when you look at those numbers, that graph, this flat line, that flat line is a metaphor for our democracy.

Our democracy is flatlined. Because when you can show clearly there's no relationship between what the average voter cares about, only if it happens to coincide with what the economic elite care about, you've shown that we don't have a democracy anymore."

Lawrence Lessig

"It [big money] mattered enormously. It mattered in the selection of candidates. You know, long before we even heard their names, the candidates were selected if they were basically comfortable working for big-money donors. And that in itself gets you out of the realm of inspirational leadership. And then, of course, it mattered in the drowning of ads and the sense that people outside of any accountable power, super PACs outside of any accountable power, were really sort of running the system."

Zephyr Teachout

 

 

Lawsuit: CME Futures Market Creates 'Guaranteed Winners and Guaranteed Losers'

How appropriate that this morning Bart Chilton is appearing on Bloomberg TV with Terry Duffy, President of the CME, laughing it up with the 'news anchors' about 'Why Today's Markets Are Better Than Ever.'

I suppose that the US markets of today are quite efficient and effective. 

The public may just not understand in 'what way' they are intended to be efficient.

And may the odds be always in your favour.

This is a very brief excerpt of a well written story from Wall Street On Parade.

You may read it in its entirety here.
 

Lawsuit: Chicago Futures Market Creates “Guaranteed Winners and Guaranteed Losers”
By Pam Martens
November 6, 2014

Last week three futures traders told a Federal court in Chicago that it’s not just the high frequency trading firms that are reaping a windfall but the exchanges who are engaged in a conspiracy with them to create guaranteed winners and guaranteed losers...

But what Judge Charles P. Kocoras has been hearing in this case for months are these hair-raising charges of 'clandestine contracts' between the futures exchanges and high frequency traders; that the exchange is giving high frequency traders early peeks at data before the rest of the market under a process known as the 'Latency Loophole'; and that potentially as much as 50 percent of the trades on the exchange are 'wash trades.'

Why The Democrats Got Their Clocks Cleaned

The Democrats failed to make the most of a great moment in history because there was no Democrat brave enough, independent enough, to energize their party around the mandate for reform given to them overwhelmingly by the people in 2008.

Remember when everyone thought that the Republican party was dead, completely and utterly repudiated in 2008?  And how they have risen from the dead!

Obama was a pawn of the moneyed interests before he even took office.  He didn't sell out;  he was a well engineered product with a well targeted brand, selected and groomed for it.  

Less a politician than a thoroughly modern manager, Obama's primary objectives are to please his shareholders, whomever those may be.   And they were certainly not the people who voted for him.   He is not any kind of progressive or reformer once one scratches the surface.

That became clear in his first 100 days with his appointments.  And in his defense, the Democrats on the whole have been throwing their constituents under the bus for the sake of Wall Street money since 1992.  So Obama was not so much a betrayer as a fake, a member of the Wall Street wing of the Democratic party.  He is always fumbling, and making excuses, but at the end of the day, he did as he was told. 

The Democratic leadership has tried to bridge a gap between representing the people and fattening their wallets, and have ended up pleasing few.  They won't become the party of the moneyed interests because they cannot sell out more deeply than their counterparts.  And as for their traditional constituency in the working class, the only rejoinder is, 'the other guys are worse.'  And the other guys say the same thing to their base about them.  And no one is getting served, except the one percent.

I think that the 'other guys' are going to be worse, and people are just going to have to see how bad things can get, again, before they can get any better. 

From an FDR 1936 campaign speech in Madison Square Garden:

"For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master."

Bernie Sanders: Breaking Big Money's Grip on US Elections

Not likely with both major parties swilling at the Big Money troughs, during and after office.

The first step will be to get the politicians to care what the people think and want again, and not treat them with such casual disdain and contempt.



Breaking Big Money’s Grip on Elections from BillMoyers.com on Vimeo.

FOMC On QE III: Mission Accomplished

It is mission accomplished for the Fed's third stimulus program, if one keeps in mind that Quantitative Easing is a subsidy program for the one percent and Wall Street, not the general public and Main Street.

It is the fallacy of trickle down economics at its most blind and pernicious.

At the end of the day, the Fed's objective has been to bail out and preserve their owners in the Banking System, largely intact, down to their thoroughly rotten core.   The Fed is not the government.  The Fed works with its friends in the government.  The Fed is a creature of the Banks.

And the public is being forced to pick up the tab through financial repression and a stealth austerity through market manipulation, money printing, and price rigging.

Board of Governors of the Federal Reserve System

Release Date: October 29, 2014

For immediate release

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee's longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month....

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

Related: US Child Poverty Highest In Twenty Years

Nomi Prins: Why the Financial and Political Systems Failed

Nomi Prins calls out the policy error deluxe that has been the topic of so much commentary at Le Café over the past few years.

What is perhaps most striking is that this failure is so bipartisan in a time of contentiousness.   It crosses not only parties but professions, from academics to politicians.

As you know I have featured several articles and videos of hers as she introduces her latest book, All the President's Bankers which is insightful, well-founded and researched, and essential to any understand of what is happening today.

 

As you know I have ascribed this to the credibility trap.   Insiders never speak ill of insiders, if they which to remain a part of the power elite. This is reinforced in the Ivy League and the halls of power.   And so leaders and potential leaders are hopelessly compromised and entangled in a self-serving system of abuse of power and corruption.

It is part of a general failure of moral conscience and leadership in the country.   It has been or is being repeated in England and other countries in Europe.  It is the reason for the long stagnation of the Japanese economy.

 

This is a very brief excerpt.  You may read this insightful commentary in its entirety here.

 

"The recent spike in global political-financial volatility that was temporarily soothed by ECB covered bond buying reveals another crack in the six-year-old throw-money-at-the-banks strategies of politicians and central bankers.

The premise of using banks as credit portals to transport public funds from the government to citizens is as inefficient as it is not happening. The power elite may exude belabored moans about slow growth and rising inequality in speeches and press releases, but they continue to find ways to provide liquidity, sustenance and comfort to financial institutions, not to populations.

The very fact - that without excessive artificial stimulation or the promise of it - more hell breaks loose - is one that government heads neither admit, nor appear to discuss. But the truth is that the global financial system has already failed. Big banks have been propped up, and their capital bases rejuvenated, by various means of external intervention, not their own business models..."

Nomi Prins, Why the Financial and Political Systems Failed, and Why Stability Matters

Related: All The President's Bankers

Yellen's Trickle Down Dilemma

Why is the economy so sluggish?

Even if real wages are stagnant, and consumers are tapped, the Banks have been saved and stand ready to loan from an abundance of freshly created money (that they can obtain for almost nothing).

Why won't consumers make a leap of faith and borrow more, betting their last assets on an indifferent Congress and an elusive recovery?  

 

It's heads we win and tails you lose for the bailout Banks. 

 

And from a Banker's perspective it probably makes sense.