“Thus, it should be understood that when pro-US figures use the term, 'rules-based international order,' they are not referring to anything analogous to the rule of law. Quite the opposite, they are using Orwellian language to describe a system in which essentially no rules can be established and/or observed, given that the dominant state has the prerogative to violate and/or rewrite “rules” at its whim.” Aaron Good, American Exception
Showing posts with label financial coup d'etat. Show all posts
Showing posts with label financial coup d'etat. Show all posts
"Since 1998, in our corrupt political system, the private healthcare sector has spent more than $10.6 billion on lobbying and over the last 30 years it has spent more than $1.7 billion on campaign contributions to maintain the status quo. We have the highest prices in the world for prescription drugs, and the pharmaceutical industry right now has 1,500 paid lobbyists in Washington, D.C. to make sure that in some cases we pay 10 times more for the medicine that we need."
Bernie Sanders, September 2022
"Yet the system of corruption depends on another factor beyond secrecy, one that is perhaps even more important: impunity. Impunity means that the rich and powerful escape from punishment even when their malfeasance is in full view. Impunity is epidemic in America. The rich and powerful get away with their heists in broad daylight. When a politician like Bernie Sanders calls out the corruption, the New York Times and Wall Street Journal double down with their mockery over such a foolish 'dreamer.' Our major institutions, the ones that should know better, are often gross enablers of impunity."
Jeffrey Sachs, The Age of Impunity, May 2016
"There is now abundant evidence of widespread, unpunished criminal behavior in the financial sector. The evidence is now overwhelming that over the last thirty years, the U.S. financial sector has become a rogue industry. As its wealth and power grew, it subverted America’s political system (including both political parties), government, and academic institutions in order to free itself from regulation.
As deregulation progressed, the industry became ever more unethical and dangerous, producing ever larger financial crises and ever more blatant criminality. Since the 1990s, its power has been sufficient to insulate bankers not only from effective regulation but even from criminal law enforcement. The financial sector is now a parasitic and destabilizing industry that constitutes a major drag on American economic growth.
The rise of predatory finance is both a cause and a symptom of an even broader, and even more disturbing, change in America’s economy and political system. The financial sector is the core of a new oligarchy that has risen to power over the past thirty years, and that has profoundly changed American life."
Charles Ferguson, Predator Nation
Stocks had another ranging day, ending slightly higher.
Gold dropped, under pressure most of the day.
Physical inventories are very thin in Hong Kong.
Silver moved higher, taking back some of its recent decline.
The Dollar chopped sideways.
The VIX receded after the big rise yesterday.
Who do the powerful of this world serve? The simple truth of the matter is this— non serviam. In all things they will not serve any other but themselves.
May God have mercy and forgive us, especially in that moment when we will finally see ourselves as we really are, stripped of all worldly ornaments and illusions, and then know what we have done, and what we have failed to do, with perfect clarity.
"The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickled down. Put it uphill and let it go and it will reach the driest little spot. But he didn't know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night anyhow. But it will at least have passed through some poor fellow’s hands."
Will Rogers, 5 December 1932
"It is no exaggeration to say that since the 1980s, much of the global financial sector has become criminalised, creating an industry culture that tolerates or even encourages systematic fraud."
Charles H. Ferguson
"Quantitative easing is a gigantic confidence trick. It was promised that it would yield new investment. It has not. It was promised that it would 'pump money into the economy'. It has not. It was also feared that printing money would lead to hyper-inflation. It has not, for the simple reason that no one gets to spend the money. It is a bookkeeping transaction between a central bank and a commercial bank. It means nothing as long as banks are told to build up their reserves (or drive up the speculative value of financial paper assets)."
Simon Jenkins
"We so easily forget. Once the cry of so-called prosperity is heard in the land, we all become so stampeded by the spirit of the god Mammon, that we cannot serve the dictates of social conscience. We are here to serve notice that the economic order is the invention of man; and that it cannot dominate certain eternal principles of justice and of God. The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little."
Franklin Delano Roosevelt
“Evil when we are in its power is not felt as evil, but as a necessity, or even a duty."
Simone Weil
Stocks were pushing higher today, on hopes for Fed dovishness (e.g. moneyprinting) as far as the eye can see. And within a fiscal regime that guides most of the money, if not all of it, to the top one percent.
The Dollar moved loved, skidding down towards the 92 handle.
Gold and silver rallied.
The unsustainable will not be sustained, except through ever-increasing force and fraud.
Need little, want less, love more.
For those who abide in love abide in God, and God in them.
It is correct to say that money velocity does not do anything. It does not do anything in the way that the speedometer on your car does not do anything. But it is an important measurement, a ratio of the amount of money being created and it relationship to productive, organic growth in the economy.
And it is well known that money velocity peaked in 1997, and has been in a steady decline since then. It is now at lows never seen before in the US economy. It, like the implications of the long term stagnation of median household income, remains largely unremarked, and if noticed, excused away as unimportant.
Tony is an expert on financial aspects of housing, among other things, and as you know I follow what he writes closely. He knows more about these things than anyone that I know. And he says what he means and means what he says, which is a sometimes neglected principle among mainstream economists these days.
But as I have a slightly different perspective on that period of time, I would take this a step further and draw a admittedly broader, less specialized conclusion. The article does not account for the massive tech bubble, which at the time was covered by the fig leaf of a 'new era internet economy,' giving it the name of the dot-com bubble, with which I happened to be intimately familiar.
Who can forget Chairman Greenspan's irrational exuberance speech which shanked the stock market in December of 1996.
Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past.
But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?
Alan Greenspan, The Challenge of Central Banking in a Democratic Society, 1996-12-05
As it turned out, Chairman Greenspan was blinded by ideology, as he himself admits years afterwards, never seeing a bubble that he didn't like. But his successors have followed the same sorry route of feeding the financiers to the detriment of the broader economy.
The problem was not the mortgage credit bubble per se, but rather the policy bias towards managing and regulating the economy itself, with an aggressive expansion of the money supply under Alan Greenspan (remember the Y2K scare) and Treasury Secretary Robert Rubin, along with bubbles in the usual suspects, in this case the financialization of housing and the tremendous bubble in the equity markets.
Do you recall the Time Magazine cover from 15 February 1999? The Committee To Save the World?
And how can we forget the Rubin doctrine of propping up the financial markets using the SP 500 futures before the fact, which he thought was cheaper than cleaning up the mess of a market crash after the fact. Remember The Working Group, aka The Plunge Protection Team, housed within the Exchange Stabilization Act, that came out of the scarring experience of the Crash of 1987, which itself was a precursor to the woes created by weakly regulated, artificially exotic financial instruments and mispriced risks?
A crisis is a very effective mechanism for enabling the abuse of power.
And let us not forget the overturning of Glass-Steagall in a decades long campaign richly underwritten by the Wall Street Banks, and the infamous Gramm-Leach-Bliley Financial Services Modernization Act of 1999.
In 1999, on signing Gramm-Leach-Bliley into law, Clinton said, 'This is a day we can celebrate as an American day' and that 'the Glass-Steagall law is no longer appropriate for the economy in which we live' and 'today what we are doing is modernizing the financial services industry, tearing down these antiquated laws and granting banks significant new authority' and 'This is a very good day for the United States.'
Columbia Journalism Review, Bill Clinton on Deregulation
One might say by way of analogy that Reagan made the nest, and Clinton laid the egg. But both Bush II and Obama have nurtured this chimera economy along. And we can have every expectation that the political establishment will continue to do so in the next presidency.
"It comes as a surprise to many people that, despite the fiasco at Citigroup and his role in causing the subprime mess, Rubin remains inside the circle at the White House. Nearly two decades after first migrating to Washington, he apparently is still calling the shots of U.S. financial and economic policy with the full support of President Barrack Obama.
Working through his favorite marionettes, Treasury Secretary Tim Geithner and Economic Policy Czar Larry Summers, most recently Rubin managed the defense of Wall Street following the great crisis. No matter what Secretary Geithner says or when he says it in public, you can be sure that those utterances have the full knowledge and approval of his handler Larry Summers and their common political owner and sponsor, Robert Rubin.
The causes for this are debatable and many, and I have considered it here many times as the credibility trap,
What we have now, an economy based on artificial support market resulting in a series of asset bubbles and crashes, with a growing inequality in income distribution. This is the natural outcome when a policy body decides to manage or 'stimulate' the economy by shoving freshly minted dollars top down through a weakly regulated, increasingly corrupt financial system whose outsized and largely unproductive profits act like a private tax on the real economy. It enriches a few, and enervates the productive working class.
This is why I have said that until there is financial and political reform, there will be no sustainable recovery. And the longer this continues, the more that the organic productivity of the economy will decline. And the more socially explosive the situation may become.
"Over the last thirty years, the United States has been taken over by an amoral financial oligarchy, and the American dream of opportunity, education, and upward mobility is now largely confined to the top few percent of the population. Federal policy is increasingly dictated by the wealthy, by the financial sector, and by powerful (though sometimes badly mismanaged) industries such as telecommunications, health care, automobiles, and energy. These policies are implemented and praised by these groups’ willing servants, namely the increasingly bought-and-paid-for leadership of America’s political parties, academia, and lobbying industry.
If allowed to continue, this process will turn the United States into a declining, unfair society with an impoverished, angry, uneducated population under the control of a small, ultrawealthy elite. Such a society would be not only immoral but also eventually unstable, dangerously ripe for religious and political extremism.
Charles Ferguson, Predator Nation
I have little expectation now that reform will come from within. The power of the status quo is too great, and too prone to rewarding those who serve it, and silencing and impeding those who oppose it by progressive reform.
"'After dinner, 'Larry [Summers] leaned back in his chair and offered me some advice,' Ms. Warren writes. 'I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People — powerful people — listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders.'
I had been warned."
Elizabeth Warren, A Fighting Chance
How can we have missed this element of self-serving preservation of the status quo so broadly on display in the run up to our recent presidential election?
'Stimulus' in itself is no panacea. It must be productive and targeted towards increasing aggregate demand within a healthy economy which distributes the rewards for productive efforts broadly amongst its participants.
Whether it is affordable housing, infrastructure project such as roads, bridges, and modern power grids, the general improvement of the environment, or the expansion and improvement of those basic elements of a culture than lend value to peoples' lives, any project which can be considered stimulative can and will be turned into an unproductive boondoggle by a corrupt financial and political system. They contaminate everything that they touch.
And so I continue to make the observation that significant financial and political reform are the sine qua non for a genuine economic recovery.
Doing more of the same may make no sense, may even seem neurotic. And if it seems to defy common sense, that is because it does.
But it has one very special thing going for it. It has been and still is richly rewarding to a small group of very powerful people, something which we have seen repeatedly throughout the developing world, and even in the gilded, boom and bust eras of this country before.
"The crash has laid bare many unpleasant truths about the United States...
Recovery will fail unless we break the financial oligarchy that is blocking essential reform."
Confounded Interest Dying Money Velocity Began in 1995 with Massive Mortgage Credit Expansion
M2 Money Velocity (GDP/M2 Money Stock) peaked back in Q3 of 1997. And it has mostly gone down hill from there. As of Q2 2016, M2 Money Velocity is at the lowest point in history.
Why?
One explanation for the decline in velocity is the decline in labor force participation since early 2000 when labor force participation peaked. Fewer people participating in the labor force (as a percentage of the population) makes it more and more difficult to maintain velocity since GDP is lower despite the expansion of money.
Why is labor force participation declining? First, our population is aging and more and more people are retiring. Second, more and more students decided to attend and/or stay in school given the lousy jobs market. Third, some people have just given up trying to find a job and would prefer to rely on the state for food, housing, healthcare, etc.
A closer look reveals some bad AND good news. Labor force participation for ages 25-54 has been declining since 2007 (but showing some improvement in 2016). On the other hand, LFP for ages 65 and above (many of whom were pushed back into the labor force as a result of the financial crisis and housing bubble burst) has been growing steadily since 2008.
Actually, the economic world turned before labor force participation peaked in early 2000 and M2 Money Velocity peaked in 1997.A key economic indicator, core personal consumption expenditures YoY, was above 4% in the early 1990s only to fall to around 2% around 1995 prompting the Clinton Administration to enact policies leading to a dramatic increase in mortgage credit (creating a credit bubble) as a stimulative measure. This was the Clinton National Homeownership Strategy: Partners in the American “Dream.” nhsdream2 That turned into a nightmare for millions of American families.
1995 was the beginning of the incredible housing credit bubble that catastrophically exploded in 2008.
Core personal consumption expenditures (cPCE) YoY sagged after 1989 and hit 2% by mid 1990s and has struggled to reach 2% on a consistent basis ever since. As a result, GDP has been compromised and the massive expansion of mortgage credit helped created a massive house price bubble which burst … and things have never been the same since.
And with the fall of the House of Usher cards, mortgage equity withdrawal has fallen as well (putting a damper on personal consumption expenditures.
Remember, housing is a consumption good (to serve as shelter), not a productive asset like a factory. Trying to create economic growth through housing is a poor choice. So much so that The Federal Reserve is left blowing asset bubbles instead of stimulating actual economic growth.
"The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises.
If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time."
“A true opium of the people is a belief in nothingness after death - the huge solace of thinking that for our betrayals, greed, cowardice, and even murders that we are not going to be judged.”
Czesław Miłosz
As economist Simon Johnson put it so aptly, there was a 'financial coup d'etat' in the States. It was the result of a longer term and well-funded effort as documented by PBS Frontline and others.
People forget all too quickly what has happened, even things that happened less than twenty years ago. Perhaps it is easily forgotten because there are so few counterexamples of honesty and decency these days in government and business to hold up in comparison. The UK and Canada are following in lockstep, as well as the central government for Europe in Brussels.
The Clintons, along with a large group of Republican Congressmen and compliant Democrats, put a 'for sale' sign not only on the Lincoln bedroom as you may recall, but on the rest of the White House and the Capitol, and indeed, the well being of the people of the United States.
They certainly did not do it alone, as it was a bipartisan effort to overturn the protections established in the darker days of the Great Depression. But the money was good, and it was there for the taking, and with it the enormous power to threaten or reward those around them.
And it became the thing to do in Washington and New York, to partner up with big money to take the public for a wild ride, as we have not seen since the beginning of the last century. Once again capitalism was unfettered, and became the rawest, the worst kind of short sighted and self-dealing 'capitalism' that is more corrosive looting than productive asset allocating. And so the New York - Washington metroplex enthusiastically engaged in a program of fabulous gains for themselves, and longer term pain for the country.
I do not have to read Robert Scheer's account to understand it; I saw this happening with my own eyes, almost in slow motion, as one might watch the events leading up to a train wreck. The actions of the participants were deliberate, and focused solely on amassing enormous fortunes for themselves and their friends, and damn the people and the consequences.
What the Clintons did was not to invent soft graft of political contributions and gratuities, sinecure positions after public office, and ridiculously generous payment for speeches and appearances. No, what they did was take what had been reviled as the worst of politics in craven service to big corporate interests, which had been largely but not exclusively the hallmark of their political opponents who were well established as servants to the corporate interests, and make it not only acceptable for establishment liberals, but downright fashionable.
Why would the Clintons, that wonderfully privileged and intelligent couple, do such a coarse and craven thing? One might think of about $130 million reasons offhand. Is anything just that simple? And what would you do if you were offered $130 million in easy money for you and your family to make a few key decisions, to look the other way at times, while having no fear of punishment, with all your many sins forgotten, excused, and ignored by a compliant press?
Oh yes, you are an angel and would of course say no, even if the corruption was unrolled slowly, one step at a time. But what do you think that the fellow next to you would do? The ones who cut people off in traffic, makes the rules for themselves, wishing to have their own way, to have power and a place at the highest table?
Is this a system likely to be honest, just, and sustainable? Is it designed for fairness and rewarding the best and most productive behaviour?
And like the utopian efficient market hypothesis, we are expected to believe that the powerful men of Big Money are just men of civic virtue who will give millions upon millions of dollars to politicians and expect nothing but fairness and objectivity in return, even if it is to their own disadvantage as required by justice.
No wonder so many politicians have become little more than marketing projects for Big Money, like brands of toothpaste and soft drinks. Pick any flavor that you wish, but despite the appearances of difference, they are all owned by just four or five big corporate interests, as is the mainstream media. Which by the way was enabled by the Clintons overturning the Fairness Doctrine.
A number of the old hands of politics see where this is heading, and have already taken the money and run, some to hide in their studies, to try and create a new legacy for themselves, and others to move to K Street as lobbyists and get filthier rich while it lasts.
But the problem still remains, Once thoroughly corrupted, a system finds it hard to correct itself, especially if the consequences for big rewards are more of an inconvenience than punishment, if there are any serious drawbacks at all.
The American people seem to be attempting to rouse themselves, to use their right of suffrage to bring about the change, the necessary reform, that has eluded them for quite some time. Let us hope that this effort will not be squashed in the manner of other protests, such as Occupy Wall Street, have been through almost ruthless and coordinated nationwide public relations campaigns and even violence from the government and the media.
The ‘Clinton Bubble’: How Clinton Democrats Fostered the 2008 Economic Crisis
By Robert Scheer
Since the collapse happened on the watch of President George W. Bush at the end of two full terms in office, many in the Democratic Party were only too eager to blame his administration. Yet while Bush did nothing to remedy the problem, and his response was to simply reward the culprits, the roots of this disaster go back much further, to the free-market propaganda of the Reagan years and, most damagingly, to the bipartisan deregulation of the banking industry undertaken with the full support of “liberal” President Clinton. Yes, Clinton. And if this debacle needs a name, it should most properly be called “the Clinton bubble,” as difficult as it may be to accept for those of us who voted for him.
Clinton, being a smart person and an astute politician, did not use old ideological arguments to do away with New Deal restrictions on the banking system, which had been in place ever since the Great Depression threatened the survival of capitalism. His were the words of technocrats, arguing that modern technology, globalization, and the increased sophistication of traders meant the old concerns and restrictions were outdated. By “modernizing” the economy, so the promise went, we would free powerful creative energies and create new wealth for a broad spectrum of Americans—not to mention boosting the Democratic Party enormously, both politically and financially.
And it worked: Traditional banks freed by the dissolution of New Deal regulations became much more aggressive in investing deposits, snapping up financial services companies in a binge of acquisitions. These giant conglomerates then bet long on a broad and limitless expansion of the economy, making credit easy and driving up the stock and real estate markets to unseen heights. Increasingly complicated yet wildly profitable securities—especially so-called over-the-counter derivatives (OTC), which, as their name suggests, are financial instruments derived from other assets or products—proved irresistible to global investors, even though few really understood what they were buying. Those transactions in suspect derivatives were negotiated in markets that had been freed from the obligations of government regulation and would grow in the year 2009 to more than $600 trillion...
Clinton betrayed the wisdom of Franklin Delano Roosevelt’s New Deal reforms that capitalism needed to be saved from its own excess in order to survive, that the free market would remain free only if it was properly regulated in the public interest. The great and terrible irony of capitalism is that if left unfettered, it inexorably engineers its own demise, through either revolution or economic collapse. The guardians of capitalism’s survival are thus not the self-proclaimed free-marketers, who, in defiance of the pragmatic Adam Smith himself, want to chop away at all government restraints on corporate actions, but rather liberals, at least those in the mode of FDR, who seek to harness its awesome power while keeping its workings palatable to a civilized and progressive society.
Government regulation of the market economy arose during the New Deal out of a desire to save capitalism rather than destroy it. Whether it was child labor in dark coal mines, the exploitation of racially segregated human beings to pick cotton, or the unfathomable devastation of the Great Depression, the brutal creativity of the pure profit motive has always posed a stark challenge to our belief that we are moral creatures. The modern bureaucratic governments of the developed world were built, unconsciously, as a bulwark, something big enough to occasionally stand up to the power of uncontrolled market forces...
Read the entire article with a link to the preceding excerpt from the book here.
Apparently President Obama and Senator Sanders are going to have an 'informal one-on-one meeting with no agenda' and no press today.
This presidential election has really framed up as an attempt at a popular revolt against a Big Money political establishment. And it is fascinating to watch.
Although the mainstream media keeps feigning astonishment, the broader public is clearly seeking two non-establishment candidate who, for better or worse, they think cannot be bought off by Big Money and the revolving door.
This meeting is an informal one with no set agenda.
Perhaps Obama will share the insight he allegedly had early in his Presidency about reformers as recounted by the ex-CIA whistleblower Ray McGovern.
"He’s afraid of what happened to Martin Luther King Jr. And I know from a good friend who was there when it happened, that at a small dinner with progressive supporters – after these progressive supporters were banging on Obama before the election, Why don’t you do the things we thought you stood for? Obama turned sharply and said, “Don’t you remember what happened to Martin Luther King Jr.?” That’s a quote, and that’s a very revealing quote."
Ray McGovern
I am sure Obama was being flip. They was no need to buy him because he was a well-crafted brand backed by Big Money from the very start. What he was voicing, if indeed he said this, was the time honored motto of political corruption, to go along to get along. This was the great lesson to the Democratic party from the Clintons.
I have included a short but interesting video at the very bottom about how things work in Washington these days as recounted by Neil Barofsky to Bill Moyers.
And finally I include a short video describing the state of politics in the US from that wild eyed radical, former President Jimmy Carter.
Bernie Sanders Meets With Obama Today: What They Might Talk About
By Pam Martens and Russ Martens
January 27, 2016
Expensive media real estate is reporting that presidential candidate, Senator Bernie Sanders of Vermont, will meet with President Obama in the Oval Office today. Much is being made of the fact that the meeting comes less than a week before the politically important Iowa caucuses and just two days after Politico published an exclusive interview with the President in which he appeared to favor a Clinton presidency. (Memo to the President: this election is about finding an authentic non-establishment candidate, so your opinion as the quintessential establishment figure is not likely to sway folks – at least not in a good way.)
The first thing that came to mind when we heard about the meeting was that one or more kingpins on Wall Street might have asked the President to whisper in Senator Sanders’ ear to stop repeating at every campaign stop that the business model of Wall Street is fraud. Sanders is also regularly stating on the stump that one of his top priorities as President will be to break up those Wall Street banks that would require another taxpayer bailout if they should fail.
Would Wall Street actually be brazen enough to try to censor the message of a sitting U.S. Senator? Back in March of last year, Reuters reported that representatives of Citigroup, JPMorgan, Goldman Sachs and Bank of America “have met to discuss ways to urge Democrats, including [Elizabeth] Warren and Ohio Senator Sherrod Brown, to soften their party’s tone toward Wall Street.” The article noted that withholding campaign donations to Senate Democrats was one option that was on the table at the Wall Street banks...
"Give a small number of people the power to enrich themselves beyond everyone's wildest dreams, a philosophical rationale to explain all the damage they're causing, and they will not stop until they've run the world economy off a cliff."
Philipp Meyer
"Wall Street is not being made a scapegoat for this crisis: they really did this."
Michael Lewis
"My daughter asked me when she came home from school, “What’s the financial crisis?” and I said, it’s something that happens every five to seven years."
Jamie Dimon
"The greatest tragedy would be to accept the refrain that no one could have seen this coming, and thus nothing could have been done. If we accept this notion, it will happen again."
Financial Crisis Inquiry Commission (2009–2011)
The US has been in a cycle of bubbles, busts, and crashes since at least 1995, and more likely since Alan Greenspan became the Chairman of the Federal Reserve in August, 1987.
The cycle is the same, only the depth and duration seems to change in a continuing 'wash and rinse' of the public money and the real economy.
It has become a machine for transferring income, wealth, ownership, and power to the very top.
This is not 'the new normal.' This is financial corruption and the erosion of systemic integrity.
Are there any markets that have not been shown to have been systematically manipulated, for years?
I like Dean Baker quite well, and often link to his columns. On most things we are pretty much on the same page.
And to his credit he was one of the few 'mainstream' economists to actually see the housing bubble developing, and call it out. Some may claim to have done so, and can even cite a sentence or two where they may have mentioned it, like Paul Krugman for example. But very few spoke about doing something about it while it was in progress. The Fed was aware according to their own minutes, and ignored it.
The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it.
Am I such a person? Do I actually see a fragile financial system that is still corrupt and highly levered, grossly mispricing risks? Or am I just seeing things the way in which I wish to see them?
That difficulty arises because economics is no science. It involves judgement and principles, and weighs the facts far too heavily based upon 'reputation' and 'status.' And of course I have none of those and wish none.
But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective.
Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be 'philosopher kings.'
The housing bubble was no 'cause' of the latest financial crisis. More properly it was the tinder and the trigger event. The S&L crisis was just as great, if not greater. Why then did it not bring the global financial system to its knees?
The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be 'fragile.' In this thinking Nassim Taleb is far ahead of the common economic thought as a real 'systems thinker.' The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within.
I see the same fragility which existed from 1999 to 2008 still in the system, only grown larger, global, and more profoundly influencing the political processes.
The only question is what 'trigger event' might set it spinning, and how great of a magnitude will it have to be in order to do so. The more fragile the system, the less that is required to knock it off its underpinnings.
And a crisis is not a binary, singular event. There is the 'trigger' and the dawning perception of risks, and the initial responses of the political, social, and regulatory powers to consider.
There is no point in debating this, because the regulators and powerful groups like the Fed are caught in a credibility trap, which prevents them from seeing things as they are, and saying so.
So Mr. Baker, rather than looking for the bubble, let's say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy.
Rather than hold out for a 'new bubble' as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way?
I think if one exercises clear and open judgement, they can see that we have stirred up the same pot of witches brew that has made the system fragile and vulnerable to an exogenous shock, and has kept it so.
A new crisis does not have to happen. This is the vain comfort in these sorts of 'black swan' events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain,
The problem is not a 'bubble.' The problem is pervasive corruption, fraud, and lack of meaningful reform. The 'candidate' is the financial system itself, with its outsized hedge funds and the TBTF Banks with their serial crime sprees and accommodative regulators in particular.
And if one cannot see that in this rotten system with its brazenly narrow rewarding of a select few with the bulk of new income, then there is little more that can be said.
Neil Irwin, a writer for the NYT Upshot section, had an interesting debate with himself about the likely future course of the economy. He got the picture mostly right in my view, with a few important qualifications.
"First, his negative scenario is another recession and possibly a financial crisis. I know a lot of folks are saying this stuff, but it's frankly a little silly. The basis of the last financial crisis was a massive amount of debt issued against a hugely over-valued asset (housing). A financial crisis that actually rocks the economy needs this sort of basis.
If a lot of people are speculating in the stock of Uber or other wonder companies, and reality wipes them out, this is just a story of some speculators being wiped out. It is not going to shake the economy as a whole. (San Francisco's economy could take a serious hit.)
Anyhow, financial crises don't just happen, there has to be a real basis for them. To me the housing bubble was pretty obvious given the unprecedented and unexplained run-up in prices in the largest market in the world. Perhaps there is another bubble out there like this, but neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously.
If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story...
Anyhow, a story of slow job growth and ongoing wage stagnation would look like a pretty bad story to most of the country. It may not be as dramatic as a financial crisis that brings the world banking system to its knees, but it is far more likely and therefore something that we should be very worried about."
You might not have heard about this interview on the mainstream media. It occurred several days ago. Apparently Jimmy is not gleefully participating in the triumphant Clinton-Bush winners road tour and congenial yukfest.
Some, nearing the latter part of their days, tend to feel the weight of their conscience. But certainly not all, especially not those who believe in nothing greater than themselves.
Carter's startling admission is at the root, the very heart of the lack of reform and recovery.
But the pundits, even the so-called liberal media and the disgruntled conservative media, will not discuss it frankly and openly. They traffic in shallow anger and distraction, and faithfully serve the special interests.
And there is as little serious discussion in the pampered corporatist media, whose mission is to obfuscate and distract the public from the key issues with 'bread, circuses, and sensationalism.'
This is the kind of thing that everyone in power, and almost all those who bask in that power, know but never talk about openly, feigning ignorance with dismissive ridicule.
They are caught in a credibility trap of their own making. And so they while away the days with private looting, waiting to see which way and when the winds of reaction may blow, while doing everything they can to maintain the status quo which they have created for their own benefit.
It is the dark heart of corruption, the quiet coup d'état that has overthrown the American republic.
The people are beginning to ask, 'After six years, why is there tremendous profits for those who caused the problems in the first place, but no recovery for the rest of us?'
And the elite look with bewilderment, fear, and anger at the fruits of their treachery and deceit.
They think to themselves, 'We know that we are superior people, tasked with the burdens of leadership, so they must simply be ungrateful, jealous of our success.'
A small but highly visible minority may look to the worst of the oligarchs as their leader and savior. One might call it a kind of Stockholm Syndrome, but really it is just a perverse reaction, the impulse of the camp follower that identifies with their abusers, thinking that this elevates them from the rest.
And the media wisely warns them, slurring any candidates out of the mainstream control, the narcissist and the socialist, urging the people to stick with the familiar oligarchic brand names, Bush and Clinton, and in extremis that slickly formed alloy and extruded creation of the money masters, brand Obama.
Hubris begets nemesis. If they were not so self-absorbed and morally stunted by their pride and selective experience they would understand that people will not stand by and allow themselves to be abused forever.
Transcript:
HARTMANN: Our Supreme Court has now said, “unlimited money in politics.” It seems like a violation of principles of democracy. … Your thoughts on that?
CARTER: It violates the essence of what made America a great country in its political system. Now it’s just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors and U.S. senators and congress members.
So now we’ve just seen a complete subversion of our political system as a payoff to major contributors, who want and expect and sometimes get favors for themselves after the election’s over. … The incumbents, Democrats and Republicans, look upon this unlimited money as a great benefit to themselves.
Hat tip for the above to Sam Sacks and especially to Jon Schwarz at The Intercept.
Let us pray for those whose hearts are hardened against His grace and loving kindness by greed, fear, and pride, and the seductive illusion and crushing isolation of evil.
We pray that we all may experience the three great gifts of our Lord's suffering and triumph: repentance, forgiveness, and thankfulness. And in so doing, may we obtain abundant life, and with it the peace that surpasses all understanding.
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