Wall Street As a Negative Economic Force: Looting Will Continue Until Exhaustion or Collapse

“My hunch is that no one talks about the birth and death rates of American business because Wall Street and the White House, no matter which party occupies the latter, are two gigantic institutions of persuasion. The White House needs to keep you in the game because their political party needs your vote. Wall Street needs the stock market to boom, even if that boom is fueled by illusion.”

Jim Clifton, Chairman and CEO of Gallup, American Entrepreneurship, Dead or Alive?

As Pam and Russ Martens note in their recent article below, "Wall Street’s overarching function today is that of an institutionalized wealth transfer mechanism, propped up by compromised regulators and a dysfunctional Congress."

This is a terrific article, right on point, getting the bigger picture that almost all economic writers are missing, or failing to state in a clear and direct manner without mincing words.    The moneyed interests are not beneficent wealth creators doing God's work and creating jobs and value.  These are more like white collar criminals who are able to bend the law to their will, acting like parasites on the real economy.

THEY are 'too big to fail,' and you are 'too little to matter,' except as a convenient source of their income.

The financial sector is a utility function in a healthy, sustainable, and productive economy.   But in our misdirected mania to establish and maintain the global dollar supremacy in our pride and power, we have turned a utility function into a top priority and the central focus of the economy, to our own ultimate misfortune. 

Our society is out of balance and distorted as a result.  Corporations take precedence over people, and money directs the course of public policy and foreign entanglements, to its own ends.  And the people are left to suffer.

And you need to read it here.  A short excerpt is below.

The decline and stagnation of America coincides with the rise of an outsized and increasingly corrupt financial sector, that is misdirecting resources and gaming the savings and efforts of the great mass of the people, reallocating money to it own wasteful purposes.

As such, the Fed is not only being wasteful with their QE programs, they are actually being counterproductive by propping up a corrupt and harmful financial system that is a major impediment to economic recovery and progress.   This is the lesson of the lost decades of Japan, and we are not only repeating them here, but are strongly influencing and urging their adoption in Europe.

 

And shame on the liberal economists, who will promote stimulus of any sort in their ideological fervor, and cheerlead the results along with the White House, without being mindful that stimulus in itself is not a good thing, if it stimulates the wrong things.   QE is not an effective means of stimulus for the real economy, but it is a windfall and a sinecure for the financial sector and the one percent.

 

People and the real economy need jobs and higher real wages, but not increasingly powerful Banks for which they are prey.  Aggregate demand will stimulate jobs and wages, but not government handouts to the wealthy, who will chase hot money scams and monopolies before sharing their wealth with employees and productive investments.

The privileged and fortunate have an age old model of feudalism in mind:  lords and serfs.  And if the financial elite have their way, the looting, surveillance, and repression will continue, until exhaustion or collapse. 

 

Their greed knows no bounds, and is never satisfied.   Power and pride have their own imperatives: better to be a lord in a kind of hell, than just another servant, even in heaven.

 

History has shown, again and again, how pernicious the corruption can become once the abuse of power takes root in a system.  And how hard it finally falls.

People cannot work harder and save faster than the financiers and their politicians can steal their capital, misdirecting it into scams, frivolous 'innovations,'  unjust taxes and subsidies, and ultimately into their own financial machine where it enables even more scams, corruption, and malinvestments.

And reform cannot happen in a system where the moneyed interests vet the presidential candidates in advance, for whom they will allow you the privilege of voting, whipped up into an enthusiasm by the emotional directed messages of their corporate media.  Vote for Red!  No, you fool, vote for Blue!

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

Evidence Grows Showing Wall Street as a Negative Economic Force

By Pam Martens and Russ Martens

January 27, 2015

Wall Street’s overarching function today is that of an institutionalized wealth transfer mechanism, propped up by compromised regulators and a dysfunctional Congress. As the PBS program Frontline reported in 2013, if your work career spans 50 years and you receive the historic return of 7 percent on stocks in your 401(k) plan, the 2 percent typical fee charged by Wall Street mutual funds will gobble up almost two-thirds of your account.

The Frontline program was called The Retirement Gamble. Wall Street On Parade checked the math and found this was not a gamble but a certainty: 'under a 2 percent 401(k) fee structure, almost two-thirds of your working life will go toward paying obscene compensation to Wall Street; a little over one-third will benefit your family – and that’s before paying taxes on withdrawals to Uncle Sam.'"

This is a very short excerpt from a larger and more data packed article you may read for free here.

Related: Wall Street's Threat to the Middle Class - Reich

Why Are We Bailing Out the Banks Part III (of IV) - The Big Lie

Economics and the corporate media did exemplary service in promoting 'the Big Lies' of the financialisation crisis, most notably efficient markets theory and the trickle down theory of stuffing the rich with even greater power and wealth in the thought that some of the excess would fall on the path for the little people.

"Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: If you feed the horse enough oats, some will pass through to the road for the sparrows."

John Kenneth Galbraith, New York Review of Books, 1982

They have tied these old canards so carefully to emotional arguments that even after the crisis and collapse, many people will still respond reflexively to anything that shakes their faith in a failed, fallen system.

One only has to verbally put a certain color shirt on a group of people's backs, and paint a different color shirt on some others, and given some prompting and rationalization, they will descend on the others with all the reckless passion and unfeeling of the school yard, even doing unspeakable things to others that they know is wrong, in the name of the expediency of winning. Such people are easily led as they surrender their will to expediency, and a more powerful force of will.

Some years ago I remarked on a sad gathering of a knot of old school Communists in Red Square that I saw, lamenting the passing of the Soviet Union and Stalinism. There were those who had benefited from it, leading those who could not accept that the system had failed and change was coming. They huddled in the winter winds that blew across the square, their old banners fluttering, looking for someone to tell them what to do.

I see the same thing growing in the US and the UK today. But the lament is not for Communism but for the saving of crony capitalism, the heartless abuses of the oligarchy and the robber barons that have been cross branded with freedom and liberty.   Their campaign is well funded and staffed with willing minds who will say or do almost anything for money. They have not yet destroyed themselves, but they are well on their way.

The gullible, like the poor, are always with us. And in tough times people often seek comfort in hardness and passionate anger. It provides a relief from thinking. And this is why there is increased polarization, as people drift to the extremes. The kind of extreme Social Darwinism that would have previously been dismissed as mental illness becomes compelling, and engages a passionate following.

"Humanitarianism is the expression of stupidity and cowardice...Nature is cruel; therefore we are also entitled to be cruel. When I send the flower of German youth into the steel hail of the war without feeling the slightest regret over the precious German blood that is being spilled, should I also not have the right to eliminate millions of an inferior race that multiply like vermin."

"If you feed them, if you feed the children three square meals a day during the school year, how can you expect them to feed themselves in the summer?”

Its a neat trick, to make the intended victims in the middle class a party to their own victimization.  Even while they think they are being hard out of necessity, driven by the expedient and practical need to condemn those others below them to suffering, while barely realizing that they are winding the nooses around their own necks.   As a particularly astute reader recently observed:

"The fortunate want to believe that their good fortune is NOT due to luck, but to their inherent goodness, their superiority to the mass of humanity. The poor deserve bad treatment because their poverty is a manifestation of their inherent 'badness' or inferiority. Thus, seeing the poor suffer, the well off feel that they deserve their privileged position.

To be kind to the poor out of a sense of common humanity or compassion would put them in the position of not being able to be proud of their 'differences.' So they seek to leave the poor to their misery and act to increase it, in order to feel better about themselves; a logic appropriate to a 5 year-old school bully."

This sounds like the gospel of prosperity, the distorted type of Calvinist determinism that is quite popular in some circles today, both on the extreme left and right. No one wants to be what they really are. And meanness and rudeness and even cruelty become an appromixation of power as the would be fortunate few slowly renounce their common humanity.

Believe what you will, but you will be held responsible for what you believe. Whom you serve you will abide, now and forever after.

Why are we bailing out the banks? part three – Lies and Opposition
By Golem XIV
October 15, 2012

At the end of part two I suggested that the mainstream justification for bailing out the banks, namely that by so doing we have provided them with the money they need in order to lead the rest of us to recovery by investing in the real economy – was what Goebbels and his boss would call The Big Lie. The banks have demonstrably and unequivocally NOT used the money they have taken from the public purse to invest in the real economy. Nor are they going to.

Why not? The reasons often offered for not lending are that there is no demand or that by not offering loans to businesses that look unsure in unsure times, they are just being prudent. And surely we want them to be prudent? These are excuses.

The reason they are not going to lend and lead a recovery is because that is not what banking is about. Helping recoveries is what governments might chose to try and do but it is not what banking is about. Banking is about making maximum profit for those who own the banks (shareholders), those to whom the banks owe money (The Bond holders) and increasingly the senior staff whose bonuses depend not on how much the bank has helped anybody, but on how much money the bank has made. And the fact of our present predicament is that the banks can make much more money, more more rapidly by playing, even deepening, this recession than they can by trying to help us out of it.

This is an unpalatable truth, so it is important that there are lies to distract from us from realizing it. Thus we have been subjected to a multi trillion dollar lie that has been repeated on every news programme and in every financial column of every newspaper for the last four years.

Goebbels and A.H. said that if you repeat a big enough lie often enough people will come to believe it. What this maxim leaves out is ‘how’ people come to believe something they once knew, or at least suspected, was a lie. Why does a big lie work better than a small one? I think the mechanism is not forgetting or the over-writing of truth with lies, but relies on escalating mental dissonance. A small lie leaves the rest of reality untouched. The unmasking of a small lie does not require any great re-adjustment of the rest of your beliefs or your grasp of reality.

A big lie, a very big lie, however, ties in to itself so much of the rest of your judgment of what is real and reliable that to question it becomes a painful mental act. It requires you pull the rug out from beneath yourself. It requires you undermine the very ground upon which you stand. That ground which you used to feel, still need to feel, is solid and firm.

To tackle a big lie can feel as if you are weakening yourself more than those you oppose. You feel the branch you are sitting on starting to weaken. Which makes it all the harder to defend what you are doing and saying against those who cast doubt not just upon what you say but upon your motives and even your sanity.

For many people the feeling of self-inflicted unease becomes too great. And the bigger the lie the greater this effect. To oppose a really big lie, particularly one vocally supported by a network of mutually re-enforcing powerful people and institutions who all claim they have your best interests at heart, is hard because of the sheer scale of what your opposition entails. To oppose the well constructed, well supported, really big lie you are faced with having to question far more than you want to.

Questioning is hard to do. It sets one apart. No one likes to be set apart.We are by instinct social animals. If we must set ourselves apart we at least want to feel confident of where we stand. The really big lie ups the ante. It forces us to feel the widening circles of disruption of our own beliefs.

One can oppose the small lie from the solid ground of the rest of your beliefs. The big lie’s strength and defense is that it forces you to question all the ground you thought was solid; the ground you thought you could stand upon to make your stand. To question the big lie is to feel that you are casting yourself out. It is not a great feeling.

Which brings me to a point I have wanted to make for a while. Why do I write this blog? Why do you come here and expose your own thoughts? Why do we do it? My answer is to ask why do families tell each other the stories of their life together. Why do people recount the events they all already know? Why? Because the act of telling and listening to what is familiar and shared is how we bind ourselves together and how we create for each other new ground upon which to stand firm. I suggest we come here to tell each other the stories which bind us together and transform us from outcasts to builders and occupiers of a new society.

In doing that we make for ourselves the things which our rulers fear most, which they wish most fervently we did not have – Clarity, Truth and from them Power.

Source

A Vignette of the US Political Scene

I did not watch the VP Debate in the US elections.

Someone sent me this video clip because it illustrates the principle which I have mentioned that is very much in play amongst the hypocrites that "money that comes to me and mine is for growth and to create jobs but money for anyone else is handouts and mooching."

Ayn Rand descried social programs and help for the unfortunate as 'handouts,' and glorified rule by the fittest and the fortunate all her life.

But when she needed it she gratefully took the same Social Security and Medicare that was so pernicious to society.

And the point is, did she learn from this? Did she change her mind or say she was sorry for being so wrong, so unfeeling, so willfully ignorant of the vagaries of life?

No not one bit. And that is the mindset of a sociopath. Not that she took what she was entitled to because of the efforts of others to create a safety net. No, but because she would still denounce and deny that same 'insurance' against misfortune to others, while taking it for herself.

Or I could mention a person I know who likes to rail against any government efforts to help the disabled and the poor, even today. He finds it highly offensive.

And yet this same person directly participated in making millions from the aid and the bailouts of the US auto industry, and would have faced a grave personal loss himself if the government had not prevented its bankruptcy. He acts as though this was all his doing, his superior performance, and is now entitled to -- everything and then some.

And the financiers of Wall Street are even worse.

Politics is the art of hypocrisy. And some of the fortunate ones and their minions and stooges raise it to a high art indeed. They are shameless as well as heartless.

Fortune Editor Suggests That the US Treasury Will Have to Start Defaulting On Its Bonds

Disclosure: The title of this blog entry is almost as sensationalistically misleading as the headline of the Fortune news article below.

Social Security is broke and will need a bailout, "even as the bank bailout is winding down" according to a Fortune story by Allan Sloan. Notice how cleverly the correlation is made between bank entitlements because of speculative excess and what is essentially the paid for portion of a retirement annuity invested solely in Treasury debt.

And bank bailout winding down? That is an illusion. Wall Street has placed its vampiric mouth into the heart of the monetary system, and has institutionalized its feeding. The bank bailout will be over when quantitative easing it over, the Treasury stops placing the public purse in guarantee of toxic assets, and the Fed stops monetizing the Treasuries.

Social Security is broke IF the Treasury defaults on all the bonds issued to the Social Security Administration, not only in its interest payments, but also by confiscating the trillions of underlying principal for which it has issued bonds.

It is broke IF you expect Social Security to act as a cash cow to subsidize other government spending, in a period of exceptionally low interest rates due to quantitative easing to subsidize the banks, and diminished tax income receipts because of a collapsing bubble created by the financial sector.

It is broke IF there is no economic recovery. Ever.

We are not talking about future payments. We are talking about the confiscation of taxes already received, and of Treasury bonds. Granted those Bonds are not traded publicly, but the principle is the same. It is about the full faith and confidence of the US government.

I am absolutely shocked that an editor of a major US financial publication would so blithely presume to suggest that Treasury debt is no good, and that the US can default, albeit selectively, at will. At the same time they promote a 'strong dollar' as the world's reserve currency out of the other sides of their mouth. Do they think we are idiots? It appears so.

If the Treasury does not honor its obligations, if America can treat its own people, its fathers and mothers, so shamefully, what would make one think it would not dishonour its obligations to them, should the need and opportunity arise?

The flip answer might be, "It's gone, the government has stolen the Social Security Fund already. Too bad for the old folks, no matter to me." Well, if that is the case, my friend, what makes you think there is any more substance to those Treasuries you are holding in your account, and those dollars in your pocket? What is backing them? Are they not traveling down the same path of quiet confiscation ad insolvency? People have a remarkable ability to kid themselves that someone else's misfortune will not be their own, even when they are in similar circumstances.

The US has not quite reached this point yet I think. But it may be coming. First they come for the weak.

Is this merely a play to resurrect the Bush proposal to channel the Social Security Funds to Wall Street? It seems as though it might be. Or merely another facet of a propaganda campaign to set Social Security up for more reductions besides fraudulent COLA adjustments as the financial sector crowds out even more of the real economy through acts of accounting theft and seignorage.

Let us remember that if the Social Security Fund is diverted from government obligations, the Treasury will be compelled to issue even more debt into the private markets to try and finance the general government obligations. The only difference will be that Wall Street will be able to extract more fees from a greater share of the economy. That is what this is all about, pure and simple. Fees and subsidies for the FIRE sector.

It should be kept in mind that Social Security payments feed almost directly into consumption, which is a key factor to GDP in a balanced economy.

What next? Commercials depicting old people as rats scurrying through the national pantry, feeding on the precious stores of the nation? How about the mentally and physically disabled? Aren't they a drain on SS as well? Better deal with them. Some blogs and chat boards are calling for a population reduction, and the shedding of undesirables, as defined by them. This Wall Street propaganda feeds that sort of ugliness. "It can't happen here" is as deadly an assumption as "It's different this time."

If this is what passes for economic thought and reporting, sponsored by a major mainstream media outlet from one of its editors, God help the United States of America. It has lost its mind, termporarily, but will likely lose its soul if it does not honour its oaths, especially that to uphold the Constitution against all threats, foreign and domestic.


Fortune
Next in Line for a Bailout: Social Security
by Allan Sloan
Thursday, February 4, 2010

Don't look now. But even as the bank bailout is winding down, another huge bailout is starting, this time for the Social Security system.

A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits.

Instead of helping to finance the rest of the government, as it has done for decades, our nation's biggest social program needs help from the Treasury to keep benefit checks from bouncing -- in other words, a taxpayer bailout.

No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week.

The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116).

This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30. (Lots of people and institutions are in trouble if you assume that the Treasury stops paying them interest income on the bonds which they have purchased, starting with the banks. And that income is already little enough because of the quantitative easing being conducted by the Fed to bail out the financial sector, which you represent at your magazine. - Jesse)

Why disregard the interest? Because as people like me have said repeatedly over the years, the interest, which consists of Treasury IOUs that the Social Security trust fund gets on its holdings of government securities, doesn't provide Social Security with any cash that it can use to pay its bills. The interest is merely an accounting entry with no economic significance. (You can say the same 'accounting entry' thing about any Treasury debt that is in excess of current tax receipts. And the Treasury doesn't provide any 'cash' to SS because it does not have to, it is probably the only major government program operating still at a surplus. Social Security payments do not go into the aether, they proceed almost directly into national consumption, which is GDP. - Jesse)

Social Security hasn't been cash-negative since the early 1980s, when it came so close to running out of money that it was making plans to stop sending out benefit checks. That led to the famous Greenspan Commission report, which recommended trimming benefits and raising taxes, which Congress did. Those actions produced hefty cash surpluses, which until this year have helped finance the rest of the government.

But even then, it was clear the surpluses would be temporary. Now, years earlier than projected, Social Security is adding to the government's borrowing needs, even though the program still shows a surplus on paper.

If you go to the aforementioned pages in the CBO update and consult the tables on them, you see that the budget office projects smaller cash deficits (about $19 billion annually) for fiscal 2011 and 2012. Then the program approaches break-even for a while before the deficits resume.

Social Security currently provides more than half the income for a majority of retirees. Given the declines in stock prices and home values that have whacked millions of people, the program seems likely to become more important in the future as a source of retirement income, rather than less important.

It would have been a lot simpler to fix the system years ago, when we could have used Social Security's cash surpluses to buy non-Treasury securities, such as government-backed mortgage bonds or high-grade corporates that would have helped cover future cash shortfalls. Now it's too late...

Read the rest here.

The Big Lie

"ONE great puzzle about the recent housing bubble is why even most experts didn’t recognize the bubble as it was forming. Alan Greenspan, a very serious student of the markets, didn’t see it, and, moreover, he didn’t see the stock market bubble of the 1990s, either." Robert Shiller, How a Bubble Stayed Under the Radar, NY Times, March 2, 2008

“I recognise that there is a stock market bubble problem at this point, and I agree with Governor Lindsey that this is a problem that we should keep an eye on....We do have the possibility of raising major concerns by increasing margin requirements. I guarantee that if you want to get rid of the bubble, whatever it is, that will do it.” Alan Greenspan, September 24, 1996 FOMC Minutes

"While everyone enjoys an economic party the long-term costs of a bubble to the economy and society are potentially great. They include a reduction in the long-term saving rate, a seemingly random distribution of wealth, and the diversion of financial human capital into the acquisition of wealth. As in the United States in the late 1920s and Japan in the late 1980s, the case for a central bank ultimately to burst that bubble becomes overwhelming. I think it is far better that we do so while the bubble still resembles surface froth and before the bubble carries the economy to stratospheric heights. Whenever we do it, it is going to be painful, however.” Larry Lindsey, Federal Reserve Governor, September 24, 1996 FOMC Minutes (the same Larry Lindsey who was later fired by G. W. Bush for stating that the Iraq War could cost as much as 200 Billion dollars when Rumsfeld estimated less than 50 billion).

"As societies grow decadent, the language grows decadent, too. Words are used to disguise, not to illuminate, action...Words are used to confuse, so that at election time people will solemnly vote against their own interests." Gore Vidal, Imperial America, 2004

His primary rules were: never allow the public to cool off; never admit a fault or wrong; never concede that there may be some good in your enemy; never leave room for alternatives; never accept blame; concentrate on one enemy at a time and blame him for everything that goes wrong; people will believe a big lie sooner than a little one; and if you repeat it frequently enough people will sooner or later believe it." United States Office of Strategic Services, Adolf Hitler, p.51

"...when one lies, one should lie big, and stick to it. They keep up their lies, even at the risk of looking ridiculous...If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”

" Joseph Goebbels

"All this was inspired by the principle...that in the big lie there is always a certain force of credibility, because the broad masses of a nation...often tell small lies in little matters but would be ashamed to resort to large-scale falsehoods. It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have the impudence to distort the truth so infamously. Even though the facts which prove this may be brought clearly to their minds, they will still doubt and waver and will continue to think that there may be some other explanation." Adolph Hitler, Mein Kampf

"Through clever and constant application of propaganda, people can be made to see paradise as hell, and also the other way round, to consider the most wretched sort of life as paradise." Adolf Hitler

"...we're going to redesign the current system...you don't have anything to worry about -- third time I've said that. (Laughter.) I'll probably say it three more times. See, in my line of work you got to keep repeating things over and over and over again for the truth to sink in, to kind of catapult the propaganda. (Applause.)" George W. Bush, May 24, 2005

"...the problem at its root is a flawed business model, and that business model is the product of a government regulatory decision to repeal Glass-Steagall administratively and legislatively, and to seek this tremendous concentration of power; and then the abuse of that power by the investment houses...What we want to do is clean up the system and hold the individuals accountable, and that is what we have tried to do...But there was an understanding that if we were to seek criminal sanctions against either the institution or the most senior people of the institution, the practical impact in our regulatory environment would have been to destroy those institutions, and then structural reform would be meaningless...because the harm to our economy that would result from eliminating a Citigroup or a Merrill Lynch is enormous, and it's disproportionate to the remedy that we want.....It was incredible. It was distressing to me how simple and outrageous it was. It wasn't so complicated that you said, "Wow, at least they're smart in the way they're doing it." It was simple. It was brazen. The evidence of it was overwhelming. It's just that it hadn't been revealed to the public, and that's why could get away with it...Right, we have seen a failure of accountability -- what I call a crisis of accountability -- over the past decade, in many institutions...Over the past decade we've wanted to deregulate, and we've said, "Let's get government out of the business of looking at these issues, and permit industry to control itself, because we can trust them." Maybe that's been a very good thing in some ways. One of the things that is eminently clear from our investigation is that all the compliance departments, all the self-regulation is nothing. They watched it, but they did nothing. So we've got to think this through, and it's not only the financial community. There are a lot of sectors where we have said self-regulation is the answer. We've got to think about it." Eliot Spitzer, The Wall Street Fix, March 16, 2003