Financial Crisis in America: If Only the King Knew!

Signs of Decay

1. Internal corruption
2. Imperial overreach
3. Inability to reform.
   

Harvard Law Review
Incentives and Ideology
By James Kwak
May 20, 2014

“'If only the King knew!', we cried a thousand times from the depths of our abyss.” Cahiers de doléances de Cahors, 1789

In pre-Revolutionary France, common people would often say of their problems, “If only the King knew . . . .” Whatever evils they suffered at the hand of their government must be due to the king’s ministers and officials, for the king himself could not be at fault.

But the king knew exactly what was going on. As Levitin shows, our financial regulators were and remain deeply enmeshed in a complex political environment. At the margin, they have the discretion to do favors for the industry or for specific institutions (such as the OTS backdating a capital infusion by IndyMac to make it seem well capitalized when it actually wasn’t). But major regulatory decisions, such as turning a blind eye to derivatives or bailing out banks, are made by the political system as a whole...

More generally, we can’t blame everything on the bureaucrats. The financial non-regulation that made the 2008 crash possible was the explicit policy of multiple presidential administrations, and some of its most important elements sailed through Congress with bipartisan support. The choice to bail out large banks rather than homeowners was made by the Bush and Obama Administrations.

And Congress passed the Dodd-Frank Act, which largely left in place the regulatory system that had failed so spectacularly, with the Administration lobbying heavily to weaken the most far-reaching reforms. In other words, President Obama knew exactly what was going on — just as President Clinton knew what was going on when he signed the Gramm-Leach-Bliley Act, allowing the consolidation of commercial and investment banking."

Read the entire article in the Harvard Law Review here.

Related:
Credibility Trap: Moyers and Barofsky on Failed Reform and Another Financial Crisis

Gold Daily and Silver Weekly Charts - Lions and Tigers and Pigs, Oh My

Intraday there was a move to push gold lower, but it really could not stick.

The capping continues.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Stick Save Yellen

The Fed minutes turned the markets around.

This will end badly.

They know this, but do not care.

Have a pleasant evening.

Gold Daily and Silver Weekly Charts - Life Is a Cabaret

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake.

Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The US Fed was very active in getting the gold price down. So was the U.K."

Edward 'Eddie' George, Governor Bank of England 1993-2003

Yesterday I said,

"The capping in the metals is obvious.

There is no economic news or theory that is needed otherwise to explain it.

The question is how long it can last."

Someone asked 'why then is it happening?" I am sorry I had thought it was also obvious based on any number of recent posts.

The Anglo-American Gold Pool, and their coterie of client Banks, have made a policy decision to hold the price of gold and silver below 1300 and 20.

Why those particular levels?   Because any lower, and the miners would start going out of business, and the flow of physical bullion to the East might become unmanageable.   They are nice round numbers, with the obvious appeal to the bureaucratic mind.   Anything higher, or rather, with a more aggressive rate of ascent, and some of the natives might become restless, and the positions of some Banks might become untenable.

Their reasons are of course theirs, but I would imagine it is something along the lines of ZIRP, the TARP, selective justice, and the rigging of LIBOR and any other number of markets.  

The preservation of the status quo becomes paramount to those caught in a credibility trap, and especially among those who have risen to great wealth and power through 'extraordinary means.' 

L'etat, c'est moi.

Have a pleasant evening.