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Posts Tagged ‘Banking’

Official Corruption

If it isn’t obvious from open borders and lunatic wars in Libya, it should be obvious that our leaders do not work for us but instead work for a vaguely defined transnational ideology insofar as the Federal Reserve apparently loaned billions–and risked the wealth of Americans–in using its “discount window” to lend cash to cash-strapped foreign banks.  Not only this, the Federal Reserve concealed this fact on the theory that to reveal who is using its lifeline might endanger the solvency of its users.  Of course, if a private business concealed its borrowing it would run afoul of securities laws and such would be considered fraud on the market, but banks–and apparently foreign banks too–are a special case, given special treatment reserved only for royalty. Indeed, their special treatment is a betrayal of the transparency and rule of law that were the main strength of the American economy until recent times.

It may be argued that these foreign banks are major creditors of the US entitled to special treatment, but no such revelation is forthcoming in the Bloomberg article with respect to the discount window users.  Indeed, these banks have been given special treatment many times over inasmuch as the Federal Reserve has rescued investors in mortgage-backed-securities at the expense of the American taxpayer and the American currency. We now have $3.50 a gallon gas and a continuing freefall in housing, and all of this stems from the idea that we can have an economy built on subterfuge and accounting gimmicks rather than real wealth creation.

Let’s never forget the Federal Reserve was introduced to avoid the evils of the business cycle.  But as evidenced from the Great Depression forward, its inflationary monetary policies and blatant picking of winners and losers have done more to harm the economy than the old gold standard ever did.  Indeed, the chief value of a gold standard is to decentralize and depoliticize the role of government in monetary policy by creating a neutral, market driven money supply the value of which (i.e., inflation and deflation) rise and fall with the demand for money and the needs of the real economy.   It may mean slower economic growth, but it also means less wealth-destroying inflation and destabilizing bubbles.  Since gold and the dollar were de-linked in the 1970s, gold went from the fixed $35/ounce to about $1,420 today.  This suggests, quite plainly, that inflation is a huge force over time that masks the lack of real wealth creation and the lack of real productivity in the economy.

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Finance and Free Markets

A very interesting piece in the New Yorker explores the way that finance has begun to swallow up capitalism, sucking money, talent, and bailouts into its orbit, while doing a mediocre job at its most socially beneficial function:  raising capital for productive enterprises.  Increasingly, big banks engage in trading for clients and themselves through the prop desk, while doing much less (and earning much less) from ordinary finance activities like raising capital for companies to expand, invent, and distribute whatever it is they make.

It’s become increasingly clear to me why European conservatives have harbored a certain suspicion of capitalism.  In addition to destroying traditional societies–especially agricultural ones–the big bank capitalism of the last 150 years has often allowed a small group to accrue great power, its leaders have shown little attachment to one or another nation-state, and speculative bubbles of one kind or another have often crashed creating great harm to innocent bystanders, including most recently American homeowners.  Where ordinary businesses, even big ones, rise or fall on their merits, banks are closely tied to big government players and have obtained bailouts and other special favors, while in effect holding the government and the broader society hostage through their infamous powers in the bond market.

Americans of all stripes have long believed in some version of free markets.  But equally dominant in our history is a suspicion of “eastern finance,” as represented in such movements as the National Grange, the support for various protective tariffs in the 19th Century by nascent industries, and the anti-trust movement of Teddy Roosevelt.  Those Americans knew that banking, at best, was supposed to be a modestly paid middleman, and not the hyperdominant player it has become of late (and had become in Europe in the late 19th Century under the Rothschilds et al.).

The post Great Depression era of a smaller, less dynamic, and thereby more stable banking and finance sector appears in many ways superior to the present.  And conservatives should avoid a knee jerk support for free markets among fair-weather-friends of capitalism that benefit from various government largese including access to artificially low interest rates, FDIC insured deposits, and most recently the TARP.  If Obama were a more serious person and not a dilettante stuck in the ideas of his youth he’d hire guys like Jeremy Grantham and Paul Volker to come up with appropriate regulations to prevent speculative bubbles and other abuses of finance.  Instead, he is selling last year’s model and ignoring most of what goes on on Wall Street to our collective detriment.

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Steve Sailer and others have observed how the combination of changing demographics, Bush’s commitment to an “ownership society,” cheap dollars, securitized mortgages, and the emerging importance of the relatively obscure Community Reinvestment Act, were major factors that in combination render the housing crisis a “diversity recession.”

Critics have countered that a lot of other factors, including rampant speculation and “greedy executives” were far more dominant factors.  Perhaps those are important factors too, but banks don’t generally lend money to losers without some external factor.  After all, as Obama liked to tell us not too long ago, these are the evil guys that invented red-lining.

Consider this chart:

cra-commitments-by-year-small2

That is some big bucks, with an order of magnitude jump right before the big bubble.  Ahuge percentage of foreclosures are substandard Alt-As and Subprime loans lent in part to avoid discrimination suits by the likes of people like Obama.  The fact that the CRA funding went from a paltry sum of several billions for two decades and jumped to several trillions in CRA funding for poor, minority homeowners right before the big bubble came on the scene, it’s hard to say that this factor is being overstated by mean conservatives who don’t believe in equality.

You’re damn right we don’t believe in equality when it comes to banks lending money.  The banks were supposed to be discriminating, not on racial grounds, but rather discriminating against bad credit risks! Concerning oneself with equality of outcome when different groups have different credit-worthiness, different habits and cultures of saving, and different levels of earnings is economic suicide, as WaMu and so many others have found out. Such new progressive banks “made history” all right, just not quite as they planned.

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