Headlines across the spectrum are screaming for attention today but I, moron that I am, choose to ‘revisit’ a topic we haven’t touched upon…er, ‘recently’. (Probably more than six months have elapsed since the last time I raised this particular ‘red flag’.)
Naturally, it comes at a ‘price’. So I’m gonna start ‘back-peddling’ in defense of the individual who will be the recipient of tonight’s kick in the gonads because what he stated here may not be what he meant…
What could be so ‘offensive’?
Let us examine this seemingly innocent statement found in the second paragraph of today’s editorial:
“preventing a recurrence of the immense bank runs that were a central cause of the Great Depression”
Geez good citizen…were you of the impression that ‘bank runs’ CAUSED the original Great Depression and that we aren’t in a Depression now because there haven’t been any ‘bank runs’?
We’re talking a Nobel Prize winning economist here…um, I suspect he MIGHT mean that bank runs ‘contributed’ to The Great Depression…but ‘caused it?’ Uh, nope.
Because you see, even an ignoramus like me knows that the ‘problem’ THEN is EXACTLY THE SAME as the one we are experiencing NOW!
The unmitigated ‘devastation’ of the customer base by sensationally greedy bankers/employers. The ‘bank runs’ of the late twenties and early thirties were merely a side effect of a much deeper problem…the rapacious capitalists had sucked ALL of the money out of the economy and their bought and paid for politicians (just like ours) let them! (There’s a reason why FDR instituted a 90% income tax on everything over $100,000. The greedy brought ‘re-distribution’ upon themselves!)
Um, if the ‘lapdog’ economists of the era used this unlikely ‘cover story’ (to preserve capitalism) um, we shouldn’t be too surprised to see it ‘re-surface’ (even in the absence of ‘bank runs.’)
But then again, no bank runs means we aren’t experiencing a ‘Depression’! (Just like only counting people actually receiving benefits as unemployed does wonders for the unemployment rate…just don’t look too closely at the ‘labor force participation rate’, which provides a very grim picture indeed.)
Let us proceed with tonight’s offering:
Punks and Plutocrats
By PAUL KRUGMAN
Published: March 28, 2010
Health reform is the law of the land. Next up: financial reform. But will it happen? The White House is optimistic, because it believes that Republicans won’t want to be cast as allies of Wall Street. I’m not so sure. The key question is how many senators believe that they can get away with claiming that war is peace, slavery is freedom, and regulating big banks is doing those big banks a favor. [Take it from someone who lives in the State that already has ‘RomneyCare’, if this is healthcare reform, we in a heap of trouble! Because they didn’t ‘reform’ Jack…]
Some background: we used to have a workable system for avoiding financial crises, resting on a combination of government guarantees and regulation. On one side, bank deposits were insured, preventing a recurrence of the immense bank runs that were a central cause of the Great Depression. On the other side, banks were tightly regulated, so that they didn’t take advantage of government guarantees by running excessive risks. [I ask again, how much of our current crisis is due to ‘financial risk-taking’ and how much is due to the ‘pauperization of the labor force?’ (underpaid and overcharged)]
From 1980 or so onward, however, that system gradually broke down, partly because of bank deregulation, but mainly because of the rise of “shadow banking”: institutions and practices — like financing long-term investments with overnight borrowing — that recreated the risks of old-fashioned banking but weren’t covered either by guarantees or by regulation. The result, by 2007, was a financial system as vulnerable to severe crisis as the system of 1930. And the crisis came. [You only provide ‘half’ of the story here, Mr. K, sadly, the other half rests behind the ‘golden child’ of globalization. Great for capitalists, sucks for everyone else!]
Now what? We have already, in effect, recreated New Deal-type guarantees: as the financial system plunged into crisis, the government stepped in to rescue troubled financial companies, so as to avoid a complete collapse. [Yet no one can explain why these institutions shouldn’t be allowed to ‘collapse’ (due to their own grievous errors)] And you should bear in mind that the biggest bailouts took place under a conservative Republican administration, which claimed to believe deeply in free markets. There’s every reason to believe that this will be the rule from now on: when push comes to shove, no matter who is in power, the financial sector will be bailed out. In effect, debts of shadow banks, like deposits at conventional banks, now have a government guarantee. [Um, it is doubtful this can be successfully ‘pulled off’. The ‘social fallout/blowback’ from this crisis isn’t about to ‘disappear’.]
The only question now is whether the financial industry will pay a price for this privilege, whether Wall Street will be obliged to behave responsibly in return for government backing. And who could be against that? [Why gee, wouldn’t it be the same thieves that have profited handsomely from the crisis…at least temporarily (because they have destroyed the currency in the process.)]
Well, how about John Boehner, the House minority leader? Recently Mr. Boehner gave a talk to bankers in which he encouraged them to balk efforts by Congress to impose stricter regulation. “Don’t let those little punk staffers take advantage of you, and stand up for yourselves,” he urged — where by “taking advantage” he meant imposing some conditions on the industry in return for government backing.
Barney Frank, the chairman of the House Financial Services Committee, promptly had “Little Punk Staffer” buttons made up and distributed to Congressional aides.
But Mr. Boehner isn’t the problem: Mr. Frank has already shepherded fairly strong financial reform through the House. Instead, the question is what will happen in the Senate. [The fact that the public remains ignorant of the details of these proposals is more than a little disturbing.]
In the Senate, the legislation on the table was crafted by Senator Chris Dodd of Connecticut. It’s significantly weaker than the Frank bill, and needs to be made stronger, a topic I’ll discuss in future columns. But no bill will become law if Senate Republicans stand in the way of reform.
But won’t opponents of reform fear being cast as allies of the bad guys (which they are)? Maybe not. Back in January, Frank Luntz, the G.O.P. strategist, circulated a memo on how to oppose financial reform. His key idea was that Republicans should claim that up is down — that reform legislation is a “big bank bailout bill,” rather than a set of restrictions on the banks. [The big ‘hole’ in this idea is the public will not be deceived by this sort of wrangling. Only already brain damaged Republicans will buy this nonsense.]
Sure enough, a few days ago Senator Richard Shelby of Alabama, in a letter attacking the Dodd bill, claimed that an essential part of reform — tougher oversight of large, systemically important financial companies — is actually a bailout, because “The market will view these firms as being ‘too big to fail’ and implicitly backed by the government.” Um, senator, the market already views those firms as having implicit government backing, because they do: whatever people like Mr. Shelby may say now, in any future crisis those firms will be rescued, whichever party is in power.
The only question is whether we’re going to regulate bankers so that they don’t abuse the privilege of government backing. And it’s that regulation — not future bailouts — that reform opponents are trying to block.
So it’s the punks versus the plutocrats — those who want to rein in runaway banks, and bankers who want the freedom to put the economy at risk, freedom enhanced by the knowledge that taxpayers will bail them out in a crisis. Whatever they say, the fact is that people like Mr. Shelby are on the side of the plutocrats; the American people should be on the side of the punks, who are trying to protect their interests.
Um, central to this argument is the ‘necessity’ of having a banking system at all. Now I advocate that ‘money’ serves a useful purpose to society but that single useful purpose is defeated by ‘for profit’ banking.
You can clearly see the mayhem created by allowing ‘special interests’ to charge you for access to what essentially serves as a ‘regulator’ for (primarily) the local economy.
That mess only gets larger when you add in the ‘noose’ of ‘global reserve currency’ into the mix. Local economies wither and die once profits from global monetary arbitrage cost a nation to lose ‘competitive advantage’ (a totally bogus/artificial concept by the way, there is no such thing.)
Back on topic…
Our economy DIDN’T collapse due to ‘bank runs’ so it is a bit ludicrous to see claims that this is what drove an earlier worldwide event.
If this is what Zimbabwe Ben really believes, we’re really screwed!
Understand that you still have ‘money’ just not enough to live as you’d like to…which by extension, brings us to a larger point.
The housing market isn’t going to recover (or even stabilize) until the pool of ‘qualified buyers’ grows significantly.
What will it take to make that pool ‘grow’? Wages will have to increase, or the price of homes will have to fall significantly. (Which one do you think is more likely to happen? Understand, the wealthy DON’T rely on the value of their ‘stack of lumber’ for the lion’s share of their ‘net worth’. Which is just the opposite for the average ‘paycheck peasant’.)
Well, what you need to understand is the ‘New Economy’ will shrink to fit the needs of the prosperous. The fewer prosperous there are, the fewer the opportunities to personally prosper will exist.
Like all things ‘capitalist’ the onus is upon you to either ‘prosper’ or to be useful to the prosperous. Without a ‘customer base’ there is very little chance that you will prosper. (Even if you discover/invent the greatest thing since ‘sliced bread’.)
Contrary to the prevalent myth, capitalism isn’t about prosperity for you, it is about preserving prosperity for the prosperous. Every couple or three generations, the prosperous ‘consolidate’ their grip upon the markets and the world descends into ‘debtor’s hell’.
And each time it descends, fewer and fewer climb out. Which leaves us with a disturbing possibility, what if this time everybody who goes down, stays there?
Just something to ponder as you puzzle over the global economy that no longer needs you…
Thanks for letting me inside your head,
Gegner
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