This Bloomberg article talks about rigging in FX (foreign-exchange currency) trades by the traders.
Got it via Denninger who breaks it down.
Greed and dishonesty are nothing new, of course. The question is why have regulations to protect people if the regulations are not enforced, and there are no consequences?
For the last several years all the markets have moved in ways that seem detached from reality. I suppose this is a "conspiracy theory," but it's not really a theory. Insiders -- and the central banks are the ultimate insiders -- are manipulating the markets for the benefit of their tribe, to use a popular term. Governments will do nothing about it because deficit spending makes them dependent on the central banks. The finance ministers of all the developed nations are members of the same tribe as the central bankers. You can safely ignore the label they wear, e.g., Tory, Socialist, Republican, Labour, Democrat, etc., their true loyalties lie elsewhere.
Wednesday, June 12, 2013
Tuesday, June 11, 2013
Politics and Civil Liberties
The thing is that one's political affiliations can trump one's view of what is constitutional, or even ethical. I'm guilty of that. I don't know John Ashcroft personally, but we have had mutual friends in the past and have been members of the same church. I did have the privilege of meeting his father, the late Dr. J. Robert Ashcroft, who had a tremendous impact on my life and my Christian faith. I think John Ashcroft is a decent person, though not very intelligent -- probably about average for a lawyer and politician. He's certainly a regression toward the mean from his father. When Ashcroft was Attorney General under Bush, I did not like the Patriot Act, the Department of Homeland Security, the TSA, and all the other post-9/11 intrusions into privacy. But, I was fairly confident that Ashcroft would not use those tools for partisan purposes.
That doesn't change the nature of the tools. Drug use is a bad thing; nevertheless, curbing drug use is no excuse for trashing the Constitution in terms of, for example, due process, as has been a common practice for nearly forty years. A no-knock warrant served via SWAT ninjas may protect police officers and gather more evidence, but it is the tool of a police state and probably should not be used at all. It certainly should require overwhelming proof that the accused (innocent until proven guilty, right?) is too dangerous to be picked up in a less dramatic fashion.
It would have been one thing to implement some of the travel restrictions and anti-privacy practices of the Patriot Act on a very temporary basis for a few months as the nation got on a war footing. Congress should have been required to vote on a formal declaration of war. They should have been required to clearly define what constituted victory. That was not done. The Bush Administration, with a complicit Congress, took advantage of the state of fear present in the aftermath of 9/11 to greatly expand the scope of government without limit. That was, perhaps, understandable, if ill-advised, in the short-term. It never should have been allowed to become permanent.
The question is not whether I trust Eric Holder more or less than I trust John Ashcroft. The tools and the potential corruption and misuse of those tools is the issue. Know this, if a tools can be misused, it will be misused by someone at some point. That's human nature. We hold individuals accountable for the way they use a chainsaw, a car, a knife, a firearm, or even a communication device. We have to be able to hold our agents in government accountable as well. Obama said in the last couple of days that if we can't trust the executive branch, the Congress, and the courts then we have a problem. Of course, this is the same partisan hack who said Congress was lying about the gun control bill he wanted passed. So maybe it's Obama who has a problem.
The language being used in all the denials and attempts to assuage the ire of the public is typically evasive. No, they are not listening to all conversations. Their computer algorithms are scanning for key words. Someone might say, "I was in terror the other day because I was attacked by a swarm of yellow jackets. I bombed their nest with bug spray afterward, but I wrapped up like a Muslim beauty queen before I got close." If that kicked out and was analyzed for content, and, though it would be unconstitutional, it might be somewhat excusable in light of imminent terror threats. I wonder if it would also kick out something like: "I just got back from the party. They didn't have any diet soda, so I just drank some unsweetened tea. I was about to die in the heat while talking to the PTA president. She loved my blonde joke. They just kill her. We have everything arranged for the next meeting, and it will be a blast." I'm pretty sure, though, that you can thwart all monitoring by frequently dropping the word "kardashian".
The media seems to be emphasizing the fact that it is metadata that is being logged. Metadata is a lot more meaningful and powerful today than it was even ten years ago when far fewer people had cell phones, let alone smart phones, phones with built-in GPS and cameras, fakebook pages, twitter, tumblr and all the other social media stuff that is out there.
I'm ambivalent about the status of Edward Snowden. The left normally exalts these guys while the right eviscerates them. I can't help thinking that Snowden is, if not exactly a hero, deserving of whistleblower status and protection from prosecution. What the NSA is doing is probably, mostly technically legal, but it is not ethical, right or constitutional, and, as far as I'm concerned, it is not justifiable. It needs to stop.
That doesn't change the nature of the tools. Drug use is a bad thing; nevertheless, curbing drug use is no excuse for trashing the Constitution in terms of, for example, due process, as has been a common practice for nearly forty years. A no-knock warrant served via SWAT ninjas may protect police officers and gather more evidence, but it is the tool of a police state and probably should not be used at all. It certainly should require overwhelming proof that the accused (innocent until proven guilty, right?) is too dangerous to be picked up in a less dramatic fashion.
It would have been one thing to implement some of the travel restrictions and anti-privacy practices of the Patriot Act on a very temporary basis for a few months as the nation got on a war footing. Congress should have been required to vote on a formal declaration of war. They should have been required to clearly define what constituted victory. That was not done. The Bush Administration, with a complicit Congress, took advantage of the state of fear present in the aftermath of 9/11 to greatly expand the scope of government without limit. That was, perhaps, understandable, if ill-advised, in the short-term. It never should have been allowed to become permanent.
The question is not whether I trust Eric Holder more or less than I trust John Ashcroft. The tools and the potential corruption and misuse of those tools is the issue. Know this, if a tools can be misused, it will be misused by someone at some point. That's human nature. We hold individuals accountable for the way they use a chainsaw, a car, a knife, a firearm, or even a communication device. We have to be able to hold our agents in government accountable as well. Obama said in the last couple of days that if we can't trust the executive branch, the Congress, and the courts then we have a problem. Of course, this is the same partisan hack who said Congress was lying about the gun control bill he wanted passed. So maybe it's Obama who has a problem.
The language being used in all the denials and attempts to assuage the ire of the public is typically evasive. No, they are not listening to all conversations. Their computer algorithms are scanning for key words. Someone might say, "I was in terror the other day because I was attacked by a swarm of yellow jackets. I bombed their nest with bug spray afterward, but I wrapped up like a Muslim beauty queen before I got close." If that kicked out and was analyzed for content, and, though it would be unconstitutional, it might be somewhat excusable in light of imminent terror threats. I wonder if it would also kick out something like: "I just got back from the party. They didn't have any diet soda, so I just drank some unsweetened tea. I was about to die in the heat while talking to the PTA president. She loved my blonde joke. They just kill her. We have everything arranged for the next meeting, and it will be a blast." I'm pretty sure, though, that you can thwart all monitoring by frequently dropping the word "kardashian".
The media seems to be emphasizing the fact that it is metadata that is being logged. Metadata is a lot more meaningful and powerful today than it was even ten years ago when far fewer people had cell phones, let alone smart phones, phones with built-in GPS and cameras, fakebook pages, twitter, tumblr and all the other social media stuff that is out there.
I'm ambivalent about the status of Edward Snowden. The left normally exalts these guys while the right eviscerates them. I can't help thinking that Snowden is, if not exactly a hero, deserving of whistleblower status and protection from prosecution. What the NSA is doing is probably, mostly technically legal, but it is not ethical, right or constitutional, and, as far as I'm concerned, it is not justifiable. It needs to stop.
Monday, June 10, 2013
Odds and Ends
Denninger recites the relative odds of dying in a terrorist attack.
HINT: A snake's belly.
The point is that people can be made to fear things and exaggerate the risks based on isolated, anecdotal incidents that get a lot of attention. Every so often, the media will have their own version of "shark week" when they highlight the attacks by sharks on swimmers and surfers. The thought of being eaten by a shark is pretty horrifying, and, if the media reports that "there has been an upsurge in attacks recently" -- either because it had been winter and now it's summer, or because last year there were five and this year there have been seven -- the audience tends to picture shark fins in the municipal swimming pool.
The same is true of serial killers, child abductions, tornadoes, or terror attacks. Similarly, if something gets glossed over and not emphasized -- auto accidents involving teenagers, for example -- it drops from the attention of the masses. Those who die or are severely injured from some unusual cause are just as damaged as from something more common. Each incident is a heart-rending tragedy for the individuals involved. We are right to feel bad for the victims and do what we can to help. But the risks for 99% of us remain very low, and we should not allow ourselves to be frightened into shredding the Constitution and hiding under the couch.
In my lifetime, I have been threatened by communism, anti-communism, Elvis, butter, marijuana, LSD, heroin, hippies, the Beatles, the Klan, the Black Panthers, Pintos, guns, demonic possession, the mafia, discos, homosexuals, the Vietnamese, sharks, fat, Chevy trucks, Saddam Hussein, witches, guns, TV evangelists, Seventh-Day Adventists, Iranians, militias, margarine, the year 2000, Catholic priests, guns, carbohydrates, homophobes, terrorists, boxcutters, shoes, more than four ounces of liquid, cash, Swiss Army knives, guns, and pressure cookers.
In the name of keeping me "safe" and "free", my freedom has been taken. I have lost much of the ability to defend myself, to move about, speak and assemble freely. I can't deposit cash in my bank account because I might be laundering drug money. I can't buy an antihistamine because I might be making meth. I can't get anhydrous ammonia because I might be making a fertilizer bomb. I have to have my name checked against a database to buy a gun because I might be a felon. I can't carry a pocketknife into my own county courthouse because I might go nuts and trim somebody's fingernails.
Years ago I was watching some television program and some stupid actress, in attacking the right to keep and bear arms, shouted, "What about my right to be safe?" Safety is not a right but a condition, a condition that, like many aspects of life, is relative. Safety is a lot like hunger, or not-hunger. Nobody has a "right" to have a full belly all the time, and even if some idiots amended the Constitution to forbid hunger, it would not change that reality. Nor would being full all the time be good for a person. A little hunger is healthy, so is a little danger.
When I'm out on my bike, I am not "safe". I am prudent, alert and cautious, but if someone else on the road does something stupid, I can be dead in seconds. A car gives more of a sense of safety, bigger cars feel safer than small cars, as well. But those are relative conditions. No one driving a vehicle at highway speeds is completely safe. If the driver of an eighteen-wheeler nods off at the wrong time, a Hummer won't save you. The extra, sensible vulnerability of riding a motorcycle actually makes me a better driver when I'm in a cage.
A realistic assessment of risk is helpful. Fear of any kind only limits our freedom and makes us easier to control. Thus, those who wish to control us keep coming up with new bogeymen to stir our fears. Meanwhile the real bogeyman is the government, the regulatory agencies, the TSA, the ATF, the IRS, the politicians and bureaucrats who want to render us helpless and dependent for the sake of their own agendas.
HINT: A snake's belly.
The point is that people can be made to fear things and exaggerate the risks based on isolated, anecdotal incidents that get a lot of attention. Every so often, the media will have their own version of "shark week" when they highlight the attacks by sharks on swimmers and surfers. The thought of being eaten by a shark is pretty horrifying, and, if the media reports that "there has been an upsurge in attacks recently" -- either because it had been winter and now it's summer, or because last year there were five and this year there have been seven -- the audience tends to picture shark fins in the municipal swimming pool.
The same is true of serial killers, child abductions, tornadoes, or terror attacks. Similarly, if something gets glossed over and not emphasized -- auto accidents involving teenagers, for example -- it drops from the attention of the masses. Those who die or are severely injured from some unusual cause are just as damaged as from something more common. Each incident is a heart-rending tragedy for the individuals involved. We are right to feel bad for the victims and do what we can to help. But the risks for 99% of us remain very low, and we should not allow ourselves to be frightened into shredding the Constitution and hiding under the couch.
In my lifetime, I have been threatened by communism, anti-communism, Elvis, butter, marijuana, LSD, heroin, hippies, the Beatles, the Klan, the Black Panthers, Pintos, guns, demonic possession, the mafia, discos, homosexuals, the Vietnamese, sharks, fat, Chevy trucks, Saddam Hussein, witches, guns, TV evangelists, Seventh-Day Adventists, Iranians, militias, margarine, the year 2000, Catholic priests, guns, carbohydrates, homophobes, terrorists, boxcutters, shoes, more than four ounces of liquid, cash, Swiss Army knives, guns, and pressure cookers.
Years ago I was watching some television program and some stupid actress, in attacking the right to keep and bear arms, shouted, "What about my right to be safe?" Safety is not a right but a condition, a condition that, like many aspects of life, is relative. Safety is a lot like hunger, or not-hunger. Nobody has a "right" to have a full belly all the time, and even if some idiots amended the Constitution to forbid hunger, it would not change that reality. Nor would being full all the time be good for a person. A little hunger is healthy, so is a little danger.
When I'm out on my bike, I am not "safe". I am prudent, alert and cautious, but if someone else on the road does something stupid, I can be dead in seconds. A car gives more of a sense of safety, bigger cars feel safer than small cars, as well. But those are relative conditions. No one driving a vehicle at highway speeds is completely safe. If the driver of an eighteen-wheeler nods off at the wrong time, a Hummer won't save you. The extra, sensible vulnerability of riding a motorcycle actually makes me a better driver when I'm in a cage.
A realistic assessment of risk is helpful. Fear of any kind only limits our freedom and makes us easier to control. Thus, those who wish to control us keep coming up with new bogeymen to stir our fears. Meanwhile the real bogeyman is the government, the regulatory agencies, the TSA, the ATF, the IRS, the politicians and bureaucrats who want to render us helpless and dependent for the sake of their own agendas.
Thursday, June 6, 2013
How Outraged Should You Be?
The National Journal's Brian Fung attempts to calculate the appropriate level of outrage for the NSA's grab of Verizon phone logs.
Read it if you like.
I'm not going to be outraged at all because it accomplishes nothing.
I will, however, repeatedly remind people that this is being done by the same government that wants to take away my guns because I can't be trusted -- the same government that uses the IRS to intimidate people and organizations who disagreed with their policies and exercised their rights to freedom of speech and assembly. This is the same government that ran guns to Mexican drug cartels in an attempt to generate support for more restrictions on military-style rifles. This is the same government that has lied about the cost and effect of legislation like Obamacare. This is the same government that gave arms to Al Qaeda-affiliated militants in Libya yet refused to send even one gunship to fire on Muslim terrorists attacking the American mission in Benghazi. This is the same government that lied for over two weeks about an obscure video being the cause of an attack on SEPTEMBER ELEVENTH, that ORDERED the military to stand-down, that refused to even call the attack an act of terror when they knew good and well what had happened because they had drones on the scene.
This is not a partisan issue. We can all agree -- or we should -- that a Bush administration demanding phone records with details about calls, locations, times, durations would be just as illegitimate and unethical as when it is done by Obama.
We don't have time to be outraged. We don't need to be outraged. Stop believing these people. They lie. They lie all the time about everything. Nothing they tell you should be accepted. That includes the complicit media. You might call them institutional sociopaths. The rules apply to us, not them. Like sociopaths, they demand that we play by the rules while they -- being special -- get to use those rules against us without abiding by the same rules themselves. It's not just one party or even just the government. It runs through academia, the education system. Science is infected with it. Remember the East Anglia emails on climate change? There's been a proliferation of of fraudulent research published in peer-reviewed scientific journals.
Walter Cronkite lied about the situation in Vietnam, the Tet Offensive, the fall of Saigon and who knows what else. Dan Rather tried to get away with a bogus report on George Bush's time in the Texas Air National Guard. The media has lied about George Zimmerman and Trayvon Martin. They still depict Martin as an 8th-grader, not a 6-foot 2-inch mixed-martial arts enthusiast.
Obama lied when he said he didn't hear Jeremiah Wright's anti-American, anti-Christian, Black Liberation theology sermons. He lied about his relationship with Bill Ayers. He is lying about prior knowledge and approval of IRS investigations of the TEA Party, about Fast and Furious, and about the DOJ targeting journalists. Obama, Clinton, and Rice all lied repeatedly about Benghazi.
Do not believe them. Any of them. I'm not outraged, just dangerous.
Read it if you like.
I'm not going to be outraged at all because it accomplishes nothing.
I will, however, repeatedly remind people that this is being done by the same government that wants to take away my guns because I can't be trusted -- the same government that uses the IRS to intimidate people and organizations who disagreed with their policies and exercised their rights to freedom of speech and assembly. This is the same government that ran guns to Mexican drug cartels in an attempt to generate support for more restrictions on military-style rifles. This is the same government that has lied about the cost and effect of legislation like Obamacare. This is the same government that gave arms to Al Qaeda-affiliated militants in Libya yet refused to send even one gunship to fire on Muslim terrorists attacking the American mission in Benghazi. This is the same government that lied for over two weeks about an obscure video being the cause of an attack on SEPTEMBER ELEVENTH, that ORDERED the military to stand-down, that refused to even call the attack an act of terror when they knew good and well what had happened because they had drones on the scene.
This is not a partisan issue. We can all agree -- or we should -- that a Bush administration demanding phone records with details about calls, locations, times, durations would be just as illegitimate and unethical as when it is done by Obama.
We don't have time to be outraged. We don't need to be outraged. Stop believing these people. They lie. They lie all the time about everything. Nothing they tell you should be accepted. That includes the complicit media. You might call them institutional sociopaths. The rules apply to us, not them. Like sociopaths, they demand that we play by the rules while they -- being special -- get to use those rules against us without abiding by the same rules themselves. It's not just one party or even just the government. It runs through academia, the education system. Science is infected with it. Remember the East Anglia emails on climate change? There's been a proliferation of of fraudulent research published in peer-reviewed scientific journals.
Walter Cronkite lied about the situation in Vietnam, the Tet Offensive, the fall of Saigon and who knows what else. Dan Rather tried to get away with a bogus report on George Bush's time in the Texas Air National Guard. The media has lied about George Zimmerman and Trayvon Martin. They still depict Martin as an 8th-grader, not a 6-foot 2-inch mixed-martial arts enthusiast.
Obama lied when he said he didn't hear Jeremiah Wright's anti-American, anti-Christian, Black Liberation theology sermons. He lied about his relationship with Bill Ayers. He is lying about prior knowledge and approval of IRS investigations of the TEA Party, about Fast and Furious, and about the DOJ targeting journalists. Obama, Clinton, and Rice all lied repeatedly about Benghazi.
Do not believe them. Any of them. I'm not outraged, just dangerous.
Tuesday, June 4, 2013
Born Free
The Daily Caller highlights compelling testimony from the president of the Wetumpka, Alabama Tea Party.
She should have quoted Skynyrd -- Down in Alabama, you can run but you shore cain't hide.
Not bad but not nearly as good as Ronnie's studio album version, which is one of my all-time favorite Skynyrd songs. Apparently the original is copyright blocked by Warner Brothers or something. This one is pretty good, though.
She should have quoted Skynyrd -- Down in Alabama, you can run but you shore cain't hide.
Not bad but not nearly as good as Ronnie's studio album version, which is one of my all-time favorite Skynyrd songs. Apparently the original is copyright blocked by Warner Brothers or something. This one is pretty good, though.
Chart of Market Exuberance
This is from a DailyFX article by Kristian Kerr:
Interestingly, the chart above looks remarkably like the bubble real estate market created by Federal Reserve monetary policy between 2002 and 2007. You can see that at the link.
As I noted when I started this blog back in 2010, bonds are the current bubble, and all bubbles burst. Please read the entirety of Kerr's analysis which covers the factors quite thoroughly. Here is the conclusion -- emphasis added by me:
The yen, the euro, and the dollar are all playing the same games. Despite the economic potential in the BRICs (Brazil, Russia, India, China), these are still relatively insignificant players on the financial side. They are all dependent on the flow of currency from, especially, the US as well as Japan and Europe.
I make no recommendations, but I will tell you my current status. I am mostly in cash. I even have a not insignificant deposit in the First Bank of BeautyRest. I still have some money in the markets, but it is money I can "afford" to lose. I fully expect to lose at least half of it. I have invested in what I think is essential to provide for my family in terms of tools and equipment and supplies.
It's hard to say what will happen with precious metals -- one would expect a price drop but it will be more severe in the "paper" versions than in the in-hand metal itself -- just as we saw earlier this year. But China and Germany, for example, will probably support a strong base for gold. Silver may take more of a hit because it is more of an industrial commodity. It might be a good time to buy more. Only the nominal, dollar-denominated value of these metals will decrease.
Interestingly, the chart above looks remarkably like the bubble real estate market created by Federal Reserve monetary policy between 2002 and 2007. You can see that at the link.
As I noted when I started this blog back in 2010, bonds are the current bubble, and all bubbles burst. Please read the entirety of Kerr's analysis which covers the factors quite thoroughly. Here is the conclusion -- emphasis added by me:
A forced liquidation of assets in the wake of a confidence crisis would obviously have dramatic impact on all the markets we have mentioned in addition to a multitude of others. We have shown that capital concentrations tend to build slowly but unwind swiftly. As such it is not beyond the realm of possibility that all gains seen over past 4 years in the bond and stock markets could be unwound in a very short period of time. Going back to the idea of the web of capital, the lynchpin looks to be the currency markets and specifically the US Dollar. With the Federal Reserve immersed in aggressive balance sheet expansion through the use of quantitative easing the Greenback has become a form of funding especially within the emerging markets through various official and unofficial pegs. At the behest of the Fed through its forward guidance, investors have borrowed these cheap dollar assets to invest in higher yielding non-dollar ones. Looking at the difference between the growth in FX reserves and cumulative current account surpluses we can estimate the rough size of the short USD carry trade. According to the most recent data it is at least around $2 trillion based on this metric! The whole trade, however, is built on the notion that the Fed and other central banks will continue with this policy into perpetuity. For this reason even [the] slightest realistic hint that the Federal Reserve is set to move away from ZIRP has the potential to unravel the whole thing. All those who have borrowed dollar assets will be forced to buy back their dollars forcing the currency higher – some 2 trillion USD worth! This de facto policy tightening would have grave and dramatic knock on effects for emerging and developed markets alike. Pay close attention to the dollar. Prolonged strength in the currency could the unexpected tail that prompts the beginning of the end in the latest central bank induced asset bubble.
The yen, the euro, and the dollar are all playing the same games. Despite the economic potential in the BRICs (Brazil, Russia, India, China), these are still relatively insignificant players on the financial side. They are all dependent on the flow of currency from, especially, the US as well as Japan and Europe.
I make no recommendations, but I will tell you my current status. I am mostly in cash. I even have a not insignificant deposit in the First Bank of BeautyRest. I still have some money in the markets, but it is money I can "afford" to lose. I fully expect to lose at least half of it. I have invested in what I think is essential to provide for my family in terms of tools and equipment and supplies.
It's hard to say what will happen with precious metals -- one would expect a price drop but it will be more severe in the "paper" versions than in the in-hand metal itself -- just as we saw earlier this year. But China and Germany, for example, will probably support a strong base for gold. Silver may take more of a hit because it is more of an industrial commodity. It might be a good time to buy more. Only the nominal, dollar-denominated value of these metals will decrease.
Monday, June 3, 2013
Capital Is Not Credit
So, I didn't pay any attention whatsoever to markets or currencies or anything like that for all of last week, and I don't seem to have missed a thing. How can this be?
These things have become completely detached from reality. That the IRS is the muscle for gangster government is news to no one who has a functional brain cell. That the news media is essentially the information ministry of the financial oligarchs is hardly shocking.
But I did realize or at least manage to articulate to myself why I sometimes sound uncomfortably like some leftists and anti-corporation, union types. The problem is not free markets or free enterprise, corporations that mine, manufacture, and otherwise produce goods and services. Those work.
What doesn't work is the banking system which runs not on assets but on debt, generating speculative "wealth". A bank should be able to loan only money that it actually has. My local bank can theoretically and legally loan several times the amount of money in my accounts based on what I have deposited. The multiplier should be 1. As Denninger is fond of saying, you need that "one dollar of capital".
The banks can hold money as actual cash deposits or in the form of titles on property or equipment that has been purchased with borrowed money, but there should have been money to borrow and the collateral should roughly translate back into that amount of cash if it is sold. This is why lenders used to require down payments on mortgages and car notes -- to cover depreciation and other market loss factors. But, shoot, if you are creating money out of thin air, who needs anything down? It's all bogus so it might as well be thoroughly bogus.
This has been going on for a hundred years, since the creation of the Federal Reserve System, and it has been getting progressively more distorted. We had a slight and brief reset in the early '80s with very high interest rates when some debt was cleared from the system, but basically we have been living in bubble-land in a big way for the last forty years. Credit is not capital. You do not generate capital by making a loan.
Until we get back to a reality-based understanding of capital as money saved above expenditures rather than the amount of credit one is allowed, we are never going to have a sound and sustainable economic recovery.
These things have become completely detached from reality. That the IRS is the muscle for gangster government is news to no one who has a functional brain cell. That the news media is essentially the information ministry of the financial oligarchs is hardly shocking.
But I did realize or at least manage to articulate to myself why I sometimes sound uncomfortably like some leftists and anti-corporation, union types. The problem is not free markets or free enterprise, corporations that mine, manufacture, and otherwise produce goods and services. Those work.
What doesn't work is the banking system which runs not on assets but on debt, generating speculative "wealth". A bank should be able to loan only money that it actually has. My local bank can theoretically and legally loan several times the amount of money in my accounts based on what I have deposited. The multiplier should be 1. As Denninger is fond of saying, you need that "one dollar of capital".
The banks can hold money as actual cash deposits or in the form of titles on property or equipment that has been purchased with borrowed money, but there should have been money to borrow and the collateral should roughly translate back into that amount of cash if it is sold. This is why lenders used to require down payments on mortgages and car notes -- to cover depreciation and other market loss factors. But, shoot, if you are creating money out of thin air, who needs anything down? It's all bogus so it might as well be thoroughly bogus.
This has been going on for a hundred years, since the creation of the Federal Reserve System, and it has been getting progressively more distorted. We had a slight and brief reset in the early '80s with very high interest rates when some debt was cleared from the system, but basically we have been living in bubble-land in a big way for the last forty years. Credit is not capital. You do not generate capital by making a loan.
Until we get back to a reality-based understanding of capital as money saved above expenditures rather than the amount of credit one is allowed, we are never going to have a sound and sustainable economic recovery.
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