More Misdirection from the Fed

Reading the summaries of the Treasury-blogger love-fest (see interfluidity) brings to mind some recent stuff I’ve read about magic, that it’s all about misdirection. Get the people looking in the wrong places and you can fool them every time.

The cause of our current collapse of effective demand, which is not going to go away soon (proof: consumption is falling 5-10 percentage points from 71 percent of GDP, and the government is too broke to make up the aggregate demand with government investment spending, not to mention that they’re too incompetent to do it, and private investment is still to scared to jump in) is not fundamentally too much debt, although that is a proximate cause, it is mal-distribution of income (and increasingly and massively so, of wealth).

Once the glorification of greed really got going 30 years ago under Reagan, the rich started to manipulate the system (taxes, incomes) more and more to their benefit, with the assent of the masses, who all expected to grab the gold ring themselves at some point. As I point here, as the rich started to pull away, everyone else took on too much debt to try to keep up. The way things are going, I am not alone in worrying about the US becoming a neo-feudal society; Emmanuel Saez, the establishment economics profession’s leading expert on income and wealth inequality, shares the concern. I qualify the profession because the best research on what’s actually happening has been coming from alternative sources for some time now, e.g., Robert Prechter’s book Conquering the Crash, which was early on the timing, as is so often the case, but got the big picture right, which is more than you can say for Bob Rubin, Larry Summers, or any of the other clowns in Washington with the possible exception of Ron Paul.

So all the talk about reforming regulation (Right! We’ll trust them to do their jobs next time?), putting in a systemic risk regulator (we already had one, called the Fed, totally compromised by Wall Street—they let the whole thing happen so the Wall Street bankers could get rich quick), about “too big too fail” and so on ad nauseum is pure misdirection, a shell game. So long as the crooks are running the show there will be no reform.

And why don’t shareholders, who by and large own the companies of America through their pension funds, and who, by and large, are not fat cats—why don’t the shareholders attack the obscene compensation the small club or CEOs and board members arrange for themselves? Peter Drucker wrote about “pension fund socialism” thirty years ago. It didn’t happen, did it? The pension administrators are in on the game. Peter, with whom I discussed this years ago, must be rolling over in his grave

Obscene greediness needs to become so socially unacceptable that its practitioners wither away. Or go away. And lots of luck trying to get your money out of the country.

This is why when I write to my elected representatives I stress that America is a fiscal basket case, and that we need to begin to practice triage, providing necessary human services—a poverty level dole, education and health care—to the unemployed and abandon all stupid imperial ambitions and obscene bail-outs for the well-heeled.

And for crying out loud, get the investment banks out of the Fed’s cookie jar. The carry trade that’s happening now is obscene beyond measure and “will not end well.”

Comments

[Gary A:]

I agree with most of what you say. But the attack on the middle class and poor through liar loans was an off balance sheet scam permitted under the watch of the Bank of International Settlements.

I am for personal non violence, but the military could escort the Fed off our shores and surround the BIS, in a heartbeat. We could take our sovereignty back. It isn't because we lack power. We lack will.

Nov 06 03:48 AM

[paxjds:]

The name Fed needs to be changed to be more appropriate. Perhaps
Banksters, Gangsters, Crooks , Swindlers, Morons, or Maggots. But the name Fed has got to go. What is needed is a real Federal Government regulating: Banks, Wall Street, and Crooked Politicians.
Not bankers regulating themselves using the name Fed or Federal. Not Wall Street regulating themselves when we have SEC and state commissions. Not Congress regulating themselves with oversight committees. What a joke they all are. They need to be in jail and removed from positions of power they have misused.
Press reporters need to be fired in mass for dereliction to duty and conspiracy with those in power. The fourth Estate must return to its role, no longer being part of the corrupt establishment, but working tireless to bring about its downfall.
The Supreme Court needs to get the blinders off their many errors and help bring down this Crooked and Killing methodology they helped establish in the past 50 years.
We the public are tired of hearing all the BS from all the above said groups. It is time to start impeaching and jailing state and federal attorney generals for dereliction of duty. It is their job to arrest and prosecute all the above till all of them are jailed. Save the Republic swiftly or You are hasting its downfall!

Nov 06 04:07 AM

[Moon Kil Woong:]

There is a great way to prevent systemic risk. It's letting bankers and everyone know that government and taxpayers won't bail them out no matter how big or unwise they get. The only reason things have spiralled out of control so far is because of the explicit or implicit assumption that government will bail out certain companies and certain industries. Rather than solving the root cause, government backing, we have only added even more implicit or explicit government guarantees.

No matter how much you regulate it, allowing private risk to be socialized leads to market imbalances, people preying on that imbalance, waste, fraud, abuse, and eventual collapse. When will the Federal Reserve and government learn? Never!

Nov 06 04:10 AM

[Michael Clark:]

I could not agree more. The SILENCE in America is deafening. Where is the will of the injured? Where is the OUTRAGE of the majority that are now much poorer than before? Why do the banks still push around the government? Why is the government not hauling out the bas__rds and nailing their hides to the wall? Because the banks own the politicians? Yes.

And the lambs go silently to the slaughter....

America will have a politician who is not a peacemaker (like Obama), who is a sword cutting both sides...and the people will rally to that person, as they are no longer rallying to Obama, the protector of the bankers. (I voted for Obama, by the way. I never expected him to put the bankers on his charity list. I'm afraid Obama is thinking about a job for himself and his wife when his days in Washington are over.)


On Nov 06 03:48 AM Gary A wrote:

> I agree with most of what you say. But the attack on the middle class
> and poor through liar loans was an off balance sheet scam permitted
> under the watch of the Bank of International Settlements.
>
> I am for personal non violence, but the military could escort the
> Fed off our shores and surround the BIS, in a heartbeat. We could
> take our sovereignty back. It isn't because we lack power. We lack
> will.

Nov 06 05:10 AM

[Michael Clark:]

Another way is limiting financial profits. Let's face it: the more the financial institutions profit the more Americans are in debt. We're letting the tail wag the dog.


On Nov 06 04:10 AM Moon Kil Woong wrote:

> There is a great way to prevent systemic risk. It's letting bankers
> and everyone know that government and taxpayers won't bail them out
> no matter how big or unwise they get. The only reason things have
> spiralled out of control so far is because of the explicit or implicit
> assumption that government will bail out certain companies and certain
> industries. Rather than solving the root cause, government backing,
> we have only added even more implicit or explicit government guarantees.
>
>
> No matter how much you regulate it, allowing private risk to be socialized
> leads to market imbalances, people preying on that imbalance, waste,
> fraud, abuse, and eventual collapse. When will the Federal Reserve
> and government learn? Never!

Nov 06 05:15 AM

[Davewmart:]

It is startling to me that some on this blog are still mooing on that we should not rush to judgement, and that it would have been disastrous not to have committed the taxpayer to support the banks.
They choose to ignore clear evidence of fraud, market manipulation, false accounting and unconstitutional activity.
The place for most of the main actors in the present farce/tragedy is jail, not directing affairs.
It seems it will take another substantial turn for the worse before many wake up from their dream.

Nov 06 05:47 AM

[Roger Knights:]

If critical financial institutions aren't allowed to incorporate, they'll be more prudent, and they won't grow too big to fail.

Nov 06 11:52 AM

[untrusting ...:]

Good summary and goes to the heart of some of the problems. Demand that Rico Laws be enforced and prosecute both the politicans and the financial crooks. Nothing will change until financial assets are consfiscated and serious jail time is imposed. The Rico Laws provide for this, they just need to be enforced.

Nov 07 01:29 AM