And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
– Thomas Jefferson to John Taylor, May 28, 1816 (via Library of Congress)
Well, this takes the cake. Prior to the revelations of this week, your humble editor was 95% convinced. Now he is 100% convinced... Washington and Wall Street are run (and overrun) by evil clowns, and the country is too bored or bamboozled to care.
When asked what kind of government the new nation had, Ben Franklin reportedly replied: “A republic, if you can keep it.” Given the evidence mounting all around, it now seems reasonable to openly doubt whether we can keep it. America has sold its birthright as a nation for a mess of pottage. We have sold it to a bunch of greedy jackal banksters, no less, in exchange for the idiotic assurance that trees can grow to the sky and nothing ever has to change.
Ah well. As Bertrand De Jouvenal observed, “A society of sheep must in time beget a government of wolves.” Mayhap time has simply caught up with us.
What brings upon this sudden outburst, you ask? A confluence of things. Let’s see, where to start...
Fire Volcker?
In mid-July, Taipan Daily spoke out on “The Unconscionable Muzzling of Paul Volcker.” Why was the great man nowhere to be found? A quick excerpt:
We here at Taipan Daily have no special dispensation as to why the meatheads in Washington do what they do.
But we do have the ability to make an educated guess or two... and the guess here is that Volcker wound up getting railroaded. It’s a good bet that Volcker made the mistake (if one could call it a mistake) of being too forthright in his views – not willing enough to “play ball” as it were.
You see, the White House finance team is dominated by a Wall Street mentality. So dominated, in fact, that insider culture permeates the place like the smell of trout guts in a fish market.
One can see this (or rather smell this) in observing team Obama’s top financial pitchmen, Tim Geithner and Larry Summers. As president of the New York Fed, Geithner was a creature of Wall Street, bought, sold and paid for, from day one. Even the staid New York Times has called out Turbo Timmy, noting his exceptional “reliance on bankers, hedge fund managers and others.”
In recent days, Volcker got himself in trouble for speaking out yet again. The marginalized giant is still getting no respect – and he is getting fed up. The solution? Start making noise off the record – a lot of noise if need be.
Last week, The New York Times reports, Volcker said that “the Obama administration’s proposed overhaul of financial rules would preserve the policy of ‘too big to fail’ and could lead to future banking bailouts.” Ouch! Who dares throw cold water on the men who walk the corridors of power? Volcker, that’s who!
Further speaketh Volcker at a financial conference in Los Angeles: “I do not think it reasonable that public money – taxpayer money – be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial banking organization...”
And then, in a wide-ranging Charlie Rose interview this week, Volcker strayed from the party line even further: “We can’t just pump up consumption and pump up housing again. Might pad us for a year or two, but it’s imbalance that got us in trouble in the first place...”
And on commercial mortgages: “The single [biggest] threat in the credit area right now is commercial mortgages…commercial real estate’s in trouble… taking the loss and recognizing loss has only just begun.”
And Wall Street’s response? Fire the guy! After the Charlie Rose interview, someone at Brown Brothers Harriman (which, incidentally, bills itself as “the oldest and largest partnership bank in America”) responded with a snide commentary titled “Why Volcker Should Be Fired.”
The “Why Volcker Should be Fired” commentary has since been mysteriously removed from the bbh.com Web site. (The saved link now returns a blank page; Google search evidence remains.) Prior to its disappearance, the scornful author chided Volcker for not being “fired with enthusiasm” [sic] over the administration’s Neville-Chamberlain-like strategy of securing financial peace in our time. Volcker is not towing the party line, the BBH scribe all but whined. “He is doing a disservice to the administration and the country.”
So this is what it comes to. The only sane person with the cojones to challenge the blatant appeasement of Wall Street gets the sound of crickets... and dark mutterings from banking shills over how he should be fired for not playing ball.
Give us our bread and circuses, our stimulus-driven rallies, our morphine shots of massaged government data! And banishment to those who oppose!
Ken, Hank and Lloyd
In another sordid bit of news, Ken “Pig in a Poke” Lewis – the hapless Bank of America CEO – has announced he will step down at the end of this year. (It isn’t clear why Lewis has finally chosen to throw in the towel, but some suspect a forthcoming SEC lawsuit.)
So is this an example of just desserts? A megabanker laid low, finally getting what he deserves? Nah.
To make a Godfather analogy, Ken Lewis strikes your editor as a bit like Fredo Corleone. He was one of the bankster “family,” but a bit of an annoying screw-up who had to be taken out. The whole Merrill Lynch debacle was flat-out embarrassing, not to mention Lewis’ off-the-cuff mutterings – a violation of bankster omerta – about pressure from “inside” (i.e. Fed and Treasury) to make the deal happen.
Putting a “hit” on a high-ranking family member is never easy. There are always complications involved. But as with the weak and disloyal Fredo, Lewis had to be dealt with.
To get a sense of how the megabanker “family” dynamic really works, check out the relationship between Hank and Lloyd. (That would be Hank Paulson, former Treasury Secretary and Goldman Sachs CEO, and Lloyd Blankfein, the current Goldman Sachs CEO.)
In a bit of laudatory detective work, John Crudele of the New York Post got ahold of phone records showing the extraordinary number of calls made between Hank Paulson and Lloyd Blankfein in the dark days of September 2008.
On Wednesday, Sept. 17, the day the stock market was in trouble, Paulson spoke with Blankfein five times, including a pair of calls at 7:20 p.m. and 8:45 p.m. One of the earlier calls – at 12:15 p.m. – is listed on Paulson's log in the same five minute interval as a call to Geithner, which could indicate that this was a conference call.
If Paulson did set up a conference call, it would have been an extreme instance of putting someone who wielded a lot of power – Geithner – together with someone – Blankfein – who could profit from that connection.
And all of this doesn't include possible cell phone calls. The Treasury turned over to me Paulson's official schedule and phone records after I made a request under the Freedom of Information Act...
Goldman has well and truly earned the “Government Sachs” nickname. Now we find out that, not only does Goldman benefit from extensive “soft” influence by way of having staff interspersed up and down the Washington food chain... it also benefits from “hard” influence of the hardest kind, namely, direct phone calls from a top Treasury official, even as the market gyrates wildly in anticipation of the Fed and Treasury’s next move.
Maybe it’s time we took up a tongue-in-cheek suggestion from Marc Faber. Why not just outsource the running of the U.S. Fed and Treasury to Goldman Sachs entirely? At least then we could do away with pretense and just recognize the situation for what it is.
Socialist Mortgage Holders Unite
Want yet more evidence that our beloved republic is swirling down the financial drain? Take a look at this chart (courtesy of chrismartenson.com) depicting mortgage-backed securities purchased by the Fed:
View larger image here
As Martenson observes (underscore emphasis mine),
...the Federal Reserve alone bought $722 billion of mortgages and agency debt when only $686 billion in new mortgages were issued. So, through August, the Fed bought more than 100% of the entire supply of new (purchase) mortgages in 2009.
That's not a free housing market; that's a market bought, owned, and sustained by the Federal Reserve's willingness to print up three quarters of a trillion dollars out of thin air.
Folks, the government is no longer just propping up the housing market; the government IS the housing market. What are we going to do, pray tell, when this taxpayer-funded support is withdrawn? How are we going to handle the downpour of “shadow housing inventory” currently held back from the market, as bankers and builders unload foreclosed and distressed properties in waves over the next five years? Perhaps we could inflate the new homebuyer tax credit from $8,000 to $150,000, tack the cost onto the national debt, and just monetize the whole kit and caboodle? Heck, what’s another 10 trillion among friends?
As Einstein once said, “No problem can be solved from the same level of consciousness that created it.” As Einstein also said, “There are only two things that are infinite, the universe and human stupidity – and I’m not sure about the former.”
The United States government is so utterly dunderheaded, these high-minded bureaucrats actually believe our problems can be solved by doing even more of what was done before. Wunderkind Obama advisor Larry Summers, recognized to be one of the most condescendingly arrogant people on the planet, actually spelled this out a few months ago in a speech to his fellow eggheads.
And speaking of which (doing more of what we did before)....
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Toxic Waste Redux
Perhaps the craziest, the most insane, the most stupefyingly stupid thing that crossed your editor’s desk this week was a piece titled “Wall Street Wizardry Reworks Mortgages.” As The Wall Street Journal reports,
A new wave of financial alchemy is emerging on Wall Street as banks and insurers seek to make soured securities look better. Regulators are pushing back, saying the transactions don't have enough substance and stand to benefit bankers and ratings firms.
The deals come as Wall Street firms, buoyed by surging markets, are seeking to profit from the unwinding of the complicated securities that helped fuel the credit crisis. Regulators, meanwhile, are struggling to prevent a recurrence of the crisis.
The popular deals are known as "re-remic," which stands for resecuritization of real-estate mortgage investment conduits. The way it works is that insurers and banks that hold battered securities on their books have Wall Street firms separate the good from the bad. The good mortgages are bundled together and create a security designed to get a higher rating. The weaker securities get low ratings.
The net result is financial firms' books look better and they need to hold less capital against those assets, even though they are the same assets they held before the transaction...
And here is the WSJ’s nifty graphic:
View larger image here
Upon reading that excerpt and perusing the graphic, one has to ask: “Gee, why does this sound familiar?”
Maybe because this “new wave of financial alchemy” is just like the “old” wave of financial alchemy that nearly BLEW UP THE GLOBAL ECONOMY.
Among other things, the financial crisis was caused by far too much leverage, backed by far too little capital, in pursuit of casino-style profits on “triple-A” rated securities that were actually toxic junk.
And now, barely a year on from the blow-up... not even twelve months from the fall-out... the banksters are bound and determined to light the same stick of dynamite all over again!
Have we learned nothing? Absolutely nothing?
No, maybe it’s even worse than that. Maybe what the banksters have learned is that Washington will come to their rescue no matter what... and that in terms of concentrating power in the hands of the “family,” i.e. the connected megabanks at the top of the power structure, the whole crisis deal actually worked out pretty good... so why not just keep pressing, showing contrition on the surface even while robbing taxpayers blind, given that further crisis might simply concentrate power even more... as the American republic in its noble entirety is recast as a bloated cash cow to be milked dry, a plaything “of the bankers, by the bankers and for the bankers,” that oligarchy might not perish from the Earth.
Warm Regards,
JL
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