Today I present a deeply insightful guest essay by frequent contributor Zeus Yiamouyiannis, Ph.D.
Nothing succeeds like failure when you are a big bank. We’ve already seen that. Too many articles have already been written about that.
Heads, the big banks win through their hugely profitable derivatives and other fake wealth vehicles on the way up the phony growth curve.
Tails, you, the citizen, loses as you are forced to redeem this toxic trash for real money in the form of government bailouts and Federal Reserve purchases as fake value collapses.
“O, the inhumanity, O the injustice.”
Hey, we get it. You can stop pounding the drums. Bring on Act II: “The current anti-capitalist farce and its riotous effects.”
Capitalism turned on its head
What happens to functioning capitalism when its core operating principles of value and money, risk, private property, profit, supply and demand, price discovery, transparency and accountability, productivity, and exchange of worth can selectively be erased on the whim of self-interested, politically connected players?
What happens when every standard of the game is turned upside-down by rule-rigging fat cats and then cravenly excused by international governments, prosecutors, and regulators? You get a leaky economic charade riding on a sea of debt bailed out with “expert” psycho-babble, high-level cheerleading, and government assurances that sound more each day like sick punch lines to bad jokes:
• “Deficits don’t matter.”
• “The recession has ended.”
• “The weak dollar is good for trade.”
• “Debt just needs to be ‘restructured.’”
• “We just need more government stimulus spending.”
• “Federal zero interest rate policies (ZIRP) help everyone.”
• “Unemployment is down.”
Enough of the minstrel show and its official nonsense. Here is the real deal on the current corporate/government war against capitalism:
Farce #1: “Market value” and “free markets” have become a joke.
In order for “value” to have financial value in the free market it, 1) must have real worth to someone else, and 2) must be freely chosen. The whole point of a market is that people choose according to their desires and needs, not yours. No one is entitled to a profit.
That’s what “market value” and “free market” mean. Other people, known as “the public,” interactively determine what your asset, good, or service is worth. You may think something is financially worth a lot. If others do not, it’s not worth squat.
If you can merely create private fiat by assigning your own value to your “assets” and products and then force others to buy them, there is no valid market value or free market. It is simply financial dictatorship.
Farce #2: Private, self-assigned, fake value is being traded for public money at 100 cents on the dollar.
Even basic monetary standards for public exchange of value no longer apply. Now big banks have been given the executive go-ahead to self-assign value to their assets at any price they choose. This is called “market to model” (i.e. profitable lying with complicated mathematical formulas).
This violation of capitalism comes not only in refusing to allow the market to determine price of assets, but in forcing the public through government capture to pay for “impaired private assets” with “real” public money at 100 cents on the dollar!
This is nothing more than the exchange of publicly accepted money for worthless, private, counterfeit crap.
Farce #3: Printed money is backed by nothing.
However, what “value” does that public money have? What is the current U.S. dollar tied to? Nothing of worth. It refers to no credible public asset, good, or service. The Treasury and the Fed are just printing money, period.
The abstract future ability of the U.S. to pay off an exponentially increasing debt amid a long-term contracting economy is not even close to being a plausible substitute. If that money was invested in infrastructure, perhaps a case could be made, but can you name even one project that the 800 billion dollars of “stimulus spending” has funded?
In order for money to be a credible marker of exchange it must be tied to an asset, good, or service that has collectively established worth (i.e. commodities, present and future national productivity, or local networks of exchange of services and goods).
Current money needs to become rebased in things that produce value, that preserve and enhance present and future life. At bottom, neither banks nor governments are doing that, and if anything they seem to be working hard together to kill off both broader prosperity and free market capitalism.
Farce #4: We have a “free” enterprise system dominated by monopolies that force people to buy inferior goods and services at exorbitant rates.
Exhibit A: “Health” care: U.S. health “insurance” is dominated by regional monopolies that are notorious for denying treatment and charging double what the rest of the world charges. What do we get for that? We get a record number of uninsured citizens, and health results (infant mortality, etc), which are near the bottom, rather than the top, of industrialized nations.
The U.S. health care system is also possibly one of the most inefficient in the world in delivering services, wasting some 750 billion dollars per year in unnecessary spending, including hundreds of billions of dollars per year in excessive administrative costs.
“The best health care system in the world”? Hardly. Maybe if you are rich or have generous subsidized benefits.
Even then, you are not immune to hospitals that cut safety corners to save on costs, and both slash pay and increase work hours for the people treating you. Think about it. Medical error is one of the leading causes of death in the U.S, killing some 200,000 people per year.
Exhibit B: Military industrial complex boondoggles: The United States is currently spending almost as much on its military as the rest of the world combined.
What kind of value are we getting for that? We’ve gotten pointless wars built on politically expedient lies, that have lasted longer than any wars in modern history, that have cost trillions, and that have made us less secure.
Farce #5: High-level financial crimes, no matter how egregious or widespread, are not being prosecuted.
Instead, corrupt and fraud-ridden organizations like Countrywide, Goldman-Sachs, Bank of America, JP Morgan, and Citigroup, get bought up and/or pay a small percentage of their ill-gotten gains to settle civil suits in which they do not admit fault.
The leaders of these anti-capitalist organizations (Anthony Mazillo, Jamie Dimon, Lloyd Blankfein, et. al.) still walk away with enormous compensation, after having ruined their companies and tanked the world economy. When they have to hire legal representation, they do it at the stockholders’ expense, adding insult to injury.
There are probably millions of forged documents, involved in “fraudclosure”, the pervasive property assignment control fraud that includes all the big financial players. Companies and citizens have brought civil lawsuits, but these are taking time.
There has been negligible government investigation, much less criminal prosecution. Here you have millions of cases of the very foundation of private property, clear ownership, being decimated by rampant, obvious fraud, and you do nothing?
Oh, I forgot, you extend the big banks a reprieve in the form of yet another settlement, this time with States’ Attorney Generals (basically a 25 billion dollar slap on the wrist for trillions of dollars of interconnected fraud). What does it take for law enforcement to do its job?
What effect does this have? It screams, “Crime pays!” It destroys the morale of hard-working, law-abiding citizens, and it keeps zombie banks not only alive and kicking, but prospering on the backs of citizens.
It sinks the global economy even more by encouraging financial criminals to double-down on the profitable crime that got them their unreal returns in the first place.
Where do you think that’s going to end? Too-big-to-fail is now bigger. Bailouts from central banks are more frequent. Overt and covert citizen subsidies for this crime keep climbing. Welcome to the financial cancer club.
Farce #6: Risk is gone. Now there is only liability borne by citizens.
Corrupted capitalism expects you, the citizen, to pay for “their,” the crony capitalists’, failure. In functioning capitalism, a company and its investors take their own risks, profit from the gains, and stomach the losses. Other people do not pay for their mistakes or their crimes.
That core element of capitalism is now gone. Irish citizens have had to pay many billions just to cover the losses of one of their private banks. Greece has learned, with its enforced austerity programs, that if this liability is not paid in dollars (or the phony dollars of debt restructuring), it gets paid in diminished quality of life.
Farce #7: Productivity has been supplanted by parasitism
There is hardly anything more important to thriving functioning capitalism than productivity, and sharing the fruits of productivity. It is notable that productivity among U.S. workers actually skyrocketed over the last decade and a half, but real wages have flattened or declined.
Where did the surpluses go? To parasitic financializers who have seen their share over all corporate profits grow from 10% to over 45% in recent decades.
After costing trillions and wiping out the world economy, what asset, good, or service do big banks produce that has genuine public worth?
• “Expert advice”, in which brokers intentionally sell junk to consumers, as shown in investment bank emails?
• “Financial services”, which turn out to be so laden with hidden fees and loosened/fabricated credit qualifications that the lendee is worse off?
• Allegiances that concentrate financial wealth the top 0.1% of the population, causing the vast majority of the world to get poorer?
If anything, citizens would stand to gain more by paying big banks to close their doors.
Big banks have largely stopped lending to businesses or individuals because that’s not profitable enough and because they need to retain capital to reduce their exposure due to their own foolish overleveraging. This depresses community and small business entrepreneurship and productivity.
Bottom line: Big banks’ “services” take far more in costs than they provide in benefits. Much would be gained, and little lost, if they were allowed to fail or were decommissioned outright for their criminal behavior.
In short, the non-accountability of big banks means American honest work and honest gain will be increasingly ripped off. This is a zero-sum game in which not even a single, direct, effective champion of the interest of broader American and middle and working class interest exists in the actual machinery of Washington.
Those few heroes, the former and present prosecutors and officials who have attempted to enforce transparency and accountability, Elizabeth Warren, Brooksley Born, Harry Markopolos, Neil Barofsky, and William K. Black have either been ignored, pushed out, or shut down.
“I thought that if there was ever going to be a political figure that would take on the interests of Wall Street, and put the American people… above the monied interests, it was going to be President Obama, and that just didn’t happen. In fact it was the opposite. He had the same ideology as Timothy Geithner [and others from Wall Street]: ‘Protect the banks. What is best for the biggest banks is what’s best for the country.’”
This is pretty grim stuff, but it has a silver lining: When you don’t have champions to manage the economy fairly or effectively, you organize yourselves to transform your economy.
Both liberal and conservative officials have turned themselves from public servants into private servants. We, in response, have no excuse but to turn ourselves into necessary public champions. We must decide and act upon our choices to drive the economy in a healthy direction.
Economy cannot exist without people and their agreement. It is our job now to form the next principles and new, healthy practices as we turn away from a corrupted system.
To inform this effort, I shall be releasing my new article next week, called “I Give a Damn: A Manifesto for the Productive Class.” I will also have an e-book available soon called “Transforming Economy: Moving from Corrupted Capitalism to Connected Communities.”
Charles Hugh Smith – Of Two Minds