IT IS THE BANKING STUPID
Business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the government of the United States as a mere appendage to their own affairs. Franklin Roosevelt
It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Henry Ford
Many contend that the economics consequence of global pandemic and widespread response to long-standing racial injustice are harbingers of dramatic changes in the US political economy. Unfortunately, the most likely scenario is the acceleration of our neofeudal and fascist trajectory rather than some sort of Scandinavian style social democracy. While recent events lay bare the brutal realities, they also obscure deeply destructive mechanism within. Basically, our economy is one humongous Ponzi (pyramid) scheme. It suborns fraud and theft as well as fueling intolerable societal inequalities. Worse yet, it is designed to periodically implode, bringing down the entire economy. Those who call for a “Green New Deal” must recall that the original New Deal had its “three Rs”, relief, recovery, and reform (of banking).
Since the last financial crisis, which was merely papered over, the US Central Bank (the Federal Reserve or “the Fed”) has expanded its questionable roles from blowing bubbles (via near zero interest rates) to creating trillions of dollars, literally out of thin air (“quantitative easing”), to underwrite the loses of insane investors and exceedingly incompetent businessmen. It is now forging ahead to buy (with magic money) large chunks of the entire economy at the inflated prices it created. The pandemic and heightened racial tensions came along just in time take the blame for the increased pillaging by politically powerful predators. The measures underway further incentivize monstrous malinvestments (in wars, fossil fuels, etc.), divert resources from public health, and ignore societal disintegration. This madness is a direct result of inherently unstable and fraudulent systems.
Corvid Collapse is Perverted to Provide Permission for More Predation
It is well to note, that many firms and financial institutions were on life support long before the virus arrived, and the system was already primed to exploit the pandemic. The Fed has been bailing out the REPO (inter-bank leading) market for months, as well as reducing the borrowing costs for billionaires to for decades. Markets totally addicted to artificial stimulus no longer produce price discovery, but “unicorns”, “zombies” and other “toxic” investments thrive. Our feudal overlords were just waiting for an emergency to provide a smoke screen for the continuation of their monumental upward transfer of wealth. It is already apparent the lion’s share of the response is slated for the 1% and their bankers, including trillions in bailouts and new tax breaks, etc. As with past bailouts, help for struggling homeowners and small businesses will fall by the wayside, not to mention unkept promises for minority investing.
Beyond public funds for already moribund multinationals, the most outrageous aspect of the accelerating program of socialism for the rich is the putting of hyper-leveraged hedge funds and gambling money managers on the dole along with the too-big-to-fail (TBTF) banks. Furthermore, Trump’s Treasury Secretary and kleptocrat supreme, Steve Mnuchin (the major villain of the best book on the last crisis, Homewreckers), refuses to disclose which of his buddies got the 500 billion in pandemic funds as he states he will need a second round soon. It is already pretty clear that displaced from the 99% need not apply.
Not that long ago, hedge funds, tacitly demanded that investors should be able lose at least one million, and bets were “hedged” long and short in the same instruments to reduce risks. Now they are bastions of the burgeoning “shadow-banking” industry and its unregulated circus of fake securities and derivatives (bets on bets). Gambling used to mean when you lose you lose. Yet, these mega-gamblers are again lining up for bailouts, from the US tax-payers. Moreover, The Fed is primed to recapitalize many of these failed factories of fictitious wealth as well as purchase flagging corporate bonds and shares. Like the Bank of Japan, they could come to own the most of the colossally over-valued stock index. None of this is congruent with conventional notions of capitalism, let alone included in their statutory provisions, but that does not seem to matter.
This Time it Really is Different
Fatal flaws in the systems of money and banking have been around for millennia. Given inherent instabilities, asset bubbles and crashes (once called “Panics”) occurred at relatively regular intervals in a system that relies upon over-hyping and then stealing from the future. But in our time (the late 20th and early 21st centuries) these dynamics have metastasized like an especially aggressive cancer. In fact, John McMurtry drew out the medical analogy fully in his book, The Cancer Stage of Capitalism. Less pejorative labels such as “Financial Capitalism” and “Money-manager Capitalism” have been placed upon this unique era, alongside more accurate images such as “Disaster” and “Revenge” capitalism. This era really is unprecedented, but hardly a Black Swan. Five major set of events mark the demarcation to this ultra-catastrophic period:
1) Nixon’s unilateral withdrawal from the Bretton Woods Agreements (ending the Gold Standard) and opening up “China Inc”;
2) Defeat in Vietnam, the ending of Cheap Oil, “runaway inflation”, while a neoliberal/neofeudal cabal captures economic thinking and policy;
3) Clinton’s removal of Depression Era financial safeguards (e.g. Glass-Steagall) and increased activism by the Fed (e.g. bubbles);
4) Bush I & Bush II’s military misadventures, and endless “War on Terror”; amid regressive taxation and lax anti-trust enforcement; and,
5) Increased use of exotic derivatives and an explosion in “Shadow-Banking” along with Obama’s & Trump’s temples of TBTF banking, as the Fed’s moves from lender of “last” to first resort.
Working behind the scenes, elites and their bankers fought to remove past safeguards and further exploit actual and engineered emergencies. Rather than dealing with well-known instabilities they jerry-rigged them only enough to make the next convulsion more intense. In effect, as the old tricks of amassing vast unearned wealth were wearing thin, they ushered in a new era of klepto-capitalism.
Bankers Have Always Been Wankers
Money and banking have always been a bit dodgy. Long before Jesus overturned their specialized tables (where the word bank comes from) on the steps of the Temple in Jerusalem, money changers had been in ill-repute. For centuries the charging of interest was labeled USURY and dramatically restricted (below 1%) by the world’s major religions. Today, of course, credit cards can charge 15–20% as well as late fees and payday lenders can charge upwards of 300%. As the industrial revolution displaced the traditional agricultural economies, many feudal lords merely morphed into financiers.
Many are surprised when they learn money comes into being as debt, whenever a bank makes a loan it merely creates new money on its ledger. Moreover, only an extremely small portion of bank holdings are backed via fractional reserves (10% only if regulated). With the rise of Shadow Banking and derivatives, a tiny amount of questionable collateral can now be leveraged far into the stratosphere. Essentially banks allow folks to buy real items with counterfeit money. Plus, values and the risks are further fabricated via labyrinthine simulations filled with faulty assumptions, and corroborated by corrupt ratings agencies. As Prosecutor, William K. Black, points out in the title of his book on the Saving and Loan Crisis, The Best Way to Rob a Bank is Own One. Corporations limited by anti-monopoly restrictions merely colluded via banking combines, once called MONEY TRUSTS (see: Pujo Report). In recent years, moreover, major industrial firms became mediocre banks themselves (e.g. GM Loans), and others merely became conduits for debt creation, with banks fees coming and going. Many an established firm merely jacked up their stock price with buy backs, loading up with debt, and then went bankrupt (breaking the table). The executives who help destroy these firms get their “golden parachutes”, while obligations to the workers (e.g. pensions) are abrogated. Private (pirate) equity investors routinely buy a firm by leveraging its own assets, extract huge fees, and the then dump the empty shell. And, bailouts keep the corpses on display. Ultimately, this galactic money from nothing machine further fuels catastrophic economic instabilities, amid the retelling fairy tales about unlimited prosperity and concealing rampant and rabid neofeudalism.
For centuries banks have steered the course of wars via their vast webs of debt. As John Hopkins Professor, Giovanni Arrighi, contends the evolving hegemonic powers coincided with global banking centers (Genoese-Iberian to Dutch, Dutch to English, English to American). Furthermore, banks often hedged by supplying funds to both sides of a conflict. For example, Stanford Fellow, Anthony C. Sutton, detailed the role of Wall Street in the rearming of Nazi Germany. With the perpetual wars of late, the power of the Military Industrial Complex that Eisenhower tried to warn us about, is now a nation unto itself, with vast Orwellian surveillance capabilities.
America’s Longstanding Love/Hate Relationship
The US has struggled with money and banking since its inception. As Benjamin Franklin maintained the primary reason for the America Revolution was the desire of the colonies to have their own money and banking. Furthermore, within the lose knit confederation of states (even when united), central banking was always more than a bit suspect. A National Bank was twice abolished, but eventually a third effort (the Federal Reserve System) was secretly contrived (via J.P. Morgan’s private night trains to Jekyll Island) and passed Congress during Christmas holidays in 1913, after feigned banker opposition. The Fed is actually an independent banking cartel (no more a government agency than the Federal Express), yet it controls the US currency and makes loans to the government at interest. Twice US Presidents attempted to reclaim the currency by having the Treasury print interest free notes (Lincoln’s “Greenbacks” and JFK’s “Silver Certificates”), both were short-lived.
With the New Deal, FDR managed to introduce heavily compromised, yet significant, banking reforms. In addition to introducing Federal Deposit Insurance (woefully underfunded), a firewall wall was erected that prevented FDIC banks from engaging in securities, stocks, and insurance products (i.e. Glass-Steagall Act). So, for the next 50 years or so we had relatively sound banking, while money (which went “fiat” in 1971) became a hot mess. As bankers rolled back reforms, the most productive economy “in the history of the world” (as Trump would say) was gradually converted to unbridled consumption and overwhelming debt via the mythical perpetual motion money machine. Just when minorities where beginning a grab a sliver of the pie (after decades exclusion and “red lining”), it was snatched away by the massive mortgage-backed-securities scam. More often than not, bank crises produce fake reforms (e.g. Dodd-Frank) that end up strengthening the hand of b/wankers.
Real Reforms Please
One of the first to identify banking’s fatal flaws was British, Nobel winning chemist turned economist, Frederick Soddy (1877–1956). He was labeled “a crank” during his lifetime, however, several of his reforms of global finance were eventually adopted. His key proposal for 100% or full reserve (C%R) banking remains beyond the pale. In the midst of the Great Depression, several renown economists (Irving Fisher, Frank Knight, Henry Simons, etc.) picked up the mantel. Yet, their “Chicago Plan” never really saw the light of day. Following the financial crisis of 2008, their plan very was favorably “revisited” by scholars at the International Monetary Fund (see: Benes and Kumoff). These two also took great pains to show that our current currency creation is based upon an elaborate origination myth (barter baloney, if you will).
By contrast, many mainstream economists maintain that money and banking are the “third rail”, never to be touched. Moreover, probably with their fingers crossed behind their backs, they would tell you “besides they are completely neutral, why else would will leave them out of our models?” However, a small handful of econo-clasts have challenged these sacred cows. For example, and famed ecological economist, Herman Daly, suggests that real environmental progress must begin with C%R banking, and that easy credit fuels ecological disaster.
Critics contend that dramatically increasing reserves would force more finance into the shadows sector. Lawrence Kotlikoff, distinguished professor at Boston University contends that we could merely make the whole mess (including hedgers, exchangers, insurance companies, and loan sharks) into various pass-through MUTUAL FUNDS with a single regulator to “verify, disclose, and oversee the independent rating, custody, and risk profiles for all securities purchased and sold”. It sounds complicated, but it is really a simple plan, which he spells out in his little book, Jimmy Stewart is Dead: Ending the World’s Ongoing Financial Plaque with Limited Purpose Banking. His point is that even mild-mannered George Bailey in A Wonderful Life, was engaged in “fraud”, and bankers no longer stop runs with heartfelt speeches. Plus, they would probably prefer that we, not they, jump off the bridges.
In my own book, Serfs Up: Finance, Feudalism, and Fascism, I describe how more modest proposals for banking reform are catching on. “Ring Fencing” (limiting public exposure to private shenanigans) have been used in certain regions. Others (e.g. North Dakota) have established their own state banks. The Berkshires have taken to issuing their own quasi-currencies (BerkShares), and of course we now have new digital currencies (e.g. Bitcoin) with Block Chain verification technology.
Nonetheless, I believe that patchwork reforms are now insufficient. If we fail to substantially alter our systems of money and banking, the pace of financial crises will quicken, and the entire economy further disabled. Furthermore, as more employment is made redundant or precarious, while inequity and injustice intensify, the dispossessed and disenfranchised will make the current unrest look like a day at the beach. And, full frontal fascism could come to our banana republic of belligerent billionaires.
