"They’ve got a set of Republican waiters on one side and a set of Democratic waiters on the other side, but no matter which set of waiters brings you the dish, the legislative grub is all prepared in the same Wall Street kitchen." -- Huey Long
"We are going to take it out of the hides of Wall Street." -- Federal Reserve Bank of St. Louis,
William Poole October 2007 [According to James Grant this was muttered into a live microphone. I guess Bernanke and the rest of the Fed didn't share Poole's view.]
"You people created this mess. And the headline on this is going to be: 'How Wall Street Ate Main Street.'" --New York Insurance Superintendent
Eric Dinallo, 1/23/08, at an emergency meeting with 30 top Wall Street executives from Goldman Sachs, CitiGroup and Morgan Stanley.
"This madness is ripping the guts out of entire segments of society: wage earners, prudent savers, Social Security recipients and fixed-income retirees, independent truckers, mom and pop restaurants and retailers, the rural poor, long-distance middle class commuters -- basically anyone who doesn't own an oil well, corn field, or sit in front of a half-dozen trading screens in midtown Manhattan. Multiply the impact felt here and here many millions of times over." --
Cunning Realist 5/21/2008
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America's reaction to the deflation of the housing/credit bubble, and to the Bush Administration and the Federal Reserve's attempts to sustain the economy by eviscerating the dollar's value (and freeing the inflation genie) has been, essentially:
Gas Prices are TOO HIGH because environmentalists won't let us drill more!While your tax dollars are bailing out reckless Wall St. firms and providing an unlimited backstop to cover Freddie's fannie, the talking heads are telling you to direct your anger at those who ... oppose oil drilling!
It's madness. It's blind madness. It's blind madness as a response to a previous bout of world-historic madness. Now's the time for sobriety and lucidity-- It's the morning after the bender and this is our wake-up call. Yet, we want to keep deluding ourselves.
Very powerful people want you to debate oil drilling during the current run-up in energy prices, instead of connecting the energy crisis to the incredibly serious
financial crisis. They don't want you to internalize recent dollar/oil correlations like this one:
What's your response to this chart? If it's
"We need to Drill more! Drilling is safe! Not one drop of oil was spilled after Katrina. Maybe if we approve drilling in ANWR, that will calm the markets"-- then I can't help you. Perhaps you should instead be asking "Why's the dollar cratering?"
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I'm going to quote liberally from this wonderful piece by James Grant, entitled
"Why No Outrage?" It gets so many things so right, and describes them so concisely, I'm going to generously excerpt it. Unfortunately, Grant offers a silly explanation for the things he so accurately describes-- he actually blames the populists and leftists from yesteryear for our current troubles. I think this theory is silly, but please read the article in full if you want to see his argument. I'm going to excerpt the other passages because I'm more interested in Grant's central question-- Where's the Outrage? It's a query that's well worth considering. Anyway, without further ado:
"Raise less corn and more hell," Mary Elizabeth Lease harangued Kansas farmers during America's Populist era, but no such voice cries out today. America's 21st-century financial victims make no protest against the Federal Reserve's policy of showering dollars on the people who would seem to need them least.
...
Today, a three-month CD yields just 2.65%, or little more than half the measured rate of inflation. It wasn't the nation's small savers who brought down Bear Stearns, or tried to fob off subprime mortgages as "triple-A." Yet it's the savers who took a pay cut -- and the savers who, today, in the heat of a presidential election year, are holding their tongues.
Possibly, there aren't enough thrifty voters in the 50 states to constitute a respectable quorum. But what about the rest of us, the uncounted improvident? Have we, too, not suffered at the hands of what used to be called The Interests? Have the stewards of other people's money not made a hash of high finance? Did they not enrich themselves in boom times, only to pass the cup to us, the taxpayers, in the bust? Where is the people's wrath?
The American people are famously slow to anger, but they are outdoing themselves in long suffering today. In the wake of the "greatest failure of ratings and risk management ever," to quote the considered judgment of the mortgage-research department of UBS, Wall Street wears a political bullseye. Yet the politicians take no pot shots.
...
Wall Street is off the political agenda in 2008 for reasons we may only guess about. Possibly, in this time of widespread public participation in the stock market, "Wall Street" is really "Main Street." Or maybe Wall Street, its old self, owns both major political parties and their candidates. Or, possibly, the $4.50 gasoline price has absorbed every available erg of populist anger, or -- yet another possibility -- today's financial failures are too complex to stick in everyman's craw.
I have another theory, and that is that the old populists actually won.
[Here Grant goes off on his cockamamie theory about how "the lefties carried the day" throughout the 20th century, and forced the government to create the Fed, paper money, Freddie/Fannie GSE's... and all that resulted in the current mess etc. I believe the truth is much closer to the highlighted possibilities he offers in the preceding paragraph dealing with Wall Street's ownership of the parties, the gas price/drilling distraction, and the complexity of the financial failures. ]
Since the credit crisis burst out into the open in June 2007, inflation has risen and economic growth has faltered. The dollar exchange rate has weakened, the unemployment rate has increased and commodity prices have soared. The gold price, that running straw poll of the world's confidence in paper money, has jumped. House prices have dropped, mortgage foreclosures spiked and share prices of America's biggest financial institutions tumbled.
...
In 2002 and 2003, Ben S. Bernanke, then a Fed governor under Chairman Alan Greenspan, led a campaign to make dollars more plentiful. The object, he said, was to forestall any tendency toward what Wal-Mart shoppers call everyday low prices. Rather, the Fed would engineer a decent minimum of inflation.
In that vein, the central bank pushed the interest rate it controls, the so-called federal funds rate, all the way down to 1% and held it there for the 12 months ended June 2004. House prices levitated as mortgage underwriting standards collapsed. The credit markets went into speculative orbit, and an idea took hold. Risk, the bankers and brokers and professional investors decided, was yesteryear's problem.
Now began one of the wildest chapters in the history of lending and borrowing. In flush times, our financiers seemingly compete to do the craziest deal. They borrow to the eyes and pay themselves lordly bonuses. Naturally -- eventually -- they drive themselves, and the economy, into a crisis. And to the scene of this inevitable accident rush the government's first responders -- the Fed, the Treasury or the government-sponsored enterprises -- bearing the people's money. One might suppose that such a recurrent chain of blunders would gall a politically potent segment of the population. That it has evidently failed to do so in 2008 may be the only important unreported fact of this otherwise compulsively documented election season.
Mary Yellin would spit blood at the catalogue of the misdeeds of 21st-century Wall Street: the willful pretended ignorance over the triple-A ratings lavished on the flimsy contraptions of structured mortgage finance; the subsequent foreclosure blight; the refusal of Wall Street to honor its implied obligations to the holders of hundreds of billions of dollars worth of auction-rate securities, the auctions of which have stopped in their tracks; the government's attempt to prohibit short sales of the guilty institutions; and -- not least -- Wall Street's reckless love affair with heavy borrowing.
...
"Leverage," as the laying-on of debt is known in the trade, is the Hamburger Helper of finance. It makes a little capital go a long way, often much farther than it safely should. Managing balance sheets as highly leveraged as Wall Street's requires a keen eye and superb judgment. The rub is that human beings err.
...
Today's bear market in financial assets is as nothing compared to the preceding crash in human judgment. Never was a disaster better advertised than the one now washing over us. House prices stopped going up in 2005, and cracks in mortgage credit started appearing in 2006. Yet the big, ostensibly sophisticated banks only pushed harder.
...
Huey Long, who rhetorically picked up where Lease left off, once compared John D. Rockefeller to the fat guy who ruins a good barbecue by taking too much. Wall Street habitually takes too much. It would not be so bad if the inevitable bout of indigestion were its alone to bear. The trouble is that, in a world so heavily leveraged as this one, we all get a stomach ache. Not that anyone seems to be complaining this election season.
The public at large still doesn't understand how badly they've been rooked and bamboozled.
===
Update: Mominem is outraged at the Fed.
Also, today's WSJ
"Ahead of the Tape" column by Mark Gongloff is applicable:
Get ready, American taxpayer -- you may be called on to solve the credit crisis.
So far in this debacle, now more than a year old, the government response has been mainly designed to keep the markets and economy running, with the Federal Reserve slashing interest rates and pumping cash into the financial system. The fiscal response, similarly, has kept consumers spending with tax rebates.
The next stage of the crisis won't be solved by easy money. It involves not liquidity but the capital base of financial institutions that have warehouses full of mortgage debt, leveraged loans and other toxic assets fouling up their balance sheets.
...
Potential losses in this crisis are far larger [than the 1980's S&L crisis], with estimates of $1 trillion or more being bandied about. Taxpayers won't be on the hook for anything close to that. But their bill could make the... S&L crisis seem a bargain.
...
Any taxpayer solution will only worsen already troubling fiscal problems. But that's the price for a system that -- as New York University economist Nouriel Roubini and others put it -- privatizes profits and socializes losses.
Indeed. Back in August
James Grant wrote that same sentiment in a quote that I'll keep repeating:
"Capitalism without financial failure is not capitalism at all, but a kind of socialism for the rich."Labels: crime, Dismal Science, Markets, oil
10 Comments:
I'll also reccomend this interview between Bill Moyers and William Greider from last week.
WILLIAM GREIDER: And what they've done in the last year, now two or three times and they're going to do more is to say, "Oh, my goodness, the biggest investment bank, houses are in trouble. We don't usually lend directly to them. We only lend to big banks, but they're in trouble, too. Let's lend to both of them. Let's open the windows and pour out the capital, the liquidity, and so forth." And there wasn't a day that where they paused to say, "What are we getting in return? That these guys promise not to fail?" You see what I'm getting at? It's-
BILL MOYERS: I do.
WILLIAM GREIDER: -it's a wildly grotesque transaction where the public guarantees the life of these firms, and there isn't any effort that we know of to say, "And in return, you're going to behave in the following ways for the next ten years or maybe forever. We'll pass a law later that spells that out more clearly, but this is our starting demand." And I suppose they would say, "Well, we don't have time to do that. This is a crisis, blah, blah, blah." I don't buy that. I think that's a way to avoid those questions is not even mention them.
BILL MOYERS: You have been writing for a long time now that America's moving toward a corporate state. If we become one, can we exercise the self-correcting faculty that prevents us from hitting the iceberg out there?
WILLIAM GREIDER: One of the reasons I think politics is going to change fairly dramatically is that the Federal Reserve, accompanied by the Treasury Department and I think will be accompanied by the Congress, has crossed a very dangerous line in their bailout. They have essentially said, "We will put money on the table, taxpayers' money on the table, for any financial institution or business that is too big to fail." That is, if it fails, it'll send dangerous ripples through the economy.
And we've got a list now of maybe 30, 40, depending on how you count them, that we will be there to save you. I regard that as profoundly dangerous for the American Republic because once you cross that line and you have this special club that's privileged, that has benefits from government that nobody else can get, where do you stop it?
I mean, if I were running a big manufacturing company, I would have quickly run out and buy a subsidiary that's a bank or a financial firm that looks like a bank. And I would then try to get myself on that list. Who wouldn't? What's going on right now it's gotten a little attention - the union SEIU is fighting it, is these private equity firms, which are huge money pots of investors that take over and change corporations and come away with huge profits. The private equity firms are trying to buy into the banks and financial firms.
Good article, although maybe it's a matter of religion or its ideological equivalent that causes Grant to veer off into his bizarre 'it's the populists' fault' paragraphs. Weird.
In 1971, they got their pure paper dollar.
That was the handiwork of noted leftie Richard Nixon, although, to be fair, it's not as if he really had much choice (I'm reading Perlstein's Nixonland, and he mentions that Britain was either beginning or about to begin a massive trade of dollars for gold at the time...not that that was the sole reason for going off the gold standard, but it neither was it something to sneeze at.)
But I digress...what's interesting is that the rest of the article makes it pretty clear that the problem is greedy speculators as opposed to populist government...though you could make the argument that high finance has a revolving door relationship with the regulatory agencies designed to keep them in check.
Oh, and I find it amusing that the St. Louis Fed Pres is named William Poole. I wonder if his nickname is Bill the Butcher...
I am outraged. Have been for a while. It's disgusting, really. And good find on the Moyers transcript, Jeffrey.
The Cleveland report from that same episode is worth a look as well.
Yeah ell, yer psychic too!
This has been vexing my brain for some time regarding the emasculation of our inborn ability to fly from tyranny, get in our rod and go--for who amongst us can afford even to run? Fewer and Fewer. We are becoming economically isolated within our respective bioregions. Why build fences if you can just take the gas and control the waterways? I just couldn't get my head around this until now. You are really That Fucking Good. And fortunately for all, you are that fucking good in motherfucking Louisiana, the antediluvian "way out". Thank Boudreaux and Thibbodeaux!
Sinn Féin no lie.
Here was how my lede ran on the 18th: (I don't know how to do fancy edit here so, it was a two-part lede:
Privatizing Gain, Socializing Loss
http://money.cnn.com/2008/07/13/news/economy/fannie_freddie_sunday/index.htm
~America Bends Over
http://hingefire.blogspot.com/2008/04/will-congress-pay-off-credit-card-debt.html
If one were to consider how everything that has hit these shores from over there has become Amplified, how indeed we invented the Amplifier, how food became formula, how music carried blues carried Rock'N'Roll, carried humans to the moon...as ill we should see the contest between habit and novelty, sanity and totalitarianism, carried to an incalculable n'th degree...
We knew even in 1984 that Reagan was not the end, that it was more than just nigger spelled backwards, that of course they would never stop there.
But, no one can possibly know for whom this current heinous doppleganger tolls. It is too hard to consider such avarice and greed. Such augmentation of the National Socialists Business Model, the Thessien Solution.
Oh God...I apologize. I have been drinking and smoking again...Jeez Louie. Still it would be a shame to let all this verbiage go to waste, as Momma always said, "Eat all yer Verbiage or you get no desert!"
I'll try to leave you alone now. Tollin'ya though, Nola bloggers rock and roll.
Let me be clear.
Those politicians in the other states who oppose drilling on their turf deserve some responsibility of the oil prices.
If they would only be honest and say they are willing to accept higher oil prices for their decision.
The same is true for the politicians who pressured Fannie Mae and Freddie Mac to extend credit to people who objectively didn't deserve it.
And the transaction fee financial industry from the local Real Estate Agent, to the Mortgage Broker, to the Wall Street Investment Banker who sold the mortgage bonds. They collectively mislead consumers, borrowers and investors as to the real risks they were facing.
Ultimately all of the inflated Real Estate values are based on the expectation that the U S Government would eventually guarantee the loans.
Fannie Mae and Freddie Mac were under congressional pressure to expand the universe of borrowers, to achieve social goals. This provided an excuse for the quasi governmental companies to relax their standards and to allow reckless lending and borrowing.
Almost everyone is guilty.
There we no adults in the room, exercising responsible judgment.
Okay, so who could hook me up with a barge or several flat-beds, a few thousand barrels (or tanker trucks), and one big muthafuckin' honkin'-huge big siphon, and we do a convoy and/or flotilla down to those fucking salt domes and FREE OUR OWN OIL?!!?!!?!
Fucking strategic reserve. The federal government buys crude oil, TO PROTECT THE OIL COMPANIES, and they keep it FROM US, even though they BOUGHT IT WITH OUR MONEY. Thus far, there've only been proposals to "draw down" the daily ADDITIONS to the "Strategic Reserve," but NOT A FUCKING PEEP about SIPHONING THAT FUCKER CLEAN.
I'll drive, if somebody can find us some trucks or barges. I'm sure that at least ONE of these fine, upstanding Cancer Alley refineries could put this shit into their production line and have US some high-test rocket fuel ready for dispensation by the end of the summer.
Fuck fucking up ANWR, why can't we drill off of the California coast for once? Awww, da poor widdle billionaires don't like to LOOK at a rig from their precious yachts. TOUGH TITTY. Millions and millions of unexplored acres sit there, enforcing the law of gravity, still leased by innumerable oil companies but completely untouched, but oh, no, they wanna go FUCK UP SOME MORE POLAR BEARS. Yeah, THAT makes sense. Suuuuuure.
All I need is a good map, and I'm ready to hit those salt domes. Who wants to ride shotgun? I mean, hell, just because Standard Oil STILL owns at least 40% of this state, doesn't mean that ExxonMobil should be able to stop us! That's OUR oil, that THEY'RE hoarding, and what in the fuck FOR?!?!?! To create fake inflation to fill their own pockets as the rest of us plummet into the worst fiscal depression that this country's ever seen?
Oh, sure, to the "upper-middle-class," it's "just" a "recession," no reason to fret, keep shopping! Oh, but bail out our McMansions that we just HAD to have, Mister Gubmint Suh PUH-LEEEEZE save our big-ass tacky houses that we can't fucking afford! Old people? Cripples? Birth-defect children? Veterans?FUCK THEM, THERE'S YUPPIES TO SAVE!!!
Stock up on them canned goods and potable water, kids, it's just gonna keep getting uglier and uglier until we finally get off of our asses and jump-start the revolution.
I should've said, millions of acres of LAND sit there, untouched. Oil & gas rights leased into infinity, but nary a drill bit has punctured the dirt.
Though I would hope that EPA rules about drilling sludge would apply like they're SUPPOSED TO (and how they generally are, for the most part, here), and not allow it to flow out over the land and highways and ponds and streams the way that they do in... (guess an "undisclosed location" of a certain oil-man's home state)... Dah-tah-tahhhh!!! You got it! WYOMING.
Imagine the half-life on THAT toxic shit when it hits the groundwater. Apparently Biggus Dickus doesn't give much of a fuck about HIS neighbors any more than he does the rest of us. What VP has EVER done as much as Darth Cheney to destroy every single purpose of the EPA, with his secret "energy counsel" meetings and such?
Blaming "populists" and "environmentalists" and the "loony socialist fringe" (I made that one up) is religion--the Sacred Church of the Barkeater. It's based on belief without evidence and is, as well said here more than once, a smokescreen to shield oil companies, multinational corporations and speculators who make money when taxpayers and families suffer. Capitalism is ugly when you look close. Some men especially like ugly women, by the way....
Apply this capitalist/market ideology to education and you get failure as a matter of course, a belief that only some people are capable or worthy of what education really means and is.
Amen to that, G-Bitch. Lookit what Piyush is doing with your tax money --- hand it all over to the RCC whilst robbing the public schools EVEN MORE BLIND.
The "haves" will have the educations (and, y'know, lots and lots of cult inculcation/brainwashing, overbreeding, etc.), and the "have-nots" will continue to populate "the service industry." The capitalist's wet dream of "society."
And when you look at the bibul-banging FUCKTARDS who are running most of the school boards in this state, you see how much education those kids are being ROBBED OF, because teh bibul-bangers cannot STAND the concept of actual KNOWLEDGE and that ever-dangerous SCIENCE, 'cause it contravenes their 6,000-year-old FAIRY TALES.
And we wonder why the kids are so fucking pissed. Ritalin is not your friend. Look at Henry Rollins --- one of the first Ritalin kids ever, and gee, HE doesn't have ANNNNYYYY resentment about it AT ALLLLL... (Okay, so he's still brilliant as an author and a spoken-word artist, but honestly, boy has ISSUES.)
The ADD & ADHD shit isn't just about lazy parents, it's about LAZY TEACHERS who are too busy SOCIALIZING and sucking up to the rich parents of their "good" (rich/popular) students to GIVE A FUCK ABOUT THE KIDS WHO MIGHT ACTUALLY NEED TEACHERS. I've spent enough time working in the public school systems of this state to see wherein most of the problems lie, and it's not in the teachers' paychecks, it's in the hiring of COACHES to be ADMINISTRATORS and people who have cult agendas to push as "teachers." And then there are the uber-illiterate bidnesspeople who get elected to school boards, from whence all evil flows...
