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Why are we bailing out the banks? Part One. The Simple Answer.

We’ve all seen the film ‘Groundhog Day’. Well, we’re in it.  Every morning the radio plays a song which has the chorus, “I rob you babe”.  And sure enough when the news comes on, they have. A full five years of pumping money in to the banks and still our leaders will not even consider that they might be wrong. They still insist, as they have from the start, that “There is no alternative’. Call it bail outs, call it QE, call it monetary policy, rescue or suicide, it doesn’t matter. What matters is we’re still doing it.

When our leaders embarked on their policy of bailing out the banks’ private debts, even those of us like me, who believed our rulers were hideously wrong to do so, still harboured a hope that they were at least sincere; that they really were, as they claimed, trying to fix things for all of us. I find this impossible to believe now. If any of the bankers, their experts and our politicians ever were sincere when they claimed we would all be in this together, it now seems terribly clear that none of them has any intention of being with us in what is being forced upon us now.

Just this morning George Osborne and his lick spittle coalition partners have agreed to another £10 billion in cuts to welfare, health, education and the rest while saying that imposing any further taxes on the wealthier will have to wait. They promise to look at that …soon. Promise.

The problem with discussing why we are bailing out the banks is that in the 5 years since the bank debt implosion began, ‘saving’ the banks has now become enmeshed in – and in the headlines replaced by – what the banks and our rulers absolutely insist is an entirely separate ‘crisis’.  The financial world and their political friends in all parties have spent two years trying to brainwash us, that the problem is no longer the banks but is a ‘crisis’ of public, sovereign overspend and indebtedness. Putting money in to the banks is now seen as a technical matter rather than anything the public should concern itself about. Indeed there is a desire to return to the idea that the public must stop feeling they should be entitled to have a ‘concern’ about things too technical for them to comprehend ‘in the right way’. The ‘right way’ is to understand that the proper concern of the public should be cutting what the financial experts tell us is the terrible debt problem caused by too much public spending.

The ‘right way’ makes no further mention of public money still supporting the banks nor of the billions more being printed up right now so yet more public money can be lent to them. In fact the right way insists there is no connection between the huge sums nations have pumped in to the banks and the sudden ballooning of sovereign debt in those nations.  The ‘right way’  means refusing to see any connection whatever between policies of  cutting public spending in the real economy and a shrinking of that economy. No connection at all…obviously.  Any economic Phd can see that.

5 years on and more people are more confused than ever. People cannot understand how the same politicians can insist it is essential to keep ‘helping’ the banks with ever larger sums (trillion is the new billion) regardless of what debt it incurs, while with equal fervor insisting it is absolutely imperative that we cut spending on anything other than the banks – because we are in debt. And so with their certainties chained to our legs, we are sinking in to a mire of suffocating confusion, lies and fraud.

Sometimes in a world of increasing confusion it is good to ask simple questions. Why are we bailing out the banks?

In the Beginning.

We have been given various answers in the years since the ‘save the banks’ policy began in 2007. Yes, the first one was back then. From the beginning of  The Debt Generation,

On July 19, 2007 the Dow Jones average closed the day at its highest point ever.

Three weeks later, on August 9, the huge French Bank PNB Paribas suddenly closed three very large subprime US mortgage funds. The European Central Bank (ECB) was forced to pump €95bn into the market to steady nerves, but the shockwaves had already spread and it wasn’t enough. The next day central banks around the globe were drawn in. The ECB pumped in a further €156bn, the US Federal Reserve, more commonly known as the Fed, put in $43bn and the Bank of Japan a trillion yen – all to try to steady global markets.  Those markets held their breath.

Just think about those numbers.  A quarter of a trillion in Euro liquidity pumped in to the banks from the ECB alone – on day one. And ever since, the torrent of liquidity and ‘investment’ provided to the banks has not ceased. The promise was that this was a crisis of bank funding not bank solvency and therefore the solution was not to wind them down in an orderly fashion but to pump money in to them. This would, we were assured, stabilize the banks, allow them to start lending again, first to each other and then later to the rest of the real economy.

The result? Well, 5 years on and the banks are stabilized in the sense that they are still alive but not stabilized in any meaningful sense. They are only alive because they continue to rely on massive injections of cheap loans from the public purse, they still rely on  state guarantees/insurance for  vast amounts of their rotten and valueless assets/loans and would not survive a day without the continuation of the policy of nearly zero percent interest rates which gives the banks cheap loans from the Treasury but is killing savings and pensions. So by any measure at all the policy, followed for 5 years, has not done what it was claimed it would. It has not worked.

And yet our leaders refuse to change. 5 years on and instead of trying a different policy, the Fed is now looking at an open ended QE 3 in order to pump  yet more money in to the banks(read – canular now stitched to your bruised and bleeding vein), the ECB/EU is in the midst of widespread calls for LTRO3 (LTRO is euro speak for QE – cheap lending to the banks) to follow the trillion Euros worth of LTRO 1 and 2 already pumped in, the BoE is sticking at a mere £345 billion in bond buying and £1.4 trillion committed over all to the financial system (Gov.’s own figures) and finally The Bank of Japan just a week ago squeezed out another ¥10 Trillion. That brings Japan’s bank stimulus ‘policy’ to over ¥80 trillion which is about $1 trillion which is about a fifth of Japan’s GDP. And then just to round out the policy triumph, just a few days ago a Bank of Japan Board member, Mr Sato, was reported as saying, that because the global crisis is, quite inexplicably, still not fixed,

We [The Bank of Japan] won’t hesitate in taking additional monetary easing steps….

Which eerily echoes both Mr Draghi’s now infamous ‘Whatever it takes’ pronouncement from the ECB and the Fed saying it could ‘do more’ if necessary. More of what? The same? In 2008 sub-prime was contained, in 2009  the crisis would be over by Christmas. The actions taken were ’emergency’ and ‘temporary’. Except that now, those temporary, ‘extraordinary government measures’ have been so ‘successful’ that now they have to be open ended. Does this sound like a disease responding to the appropriate treatment?

Whatever your view the fact remains that we are now in a world where we simultaneously have money being printed by all the central banks, so that it can be put in to the private banks, while also being told we must cut spending in the public sector in order to reduce ‘public’/state debts. 5 years on we have confusion being heaped upon failure. We are told the cuts are necessary because we must bring down sovereign debts, while also being told we must continue to bail out the banks even if doing so increases sovereign debt.

I am aware that MMT takes a radically different view of  sovereign debts and the mainstream’s insistant belief that nations must borrow to repay them. I will come to that later.

To most people, however, especially those facing the cuts, the seeming paradox of cutting spending to reduce debt while bailing out banks which increases it, seems to be a straightforward case of bail out the banks, AKA the wealthy who own them and work in them, while impoverishing the poor. Seen that way  the answer to why we are bailing out the banks is simple – we are bailing out the banks because it suits the wealthy. In which case something is very, very wrong, with our our political system as well as the economic theories that seeks to justify it. Is it right to see it that way? Is this why we are bailing out the banks?

Well I think there are good reasons for thinking this simple view is actually correct. Lets quote some well known figures and then look a little closer.

In the UK , according to the Office for National Statistics’s wealth survey, the top 10% own 46% of the total privately held wealth; £4.5 trillion out of the total of £10.3 Trillion. And they have actually increased their share and the rate at which they are aquiring it since the bank crisis began. In contrast the bottom 50% of GB households have only 10%  of the nation’s private wealth. In the US the disparity between rich and poor is even starker. In America the top single one percent own 35% of all the wealth. The top 5% own 63.5%. Of the rest, the vast majority of americans, 80% of them own just 12% of all of America’s wealth.

And it gets worse for Americans. A very good article in The National Journal points out that from the 90’s onwards,

“It wasn’t just that the top was doing better than the rest, but that the very top was    absorbing most of the economy’s growth. This was a more extreme and dynamic  kind of inequality than the country was accustomed to.

According to a recent Congressional Budget Office report, those in the top 1  percent of households doubled their share of pretax income from 1979 to 2007; the  bottom 80 percent saw their share fall. Worse, while the average income for the  top 1 percent more than tripled (after inflation), the bottom 80 percent saw only  feeble income growth, on the order of just 20 percent over nearly 30 years. The  rising tide was raising a few boats hugely and most other boats not very much.”

Land of the shat upon and home of the craven or blind.

These figures are for total wealth and income.If, however, we look at financial wealth the disparity grows even larger. These pie graphs are taken from an article by Prof. Domhoff of UC Santa Cruz.



Think of your own situation. How much of your wealth is held in the value of your house and how much in stocks and bonds? Almost all my wealth is contained in my  house.  The super rich, the top 1-10% hold much, much more of their wealth, vast bulk of it, in financial form. That huge increase  in ‘wealth’ from the 90’s onwards was concentrated in financial wealth. That is the kind of wealth that made and still makes the super rich, super rich.


What these two graphs tell us is that if the big banks had been wound up 80% of Americans would have lost almost nothing. Whereas the top 5% would have lost the vast bulk of their wealth and therefore their power.

It will be countered that we would have all lost  from the decline in our pensions. True. But there is still no getting away from the above charts. The wealthy have most of the pensions. In fact they own most of the pension companies. The poorer you are the less pension you have to lose. Many of those at the  bottom have no pension at all. That is what these charts say.

But wait, as the saying goes, there is more. In America there is about $1.6 trillion in printed dollars and deposits for which currency backing exists. That is state printed, state backed money. This is the stuff that you and I get paid in and have in our bank account.  However there is another $5.4 trillion in unbacked ‘money substitutes’ and somewhere around $53 Trillion in credit. For credit read debt backed assets and derivatives of all sorts. These are the forms of ‘money’, electronic, banking money in which the wealthy have most of their wealth. These are also what would be wiped out if the banks were not continually bailed out but were to be wound down instead.

This is what frightens them and what has dictated that the banks be bailed out. Unlike us in the 80%, the financial class hold most of their wealth in financial and ‘paper’ debt-backed form. If the present crop of huge banks were to be wound up, what would virtually disappear would be that thunder cloud of debt/credit-held, derivative wealth.

This is the size of that credit/debt and derivative cloud relative to the real economy. The black line is the total credit/debt and derivative cloud. The red line is GDP.

Your wealth is tied to your house and your job They are both part of GDP. But the total ‘wealth’ now based upon, I would say parasitic upon your house and in fact the entire real economy of stuff and jobs, is far greater than you will ever know. Your mortgage was securitized and sold to another bank you’ve never even heard of. But that bank long ago hypothecated that security to yet another bank as collateral for a loan. And that bank re-hypothecated it to another bank and so on 40 times over. Along the way other banks created derivatives  based on the security in which your mortgage was packaged and sold. The derivatives do not produce employment nor add to the world”s stock of food or shelter. They are a form of paper wealth much like a betting stub on a horse race is wealth. If a punter losses his betting stub it does nothing to the health of the horse. Our present policy is to starve the horse in order to protect the value of the betting stubs and the business and wealth of those who trade in those stubs.

If the phantom economy were to be wound up, there would still be factories, people to work in them and even people with dollars, euros and pounds to spend. Our nations would still have the means of producing goods and services. It has been argued that if the banks went down it would destroy our currencies. But is this threat real? I think it is not. In a world where credit backed assets are worthless, state printed money becomes more not less desirable. Just take a look at how the banks are desperate for nations to print more of their state backed money.

If the banks were to be wound up it is their credit/debt backed ‘money and the assets held in it, which would burn to ash. not our state backed currency.  The $53 trillion in credit/debt backed wealth would largely dissapear, not the 5 trillion in state backed money. The super rich would be the massively disproportionate losers.  This they would not and never will countenance. Instead they have engineered the saving of the form of ‘money’ in which their wealth is held and the institutions which control it, and done so at your expense rather than theirs.

So the simple reason our rulers insist on bailing out the banks is that by doing so the wealthy and the powerful are simply bailing out themselves and guaranteeing the continuation of a system which suits them perfectly.

So is that it? Just selfishness? Actually no. While I believe this simple reason is true , such naked selfishness could never have survived for 5 years were there not a covering of legitimating  theory to confuse critics and lull the unwary.  That is what we will look at in part 2.

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76 Responses to Why are we bailing out the banks? Part One. The Simple Answer.

  1. 169995 October 8, 2012 at 5:21 pm #

    Another simple yet detailed analysis from you Golem . Surely people can now begin to see that all this is the financial equivalent of soldiers charging machine guns for years until someone had the idea of a tank . We need that financial tank but what is it ?. Any ideas ?
    If the solution was just to print more money then why not print some for a hospital ,a school or other good works . You have again hit the nail on the head in that it protects a minority interest but I believe it is worse than even you think . The irresponsible debts run up by the spivs in the city are as yet unquantifiable . I have a feeling that it is much more that they have in electronic circulation . This will take many years but at some point a crushed 80% will make their feelings known I am sure of that , even if it is just through desperation . Let us see what the coming hyperinflation in food prices brings .

    • bob October 9, 2012 at 5:08 am #

      If Obama starts WWIII in Syria to avoid being removed in January you can bank on the crushed 80% successfully taking D.C.

  2. 24K October 8, 2012 at 6:24 pm #

    It’s not groundhog day bro. A couple of days ago somebody bought a t-shirt from my reverbnation page.


    That means that some dude or dudette from somewhere with the internet and a postal service will soon be strutting into town with a t-shirt with the words Zombie Bank Death Squad on it.

    And there’s more….

    It’s World Zombie Day this weekend http://www.facebook.com/events/450107421674982/

    So if anybody wants to come and dress as Fred the shred or some other cock please come along.

    I can’t say anymore in case I jinx it.

  3. Ian Cropper October 8, 2012 at 6:27 pm #

    I have always suggested that we should not have bailed out the banks, and you seem to be providing the reasoning for my gut feeling. I guess part 2 might include a belief (of others) that we couldn’t have ‘damaged’ the super rich because they are the wealth creators. I now believe that not bailing out the banks would have been a brilliant idea, that would have corrected many of the things going wrong with the global economic system.
    I shed tears over a missed opportunity.

  4. simoncz October 9, 2012 at 12:04 am #

    It’s not about the banks, it’s about the people who own the banks.
    We often seem to forget that nothing is owned by an institution. It’s owned by the people (who have arms and legs and names) who own the institution. And they’re not lizards David Icke.

    • Phil October 14, 2012 at 8:26 pm #

      Indeed! Though you’d be amazed how many can’t see this!

      I love hearing the Libertarians whinge about the Big State and the Central Banks – as if the PEOPLE who run these things are impregnated with Big State / Central Bank DNA and don’t have a revolving door into PRIVATE sector banks.

  5. Daniel October 9, 2012 at 4:43 am #

    Politicians are there to give you that idea that you have freedom of choice. You don’t. You have no choice. You have owners. They own you. They own everything. They own all the important land, they own and control the corporations, and they’ve long since bought and paid for the Parliament, the Lords, and the City Halls. They’ve got the judges and police in their back pockets. And they own all the big media companies so they control just about all the news and information you get to hear.
    They’ve got you by the balls.
    They spend millions of pounds every year lobbying to get what they want.
    Well, we know what they want; they want more for themselves and less for everybody else. But I’ll tell you what they don’t want—they don’t want a population of citizens capable of critical thinking. They don’t want well informed, well educated people capable of critical thinking. They’re not interested in that. That doesn’t help them. That’s against their interest.

    • patma2003 October 9, 2012 at 5:09 am #

      an all time great quote that…one of world comedy’s best men…

    • Anon October 9, 2012 at 7:53 pm #

      Yes Mr. Carlin should get the attribution rights. Or at least quote marks.

  6. unirealist October 9, 2012 at 8:30 am #

    Not to confuse the issue, but the massive re-distribution of wealth from producers in the real economy to the sociopathic elite would not have been possible without fiat money having been detached from reality. That is, the turning point came when Nixon in 1971 severed the dollar’s connection to gold, hence to reality.

    Unfortunately, closing down the banks is not possible now (and wasn’t feasible even in 2008, in my view). The rampant mal-investment since 1971 has so warped everything in our society, our economy, and even our very culture, that killing off the parasites will kill the host as well. There is no answer. There is no fix. There hasn’t been for a long time.

    That, I think, is why the banking system has not been reformed.

    And that, I’m afraid, is an even more terrible answer to your question than that the rich are afraid of losing their power. At this point, any serious attempt to fix the problem will crash everything. It will be a hundred times worse than what happened when Gorbachev tried to introduce perestroika to the USSR.

    I think few people realize what a truly dreadful mess is coming.

    • goodrich4bk October 9, 2012 at 5:43 pm #

      You may be right, but you may also be parroting what they want you to believe, i.e., that the “system” will implode if the largest banks fail. If you are right, it is because financial interests, aka the wealthy, have designed it that way. They have inter-connected our institutions, government and markets much like a terrorist strings together disparate bombs, so that if one detonates the entire network implodes. I know others have called this “financial terrorism” and if they are correct, we are indeed doomed.

      On the other hand, this meme may be exactly what the financial terrorists want us to believe, but it is not actually true. I think that it is entirely feasible to wind down the TBTF banks without imploding the real economy. The problem is political, not economic. Whenever there is even a threat of stopping the bailout machine, the “markets” react negatively, the MSM begins to warn about another “financial crisis” and our politicians, owned as they are by the nation’s oligarchs, move away from, not toward, real financial reform.

      As Pogo would stay, we have met the enemy and it is us. We need to raise the awareness of what is actually happening among people who generally don’t pay much attention. It is a herculean task, particularly since the oligarchs have huge sums of money to fund think tanks, negative advertising and outright bribery of any media outlet that might publish more revealing information. But we have many more people than do the oligarchs, and we still have the internet.

      And, of course, we also have Golem XIV!

  7. Maria das Santos October 9, 2012 at 9:21 am #

    This article makes painful reading for those who want a day of reckoning.

    • Golem XIV October 9, 2012 at 9:33 am #

      Thank you for the link Maria. Interesting read.

  8. Hawkeye October 9, 2012 at 9:28 am #

    Central Bank conduct since 2007 (and possibly before) has been to essentially act as a money laundering front for private banks. Enabling them to cleanse their sweaty palms and hide the fact that solely through the conduct of these private banks there has been excessive lending, risk taking and leverage which has driven the consumer debt bubble:


    The fictitious paper wealth that the banks helped create has to be converted from its tainted, corrupted and worthless state into something more sterile.

    Step one is for the central banks to soak up the cess-pool of fraudulently created paper wealth, and then dump into the lap of the Government balance sheet. The strategy is purely one of privatised profits and socialised losses; an even more heinous act of covert money laundering, to try and (temporarily) cover-up the original fraud. The public must pay for the sins of the “gifted”.

    This is an enormous transfer of risk and responsibility of such proportions, a giant wave of fraud that surely every future historian will be in no doubt that it was the heist of the century.

    Financial Repression for the masses, whilst mystical invincibility for the perpetrators.

    • steviefinn October 9, 2012 at 11:31 am #

      Not quite invincible, never thought I would see the day :


      Anglo 3 actually charged.

      • patma2003 October 10, 2012 at 1:44 am #

        let’s hope this sets off a chain reaction of events elsewhere… or maybe, a slow-ish chain reaction – taking into account recent times… it’s a nice change nonetheless…

  9. Ken Lorp October 9, 2012 at 10:41 am #

    There are 2 fundamental drivers of the current economic malaise and I can’t see any of the current solutions doing anything other than briefly putting a sticking plaster over it.

    Firstly, people have too much debt – this greatly constrains their disposable income. Secondly, maximum spending per person happens in their late 40’s and decline after that as they save more for retirement. We’re about to witness the retirement of the baby-boomer generation so there will be a very large portion of the population drawing on savings and pensions and not consuming as much.

    There is nothing we can do about the second problem, but the Australian economist Steve Keen has an excellent solution to the first – the government should send a cheque of, say £20,000, to every taxpayer. It must be used to pay down debt and if debt is less than that figure, then they can do whatever they wish with the remainder – this will reward savers and help bail out the reckless.

    Let the banks live or die by their actions, but the cost of sending cheques to taxpayers is likely far lower than the cost (so far) of bailing out the banks.

    With reduced levels of debt across the economy, growth can resume. Banks will get repaid a lot of outstanding debt and strenghten their balance sheets.

  10. Skeptic October 9, 2012 at 11:25 am #


    Thanks for another interesting read.

    Regarding your line “Whatever your view the fact remains that we are now in a world where we simultaneously have money being printed by all the central banks…”

    And since you mentioned MMT, here are some links to why QE is not money printing:


  11. Aaron October 9, 2012 at 11:25 am #

    Fabulous analysis!

  12. HS October 9, 2012 at 1:33 pm #

    Interesting analysis. I would have thought that credit based derivatives (CDOs, CDSs, etc) were held outright by financial institutions and the exposure of the 1% would be in the form of the stocks and bonds, including those of said institutions. After all, credit derivatives were simply investment bank created contrivances designed to create the liquidity necessary to drive the credit bubble. For certain, situations like BAC’s $45B in derivative exposure threatens to decimate it and, as a result, the NYSE, but in the big picture this only symptom of a greater malady.

    The elite always have had, and likely always will, the best information available with respect to the economy, energy reserves, climatology, population figures, and the like. I firmly believe that as early as 1985, the 1% realized that we’re careening headlong into catastrophe due to overpopulation. We’re seeing exponential population growth in the face of exponential decline in the ability to sustain them and the wealthy know it. Thus, we’ve seen a series of increasingly desperate wealth transfers in the form of bubbles and government sponsored subsidies. (For example, 401(k)s are just a gov’t promoted tax for the benefit of the stock markets.) The desperation that is apparent in recent “stimulus” strategies (the Fed grossly overpays for toxic assets from banks at face value and buys Treasuries like there is no tomorrow) shows that we are, indeed, getting down to nut cutting time. They will continue to ease as long as possible to allow the 1% to maximize their resources, but a time will come when the elite pull out, hole up, and allow it all to fail. The bailouts will cease, the naked emperors will be obvious, and the resulting mayhem will allow the overpopulation problem to correct itself rather efficiently, I’m afraid.

    • Golem XIV October 9, 2012 at 1:55 pm #


      I believe you are right about derivatives being held largely by the banks. But if the 1% own the shares and bonds of a bank system stuffed with such derivatives and their wealth depends on the high valuation of the banks and therefore of the paper assets they hold, then an implosion of tehe derivatives will collapse the value of the stocks and bonds that the 1% hold.

      In additiin, in Europe at least derivatives make up a large portion of all ETFs which are sold to everybody. Those derivatives go, so do the ETFs, the companies that sell and manage them and the wealth of those who bought them.

    • Bill J October 10, 2012 at 11:54 am #

      The “overpopulation” meme is often grossly exaggerated. Much of the world’s population has a relatively small footprint environmentally speaking yet the same cannot be said of the 1% or for that matter most of the developed world generally. “Wealth” and all of its accompaniments (i.e jet travel, automobiles, air conditioning etc) have a far more disproportionately negative impact on the environment.

  13. Jamie_Griff October 9, 2012 at 1:47 pm #

    Everytime I start worrying that you’ve hung up your gloves you explode out of your corner hitting harder than ever.

    This is great stuff – an excellent new angle of attack and one which really resonates with me.

    The most repugnant aspect of this whole affair for me is not the gross stupidity of repeating the same actions – actions which are doomed to failure – over and over again; it’s not the massive greed of the main actors which has created the problem in the first place; it’s not even the cowardice and self-serving ideolgical block-headedness of our politicians.

    Rather it’s the way that our institutions – institutions which are supposed to preserve the notion of equality – have been warped and twisted into tools for the suppression of those abandoned and left desperate by the foolish attempts to fix this mess. Just witness the judicial reactions to the looters in London’s riots last year or the heavy-handedness of the tax authorities or social security when hounding those on the botton rungs of the ladder for payment.

    And then compare that with the wilfull ignorance employed when it comes to dealing with the financial fraudsters or the cosy deal-cutting over the tax liabilities of large corporates.

    Miliband’s speech to the Labour conference was all about the ‘one nation’ and Cameron has repeatedly fingered Desraeli – the original one nation conservative – as his favourite PM.

    And yet this nation (along with many others) has never, in modern times, been divided along such starkly defined lines.

    Never has there been such a precipitous drop between those at the top and those at the very bottom.

    Never, (to paraphrase Churchill), has so much been owed by so few to so many.

    • Golem XIV October 9, 2012 at 1:58 pm #

      I coudn’t agree more with your assesment of the institutions which are supposed to be there to protect the weak from the strong.

      Time we took back what is rightfully ours.

    • bill40 October 9, 2012 at 7:55 pm #


      “and Cameron has repeatedly fingered Desraeli ”

      it’s stupid o’clock in the morning here in Nanning and that thought is rather too revolting to contemplate quite frankly (:-)

  14. desmond dillon October 9, 2012 at 1:57 pm #

    re: Skeptic QE is the so called ‘creation of assets’ and is commonly known as money printing. No they are not the same but the common element is the forgery.. The con is happening in the marking to fantasy…

  15. Pitchfork October 9, 2012 at 7:20 pm #

    I’m new to this site, but I loved the analysis here. It’s spot on. Until about year ago, I wrote regularly on the financial crisis and the policy response to it. Just FYI, there is no question that the TBTF banks could be wound down without destroying the currency or destroying “the system” or whatever. That is pure fear-mongering and there is no reason for a reasonable account of the crisis to give credence to such doomsday scenarios. There would be financial pain, for some, as you note here, but with the Fed providing liquidity and maintaining the system of payments, and with the FDIC guaranteeing deposits, there is simply no conceivable way that people’s money would vanish a la the Great Depression.

    People often point to Lehman as evidence of what would happen in a bankruptcy, but Lehman filed OVER THE WEEKEND with ZERO prior planning from the bank or from the government. Winding up Citi (i.e. whacking bondholders and shareholders) would be a much longer process and would not provide the same shock to the system that the much smaller Lehman did. For the record, Sheila Bair was well prepared to wind down Citi. And she advocated doing so. Unfortunately the FDIC is not Citi’s “primary regulator” and, contrary to comments you hear from time to time about Bair not doing her job, the FDIC couldn’t make the decision to wind it down on its own.

    As goodrich4bk says, the issue is a political problem, not an economic one.

    Cheers, really enjoyed this article.


    • Golem XIV October 9, 2012 at 7:26 pm #

      Hello Pitchfork,
      Thank you for your comment. I hope you’ll comment again. I find Sheila Blair a bit of a puzzle. Not really sure what to make of her. What do you think?

      • Pitchfork October 9, 2012 at 7:48 pm #

        Likewise, I’m not sure what to think of her, either. However, from excerpts I’ve seen of her new book, she went pretty hard after the banks (U.S.) and demanded accountability. Of course, Geithner and the OCC (Citi’s primary reg) stood in the way. I think she’s an honest broker and generally well intentioned (most FDIC folks are). But who ever really knows. Bailout politics makes for strange bedfellows and temporary alliances. We take help from those who can provide it, but we can’t let personal loyalties (I’m looking at you, Obama voters) distract us from the big picture.

        Again, loved this article.

      • Pitchfork October 9, 2012 at 7:55 pm #

        The inimitable Yves Smith has a great article on Bair and Citi that really gets to the heart of the questions you raise. Bair herself never got any response as to why dismantling Citi would mean the end of the world. It’s a question I and other have been raising since 2008. No one, not Geithner, not Paulson, not Obama, has given a reasoned, play-by-play scenario by which the entire economy would melt and die if we failed to save the largest banks. To your question, that’s because they don’t have an answer — it’s all about personal loyalties, career ambitions, the revolving door, group-think, etc. At least that’s my take and I’d say almost all the evidence points in that direction.

        • Golem XIV October 9, 2012 at 9:02 pm #

          Forgive me for asking but did you have some connection with the FDIC or similar?

          • Pitchfork October 9, 2012 at 9:31 pm #

            LOL! No. (I had a longer response, but the combox ate it — you must be getting a lot of traffic, today). Anyhow, I’m just thinking of the examples of Bair and former FDIC head Bill Isaac. Isaac was also against the bailouts and went to congress in September 2008 to hold what were essentially teach-ins, hoping to persuade members to vote against it. You can read about how the first vote went down here:

            Because its DIF is always at stake, the FDIC, as an institution, has an adversarial relationship with hotshot bankers.

  16. bill40 October 9, 2012 at 8:08 pm #

    Great to have you back Golem and thanks once again to the wonderful contributions below the line. I have long argued that there are currencies in existence, that which we use and that one they use. They are not the same and should not be conflated.

    MMT would never advocate top down stimulus or a bail out for the ultra rich. TBTF banks can easily be wound down using state money to protect genuine deposits and the clearing facility. That our currency is linked to that of the proven fraudsters is risable.

    MMT only advocates the correct macroeconomic conditions for the majority to thrive and in the private sector I may add. golem does very well to take aim at the nasty party back to its’ very worst this week. All the usual attacks on the poor, attacks on abortion, the kill a burglar and win a civic medal drivel.

    The only way to prop up those at the top is prop up those at the bottom. The Job Guarantee is the way to do this. Stimulus at the bottom and competition at the top to compete for this spending power.

    Our mastersa demand unlimited bailouts paid for by the relatively poor. It’s time we claimed our right to a better future back.

  17. Goldbug October 9, 2012 at 8:27 pm #

    While I am no fan of the banks, having spent my entire career managing the money of moms and pops and battling the big boys, this essay seethes with envy like so many others.

    Instead of railing on the one percent, why don’t you aspire to be one? I graduated from grad school in 1983 with a negative net worth and a $60,000 student loan in today’s dollars. Now, 25 years later, I am a part of the reviled one percent. I didn’t do it through deceit; I did it by being prudent, living vastly beneath my means, staying in school, staying out of trouble (when I had ample opportunity for plenty), getting married, STAYING married, paying off my debts early, staying out of debt, avoided buying too much house and hence too much debt, saving diligently, and letting compounding work its magic.

    Too many pundits love to measure wealth “gaps,” a snapshot in time of what different strata or quartiles look like. This is folly because life is not static. In the first year of my professional business career I earned less than my previous fellow grocery clerks at Kroger where I worked while in college. Study after study has shown that only a fraction of people in various quartiles stay there. Seventy percent or more move higher after two or three years.

    The so-called gaps in today’s studies are distorted by two major trends. First, our lax immigration policies (thanks to Clinton) that opened the floodgates of unskilled workers in the early 90s who have failed to assimilate as in times past and acquire valuable skills and adapt the work ethic of American Exceptionalism. These folks, unfortunately, have not migrated up the income quartiles to the extent that prior generations have. Worse yet, they are having children now who have the same attitudes.

    Secondly, the wealth and income differentials you see growing on all these charts is purely the result of compounding. The massive surge in new-business formations that occurred in the mid-80s and early 90s has twenty years later resulted in huge capital gains and dividend income. In addition, the boomers debts are finally getting paid down, cash flow freed up, their spoiled kids are done with school; thus, savings and compounding again work their magic. Simple.

    Yes, there are a few trust babies out there who won life’s lottery, and a handful of John-Edwards-like trial attorney parasites who made their fortunes extorting money from successful businesses, but they are the exception, not the rule.

    Yes, I was hoping and praying for Chase and Citi and BoA et. al. to bit the bullet, but the big union pension funds who owned all the bonds had to be protected.

    The great irony in this great “save” is that all the wealthy libtards who now control Washington love to criticize “trickle down economics”, yet by continuing to pump money into the banks in an effort to stimulate the moribund economy are advocating exactly the same strategy.

    • Golem XIV October 9, 2012 at 9:00 pm #

      Hello Goldbug,

      I am most sincerely sorry if the tone of my writing struck you as envious.Not least because it does a disservice to how I actually feel. I assure you I am not envious. Angry. Very, very angry but not envious. I do not aspire to be much wealthier than I am. A little more secure would be nice but much wealthier? No. I had chances to earn far more but declined because they would have entailed spending my time doing things I did not respect or value and would have prevented me from doing the things I really wanted to do.

      The things I wanted to do unfortunately paid less but I knew that at the time.

      Like you I went to university, then lived cheaply while I worked, then got married and have stayed married. So in all these ways we are more similar than different.

      Everything you say about those who earned, saved and invested or started businesses is true. And I do not decry or begrudge them their success. But I think you are being disingenuous if you really want me to believe that the massive accumulation of the wealth of the top 5% is down to hard work and the American way.

      I think there are massive inequalities of oportiunity in your country and mine which it is daft to ignore.

      Every one knows if you take a packet of seeds and cast one half upon well tilled tended, watered and weeded ground, and the other half on stony, compacted and weed choked ground you will get vastly different results.

      How stupid would someone have to be to declare that the seeds that had dropped on the stony ground must be stupid, lazy and just plain destined by genetics to be stunted. How stupid to likewise praising the identical seeds from the same package that happened to fall on the good ground for being obvioulsy more brilliant, more hard working and shining examples of self made plants.

      Among the seeds which fall on the stony ground there will always be a few, who despite their cirumstances get a little luckier than those around them. But to hold them up and say, if they can do well thenthe rest of you must be lazy, feckless parasites, makes no sense.

      How come we can understand this simple lesson in our gardens but seem unable or reluctant to comprehend it when it comes to people?

      People do have to take responsibility for themselves and their lives. But we must take responsibility for the ground upon which they find themselves cast, do we not? To live in a society where the gardners lavish every luxury on just one corner and care absolutely nothing for the rest does not sit well with my view of goodness and compassion.

      As for your comments about the idiocy of those who criticize trickle down but are in fact supporting it through what they do for the banks – I agree whole heartedly. I think trickle down is a hollowand false-faced idol. We should try trickle up.

      I hope you will comment again.

      • Goldbug October 10, 2012 at 4:19 pm #

        First let me say that I do enjoy your writings. The piece you did a while back on the ETF and ETN industry was priceless, and I shared it with a number of colleagues and clients.

        Let me also say that I am no apologist for the banksters. It drives me nuts that there has been not one high-profile prosecution following the whole meltdown. All it would take to dramatically change the whole tone on Wall Street and Washington is to see Lloyd Blankfein and Barney Frank hauled away in chains. Then the cronies might actually fear the law again.

        But Wall Street has no fear and Washington has been captured. The naive public bears now responsibility because they can simply claim they were victims of the former.

        No, the only thing that will return our nation to its former glory is a total economic and spiritual catharsis. A new respect for the law–both man’s and God’s. But that isn’t going to occur without some additional pain. In Elliott Wave terms, what we are experiencing now is a B-wave countertrend rally, the classic head fake bear trap that convinces people that the storm has passed and we are on the road to recovery. In analogous terms this is 1932-35. But the C-leg down to new lows is coming, just as occurred in 1935-37. I encourage you and all your readers to get prepared during this lull.

        • Golem XIV October 10, 2012 at 4:46 pm #

          Thank you for your considered reply. It is all to easy to get angry with each other but we all know it will not help us in the long run.

          Your focus on the disregard and debasement of the law is crucial. WIthout laws enforced upon all the strong as well as they weak there can be no recovery.

          When the poor see the wealthy laughing at the law how are we to righteously demand the poor respect what the wealthy evidently do not. You end up with Greece.

          I have tried to follow Elliott wave theory. But I think I have not understood it I am afraid. I wish I did. I follow it to a certain point then feel I miss something crucial.

    • bill40 October 9, 2012 at 9:14 pm #


      I admire your achievements (I’m in the top 5% myself) but you suffer from self attribution tendancy. You and I are where we are by mostly luck.

      First you were born whole and sane. You were born in a good country that helped you. You were nurtured and educated. You were born without a tendency for addiction and retained self control.

      Good for you but not everyone is so fortunate and social mobility has collapsed. If you had been born poor in an African country you would have died poor. In our time the full employment was a [policy goal and we had the right macroeconomic climate to thrive.

      I was also blessed in other ways, as I suspect were you. I was on my uppers, to say the least, just three short years ago. My truly wonderful family and friends refused to see me fall. Without their help and love I could not possibley have coped.

      Trying to defend the indefinsible because you had time to nip through is everything
      we are fighting against on this board. Yes you can win but at what price to others.

      As for aspiring to be a sociopath dedicated only to oneself, i would question the moral basis for abandoning the moral basis of society. I have many things I wish to be but to be elite is not one of them.

      You, like me, would probably thrive in any system. It’s just that I recognise what helped me get here and I will fight to defend what got me here.

      J’accuse. You count only money as of value. Shame on you.

      Edit to add. Bugger, after recalculation I’m only top 10%. We are all subject to self attribution and aggrandisation.

      • Goldbug October 10, 2012 at 4:38 pm #


        Just as I told Steve below, I am the first to admit that I am not exceptionally smart, but I am disciplined. Yes, I thank the Lord every day that I live in this great country. Let me reiterate what I said to Steve, “To whom much is given, much is expected.” This country did not excel by chance; it did so because our Founders had the foresight to create a system of law and private property rights that motivated people to prosper.I chose a career as a financial advisor not just to make a living, but to help educate people on how to achieve economic freedom.

        Yes, we are not without our blemishes. As Ben Franklin said, “If men were angels, no laws would be necessary.”

        Like I told our host, I wanted than anything to see Lloyd Blankfein and Barney Frank hauled off in chains for their indiscretions of the last decade. But a handful of greedy banksters have been used to foster an ever-growing attitude of envy and entitlement towards anyone of means or achievement, and that disparagement is destroying the soul of this nation. The only way we can be saved is to go through an even greater economic and spiritual catharsis than we already have. Sadly, I think it is still coming.

    • Enexoumeypothesi October 9, 2012 at 9:29 pm #

      Fair enough … I would still be interested to see your income tax return

    • StevieFinn October 10, 2012 at 1:14 am #


      I myself am in the bottom 10% from a working class background. I had a lousy education, nine schools in all & only managed 3 months at an art college, I have no paper qualifications & I have no stocks, investments or pension & I rent a house. So presumably in your book that makes me a lazy simpleton. All the more so because for the most part despite having to work my balls off to survive, I am reasonably content. My main worry is what kind of future world awaits my Grandchildren.

      I do not envy you & your kind, & I would not at any price swap places with you. I have seen your like at work from close at hand & I kind of feel sorry for you, simply because most of you seem to have something missing & the key to that for me is your total lack of empathy for your fellow man. The corruption of power & greed leaves no place for depth of feeling, I personally prefer the rare goldust of joy to an empty mansion that will never match the size of a gigantic voracious ego.

      If the acquisition of things is a true measure of success than I am indeed, in your book a failure. But I know for certain that when I finally die & the way things are going it might be in a reincarnation of a workhouse, in reflection I will be happy with my very small contribution to this troubled planet. I will have a wonderful storehouse of precious memories & if there is anyone at my bedside it will be because they want to be, not because they want something from me when I am gone.

      In the meantime I will do my small bit to bring about the downfall of the creatures of insatiable greed & the tougher it gets the tougher I will get, I am very tough I assure you I would give my life for those I love. History which I happen to love has taught me ( self taught which probably doesn’t count to your kind ) that all tyrannies eventually screw it up for themselves, power lust & greed usually being the culprits, so I suggest that you enjoy your so called success while you can & perhaps build a giant wall & a moat in order to keep your children safe If the self proclaimed worthy to inherit the earth do succeed in their quest for ultimate domination, I hope for your sake that you are not one of the smaller breeds in what will be a dog eat dog world.

      Fortunately there are people out there who have your inherent advantages who are using them to fight for a decent world where people are given at least a chance.

      Stolen from Jesse :

      Weekend Reading – Ode to Financial and Political Narcissists and Sociopaths

      The expense of spirit in a waste of shame (Sonnet 129)
      by William Shakespeare

      The expense of spirit in a waste of shame
      Is lust in action; and till action, lust
      Is perjured, murderous, bloody, full of blame,
      Savage, extreme, rude, cruel, not to trust;
      Enjoyed no sooner but despisèd straight:
      Past reason hunted; and no sooner had,
      Past reason hated, as a swallowed bait,
      On purpose laid to make the taker mad:
      Mad in pursuit, and in possession so;
      Had, having, and in quest to have, extreme;
      A bliss in proof, and proved, a very woe;
      Before, a joy proposed; behind, a dream.
      All this the world well knows; yet none knows well
      To shun the heaven that leads men to this hell.

      • Goldbug October 10, 2012 at 4:06 pm #

        You are being awfully presumptuous from my short post. You “have seen my like” you say. I really doubt you could see me. I drive a beat up mini van, wear a Nike sport watch instead of a Rolex, live in a way modest house, and shop at Wal-Mart and Costco.

        I had a modest upbringing myself, the first-generation son of a WWII survivor who literally dodged Russian machine gun rounds and then British bombs, so please don’t try to seek my sympathy about how you were somehow a victim of your upbringing.

        I give five figures to my church and numerous hours of my time. I feel extremely Blessed to have what I have. “To whom much is given, much is expected.” I go out of my way to counsel young people on how earn, save and manage their money, so that they too might avoid economic bondage.

        My simple point is that anyone could have accomplished what I did. I started mowing lawns when I was twelve years old and started a savings account immediately. I will be the first to admit to you that I am not exceptionally smart, but I am disciplined. When my friends were out playing and getting high, I was reading history and studying markets. I learned early on that money was freedom and nothing more. And I decided I wanted to be free.
        But you instead jump to the conclusion that I am greedy.

        You say you work hard to survive, and that is laudable, but do your paychecks come from poor men? When I was looking for more lawns to cut in my youth, I didn’t call on the guy with his truck on blocks in the front yard; I went to the house on the lake. If we want to create the greatest prosperity for all, you have to incentivize the entrepreneur to take risks, so that you and I can take that first entry-level job that will motivate us to be the boss someday and control our own destiny.

        • StevieFinn October 10, 2012 at 8:19 pm #


          Firstly I apologise for the assumptions I made, but I think that one cause of this huge mess that we now find ourselves in, is the fact that there is & has been an attitude that a persons worth should be judged only on their net worth. I think this view has corrupted all parts of society not least government & the law. I think it is a good thing to work hard & reap the rewards for the effort & to do well, & I congratulate you on achieving that, good financial advisors are obviously needed with the seeming prevalence of the misselling of financial products.

          What set me off on my rant was that your invitation to join the 1%, to me at least, seemed to imply along with your denigration of a whole mass of people namely immigrants & a mention of baby boomers lazy children that if you do not aspire to join this group or fail to do so there is something wrong with you. Perhaps there was some truth in that when there was much more of a level playing field. Outsourcing I would suggest is one of the big reasons that modern immigrants do not have the same opportunites as those who previously flocked into the US.

          I myself have moved twice to foreign countries due to outsourcing within the industry in which I found employment, but up until the Lehmann’s crash & subsequent banking collapse in Ireland I was doing pretty well. The mistake I made was one of optimism, prior to these events due to the fall off of commission work due to outsourcing which followed me like the plague, I decided to put together whilst still working a small business, this involved working an average 60 hr week over roughly 12 months. As the margins would be tight due to competing Chinese products, I never thought it would make me rich, I just wanted to make a living. I put everything into it, but due to the crash my financial backer pulled out & the remaining commission work soon dried up.

          I am not telling you this to illicit sympathy as I wasn’t in giving you details in my last comment in regards to my upbringing. I think that due to my childhood I am extremely adaptable, have never thought that life is an easy ride & I am pretty tough, being a new kid in 8 schools can do that for you. I will carry on & somehow get through this, I am happy being me & despite everything, I love my life, because I consider myself to be extremely wealthy in what I consider to be the things that really matter.

          The main reason for my hair trigger anger is the effect this crisis caused by the power lusting greedy, has had on my daughter. Her husband slaved to start a business which was doing fine but then after the bomb hit dropped 60 % & became untenable, this was followed by my daughter being made redundant. They did everything right, now they are treated by TPTB as parasites while these assholes pay unsecured bondholders billions & continue to bailout the cess pit banks who one of which is now trying to repossess their house.

          I have recently been working for a small company whose owners are pretty wealthy, I would describe it as sweatshop sculpture, but I am once again my own boss as I have been for most of my working life & am hustling & building up enough work whilst trying to prepare for the worst, I also believe, probably mistakenly that I might produce a masterpiece before I die.

          I am sorry I mistook you for the likes of some of the people I have had the misfortune to do dealings with, as I now see we are more in agreement than not & we need to stick together & build on that to hopefully keep our children out of the harm caused by the predators & possibly the mob. I wish you well.

          • Goldbug October 10, 2012 at 8:48 pm #

            Thank you. Good luck in your new endeavors. I am scared to death that the whole system is being held together with duct tape and baling wire. Maybe my fear is the ultimate contrarian buy signal. That somehow the markets have discounted the worst and that we will grow our way out from under this mess. But those same magical principles of compounding that allowed me to achieve financial security are quietly exerting their magic in reverse on the nation’s balance sheet, and the markets aren’t going to stand for it much longer.

        • Charles Wheeler October 11, 2012 at 6:38 pm #


          You say ‘My simple point is that anyone could have accomplished what I did.’

          But the implication is that ‘everyone could accomplish what I did’ – which is the kind of fallacy of composition we hear echoed in David Cameron’s oxymoronic idea that he would like everyone to have the same privileged upbringing he enjoyed: http://goo.gl/OtMS5

          Of course, it doesn’t work like that. Those that get to the top – either through an accident of birth, luck, graft or a mix of each – can only do so because others don’t or can’t! The corollary of the 1% is the 99% – for every CEO and dot.com billionaire there have to be millions of pen-pushers, nurses, teachers, refuse workers, cleaners, assembly-workers. So, the notion that we can all ‘make it’ if we just try hard enough is obviously fatuous.

          The Horatio Alger myth remains a potent force, but if there ever was a time when it was more than a myth it would have been the age of social democracy when, for the first time, even many born in the humblest of backgrounds had the chance to at least get a half decent education, and perhaps become the first in their family to get to university without the prospect of piling on huge debts (of course, there have been those throughout history who have come from rags to riches but, until the advent of the era of public education, public health, and social housing, they were the exceptions that proved the rule – exceptional talent can often navigate its way through any social system). Ironically, many of those, born in the 50s, who now lecture the rest of us have had those very advantages they now seek to remove as they privatise public education, healthcare and welfare and reject the concept of social housing – it’s called ‘kicking away the ladder’.

          The reductions in inequality and consequent increase in social mobility of the post-war years has been ruthlessly reversed as the share of income going to wages has stagnated relative to capital, to be replaced by greater and greater reliance on debt to keep the wheels on the consumer society turning. Now the cosh of austerity is being used to ensure that expectations are further reduced as inequality accelerates. To pretend that we all have the same opportunity to prosper against this backdrop is absurd. Without the intervention of government, neoliberalism leads inexorably to the concentration of wealth and power characteristic of oligarchy. The capture of government by corporate power (http://goo.gl/oimYH http://goo.gl/Bhvkb) is now largely unabated – ensuring that fewer and fewer of those who started out from the humblest backgrounds will ever leave them. Contrary to the tabloid misinformation campaigns, all but a tiny proportion, disabled or otherwise, want to work, better themselves, provide for their families.

          I think, for the most part, people accept that a degree of inequality is inevitable – even desirable – and accept that some of those who ‘make it’ will be hard workers who’ve earned it, while others will be trust-fund libertarians or scions of the rentier class. It’s a question of degree. And when millions are working hard for a pittance while a few born into unimaginable wealth lecture them on their ‘sense of entitlement’ for expecting any kind of meaningful existence, education, healthcare or a pension it can breed not envy, but resentment. To see government ministers explaining why we need to reduce benefits to the blind, or children with Down’s Syndrome because ‘we’ have been living beyond our means while increasing their own pensions and allowances, or hear bankers who ran casinos on a one-way bet backed by the taxpayer that those same taxpayers can no longer expect ‘free’ healthcare or education for their children because they’ve used up the income-stream of future taxpayers to restore their balance sheets can start to grate. Particularly when those same institutions are rubbing their hands with glee at the prospect of ‘plutonomy’: http://goo.gl/7esMH http://goo.gl/iljGa

          Of course, we’re told that ‘trickle-down’ will benefit all – that ‘a rising tide will raise all the boats’ and not just the yachts. We’re told that the fact that the incomes of the top 1% have risen so dramatically http://goo.gl/m2HN6 http://goo.gl/rpIIV is good for the rest of us because they pay more tax – which, by extension, suggests the 99% would be better off still is the 1% took ALL income and paid ALL income tax – but we know this isn’t true. Indeed, as Jonathan Portes points out, when you take ALL taxes – and not just income tax – into account, the UK essentially already has a flat-tax which is hardly progressive at all, thanks to the shift from direct to indirect taxes. And this is without taking the whole issue of tax avoidance/tax havens into account (http://goo.gl/oisnA http://goo.gl/9wPnW http://goo.gl/TGxuc).

          So, good luck to you. I don’t personally resent your good fortune and can-do mentality, it’s to be admired, but don’t pretend everyone has the same opportunity – or that that opportunity isn’t dwindling as we speak. In a society with equal opportunity, unequal outcomes would be easier to swallow. I don’t think there was so much resentment when top pay at Barclays was 15x the average worker (i.e. when people felt that particular form of capitalism benefited the many and not just the few), but it’s now 75x (up 4,900% since 1979) – and increasing exponentially http://goo.gl/95KtS – to coin a phrase, they’ve ‘never had it so good’. There must come a time when this situation will end in tears – not for reasons of morality or equity, but because such levels of inequality are damaging the economy as the rentier class – the anathema of Adam Smith (http://goo.gl/GUElr http://goo.gl/BlVzO ) – takes total control: http://goo.gl/SQlhR http://goo.gl/2fsvh http://goo.gl/Dn9Mi

          An Old Etonian talking about ‘privilege for all’ as he successively shuts down education, healthcare, welfare and pension rights doesn’t cut it.

          • Geowaverider October 12, 2012 at 4:22 pm #

            Marvellous reply. I am in awe.

          • Phil October 14, 2012 at 8:44 pm #

            Boom! Copied and pasted for future use.

  18. ConfederateH October 9, 2012 at 9:51 pm #

    “So the simple reason our rulers insist on bailing out the banks is that by doing so the wealthy and the powerful are simply bailing out themselves”

    You miss the geographical implications. Those rulers and bankers are situated in Washington and New York. The rest of us are provincials.

    • Golem XIV October 9, 2012 at 10:05 pm #

      I know what you mean, but actually I think they are increasingly oblivious to where they live. They have no allegiance to anywhere so in that sense they can live anywhere and thus live nowhere.

      The elite of America do live in DC and NYC. But I donlt think they live there the way ordinary people do. They do not care about the place, its infrastructure or the others who live there. They are quite willing to relocate to a Caribean Island tax haven, Paraguay, Panama or Hong Kong.

      Loyaty much like paying tax is for little people.

  19. backwardsevolution October 10, 2012 at 8:12 am #

    For those who think cutting tax rates for the wealthy spurs economic growth, think again:

    “A new study by the non-partisan Congressional Research Service (CRS) using data from the past 65 years found that there is no correlation (PDF) between top tax rates and economic growth. But it doesn’t stop there. The study also found that there is a correlation between the reduction in top tax rates and the increasing concentration of wealth toward the top of the income distribution. The report, Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945, is also clear that this is not only about tax rates on regular income, and points out (PDF) that “changes in capital gains and dividends were the largest contributor to the increase in income inequality since the mid-1990’s.”

    This practice leads to income inequality.


  20. backwardsevolution October 10, 2012 at 8:39 am #

    Dmitry Orlov on the decline of the nation-state:

    “…I didn’t realize the extent to which the governments don’t really exist anymore. There’s very few sovereign nations left on Earth, and they’re labeled as the enemy. So that would be Iran, that would be North Korea, and then there are a lot of defunct states, like Somalia, that are posted off limits. They’re a no-go zone. Afghanistan is probably going to become one of those next year, and Syria used to be a sovereign state, but not so much anymore, given what’s going on there, but then the rest of the countries, they’re not really nation-states anymore because they’re completely beholden to financial interests.

    So, the countries we have are exactly as fragile as the financial system. That is not something that I initially realized. I knew that there was a lot of corruption. I knew that there was a lot of inbreeding between the financial and political elites, but I didn’t realize that the nation-state, as such, is pretty much gone…”

    • Golem XIV October 10, 2012 at 8:43 am #

      Agreed. But the people are NOT gone. Not all of us.

      • backwardsevolution October 10, 2012 at 9:22 am #

        Golem – I agree, the people will prevail in the end. But I think Dmitry (a pretty astute fellow) was just pointing out his surprise that even he hadn’t seen the nearly complete capture of so many nations.

        It’s because of good people like you that the message is getting out. Your article was even cited today on Jesse’s Cafe Americain AND Karl Denninger’s site. Keep up the exceptional job you’re doing!!! Thank you, and take care.



        • Golem XIV October 10, 2012 at 4:54 pm #

          Thank you.

          For me the ‘capture’ of the nation state emntered its present phase in 1996 when the Uruguay orund of GATT was passed with hardly a murmor and aboslutely no democratic discussion. From that moment on I had a bad, bad feeling.

          I made the film Icon Earth to sound some sort of warning as well as I could at teh time. My boss at the BBC hated it and made sure it was never never repeated. It never has been.


  21. backwardsevolution October 10, 2012 at 8:52 am #

    “The talking points of the super rich, which are pounded into the brains of slumbering Americans, are they pay all the taxes, create all the jobs, create all the wealth, and drive innovation. The facts say otherwise. The super rich aren’t creators, they are destroyers.

    The top 0.1% richest Americans didn’t get rich by creating new companies and letting their entrepreneurial talents shine. These 152,000 people, with an average income of $5.6 million per year are overwhelmingly executives at large corporations, banks, law firms, and real estate firms. These people account for 68% of the richest of the rich. Entrepreneurial creators and producers account for less than 10% of the richest Americans. The executives that make up the 68% are masters of creating debt, wealth for themselves by peddling debt to the middle class, and creating jobs in China and India by outsourcing U.S. jobs.

    The average income of the 137 million people that sit at the bottom of the income pyramid has declined by 1% since 1970. The people at the top of the pyramid saw their average income rise by 385%.

    Was this because they worked harder? No. It was because they used their existing wealth to buy politicians and pay lobbyists to write laws, create loopholes, reduce regulations, and alter the tax code in their favor. This was not a conspiracy. It was human nature. Humans are driven by greed and fear. Lusting for power and wealth is a common human frailty. Those who are able to acquire wealth and power through their superior abilities and intellect are usually driven individuals. It is built into their DNA to seek more wealth and power. There are 310 million Americans and based on the chart below, only 1.5 million would be classified as very rich or extremely rich. Many of these people associate in the same circles. This incestuous relationship is what breeds the growing inequality in our country. The game is rigged in favor of these 1.5 million people because they run the corporations, occupy the halls of Congress, peddle the debt products to the bottom 90%, and use their mass media to control the message to the under-educated, over-medicated, gadget distracted masses.”

    Jim Quinn, The Burning Platform

    • Golem XIV October 10, 2012 at 9:01 am #

      As it was in France before the revolution and in England before our revolution.

      Revoluations are much like earthquakes or volcanoe eruptions. They are infrequent enough that the people who live on the fault lines can’t remeber the last one and come to believe there won’t be another. They are always wrong.

      No one can predict when they will happen, only that they will.

  22. backwardsevolution October 10, 2012 at 8:58 am #

    Jesse from Jesse’s Cafe Americain:

    “Not all sociopaths wield knives and knotted cords. Some wear suits, and are exceptionally intelligent and articulate, obsessively driven, and are able to use and undermine the law and the rules for their advantage, like weapons. It is never about the win, never about the money. It is about the kill, the expression of their hatred, about elevating themselves with the suffering of others. Bind, torture, kill. Not only with ropes and knives, but also with power and money, and the subversion of law. Lawlessness is their addiction, their will to power.

    When societies become lax and complacent, these sociopaths can possess great political power through great amounts of unprincipled money. And over time they become almost anti-human, destroyers of all that is good, all that is life, all that offends their insatiable sickness with its goodness. They twist the public against itself, and turn a broad sweep of society into their killing grounds. This is the undeniable lesson of the last century. There are monsters, and they walk among us.”

    • Golem XIV October 10, 2012 at 9:04 am #

      To which I can only reply That I get knocked down. But I get up again. And again and again. You will never keep me down.

      Despair is the sound of their victory parade. I will never, ever sing it.

  23. Suav October 11, 2012 at 8:08 pm #

    This is, pretty accurately depicted, an actual state. What is missing? First, although financial wealth is a formidable and agile lever on all the society and every member of it one can not underestimate the power of other means – material wealth and social ties. One can wipe out the banks and witness mighty opposition to any change in real wealth distribution, in fact, quick restoration of financial wealth lost (engineered in a new form probably). Secondly, we can not properly estimate levels of dependance of the 80% on foreign trade, which trade, in turn, relaies on coopting policy of the 20%. We are in for 7 70 or 700 of lean years. The “new normal” consensus excludes vast majority of the globe population but is still true to the ditto “… our system gives rewards to all, at least to all that matter”. The quality of the new consensus might be questioned on one ground only, but this is nither popular nor easy to do. Current consensus degrades morally both sides of the conflict and is utterly counterproductive in limiting overall consumption and overall population growth. It’s a gross simplification to say so, but sometimes it is the only way to drive the point: “Current system stays afloat by multimplying an army of slaves.” This reduces ad absurdum many lofty claim in defence of it. To give an example. We could have had Egypt growing from 16 to 20 million people and roughly on a par with the West. We have Egypt of 80 million people and their rights to expect decent life are not in the slightest diminished, but they tend to think that they might stand a better chance of satisfying their right through their number. (the population numbers were chosen to coincide neatly with the “our currency but your problem” point on the graph presented in the text.

  24. M_T_Wallet October 11, 2012 at 9:41 pm #

    Insightful analysis as always – the most worrying thing is the Neo-Con political message is the real cause of the crisis actually has credence due to the laziness of otherwise educated people. It is apparent the bankmasters and their apologists would swear day was night.

    Just ordered Debt Generation so looking forward to reading more of the background.

    • Geowaverider October 12, 2012 at 4:11 pm #

      Enjoy, but it won’t take you long as it is very difficult to put down.

  25. Barry Kurland October 12, 2012 at 3:27 am #

    Read the rules of the game of “Monopoly”. You will notice that regarding the “Bank”, the rules state that the “Bank” NEVER goes broke…..art imitating life. Or is the whole playbook for these people just the game of Monolopy in 3d real time.
    Thanks for this great information

    • patma2003 October 12, 2012 at 8:16 am #

      hahahaha…love it… and the dude with the top hat on the monopoly logo is a caricature of mr JPMorgan himself…

      • steviefinn October 12, 2012 at 12:13 pm #

        Crony monopoly whereby the player who also acts as banker, or central banker, bails himself out when he screws up, is allowed to sell dodgy mortgages on all the properties & then buy them up at firesale prices when the other players inevitably get into trouble & of course gets an exemption on the go directly to jail card.

        Don’t think the above version would prove very popular.

        • patma2003 October 12, 2012 at 11:33 pm #

          yeah i saw one of the community chest cards on the crony version…

          ‘Bank error in your favour. You receive $1,870,000,000,000’

  26. Warren Raftshol October 13, 2012 at 5:50 pm #

    What every financial analyst and economist fails to understand is that inflation/credit money REDUCES velocity. Somehow, they’ve all been assuming that it increases it.

    (FV-PV)/FV = 1-u = iT is interest accrual on a loan at interest rate i for period T.

    T = 1/V where V is the velocity that the borrower can circulate his inventory.

    So, i = V(1-u) From this we see that V = i/(1-u)

    u = PV = wage share which declines from inflation as u = wL/paL with w = wage, p = price level, a = labor productivity and L = work force so that

    u’/u = w’/w – a’/a-p’/p

    with u declining, (1-u) is increasing, meaning that V also decreases with inflation.

    V actually increases with interest, so the correct means of reviving the economy is via raising interest rates, NOT dropping them as is the Fed prescription.

    The enormous public debt could be quickly paid off via negative interest Treasury bonds.
    If the Treasury offered 10Y TBills, at say, $1050 which paid $1000 after 10 years, investors would soon understand the rationality of holding bonds which paid off in a lower nominal value dollar but with much higher purchasing power.

  27. major October 14, 2012 at 6:42 am #

    After having read the financial media and blogs since before 2000, I have no doubt that what you say is in fact absolutely true. Instinctually I know that we are being spun a big lie since before Clinton. Unfortunately, the Republicans are as much apart of this big lie as the Democrats. They are both working for the same people, but not us the citizens of America. I believe the manipulation of the electorate using mass media started before the sixties to advance a world wide agenda. Whether that is National Socialism or something else is not fully clear. I believe Obama was put in office for a reason; and I mean he was literally put in office by forces not completely visible to us as yet. Apparently part of their master plan to concentrate the Wordls wealth in a few people must have partly went awry, hence the desperate methods employed to prevent the premature collapse of their World cabal. What they must also be afraid of is the complete exposure of their plan due to the economy spinning out of control. This could result in reprisals from their intended victims, the 80 % who will have nothing left if their plan would come to fruition. This conspiracy theory is not that far fetched when you look at human history, there have always been a handful who believed that the majority of humanity is only useful for serving their interests of domination.

  28. Roger October 30, 2012 at 12:08 am #

    My musical pleas for a New Paradigm


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