Page 2 of 2 Government takeover to a T
By Julian Delasantellis
But for the big banks, the new Masters of the Universe, it's an even sweeter
deal. Because of the Obama/Timothy Geithner Treasury fairly explicitly telling
the public that it will not countenance these banks' failure, that they are in
fact "too big to fail", these de facto wards of the state get to borrow at
rates, from 0.0% to 0.1%, that only would apply if they had in fact been
declared full wards of the state.
But still, that's not where the fun party is. Because these bankers had
previously proved themselves so moronically maladroit at assessing the risks
posed by their borrowers, like giving US$1 million mortgages to those who could
barely work the zero key on their calculator, now banks would be encouraged to
use their cheap money only on ultra-safe investments, like one-year US Treasury
securities, currently paying around 3.6%. The revenue
from these investments, coming from the borrower generally considered to be the
world's No 1 quality borrower, could go a long way towards repairing the banks'
fractured balance sheets and get them ready for life once again out from under
the government's wings.
It hasn't worked out that way. The banks have learned that if they can earn a
worry-free, risk-free $1.8 million investing $50 million at 3.6%, how much
better would it be to just as easily earn $1.8 billion from investing $50
billion under the same terms.?
The flip side of the banks' carefree prosperity is a virtual siege war being
conducted on other parts of the economy, as the money the private economy used
to rely on for operation and expansion goes instead back into these Treasury
securities. Since the crises of September 2008, the monetary base has grown by
almost 2.5 times, as the Federal Reserve injected massive quantities of money
through its quantitative easing strategy; in contrast, the monetary aggregate
known as M-2 has only grown by about 7.5%, indicating just how effectively the
banks are starving the general economy of all that new extra liquidity.
What really raises the ire of the general public on these issues is not the
prospect of a new ruling class chosen entirely by un-democratic means, but the
comparatively inconsequential issue of corporate bonuses, a somewhat minor
affair considering the total aggregate sums the sector as a whole is
withdrawing from the general economy, and the issue of the TARP loans.
Both US political parties are now furiously trying to establish their bona
fides as agents of change, but as for the issue of the role of finance capital
in politics, they both seem quite content singing the song that the country
knows well, and, judging from their electoral rejection of those who try to
change it, loves the most.
Recently in Washington, Obama held a "jobs summit", seeking to un-dam the flow
of investment capital to new industries so they can expand product lines and
create new jobs. Even though they were the intended audience for the pitch, and
even though the railroad service is better between New York City and Washington
DC than anywhere else on the North American continent, three bankers, John Mack
of Morgan Stanley, Richard Parsons of Citigroup, and Lloyd Blankfein of Goldman
Sachs, declined to attend, citing the difficulty of their private planes to
make the 320 kilometer journey in freezing fog.
All through this past year, it has been Goldman Sachs that has been portrayed
in the financial and popular media as having the strongest crime organization
amongst the five New York families, the Gambino family of finance. Whenever
there was a story about a financial institution going bad, it was usually one
of Goldman's goombas being led away with a raincoat over their face.
Early in the year, it was the news that Goldman was attempting to arrange the
repaying of its $10 billion in TARP loans. Some wondered where this bank,
albeit the best managed, most profitable of the majors, had managed to cobble
together the $10 billion; others quite correctly assumed that, free of the
TARP's payroll restrictions, the bank would be free to offer its senior capos
truly astounding bonus payments. This they did, to the tune of about $11
billion in bonuses for the spring quarter, $17 billion for autumn.
Add to that the exposure of Goldman's dominance in what became known as "High
Frequency Trading" (see
Goldman Sachs - the lords of time Asia Times Online, August 5, 2009) as
well as the reports of the $13 billion in US taxpayer money the firm sucked
through the dead carcass of AIG, and one can see why Goldman never even
attempted an ad campaign featuring it as "your friendly local neighborhood
bank".
In December, Goldman chief executive officer Blankfein actually tried to defend
himself by claiming his bank was just doing "God's work", but he quickly had to
backtrack on that - Americans must have remembered that this was the same sales
pitch the Conquistadores tried to sell their rule of whips and chains to the
first nations of South America.
But it's more than just one person, Blankfein or anybody, and it's more than
just one firm, Goldman.
Part of it is America now commencing its 30th year of a conservative
ascendency, in spite of what we now know were the two false dawns of liberalism
- eight years with Bill Clinton and more recently Obama. Part of it must be the
steering of the Democratic Party to the right after Clinton's congressional
electoral thumping in 1994, after which labor/consumerist voices such as Robert
Reich were pushed aside and delegitimized in favor of Wall Street's contingent
of those such as Robert Rubin and Lawrence Summers.
A very large part of it is the fact that, if Americans continue to refuse to
alter the current dynamic that has money ruling its politics, it is sheer
sophistry to express a populist outrage when the public continually places
finance capital first in line with knife and fork every time the solons ring
the dinner bell.
But all tyrannies breed a resistance, and so has the pax financia.
Curiously, if all the new rulers are marked by the multitude of initials
representing the multiplicity of academic degrees that supposedly represent
their credentials and legitimacy of rule, the resistance is marked by its
absolute satisfaction over its lack of such awards.
Yes, I'm talking about the tea party movement.
The rise of the tea party movement in response to Obama's first months in
office was the most fascinating feature of American public and economic life
this past year, and possibly one of the most momentous. First, there is a very
significant base of secessionism within the movement. Even if this does not
lead to another civil war in the style of the 1860s, it could lead to such a
devolution of resources and authority of the central government to the states
so as to put the United States' continued existence as a federal state in
question.
If the United States reverts to a weak central state overwhelmed by the power
of the individual states that compose it, as was the case before Franklin
Roosevelt's New Deal in 1933, or maybe even before the creation of the Federal
Reserve (which many in the tea party groupings want to abolish) in 1913, will
the US still be a credible enough agent to assume its place as the most
important player in the management of the world financial system?
If in the future there are a dozen fiscal and monetary policies where once
there was one unified policy, will they be able to find and steer a collective
voice sufficient to right the sails of a world economy in some future crisis,
or will the Europeans and Asians be then forced to assume the world economic
power positions they have previously eschewed?
But the other thing I find fascinating is just how close the tea-party analysis
comes to what's actually going on here. Through all their trailer-park torpor
and beer-nut bravery comes the truth. The tea folk see the government taking
over the banks; no, what we actually saw this year was the banks taking over
the government. While the process goes on, the flows of power between the two
processes must look very similar; it is only when they are concluded do we see
just how massively the people's lives have changed.
And if any member of the populace objects, Blankfein et al can just "make 'em
an offer they can't refuse". No one has yet.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
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