Crossing the Rubicon

by Dr. James Glenn | September 15, 2008

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"The last duty of a central banker is to tell the public the truth."
-- Alan Blinder, Vice Chairman of the Federal Reserve, on PBS’s Nightly Business Report in 1994.

Just when you think you’ve seen it all friends, the world, and the US Fed, and financial markets, surprise you. Recently we Americans have been treated to a veritable cornucopia of fraud, malfeasance, and deceit, the likes of which surprise even me, a hardened veteran observer of Wall Street, and central banking shenanigans. The rhetoric flying from the lips of Paulson, Bernarke, and Bush over the last month would make even that hard bitten cynic P.T. Barnum (of “there’s a sucker born every minute”, fame) blush with embarrassment, and recoil with horror. They really must think we are all suckers.

How else can you explain the ludicrous assertions by our aforementioned fearless leaders that the nationalization of Freddie and Fannie is not likely to run over 25 billion, when anyone with a scintilla of sense, or a clue of the facts, knows the real estate losses carried by these two behemoths alone could, and will, run anywhere from 300 billion to 1.4 trillion (with a T friends). Does this sound suspiciously like, “The war will pay for itself”, will “only cost 30 billion”, and “be over in 3 months or less?” At the time I wrote a piece decrying the slippery slope the nation had embarked upon invading Iraq, and estimated it would cost 2 trillion before all was said and done, and be one of the worst foreign policy disasters in the nations history. I was a little too conservative then, and am probably too conservative again. 1.4 trillion is likely to be the tip of the iceberg, what with Lehman, Merrill, GM and Ford lining up behind Fannie and Freddie for treasury bailouts. Paulson was given a blank check after all, so line up! All this money will have to be borrowed, or created out of thin air by the FED and loaned to Uncle Sam, and added to the 10 Trillion we already owe………….

How did the nation of “Free Market Capitalism” as touted by Kudlow daily on CNBC and The Wall Street Journal op ed page, get to the point where we privatize profits, and socialize losses?…..for corporations that is. Isn’t that fascism according to Webster’s? How did we get to a point where thrift, saving and frugality are punished, and speculation, fraud, mismanagement, and bald faced lying are rewarded? How can the country stand mute while we the taxpayer, foot yet another bailout for big business and Wall Street, at our children’s, and their children’s expense? How does anyone with a conscience, or in command of the facts, justify the current state of affairs, unless they are part of the gravy train? Socialism for big business, but God forbid we should have socialized health care or education for the working men and women of this country! That would be communism! Do those people supporting this current state of affairs not see the hypocrisy in their position, or really believe these bailouts, this financial denouement, amount to anything more than pandering to Wall Street elites, and big business, care of your tax dollars?

Most of the “deregulation” and “privatization” of the financial services sector began in earnest under Reagan/Greenspan in the 80s with the deregulation of the S&Ls. The S&L industry had been clamoring for years to be “unshackled” from the “anti competitive”, and “burdensome” regulations instituted in the 30s under Roosevelt after the nations last economic disaster, The Great Depression, bought to you by those same miscreants, and cast of characters responsible for the current state of affairs, i.e.; the Fed, their minions, the money center banks, Wall Street, and lobbyist in Washington. Interstate banking laws were repealed, as were regulations regarding investment limitations of a “fiduciary” nature. Anyone over 50 remembers how successful that “deregulation” was. Once “unshackled” the S&Ls proceeded to run amok, chasing risk, and higher returns wherever they could be found. (sound familiar?) The bankers best friend, greed, quickly reared it’s ugly head, while the bankers worst enemies, intelligence, and market timing, were relegated to dark corners in the back office. A real estate boom quickly ensued (late 80s) followed by an epic “bust” (1989-91), ultimately costing the taxpayer between $300 & $800 billion, depending on who you believe, via the Resolution Trust Corporation (RTC). The current clamoring for a “Structured Investment Vehicle” (SIV) is essentially the same thing as the RTC was, a government guaranteed holding company for all the toxic debt, and “non performing assets” currently on banks balance sheets. So much for deregulation. History does repeat.

Greenspan after the “Crash of 87” discreetly formed what he euphemistically termed “The Working Group On Capital Markets”, better known to many as the Plunge Protection Team (PPT), ostensibly to prevent such a meltdown from happening again. This “working group” greatly expanded FED powers, essentially allowing them to buy or sell any markets, including stock, bond, and currency markets, in addition to performing their legislated duties of “managing” interest rates, and the money supply.. This was a bold, and surreptitious new collaboration between the FED, select financial intermediaries like Goldman Sachs, and Morgan Stanley, the Treasury, and the Executive Branch. This kind of “market coordination” was unparalleled in the degree to which it intervened in all markets, and a direct contradiction to the idea of “free markets”. We have not had “free” financial markets since its founding in 1987.

During the 90s while US real estate withered on the vine, new asset bubbles were created in bonds (mid 90s), and stocks (late 90s) care of Fed largess, i.e., record low interest rates, and a money supply run amok. While our multinationals were busy abroad destroying economies, and currencies, via neo liberalist policies (more privatization & deregulation), the boyz were busy on Wall Street pushing paper back and forth to create profits in bonds, and stocks, and buying and selling something new called derivatives. In addition they dreamed up a miracle called “securitization” which allowed banks and brokerages to “package” everything from mortgages to credit card debt for resale to investors. This essentially allowed banks to shift risk, and accountability, from themselves, to investors, hence the miracle. At the same time Wall Street goons, uh, excuse me, executives, were placed at0 .the head of Treasury. This began with Rubin under Clinton, and has continued with Snow and Paulson under Bush. Paulson, the current head of Treasury, ran Goldman Sachs for years. Under their tenure, market intervention, and coordination intensified as never before, with the Treasury/Fed intervening in all financial markets, whether metals, stocks or bonds, routinely. No conflict of interest here, eh? The nations Treasury run by Wall Street interests? And we wonder why we have problems?

Finally, to set the stage for the current disaster, after many years of lobbying, and hundreds of millions of campaign contributions, the banks, brokerages, and insurance company’s most fervent wishes were granted. The Glass-Steagal Act, passed in the 30s under Roosevelt, along with the Securities Acts of 1933 & 1934, was repealed in 1999 under Clinton, by a Republican Congress. There are good reasons conservatives hate Roosevelt. This was the last semblance of any kind of “regulation” of the financial services industry. It had mandated for nearly 70 years that banks, brokerages, and insurance companies could not buy each others businesses, commingle funds, or offer 2nd or 3rd party financial services through subsidiaries. Brokerages owning banks, and insurance companies, in conjunction with easy credit from the Fed, and lax regulation, is what lead to the Crash of 29 and the Great Depression. Glass-Steagal had prohibited financial services conglomerates for good reason. It had already proven disastrous.

With Glass-Steagal repealed, securitization absolving banks and brokers of any accountability for the products they sold, the SEC effectively muzzled, Snow at the head of Treasury, and a somnambulant, laizzez faire Fed, the banks, brokers, and insurance companies quietly went to work creating our latest disaster. Record low interest rates and a monetary Tsunami created courtesy of the Fed, greased the housing skids starting in 2002, leading to the real estate boom 0f 2002-2005. Results were predictable, but the consequences of the ineptitude, fraud, and racketeering by the financial services industry was not. There were no consequences…….for those directly responsible that is.

As a reward for overseeing the biggest financial disaster in this nations history, Paulson has been given a blank check by Congress to do as he pleases. Greenspan, architect of the “wealth effect” designed to promote speculation, encourage fraud, and reward ineptitude in banking and brokerage, is living somewhere in a gated golfing community. That sop Bernarke, hasn’t even had his knuckles rapped by the idiots in the Senate and Congress responsible for Fed oversight. The heads of Fannie and Freddie are being “retired” with nary a hole in their golden parachutes totaling hundreds of millions. It is now official friends. There is no going back. The countries economy has been hijacked by the financial services industry. Free markets are a figment of the imagination, and “capitalist economy” a misnomer. We the people, now serve Wall Street, and the Fed. The combined interest we pay them is several trillion a year, in a 11 trillion dollar economy, or nearly 20%. The parasites skim it right off the top.

This all as a result of the misguided, misinformed, and reckless fiscal, monetary, and trade policies which leave us with corporations in charge of our politics, and writing the law of the land, 90% of media controlled by six conglomerates, Wall Street and banking shills at the head of the Fed and Treasury, and an executive branch either unwilling, or incapable of standing up to these powerful vested interests. This is how it happened friends. It took them 30 years but like termites, they’ve managed to burrow deep. It will take all our collective strength, and courage, to stop it. Stop it we must. Or, our so called Democracy dies.

Good night friends.

 

Copyright © 2008 Dr. James Glenn
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Hello: My name is James Glenn and I am delighted to be working with you all. I grew up in Washington DC, and attended American University where I obtained a BSBA in Finance with a minor in marketing. I have thirty years broad based experience in business development, brokerage, banking, commercial lending/underwriting, credit analysis, management, public relations, relationship selling, valuation and investment consulting and most recently, teaching. I have developed over the years exceptional researching, and writing ability, and superior spreadsheet and computer skills, and hope to bring some of these skill sets to bear in this course.

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