From Here To Paternity

by Dr. James Glenn | July 7, 2009

The study of money, above all other fields in economics, is one in which complexity is used to disguise the truth or to evade truth, not to reveal it." John Kenneth Galbraith

“Paper money eventually returns to its intrinsic value - zero." ~ Voltaire - 1729

The more things change, the more they stay the same, eh dear readers? Who’s responsible for this incredible mess? Who’s the father! Is there one man, one institution responsible? How did the country allow itself to become dependent on mountains of debt, gratuitous consumption, and housing and related industries to generate prosperity? Are you kidding me? Housing? Accounting for 40% of the S&P 500 profits!! What were we drinking? Who on earth were we listening to? Did we think we were going to propel our way to prosperity by pushing paper around? By inflating assets through rampant money supply and credit growth? Have we all been drinking the Cool Aid for thirty years? The short answer is yes. Hell yes.

Readers of my columns know who the man responsible is. The father of the mess and paramour to the blushing, bulging bride at the shotgun wedding between Banking and housing is………... Hint, he is not a publicly elected official, has no governmental oversight, he headed an illegal, unconstitutional cartel that controls our nation’s money supply and interest rates, and he wielded more power than the four presidents combined whose sinecures he sat through. Who was the lucky devil? Devil indeed.

Why he’s Wall Street’s very own. The banksters and insurance hit man, and every hedge fund managers pal, the grandfather of moral hazard, and the creator of the Greenspan “put” and the plunge protection team, our very own Alan Greenspan. Man of the hour, and father to the bastard economy created by 30 years of Reaganomics, and reckless, irresponsible monetary policy.

But to be fair, this mess was too much for even this one man to create. As easy as it would be, and as much as I’d like to, I can’t lay the entire blame all at poor Al’s feet. He had a lot of help from his best men, Reagan, Bush 1&2, Clinton, Rubin, Snow, Paulson, and an ill informed, and often ignorant and somnambulant populace, lulled into complicity and complacency through the creation of one asset bubble after another, and a consumption binge that would have made even a Roman patrician blush with embarrassment. A collective payoff by the banksters if you will, to an all too willing, and gullible public. A bribe in the form of artificially inflated assets of every stripe, to look the other way while the Visigoths plundered our country………

Those in banking, insurance, real estate, and brokerage are equally as culpable as the aforementioned sap. They are just as guilty. Maybe more so. It was they that actually packaged and sold the toxic garbage. Wasn’t the conductor driving the train full of Jews to Auschwitz as guilty as Hitler himself? Of course he was. The realtor selling over priced real estate to unsuspecting dupes? The mortgage broker conning a gullible couple into an option arm that he knew they could never repay? The appraiser stretching the numbers to fit the need? The rating agency giving triple A ratings to investment grade (BBB) bonds, or even total junk? (C rated). The speculator eager to buy and “flip” over priced real estate? A classic case of “malinvestment” as the economists like to say, if ever there was.

Yes, plenty of blame to go around. Greed is bipartisan, and what the neo “cons” claim always makes the “free market” their vehicle of choice. You see, according to them, everyone working in their own economic self interest (better known as greed) will generate economic paradise. See? See how effective that has been? Here, and in Iraq? Throughout South America? If there is one silver lining in this mess it is that we can finally lay to rest the sham of Reaganomics, trickle down, and supply side economics.

The banking industry lobbied Congress for decades to eliminate Glass-Steagall, that depression era bill that prevented consumer banks from owning investment banks, insurance companies, and mortgage companies. The amalgamation of all of these entities into conglomerates is what happened in the 20s, and led to the crash of 29, and the Great Depression. Human beings, being what they are you see, generally have to be supervised when handling money, especially other people’s money. This is so obvious it should need no further explanation.

When you have a consumer bank that can sell mortgages willy nilly with no underwriting standards thanks to no oversight, have them securitized by their wholly owned investment bank, and then have the resulting Collateralized Debt Obligations (CDOs), and CMOs, sold for tremendous profit through their brokerage arm, you have the potential for incredible conflicts of interest, and the makings of disaster. Add to this malfeasant mix the ability to insure the resulting “collateralized” mess through their wholly owned insurance company, say someone like AIG, without having to set aside reserves for potential claims, and you have the denouement as the French would say. The epiphany for the lucky company that owns all these companies. Add to all this a rating agency that is in your pocket, if not wholly owned, and you have a regulatory, and financial nightmare for the rest of us. As the old saying goes, “those who don’t remember the past, are doomed to repeat it.”

According to Harvey Rosenfield, President of the Consumer Education Foundation, “Over the last decade, Wall Street (i.e. the entire financial sector consisting of commercial banks, accounting firms, insurance companies, securities firms including hedge funds and private equity firms) showered Washington with over $1.738 Billion in supposed “campaign contributions” and another $3.441 Billion on 2996 officially registered lobbyists (more than 5 for each member of Congress) whose job it was to press for deregulation. In return for the investment of this $5.179 billion, the money industry was able to get rid of many of the reforms enacted after the Great Depression and to operate, for the most of the last ten years, without any effective rules or restraints whatsoever.”

The “reforms” Mr. Rosenfield is referring to of course is Glass-Steagall, passed in 1933, which prohibited these financial services firms from owning each other, thereby eliminating the conspicuous malfeasance, greed, conflicts of interest, and crony capitalism that existed during the 20’s that led up to the Crash of 29. Why would banks, insurance companies, and hedge funds spend nearly six billion to repeal Glass-Steagall if the bill was not doing it’s job? It was hugely effective for nearly 70 years which is why the banking system detested it so. Aiding and abetting the dismantling of Glass-Steagall, and providing the excess liquidity, and artificially low interest rates required to fuel the massive housing bubble was the Fed in the center ring of the circus. Trillions and trillions of dollars were made by those in these industries between 2002 and 2007. Greenspan teed it up for them, and deregulation and greed did the rest.

We can’t really blame people for being unscrupulous, greedy, corrupt and complacent when it comes to lining their own pockets, can we? After all, these all too human traits are well known, and been around since the dawn of man. Sensible societies keep those entrusted with maintaining the nation’s money supply on a very short leash, and put legislation like Glass-Steagall in place to prevent “too big to fail” from happening in the first place. Their central banks, and financial markets, are likewise prohibited from growing money supply many times faster than GDP, thus creating asset booms, followed by the asset busts that we are all too familiar with since the founding of the Federal Reserve in 1913. Rather than providing so called “economic stability” as their charter dictates, the Fed has done just the opposite, creating one disastrous financial calamity after the other, this being just the most recent, and perhaps the most egregious example ever. The Feds surrogates, Wall Street, the large money center banks ala CitiGroup, and Investment Banks, are all too eager to keep these inflationary booms going, for it is they, and their major constituencies who are the primary beneficiaries. They make trillions on inflated assets while most of the rest of us suffer.

Rosenfeld, in his concluding remarks notes that, “If America is to recover this economic debacle that we find ourselves in, its people must return to the principles that made it great-hard work, creativity, and innovation-and both government and business must serve that end. Washington must serve America, not Wall Street. Things will not change so long as Americans acquiesce to business as usual in Washington. It’s time for Americans to make their voices heard.”

I am generally all for “free markets” as long as those comprising them are treated equally, and that they work for all of us, not a select few. At the very core of our recent financial debacle is a banking system, at whose center is the Fed, grown fat, and complacent through decades of monopoly control over our nation’s money, and interest rates. It, and its minions (those mentioned previously) have turned our Democracy into a hypocrisy. What else would you call a system that creates money out of thin air for itself (the Fed) and it’s major constituents (member banks, Wall Street etc) and then is given power to dole it out to whomever it pleases in the form of loans through it’s member banks? If this is not a situation ripe for exploitation by bungling politicians, and greedy businessmen, I don’t know what is.

My friends on the right who adamantly, and vociferously proclaim to be “free marketers” and big believers in the “Invisible Hand” of Adam Smith, and support the Fed and our present banking system, seldom question their own hypocrisy. Our banking system, the very core of our capitalist model, lynch pin of our Democracy, is as antithetical to “free markets” and Democracy, as Communism and Fascism. Fascism is of course government working hand in glove with big business, often accompanied by “belligerent nationalism.” We’ve seen a little of that in the last eight years, haven’t we? Communism believes in “each according to his need, each according to his ability”, and a centrally controlled, planned economy, where prices, and wages are set by government dictate.

What would you call a banking cartel/system that has a monopoly on money creation, artificially “sets” interest rates, and works closely with government, in a symbiotic relationship, to provide for the often questionable needs of politicians, while lining its own pockets?

In a recent erudite and succinct explanation of the mess, “Meltdown”, Thomas Woods Jr. has this to say about “free markets and the Fed in his books concluding remarks.

“The Austrian approach to understanding what has happened to the economy holds far greater explanatory power than does any competing school of thought. Learning about the Austrian point of view is especially urgent for those conservatives and libertarians who think of themselves as defenders of the free society and free markets. Some conservative writers and publications have made the mistake of blaming the financial crisis on the Community Reinvestment Act (CRA). That approach is a dead end. The CRA may have played a modest role in the collapse, but a debacle of this magnitude obviously requires a more substantial explanation. We are watching a systemic problem unfold, and looking for ways to blame it all on the “Democrats” is unhelpful. It is the monetary system itself, a system that enjoys wide bipartisan support, that is breaking down, and it is the Federal government’s intervention into THIS aspect of our lives, far more than its push for sub prime mortgages, that threatens our economic well being and accounts for what happened.

He goes on, “In short, supporters of the market economy need to decide once and for all whether they really believe their own arguments. People who argue for “fiscal responsibility” will never get anywhere, and cannot be taken seriously, as long as they tolerate a system in which government can create out of thin air all the money it wants. If the Federal Government is an addict, then the Federal Reserve System is its enabler. If you believe in the free market, you cannot support the Fed, one of the most intrusive interventions into the market. If you believe in the free market then you cannot support government price fixing, including the fixing of interest rates. No free market supporter worth his salt would accept the argument that thus and so is so important it needs to be administered and supported by the government.”

You see friends, what we basically have here is a long standing quid pro quo. The politicians get the money they need to go to war, and increase deficit spending while the Fed collects interest, that is, your tax dollars, on the huge sums it has created out of thin air and “loaned” to Uncle Sam. It’s an outrage, and it is destroying our country, if it has not done so already. There is a bill in the House sponsored by Ron Paul, HR1207, and its companion bill in the Senate, S604, outlining the implementation of a Fed audit. It has broad bipartisan support, given recent events, but will undoubtedly run into a stone wall constructed by the financial services sector. PLEASE, take a moment to write, email, and call your Congressmen and Senators about your support of these bills. Our nation’s very survival depends on an honest reappraisal of the Fed and its member banks, and a thorough, and honest audit of their books. That is all these bills propose.

It’s time for real change, not lip service to change. It has to start with real banking reform, and then of course, campaign finance reform. Good night friends. Jim

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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