Guilding The Lily -- Or Polishing The Turd ? - "Too Big To Fail"
US Federal Reserve Chairman Ben Bernanke, the monetarist who pumped billions of dollars into errant and spoiled commercial banks, investment banking firms (if you can actually ascertain the difference -- as if the distinction had any relevance) and insurance companies to keep them afloat (i.e., be certain that the Olympian inhabitants of the plush executive suites of these institutions were able to continue to be paid enormous compensation despite the purported insolvency and failure of their respective companies due to their breach of fiduciary duty, unbridled and boundless greed, sense of entitlement, and 'above the law' status) because they were "essential to the US economy," and were "too big to fail," has decided on a policy change.
After subsidizing the gluttony and stupidity of these behemoths, and realizing, at this late date, that 1) none of the capital infused has gone into the private sector or into consumer hands in the form of credit facilities, loans and the like; 2) no new private sector job creation resulted; and that these institutions are still either making their money through trading (a high-risk, big-ticket business) or buying government-issued debt securities, he has revised his rhetoric.
After subsidizing the gluttony and stupidity of these behemoths, and realizing, at this late date, that 1) none of the capital infused has gone into the private sector or into consumer hands in the form of credit facilities, loans and the like; 2) no new private sector job creation resulted; and that these institutions are still either making their money through trading (a high-risk, big-ticket business) or buying government-issued debt securities, he has revised his rhetoric.
Now Mr. Bernanke, without admitting the abysmal failure of his preferential and unprecedentedly generous subsidy of sin, but realizing that he must somehow differentiate between the way he printed and gifted fresh money before and they way he intends to get the presses rolling again now if the US economy continues to decline (the printers are on standby), has adjusted his message.
While he has not learned that awarding vast sums of low-interest-bearing debt to a small fraternity of geased pigs does not result in a de facto stimulation of the economy (which can only be rescued with increased productivity brought about by powerful and positive incentives -- tax credits, small business loan guarnatee programs, jobs creation credits, Investment Tax Credits, Research and Development Tax Credits and other rewards for the entrepreneurial sector's historically demonstrated initiative, ingenuity and permanent jobs creation), he is now saying, in effect, that he will allow some of these naughty big guys to fail if they don't pass "his" new and special standard for "too big to fail" -- now he wants them to at least show that have sufficient "collateral on the books" in order to secure the repayment of funds pumped in by the Federal Reserve System.
While he has not learned that awarding vast sums of low-interest-bearing debt to a small fraternity of geased pigs does not result in a de facto stimulation of the economy (which can only be rescued with increased productivity brought about by powerful and positive incentives -- tax credits, small business loan guarnatee programs, jobs creation credits, Investment Tax Credits, Research and Development Tax Credits and other rewards for the entrepreneurial sector's historically demonstrated initiative, ingenuity and permanent jobs creation), he is now saying, in effect, that he will allow some of these naughty big guys to fail if they don't pass "his" new and special standard for "too big to fail" -- now he wants them to at least show that have sufficient "collateral on the books" in order to secure the repayment of funds pumped in by the Federal Reserve System.
1. Mr. Bernanke still does not concede that issuing and incurring debt can not eliminate a deficit;
2. Mr. Bernanke has no means of determining which of these big flopsters has sufficient collateral or not. I believe that he will have to use his best financial analysis and appraisal skills (none), in order to make an individual credit decision regarding who has to get off of Subsidy Island and who can stay, on a bank-by-bank basis, which is simply unrealistic;
3. Mr. Bernanke still has yet to create, with the intervention of the Legislature and the White House, a strict set of guidelines for the utilization of this bonanza of money to go to productive small and entrepreneurial businesses, and to individuals for mortages. This money remains trapped in the hands of the large institutions who are using it to either a) pay bonuses; b) gamble in trading; or, c) buy government debt instruments. The banks have tightened credit to the point that it no longer matters what prevailing interest rates are and it doesn't matter how much money they have -- they are not putting any money back into the economy, and they are tightening up credit standards to point of impossibility -- even though their own aggressiveness in lending and gambling...back when they were collectively asleep at the wheel...played a great role in precipitating and deepening this crisis.
No, ladies and gentlemen - Do not expect a solution, or even an easing of the current economic crisis in the US through Mr. Bernanke's "new" but philosophically unchanged and unsound approach. Expect more money to be printed, an ensuing devaluation of the US dollar, and increasing taxes on the working class (those few members remaining) to pay for the misdeeds of the others.
The big institutions must have some adult supervision (with a threat or two to keep them interested in complying) to be certain that their next batch of "free money" goes out to emerging enterprises, small businesses and to consumers who need housing. And this latter group of companies and people should be encouraged and given incentives instead of being threatened with decreasing services, a miserable economy, working until the moment of death and wages that cannot come close to meeting even a minimalist standard of living. Too many smart people are leaving the country.
Who is left?
The politicians, the policymakers and their powerful puppeteers. Strategic and patient international investors are waiting in the wings to assume domination through the smoke that accompanies a fire sale.
Stay tuned...
Faithfully,
Douglas Castle
Douglas Castle
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