seems to be an apt moniker for our present banking and financial system and a fitting description as well.
Arguably, the name, 'Madoff' Banking and Financial System, accurately conveys the economic and financial harm inflicted on the United States by the banks and other financial institutions
Below the fold, United States banking/financial history and America’s ‘Madoff’ banking system and its impact are briefly highlighted.
Our banking system may not be a Ponzi plot and many would too argue that Madoff’s investment program was not a Ponzi project; however, the results of both schemes were the decimation of peoples’ finances. More importantly, by destroying peoples’ financial wealth, Madoff and the banks/financial geniuses thwarted the dreams of many people; dreams of a secure retirement, children education, future travel and charitable giving just to name a few.
Bernie Madoff, "a charlatan of epic proportions" (NY Times), has now confessed to his crime and waits in a holding cell for final sentencing. Madoff’s imprisonment, a long incarceration in a regular prison is warranted, will nominally punish him for the harm he has caused; but punish him is what imprisonment will do.
Legal actions against Madoff (and R. Allen Stanford) raise the question: "Why have we not brought before courts of justice any of the bankers and Wall Street financial 'Einsteins'; the 'best and brightest' who destroyed their companies and helped create this economic and financial calamity?"
These bankers and financial 'geniuses' corrupted the very laissez faire capitalistic system that they so vociferously acclaimed as infallible . They facilitated the creation of excessive debt; debt that became debilitating to the nation’s economic welfare. But this story is an old story, and Paul Krugman captures this story well in his Op Ed, "Making Banking Boring," published 2009 April 10 in the national paper edition of the New York Times.
Two passages from Krugman’s NY Times article, presented below, provide a glimpse of banking history repeating itself.
Before 1930, banking was an exciting industry featuring a number of larger-than-life figures, who built giant financial empires (some of which later turned out to have been based on fraud). This highflying finance sector presided over a rapid increase in debt: Household debt as a percentage of G.D.P. almost doubled between World War I and 1929. Paul Krugman
After 1980, however, as the political winds shifted, many of the regulations on banks were lifted – and banking became exciting again. Debt began rising rapidly, eventually reaching just about the same level relative to G.D.P. as in 1929. And the financial industry exploded in size. Paul Krugman
The deregulation of the banks and other financial institutions after 1980, to include the repeal of the Glass-Steagall Act, led to the current ‘Madoff’ banking system that America now has.
America’s ‘Madoff’ banking system helped create enormous amounts of debt. Then, the banking and financial ‘geniuses’ orchestrated the genesis of exotic and arcane financial instruments (credit-default swaps and their brethren) that would provide ‘insurance’ on this debt. These new instruments of debt ‘insurance’ facilitated the unregulated financial ‘house of cards’ that Wall Street and the banks eventually became.
Once this ‘house of cards’ collapsed, just as it did in 1929, the results were felt not just by the banks and Wall Street, but throughout the entire economic system.
Now, we – the American taxpayers – are asked to spend trillions of tax dollars to save the ‘zombie’ banks and our ‘Madoff’ banking system. Yes Virginia, there is a better banking system than the present one, and we had a good, well-functioning banking system before we allowed it to be destroyed by the ‘Madoff’ bankers and their enablers – before banking became exciting again.