Cross posted at Voices on the Square and The Stars Hollow GazetteI know it. You know it, so who are we kidding? I suppose anything can happen, but essentially the election is over and our President will very likely win the electoral college and the Democrats will keep the Senate and maybe pick up some new seats in the House. So I'm here to find meaning within it all, because I have not been able to grasp how shutting up during election season, but then speaking up after the election will make us "move froward." Especially when the President and the filibuster-loving-set-to-do-nothing Congress do not have to care what we think at all afterwards.
They may get together for their grand bargain since many so called Democrats and Republicans are deficit terrorists and will work to tear down our social safety net in a bipartisan way for the mythical bond vigilantes and confidence fairies they believe in because Peter Peterson told them some scary bedtime stories in the chambers of Congress. This will all be hashed out in unrepresentative undemocratic gangs of 6 or 8 or 12 without our input. So what are we supposed to do when that happens and we are cut out? Make believe they still love us?
Or perhaps some think pointing this out is me being seduced by cynicism. Though I respect some who are arguing this now as opposed to the past, I have to vehemently disagree and I think I have a good case to make to counter that narrative.
You know who else makes a good case? Nomi Prins author of It takes a Pillage, because there will be another one. We're supposed to believe in fairy tales about how Dodd Frank changed everything, but it didn't. She'll explain why while supporting the main thesis of this diary with a title and piece of her own that is similar but much longer and obviously more in depth. I'll post about less than half of it, but you should all read the whole thing.
Before the campaign contributors lavished billions of dollars on their favorite candidate; and long after they toast their winner or drink to forget their loser, Wall Street was already primed to continue its reign over the economy.I know this will break the heart of many that think the Fed has magical powers and ZIRP and low inflation expectations are somehow bringing on a robust recovery in both the financial sector and real economy, but it's all an illusion. It's a relevant question Nomi puts forth as buying $40 billion a month of mortgage-backed securities from banks doesn't speak of a robust rebirth demand for MBS that would bottom housing out as what is falsely being claimed. It's even worse than Nomi is pointing out, because foreclosed homes are being kept off the market(an inventory scheme and a rental securitization scheme also ran out of the FHFA selling these homes to speculators to rent; one which they are actively pursuing and can't blame all on Demarco when it blows up) in tandem with these purchases to manipulate supply and thus manipulate prices so they will appear as if they are rising through market fundamentals but no.
For, after three debates (well, four), when it comes to banking, finance, and the ongoing subsidization of Wall Street, both presidential candidates and their parties’ attitudes toward the banking sector is similar – i.e. it must be preserved – as is – at all costs, rhetoric to the contrary, aside.
Obama hasn’t brought ‘sweeping reform’ upon the Establishment Banks, nor does Romney need to exude deregulatory babble, because nothing structurally substantive has been done to harness the biggest banks of the financial sector, enabled, as they are, by entities from the SEC to the Fed to the Treasury Department to the White House.
The most consistent political platform is that big finance trumps main street economics, and the needs of the banking sector trump those of the population. We have a national policy condoning zero-interest-rate policy (ZIRP) as somehow job-creative. (Fed Funds rates dropped to 0% by the end of 2008, where they have remained since.)
We are left with a regulatory policy of pretend. Rather than re-instating Glass-Steagall to divide commercial from investment banking and insurance activity, thereby removing the platform of government (or public) supported speculation and expansion, props leaders that pretend linguistic tweaks are a match for financial might. We have no leader that will take on Jamie Dimon, Chairman of the country’s largest bank, JPM Chase, who can devote 15% of the capital of JPM Chase, which remains backstopped by customer deposit insurance, to bet on the direction of potential corporate defaults, and slide by two Congressional investigations like walks in the park.
Pillars of Collusion
A few months ago, Paul Craig Roberts and I co-wrote an article about the LIBOR scandal; the crux of which, was lost on most of the media. That is; the banks, the Fed, and the Treasury Department knew banks were manipulating rates lower to artificially support the prices of hemorrhaging assets and debt securities. But no one in Washington complained, because they were in on it; because it made the over-arching problem of debt-manufacturing and bloating the Fed’s balance sheet to subsidize a banking industry at the expense of national economic health, evaporate in the ether of delusion.
In the same vein, the Fed announced QE3, the unlimited version – the Fed would buy $40 billion a month of mortgage-backed securities from banks. Why – if the recession is supposedly over and the housing market has supposedly bottomed out – would this be necessary?
The housing market is not healthy and neither are the TBTF banks asset sheets which you or I are not allowed to see, because we're told the market will get irrationally better in an exuberant way, just not today so they don't have to mark it down. The 1% are not like you or I. What I found in this piece which was most striking is her analysis of the LIBOR scandal which really put it all together for me. Ever since it hit I have been hearing conflicting reports on the different ways the many players and playees benefited from it. It was obvious the banks were allowed to look healthier because of it, but many argue that those with mortgages and loans and other types benefited from the lower interest rate pegs below LIBOR.
However it is the end game in which investors being sold shitty deals and consumers being defrauded into mortgages they didn't understand were hit. The LIBOR fix was set from the very beginning to artificially raise the price of MBS in CDOs because that's how it works, the interest rate goes down and the price goes up on mortgage bonds set by the market which in turn is reacting to this information. Then multiple defaults at the same time in the "AAA" tranches caused those securities to be worthless hence making banks' balance sheets and everyone else that had holding in these CDOs insolvent triggering CDS holding events and here came the Great crash of 2008 starting in December 2007 though prices started falling in 2006.
But wait! There's more!
Yet, the Obama White House wants us to believe that Dodd-Frank was ‘sweeping reform.’ Romney and the Republicans are up and arms over it, simply because it exists and sounds like regulation, and Democrats defensively portray its effectiveness.So in essence ZIRP looks to mask the insolvency of our banking system while customers with those savings accounts will not get a decent return. So much for some of those small business investments and mom and pop entrepreneurship(most of it went with the manufacturing jobs they lost) all politicians drone about without really even understanding any of this since lending is not happening on a wide enough scale. And any financial reform that doesn't take in CDOs or the most dangerous derivatives CDS behind them like for some reason the now worthless SEC is doing as a part of its mandate for regulation is simply not going to stop another Long Term Capital Management and certainly not another AIG from being bailed out again.
Ignore them both and ask yourself the relevant questions. Are the big banks bigger? Yes. Can they still make markets and keep crappy securities on their books, as long as they want, while formulating them into more complicated securities, buoyed by QE measures and ZIRP? Yes. Do they have to evaluate their positions in real world terms so we know what’s really going on? No.
Then, there’s the Volcker Rule which equates spinning off private equity desks or moving them into asset management arms, with regulatory progress. If it could be fashioned to prohibit all speculative trading or connected securities creation on the backbone of FDIC-insured deposits, it might work, but then you’d have Glass-Steagall, which is the only form of regulation that will truly protect us from banking-spawned crisis.
To recap: savers, borrowers, and the economy are still losing money due to the preservation of the illusion of bank health. More critically, the big banks grew through acquisitions and the ongoing closures of smaller local banks that provided better banking terms to citizens. The big banks have more assets and deposits, on which they are over-valuing prices, and paying less interest than before, due to a combination of Fed and Treasury blessed mergers in late 2008, QE and ZIRP. Yet, we’re supposed to believe this situation will somehow manifest a more solid and productive economy.
This is precisely why the the eurozone crisis and the bond investors within many of our financial institutions shit a brick every time it looks like things will fall apart there, because the information is not symmetrical and it needs to be or no market truly works but they don't care. Whether with OTC derivatives not traded on an exchange and just an email somewhere or accounting or not holding a check book, a lack of information accurately recorded is going to have very bad consequences. But not for Wall St!
The politicians they own will just scream about what we don't know and to throw trillions at the problem and whip Congress while saying never again again, but never again seriously this time. You'll be told to shut up because there's a mid-term election in 2014. They'll tell you to have faith like last time when AIG was bailed out and in turn Goldman Sachs through the back door thanks to Turbo tax Timmy at the helm. Heck of a job Timmeh. Heck of a job Mr. President. QE III, like this election, is wall paper masking a crummy insolvent foundation.
You see, the problem with a crummy foundation is that you can only ignore it for so long before others start to notice it falling apart.