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  • Wild West Capitalism

    Wild West Capitalism

    The very title of this forum invites us to spend weeks here, for we can deconstruct just about every aspect of what passes for economics in the mainstream media. The whole Keynesian-Phillips-Curve-NAIRU paradigm is junk economics … after all that’s what has been practiced for decades and look where it has gotten us. But time being a finite resource, it suffices for now to take on that facet that is most visible in current events: the well-worn truism that our problems are the result of a sort of wild west capitalism, unrestrained by insufficient regulation, and that more government involvement is what is needed to cure what ails our financial system.

    This line of big-government PR can only be willingly swallowed in the context of ignorance about how things have worked. If Wall Street has unduly prospered, it is not because the sheriff has been out of town, but because he has been on the job stacking the deck in its favor.

    Let’s take a quick compare of a couple industries. Tech and finance. Which one has the most federal involvement? Which one is most scandal-ridden? The answer is obvious to the point of needing not be stated. Except possibly for one point; the conventional image that finance has had too little federal involvement.

    Has it really? Where exactly have the biggest, most threatening and most damaging developments occurred? We recall that the first early warnings showed up in the mortgage market, then spread to encompass almost every corner of finance in the world. Right at the intersection of Housing Street and Credit Avenue. What areas of finance and the economy have had the most powerful and pervasive federal involvement? Hint: Fannie Mae, Freddie Mac, and the Federal Reserve. The very raison d’etre for Fannie and Freddie (Feddie for short) was to stimulate housing finance. Guess you could say mission accomplished. It got stimulated right into oblivion. But we’re saving the best for last here, because the Really Big Kahuna is the Federal Reserve. It is, quite simply, the single most powerful agency of central planning in history. We could formulate its mission in several different ways, but one of them is surely to stimulate the growth of credit. Its central modus operandi is to engage in price-fixing in the credit markets. In the course of pursuing this, it issues what has become the world’s reserve currency, and through its operations controls the supply thereof. That control, over the past two or three decades, has virtually uniformly been biased in the direction of keeping the price of credit (interest rates) lower than it would otherwise have been. In this way, it has competed with savers, making saving unattractive, and glutted borrowers with all the credit they could handle. And then some more. The result has been that the US has gone from being the world’s biggest creditor nation to its biggest debtor, its trade deficits blown out, and its own productive enterprise fast becoming a second rate player on the world stage as it ultimately pays for its excess consumption (which the Fed openly endeavors to "stimulate") by disgorging its capital wealth at an alarming rate. This has always been an unsustainable model; as iTulip has pointed out for years, the only question was when it would start to collapse.

    Okay, Finster, so what’s this have to do with greed and corruption on Wall Street? Glad you asked. Feddie didn’t make loans directly to homebuyers. The Fed doesn’t lend directly to consumers. They need middle men to ply their trade. The detailed alchemy is quite complex, but in essence the Fed, for example, lends money - most recently at about zero interest rate - to banks and other financial intermediaries, who in turn lend it to businesses and consumers at rates several percent higher. This is how it creates money and credit. Picture this, hundreds of billions - even trillions - of dollars coursing through the hands of these intermediaries at huge net markups. And you don’t think a few pigs might show up at the trough? Nice work if you can get it.

    With me so far? The picture should be by now starting to snap into focus. To implement its policies, the Feds needed a vast financial web to distribute all the new money and credit they wanted to create. This is important, so I will say it again. The Feds needed that vast money-distribution machine to ply their trade. Want to know why regulators failed to stop it?

    This is what the government was trying to do!

    So please pardon us if we appear to be a bit skeptical of the load of propaganda now being propagated by the power elite. It is like the fire department that sets a huge blaze behind the curtain, rushes out with its hoses, and then takes center stage to claim credit for putting out the fire, asking for more money and power so it can do the job more thoroughly going forward. There is something rotten with this picture, but it sure is not the free market running wild for lack of government involvement here. Wild West Capitalism indeed!
    Last edited by Finster; 04-23-10, 02:09 PM.
    Finster
    ...

  • #2
    Re: Wild West Capitalism

    Originally posted by Finster View Post
    Wild West Capitalism

    The very title of this forum invites us to spend weeks here, for we can deconstruct just about every aspect of what passes for economics in the mainstream media. The whole Keynesian-Phillips-Curve-NAIRU paradigm is junk economics … after all that’s what has been practiced for decades and look where it has gotten us. But time being a finite resource, it suffices for now to take on that facet that is most visible in current events: the well-worn truism that our problems are the result of a sort of wild west capitalism, unrestrained by insufficient regulation, and that more government involvement is what is needed to cure what ails our financial system.

    This line of big-government PR can only be willingly swallowed in the context of ignorance about how things have worked. If Wall Street has unduly prospered, it is not because the sheriff has been out of town, but because he has been on the job stacking the deck in its favor.

    Let’s take a quick compare of a couple industries. Tech and finance. Which one has the most federal involvement? Which one is most scandal-ridden? The answer is obvious to the point of needing not be stated. Except possibly for one point; the conventional image that finance has had too little federal involvement.

    Has it really? Where exactly have the biggest, most threatening and most damaging developments occurred? We recall that the first early warnings showed up in the mortgage market, then spread to encompass almost every corner of finance in the world. Right at the intersection of Housing Street and Credit Avenue. What areas of finance and the economy have had the most powerful and pervasive federal involvement? Hint: Fannie Mae, Freddie Mac, and the Federal Reserve. The very raison d’etre for Fannie and Freddie (Feddie for short) was to stimulate housing finance. Guess you could say mission accomplished. It got stimulated right into oblivion. But we’re saving the best for last here, because the Really Big Kahuna is the Federal Reserve. It is, quite simply, the single most powerful agency of central planning in history. We could formulate its mission in several different ways, but one of them is surely to stimulate the growth of credit. Its central modus operandi is to engage in price-fixing in the credit markets. In the course of pursuing this, it issues what has become the world’s reserve currency, and through its operations controls the supply thereof. That control, over the past two or three decades, has virtually uniformly been biased in the direction of keeping the price of credit (interest rates) lower than it would otherwise have been. In this way, it has competed with savers, making saving unattractive, and glutted borrowers with all the credit they could handle. And then some more. The result has been that the US has gone from being the world’s biggest creditor nation to its biggest debtor, its trade deficits blown out, and its own productive enterprise fast becoming a second rate player on the world stage as it ultimately pays for its excess consumption (which the Fed openly endeavors to "stimulate") by disgorging its capital wealth at an alarming rate. This has always been an unsustainable model; as iTulip has pointed out for years, the only question was when it would start to collapse.

    Okay, Finster, so what’s this have to do with greed and corruption on Wall Street? Glad you asked. Feddie didn’t make loans directly to homebuyers. The Fed doesn’t lend directly to consumers. They need middle men to ply their trade. The detailed alchemy is quite complex, but in essence the Fed, for example, lends money - most recently at about zero interest rate - to banks and other financial intermediaries, who in turn lend it to businesses and consumers at rates several percent higher. This is how it creates money and credit. Picture this, hundreds of billions - even trillions - of dollars coursing through the hands of these intermediaries at huge net markups. And you don’t think a few pigs might show up at the trough? Nice work if you can get it.

    With me so far? The picture should be by now starting to snap into focus. To implement its policies, the Feds needed a vast financial web to distribute all the new money and credit they wanted to create. This is important, so I will say it again. The Feds needed that vast money-distribution machine to ply their trade. Want to know why regulators failed to stop it?

    This is what the government was trying to do!

    So please pardon us if we appear to be a bit skeptical of the load of propaganda now being propagated by the power elite. It is like the fire department that sets a huge blaze behind the curtain, rushes out with its hoses, and then takes center stage to claim credit for putting out the fire, asking for more money and power so it can do the job more thoroughly going forward. There is something rotten with this picture, but it sure is not the free market running wild for lack of government involvement here. Wild West Capitalism indeed!
    Finster, there is no shortage of explanations as to what is wrong with the US system, and I think your insight is hard, at least for me, to argue with, but what is the solution?

    Pointing out just what are problems is good, but even if one nails the root of all (some, most) evil, what will change it?

    There might be some ideal solution--say: abolish the Fed, but how likely is that to happen? In my opinion, in my lifetime 20 yrs or less, not likely.

    So what in your opinion is a practical road to travel toward solution of the problem as you see and define it?
    Jim 69 y/o

    "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

    Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

    Good judgement comes from experience; experience comes from bad judgement. Unknown.

    Comment


    • #3
      Re: Wild West Capitalism

      Originally posted by Jim Nickerson View Post
      Finster, there is no shortage of explanations as to what is wrong with the US system, and I think your insight is hard, at least for me, to argue with, but what is the solution?

      Pointing out just what are problems is good, but even if one nails the root of all (some, most) evil, what will change it?

      There might be some ideal solution--say: abolish the Fed, but how likely is that to happen? In my opinion, in my lifetime 20 yrs or less, not likely.

      So what in your opinion is a practical road to travel toward solution of the problem as you see and define it?
      As they say at AA, the first step to solving a problem is admitting you have one. And for many problems, that itself pretty much takes care of it, this one included. It can only persist in the absence of knowledge of what it is.
      Finster
      ...

      Comment


      • #4
        Re: Wild West Capitalism

        Originally posted by Finster View Post
        As they say at AA, the first step to solving a problem is admitting you have one. And for many problems, that itself pretty much takes care of it, this one included. It can only persist in the absence of knowledge of what it is.
        Finster, let's be realistic. We are too far down the road to serfdom. Even back in 1913 the Wild West model was rejected. The Fed was not created to regulate the Wild West, it was created to replace it. Rather than let losers go to hell in an orderly manner, it was supposed to be the lender of last resort to the losers, thus punishing the winners. Since then all the efforts are made not to let the failure mechanism work, but to eliminate it.

        Later in typical dogooder fashion the Fed turned from purely banking institution into some magic entity that is supposed to regulate the real economy. It can do wonders by manipulating the inverted pyramid of the fractional reserve banking with ever increasing amounts of debt!

        As long as business failure with all its natural consequences is not part of the regulation, the regulation itself is a failure. The socialist system does not accept failure, so whatever regulation they invent, it will all be for nothing.
        медведь

        Comment


        • #5
          Re: Wild West Capitalism

          There is of course is no guarantee that sufficent voters would ever become sufficiently informed to eliminate the problem. On the other hand, we can be certain it will not be eliminated if those who are informed give up without trying. And things being what they are, even a marginal movement in the right direction - heck, even less movement in the wrong direction - would be better than nothing.

          What's more, there are actually proposals on the table right now that would be a big step in the right direction. Not that I am a big supporter of the Dood financial reform bill (it's too big and too complicated for one thing) but it is said to embody the Volcker Rule in some fashion (I haven't read it). To the extent that it does, it plainly helps. And even though Obama plays to the "Wild West" capitalism theme, he does actually support the Volcker Rule. That the federal government might stop subsidizing Wall Street risk-taking with public insurance, even some of it, would be cause for less pessimism, if not outright optimism.
          Finster
          ...

          Comment


          • #6
            Re: Wild West Capitalism

            but what is the solution?
            When a force five tornado is headed my way, I don't ask for a solution. I seek cover or run.
            Most folks are good; a few aren't.

            Comment


            • #7
              Re: Wild West Capitalism

              the Really Big Kahuna is the Federal Reserve
              The Big Kahuna's quiet cousin might be worth considering as well: the Depository Trust and Clearing Company (DTCC). The DTCC is a member of the Federal Reserve, the depository for trillions of dollars worth of stock certificates, handles quadrillions of dollars of transactions each year, and recently added the Trade Information Warehouse for over the-counter (OTC) credit derivatives to its stable.

              From TheFreeDictionary.com:
              The Depository Trust and Clearing Corporation (DTCC), through its subsidiaries, provides post-trade clearance, settlement, custody and information services for equities, corporate and municipal debt, money market instruments, American depositary receipts, exchange-traded funds, unit investment trusts, mutual funds, insurance products and other securities. The National Securities Clearing Corporation (NSCC) subsidiary, which acts as a central counterparty (CCP), provides trade guarantee, netting and risk management services for equity and debt transactions from all U.S. stock exchanges and markets. The Depository Trust Company(DTC) subsidiary has custody of and provides asset servicing for millions of securities issues of issuers from the U.S. and over 60 other countries. DTC serves as a major clearinghouse for institutional post-trade settlement. DTCC's two subsidiary businesses have Standard and Poors' highest rating: AAA.
              Is the DTCC too big to fail?

              The Golden Jackass (Jim Willie CB), who has successfully identified 27 of the last 9 financial conspiracies and disasters to befall us, wonders in the latest issue of his subscription newsletter whether the DTCC might be the "next" fraud crime scene to explode into our consciousness.

              Personally, I'm wondering if the DTCC might be the counter-party risk that I should worry about most for my CEF/GTU holdings.
              Most folks are good; a few aren't.

              Comment


              • #8
                Re: Wild West Capitalism

                Originally posted by Finster View Post
                What's more, there are actually proposals on the table right now that would be a big step in the right direction. Not that I am a big supporter of the Dood financial reform bill (it's too big and too complicated for one thing) but it is said to embody the Volcker Rule in some fashion (I haven't read it). To the extent that it does, it plainly helps. And even though Obama plays to the "Wild West" capitalism theme, he does actually support the Volcker Rule. That the federal government might stop subsidizing Wall Street risk-taking with public insurance, even some of it, would be cause for less pessimism, if not outright optimism.
                Don't hold your breath for even this meek proposal by Dodd. The Republicans have met with the banksters and are threatening to filibuster this borderline toothless proposal. As long as the FIRE interests have an entire party united behind them, it's going to be awfully hard to get even modest reforms passed.

                But if Shelby's right, the politics could get very sticky. On Monday at 5 p.m., the Senate will vote on the question of whether the Senate should debate Dodd's bill. It was a hardball move by Senate Majority Leader Harry Reid. But leading Republicans predict that if an agreement isn't reached they'll stick together--all 41 of them--to block the bill from coming to the floor, essentially voting not to address the question of regulating Wall Street. Even though many Republicans don't want to go out on a limb.

                "I think if we push a vote and we haven't reached total agreement there will be a vote Monday and I believe the Republicans will stay together," Shelby told reporters after a meeting with Dodd last night.
                http://tpmdc.talkingpointsmemo.com/2...te.php?ref=fpb

                Comment


                • #9
                  Re: Wild West Capitalism

                  Originally posted by Jim Nickerson View Post
                  ... but what is the solution?
                  Did you guys ever get a chance to read "The Creature from Jekyll Island" ?

                  Considering I read this about 12-13 years ago ... it frightens me to think about how quickly we have moved in the prescient direction that Griffin painted for us. However, this is bad not good.

                  I'm staring at a copy (I've bought and lent several over the years) which is the 4th Edition and I believe the 22nd printing from around 2008.

                  I recently re-read the last 2 chapters titled:

                  25. A Pessimistic Scenario
                  26. A Realistic Scenario

                  ... and if you can find a copy, I think they would be good to read.

                  My observation is that we are very far down the Pessimistic Scenario - which of course leads to debt serfdom, and basically some veiled version of totalitarianism. It's important to note that the "Realistic Scenario" does not imply probability, but a scenario that is Realistic if we start corrective action very soon.

                  Upon re-reading, I couldn't help but feel that there is only a couple of years left to "self correct" or the Pessimistic version is almost inevitable.

                  Sobering thoughts to be sure. Perhaps I should stock up on some more Vodka & Scotch. :eek:

                  Good luck to us all.

                  Comment


                  • #10
                    Re: Wild West Capitalism

                    Medved,

                    All that calling this socialism does is confirm the amazingly confused state your mind is in, sir.

                    Originally posted by medved View Post

                    As long as business failure with all its natural consequences is not part of the regulation, the regulation itself is a failure. The socialist system does not accept failure, so whatever regulation they invent, it will all be for nothing.

                    Comment


                    • #11
                      Re: Wild West Capitalism

                      Originally posted by KGW View Post
                      Medved,

                      All that calling this socialism does is confirm the amazingly confused state your mind is in, sir.
                      If you spent more time studying history, theory and practice of it, you would know better.
                      медведь

                      Comment


                      • #12
                        Re: Wild West Capitalism

                        Originally posted by we_are_toast View Post
                        Don't hold your breath for even this meek proposal by Dodd. The Republicans have met with the banksters and are threatening to filibuster this borderline toothless proposal. As long as the FIRE interests have an entire party united behind them, it's going to be awfully hard to get even modest reforms passed.


                        http://tpmdc.talkingpointsmemo.com/2...te.php?ref=fpb
                        The MS media have been a little too quick to suggest the Reps are holding back because they are tight with Wall Street. At least I can recall one instance where one outlet framed the story that way while another actually let a Rep explain it ... and it came out that they didn't like the $50B bailout fund that was in the bill at the time. The argument was that having a big pool of money sitting there like that was bound to attract the vermin and make bailouts an almost self-fufilling prophecy. Then the Dems took that out of the bill and the MS media again overlooked the reason for the Reps change of heart, portraying it as a cave-in to political pressure.

                        Not that the Reps are all goodness and light here. Both parties have been in Wall Street's pockets. Obama took $1M in campaign donations from Goldman Sachs. When it comes right down to it, where big money in concerned the two major parties can be pretty hard to tell apart. Notice how neither one is talking much about Fannie and Freddie - and you can bet your bottom dollar it's not because they're inconsequential. When there are minor differences in position, they are exaggerated for the purpose of political theater.
                        Finster
                        ...

                        Comment


                        • #13
                          Re: Wild West Capitalism

                          Originally posted by ThePythonicCow View Post
                          The Big Kahuna's quiet cousin might be worth considering as well: the Depository Trust and Clearing Company (DTCC). The DTCC is a member of the Federal Reserve, the depository for trillions of dollars worth of stock certificates, handles quadrillions of dollars of transactions each year, and recently added the Trade Information Warehouse for over the-counter (OTC) credit derivatives to its stable...
                          Thanks for calling that to our attention, TPC. The DTCC has come up in older stories about naked short selling as well. I know little about it, but it sounds like we all ought to be more aware of its existence and what it does.
                          Finster
                          ...

                          Comment


                          • #14
                            Re: Wild West Capitalism

                            Originally posted by KGW View Post
                            Medved,

                            All that calling this socialism does is confirm the amazingly confused state your mind is in, sir.
                            KGW, if it is not socialism, then what is it?

                            Comment


                            • #15
                              Re: Wild West Capitalism

                              Originally posted by Finster View Post
                              As they say at AA, the first step to solving a problem is admitting you have one. And for many problems, that itself pretty much takes care of it, this one included. It can only persist in the absence of knowledge of what it is.
                              To add another $.02, once one has defined it, step one is to stop contributing to its growth in whatever ways seem appropriate.

                              A few Germans and other Europeans are "rioting" in their own cultural setting via the buying of gold.
                              http://www.NowAndTheFuture.com

                              Comment

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