With all the talk about bailouts, bonuses, foreclosures, excess spending, and the growing deficit, have you ever wondered, “how the hell did we get here in the first place?”
I have written countless articles on The Slow Bleed that talk about various individual components of this immense screw up. Most of them target a horrific combination of greed and stupidity.
Recently someone sent me an article that appeared in Rolling Stone Magazine. I have to say, it is probably one of the best soup to nuts explanations of not only what went wrong, but also what is still going wrong. The article is a bit long, but certainly worth reading; and probably more than once. When your done, let me know what you think.
The Big Takeover by Matt Taibbi.
It’s over — we’re officially, royally fucked. no empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country’s heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.
Fine, I suppose this is where you look for some witty insights to my mind. A "bio" of sorts. Here is the deal... I ride motorcycles, smoke cigars, golf, kayak, fly, race my car through the mountains, write (a lot), and travel extensively. I am almost old enough not to care what other people think about me...almost. ~Godfadr
Great article (although having waded thru the slime it exposed, I had to have a shower afterwards). Confirms the suspicion that AIG’s “bailout” was in fact back door compensation to the counterparties on the other side of its CDS insurance i.e. Goldman Sachs, Merrill Lynch etc.
This lack of transparency in how and where the cash is going, is the single consistent feature as the Fed continues to print money. The Fed’s Balance Sheet is grossly overloaded with “assets” of dubious value – and nobody knows for sure exactly what assets, and at what value, are still on the Balance Sheets of the investment bank and others.
The banks are effectively blackmailing the Federal Government by refusing to make consumer loans until their toxic assets are bought out at “mark to market’ value. In the meantime, the government has no choice but to pump money into them and turn then into zombie companies. The banks get the cash, they blow it on parties, perks, bonuses, renovations and golden toilets. The consumer gets screwed. In other words, more US Dollars flooding into the system without any corresponding value being added to, or generated by, the real economy. (But it sets the stage for incipient inflation down the line).
Sad and very dangerous.
Made even worse when China complained bluntly about the falling value of its long-term US Treasury holdings. And what did Bernanke do about it the other day? He made a statement that the Fed would buy up to US300Billion of long-term US Treasury notes directly from the US Treasury.
Did you get that? He told China to f**k off by saying we don’t need your money coz the Fed will buy virtually every long term debt issued across the street by the Treasury.
Think about it – Treasury issues debt, Fed prints money to buy it, Treasury engages in murky bailouts with the freshly printed money, somebody has to repay the Treasury, the Treasury has to repay the Fed. And how do they do that? By telling the Fed to print fresh money as repayment – or buy up more Treasury-issued debt.
If the financial mess arose as a result of over-leveraged debt, it’s not going to be solved by rampant debt issuance either. It’s only causing a bubble in US Treasuries. See the pattern? dot com bubble, real estate bubble, stock market bubble……………..
Effectively, the US Federal Reserve now controls the future of capitalism in the United States. If capitalism is built on innovation and risk taking, the political appointees are doing a stellar job of risk taking while pissing off the rest of the world. The average consumer in the US and elsewhere gets shafted because, as Matt Taibbi says, they have no financial literacy whatsoever. They cannot question, investigate or demand financial or legal accountability. And then, there’s the cloak of secrecy.
For those pulling the strings, that works just fine.
Obama when appearing on Leno, alluded to what Matt Taibbi says about AIG: that it was an insurance company with an unregulated hedge fund attached that took exhorbitant risk.
But the real chill came just a couple of days ago when the House of Reps voted to tax AIG’s bonus payments up to 90%. They were playing to the gallery and to the baying mobs on the street………..
Think about it…………if the Government doesn’t like you personally, they can just tax your money away – after 40 minutes of debate. Exactly what communists, Stalinist regimes and other assorted pinkos do.
The jury is still out as to whether the US has an effective democracy and an effective capitalist economy. Both are sadly lacking in investigative oversight and original thought.
(Apologies for the length of this response Godfather, but your homework assignment was lengthy).
Godfather Added: Great stuff SA! I have to say I am not thrilled with the fact there were AIG has bonuses. In no way should it have happened (so much for the same type of ineffective oversight that got us here in the first place!) But I think my greater concern was the ease of which they took them away.
Some could argue the “ends justify the means” but I don’t really believe it does – we have turned down yet another road of unprecedented actions.
Here’s another angle on this topic:
http://justmytruth.wordpress.com/2009/03/20/we-need-hr-1207-but-not-bankers-part-1/
If I could figure out how to make links here I would, sorry.
In this article is a quote from a 1924 Banking Association magazine (that seems to fit what is happening now):
“Capital must protect itself in every possible way, both by combination and legislation. Debts must be collected, mortgages foreclosed as rapidly as possible. When through the process of law the common people lose their homes, they will become more docile and more easily governed through the strong arm of government applied by a central power of wealth under leading financiers. These truths are well known among our principal men who are now engaged in forming an imperialism to govern the world. By dividing the voter through the political party system we can get them to expend their energies in fighting for questions of no importance. It is thus by discreet action we can secure for ourselves that which has been so well planned and so successfully accomplished.” – 1924 US Banker’s Association Magazine
Just more food for thought here.
Godfather, if my earlier comment that the US Federal Reserve now controls the future of capitalism in the United States is correct, your readers should be made aware of the curious – and startling – creation of the US Federal Reserve in 1910 in circumstances of extreme secrecy.
G. Edward Griffin wrote a book about it entitled, “The Creature From Jekyll Island: A Second Look At The Federal Reserve” published in 1994.
There is also a 7 part video on You Tube in which the author gives a talk about it. Fascinating, highly informative – and more relevant than ever.
You can find it here:
ok so i have another thought.
do we really need to depend on the government for money to keep things running?
like if we decide to disown our government because it got us into this hell hole we can survive on our own . granted the only way this can happen is if lets say like a whole state banded together but that can be achiveable easy.
Well Danica, the short answer is you can if you can handle everything. Complete self sufficiency (Food, Police, Fire, Education, etc, etc).
I believe it was Thomas Jefferson that said the US would most likely need a revolution every 100 years (maybe this is our, just a little late).
In the end, it is not really the absence of organized government you want, it is a well run government.
so mr.godfather i just read your like introduction thingy to the slow bleed website. i was wondering why is it that finance isnt normally taught in high school. i just graduated from there and i requested to take a class for buisness and finance but its not required. i think we need to change this. our schools need to be reformed or something
Godfather Added: Danica, you are SOOOOOOO right! We should be teaching this in high school!
High School is suppose to prepare students for life. The two things they don’t teach kids are about “relationships” and “money” – the two biggest items in life!
I can’t help you with relationships, but I can send you a copy of a book I wrote called “Winning the Cash Flow War” published by Wiley.
I will send you an email to get your mailing address. Consider it a “welcome to the world gift” from the Godfather!