It should be clear by now that the decision has been made by the powers that be. It is over, decided, a done deal. The basic choice was, for those in charge, a simple one. The men that now run our country do not hold forth in the Oval Office. They belly up to their desks at the Treasury Department and the private consortium of banks we now call "The Fed." They were born and bred in the banking system, made their fortunes there, and now are entirely beholden to the industry that spawned them. It is therefore no surprise to find they have decided that the large financial institutions where they cut their teeth must survive as the basic pillars of our economy.
Think of JP Morgan, Citigroup, Bank of America and Wells Fargo as four great steel beams at the core of our World Trade Center economy. The investment banks like Lehman, Bear Stearns and others were the truss system that was strung between these four great pillars. All the other smaller banks, thrifts, and S&Ls are like the floors of this great financial edifice. Now, when the first subprime airliner struck the system and ripped apart three of the four major investment houses, immolating them in a thousand degree fire of overleveraged securities, Custodian Hank Paulson, ran to congress in a panic and said that if something wasn't done to put out this fire the central core pillars would collapse and the entire building would come crashing down.
It was therefore decided to do whatever was necessary to prevent any of these four large banks from failing. They were simply deemed "too big" to fail. And what was done was one of the greatest exercises in duplicity, denial, and sleight of hand the financial world has ever seen. Put simply, all the regulations governing how assets were valued and accounted for were suspended or changed so these big banks could value mountains of dead securities, swaps, and CDOs at their nominal issue value instead of current real market value. And it was all quietly swept "off balance sheet." The rest was trucked off to the balance sheet of the Fed, in exchange for big bucks, and the TARP trucks came and went with ready cash from Uncle Sam.
Yet the problem is that the fire from that first calamitous crash was so hot that it seriously weakened the steel in these four big central columns. Their eventual collapse may be unavoidable now. The dire condition of the banks cannot be denied, or simply explained away with accounting tricks. The beams are sagging, bending, and the truss system strung between them to support the floors is slowly failing. The FDIC firemen have run out of water. The smoke and ash of insolvency is everywhere, choking the streets of the real economy as "business as usual" is now a thing of the past for our banking system. Credit continues to tighten, foreclosures reach all time highs, millions of short sales are still pending, and unemployment continues to mount up month after month.
Bernanke and his banking friends announced they saved the world but, with each passing month of mounting debt, the situation just gets worse. Air traffic controllers say there are other airlines out there heading toward the heart of the financial system. Commercial real estate and Option ARM loans are careening for the perdition of default. Credit card portfolios are equally distressed.
Meanwhile, Goldman Sachs, the Larry Silverstein of the system, is quietly booking big profits on all the other losses. After all, they took out big insurance policies through AIG, and got paid in full when the fire started, all courtesy of you and I, the taxpayers who funded the big AIG bailout. Profits margins are fine at Goldman, as are bonus payouts.
Yet the big question remains: how long can we pretend this building will stand and survive this fire, let alone those that will engulf it when a few more planes come home to roost? I labor to extend this metaphor, but isn't 9/11 the perfect symbol of what has since happened to our economy? And who will deny the basic insolvency of the "big four" banks if the bad securities now had to all be written down at current market values? Add in the fact that the Government has basically taken over the entire mortgage business through Fannie, Freddie and the FHA. Remove this support and where would that industry be today? How far would housing values really have to fall?
The answer to these questions is quite obvious, and what has happened is equally transparent, in spite of the secrecy at the Fed. The banks created a wonderful game of easy credit, ratings fraud, securities swaps, and trick accounting. And when it all blew up they sent the bill to you and I. We're supposed to go without jobs and homes now so the fat cats on Wall Street can continue their shell game of trick finance.
This is what was decided. Save the banks. Pass the bad debt on to Uncle Sam and the taxpayers, and the country be damned.
Isn't capitalism wonderful?
But about that fire... It isn't going out. The stock markets will realize that soon enough and react accordingly. Then this whole fantasy we call the "end of the recession" and "jobless recovery" will come to an end. You know what happens next.
Think of JP Morgan, Citigroup, Bank of America and Wells Fargo as four great steel beams at the core of our World Trade Center economy. The investment banks like Lehman, Bear Stearns and others were the truss system that was strung between these four great pillars. All the other smaller banks, thrifts, and S&Ls are like the floors of this great financial edifice. Now, when the first subprime airliner struck the system and ripped apart three of the four major investment houses, immolating them in a thousand degree fire of overleveraged securities, Custodian Hank Paulson, ran to congress in a panic and said that if something wasn't done to put out this fire the central core pillars would collapse and the entire building would come crashing down.
It was therefore decided to do whatever was necessary to prevent any of these four large banks from failing. They were simply deemed "too big" to fail. And what was done was one of the greatest exercises in duplicity, denial, and sleight of hand the financial world has ever seen. Put simply, all the regulations governing how assets were valued and accounted for were suspended or changed so these big banks could value mountains of dead securities, swaps, and CDOs at their nominal issue value instead of current real market value. And it was all quietly swept "off balance sheet." The rest was trucked off to the balance sheet of the Fed, in exchange for big bucks, and the TARP trucks came and went with ready cash from Uncle Sam.
Yet the problem is that the fire from that first calamitous crash was so hot that it seriously weakened the steel in these four big central columns. Their eventual collapse may be unavoidable now. The dire condition of the banks cannot be denied, or simply explained away with accounting tricks. The beams are sagging, bending, and the truss system strung between them to support the floors is slowly failing. The FDIC firemen have run out of water. The smoke and ash of insolvency is everywhere, choking the streets of the real economy as "business as usual" is now a thing of the past for our banking system. Credit continues to tighten, foreclosures reach all time highs, millions of short sales are still pending, and unemployment continues to mount up month after month.
Bernanke and his banking friends announced they saved the world but, with each passing month of mounting debt, the situation just gets worse. Air traffic controllers say there are other airlines out there heading toward the heart of the financial system. Commercial real estate and Option ARM loans are careening for the perdition of default. Credit card portfolios are equally distressed.
Meanwhile, Goldman Sachs, the Larry Silverstein of the system, is quietly booking big profits on all the other losses. After all, they took out big insurance policies through AIG, and got paid in full when the fire started, all courtesy of you and I, the taxpayers who funded the big AIG bailout. Profits margins are fine at Goldman, as are bonus payouts.
Yet the big question remains: how long can we pretend this building will stand and survive this fire, let alone those that will engulf it when a few more planes come home to roost? I labor to extend this metaphor, but isn't 9/11 the perfect symbol of what has since happened to our economy? And who will deny the basic insolvency of the "big four" banks if the bad securities now had to all be written down at current market values? Add in the fact that the Government has basically taken over the entire mortgage business through Fannie, Freddie and the FHA. Remove this support and where would that industry be today? How far would housing values really have to fall?
The answer to these questions is quite obvious, and what has happened is equally transparent, in spite of the secrecy at the Fed. The banks created a wonderful game of easy credit, ratings fraud, securities swaps, and trick accounting. And when it all blew up they sent the bill to you and I. We're supposed to go without jobs and homes now so the fat cats on Wall Street can continue their shell game of trick finance.
This is what was decided. Save the banks. Pass the bad debt on to Uncle Sam and the taxpayers, and the country be damned.
Isn't capitalism wonderful?
But about that fire... It isn't going out. The stock markets will realize that soon enough and react accordingly. Then this whole fantasy we call the "end of the recession" and "jobless recovery" will come to an end. You know what happens next.
