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Obama plays "Fuck the hippies" on jobs summit and banking, quelle surprise

Ian Welsh:

Last year myself and Stirling both noted that what would be done by banks if they were bailed out is to horde their money, not lend it out cheap, and save it to buy up competitors, make leveraged plays and so on. That is EXACTLY what has happened. Exactly.

During a downturn, if you have money, you don’t want to lend it out for low gains when you can buy up competitors, cheap. You don’t want to lend it out cheap, when you can make leveraged plays off the bottom of a stock and commodity market which is bound to go up because trillions are being poured into it by central banks. You want to take that money, and buy things while they are cheap, not lend it out for 4 or 5% returns, when you can make many many times that.

Why, exactly, governments expect banks who have better ways to make money to act like retail banks who don’t have any other way to make money but lend out at prime +3 or 4 percent is beyond me. They think they’ll do it out of gratitude for being bailed out, or some sort of sense of civic duty? Most politicians may be stupid, venal and corrupt—but it’s that very greed and venality which means they should understand that banks will do no such thing.

Banks will do it only if they are forced to do it. Remove retail banking from investment banking, insurance and brokerage services, and disallow any risky games on the markets for retail banks. Remove all special facilities from non retail banks because Goldman Sachs should not be doing highly leveraged plays with free money from the Federal Reserve. And reinstitute serious leverage limits, not just for retail banks but for everyone.

As for retail banks, if they don’t lend to the public at rates approved of by the Federal Reserve and Congress, they too should lose their access to special facilities. Banks are given the valuable right to borrow money for almost nothing, and to, in effect, print money by lending out money they don’t have. Those are privileges which are given to them in the expectation that they will use them to benefit the economy. If they refuse to do so, they should lose the privileges.

None of this is rocket science. Those of us who predicted both the crisis and what the bungling of the crisis would cause, however, are precisely the people who are not listened to by those in power. Obama is having his jobs summit, and forget nobodies like me, he isn’t even inviting somebodies like Stiglitz and Krugman.

That's because predicting a crisis correctly disqualifies you for Serious work in Versailles. But, seriously, why would it be any different?

The flip side of the bubble economy is Shock Doctrine policies whenever the bubbles burst, as they inevitably do. So, if you're a bankster who benefits from the looting as the bubbles inflate, and who benefits from the bailouts with Shock Doctrine policies when they burst, what's not to like? It's a win-win situation!

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DCblogger's picture
Submitted by DCblogger on

The Obama administration reminds me of Louis XVI in the post 1789 period, when he handed the nation's finances over to an over-rated speculator named Necker. Since no one could summon the resolve to raise taxes on aristocrats, nothing could be done and the nation continued its downard spiral.