The Inmates are Running the Asylum

Jun 02, 2012 No Comments by

The Inmates are Running the Asylum – The State of US Banking in 2012


Banks are not “the backbone of the economy,” as one investment bank CEO claims (James Gorman of Morgan Stanley, recently on “Charlie Rose.”)  Banks are the servant to the master of the house, the entrepreneur, the wealth creator.  Banks are franchises of the central bank that are granted special permission to borrow at low rates, lend at higher rates, and keep the spread.  That is it.

But that wasn’t good enough for the banks.  They wanted to paper trade like the Ferrari-driving investment bankers that didn’t actually work for a living (create wealth) but merely traded paper, inflating and deflating individual currencies (stocks), to suit their own money accumulation (different than wealth creation), to paraphrase Frederick Soddy, treating their currency not as a currency, but as a concertina.

Bankers wanted to drive Ferraris too.  But being a banker wasn’t going to get them that Ferrari, so they got Congress to eliminate the wall between banking and paper trading (Glass-Steagall).  Then the fun started.

Banks and other pseudo-banking institutions gave mortgages to anyone.  You didn’t need good credit, or credit at all.  All you needed was to be alive enough to sign the paper.

Then, investment banks showed ratings agencies the money, housing crisis cartoon, Dating Symbol blogthe ones specifically given approval by the US government to “independently” rate investments and therefore avoid conflict of interest from firms wanting garbage loans rated “AAA,”  and the ratings agencies rated garbage loans as “AAA”.

Investment banks, also companies, that, before they went public and chased the almighty quarterly earnings call, used to assist entrepreneurs in wealth creation, sold these “AAA”-rated securities and other garbage to the world (serving themselves rather than their clients) with a straight face, claiming their clients WANTED risk (see Blankfein on “Charlie Rose”), and, how better to serve their clients than by serving them the riskiest stuff on Earth: so risky, they didn’t have a snowball’s chance in hell of ever paying off; and how, in fact, this risk-selling was “God’s work.”

Then the defaults began.  Banks, instead of looking to serve their clients, the ones they bankrupted with predatory loans, served themselves again by reducing and/or eliminating every client’s available credit, thereby improving the bank’s capital ratio (saving themselves at the expense of their clients), and with one keystroke, manufactured a nation of individual and entrepreneurial deadbeats, having too much debt versus available credit, and therefore manufactured their own lending crisis.  Who to lend to?  No one is creditworthy now.

Then, in an act worthy of a Cold War Soviet spy novel, the same banks began foreclosing on their clients, the ones back in the old days they simply served by holding their deposits and assisted them in wealth creation.  The banks created a nation of credit deadbeats, and now, to fulfill their own prophecy, must foreclose on them to get something from them (the property against which they gave mortgages in the first place) before they get nothing from them, as their credit reports (the ones modified with the bank’s keystroke) now clearly state they do not have the ability to repay.

The banks began foreclosing with both hands.  In fact, they couldn’t foreclose fast enough, so they began robo-signing documents, violating every known, and some new, chain of property title possibilities.

Investment banks, also stuck without a chair when the music stopped, ran to Uncle Sam and asked their generous forgiving uncle to let them become banks too.  Their uncle, having a soft spot for paper traders that don’t actually contribute to wealth creation, said okay.  These investment banks don’t take deposits like regular banks, nor do they lend like them either.  They just borrow money at 0% from the central bank to trade paper for their own accounts.  Some are considered “too big to fail.”

Congress, convinced by the bankers and the investment bankers that they don’t know much about banking and investment banking and it is better left to the paper traders, have passed no laws to prevent paper trading with client deposits, nor have they stemmed the tide of 0% borrowing to paper trade in the capital markets.  And, oh, by the way, the lack of wealth creation has not only stagnated the economy, it has created 24% unemployment nationally for working-age adults.

The last man standing, Paul Volker, the only man in government who actually knows what he is talking about, and the only one who has “economic calamity fixer” on his resume, is mocked mercilessly and dismissed by the paper traders as out-dated and “so 1970.”  The law he proposed to stop this insanity has little more than a snowball’s chance of passing.

If Bill Seidman were alive, may he rest in peace, anyone claiming they were too big to fail would have a punch in the mouth waiting for them, and would be receiving a knock on their bank door from the FDIC on a Friday afternoon, coming to throw out management, seize deposits in the name of the central bank, sell them to another bank, one willing to serve the customer in wealth creation, and everything would be just fine.

Dating Symbol’s guest author today is longtime SHI Symbol Magazine contributor and Founder of CLLEEN Water and Power – Anthony Migyanka. You can find out just how simple it is to treat all manner of waste water without the need for any fossil fuel power – a boon for countries around the world looking to reduce Greenhouse Gas Emissions and get more of that precious lifeblood – drinkable water.

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