News & Analysis
Wall Street Is to Blame!
Hiding behind the complexities of our financial system, banks and other institutions are being accused of fraud and deception, with Goldman Sachs just the latest in the spotlight. This has become the most pressing election issue of all ... Yet Britain, centre of the world financial system, has not yet levelled charges against any bank; all that we've seen is the allegation of a high-level insider dealing ring which, embarrassingly, involves a banker advising the government. We have to live with the fiction that our banks and bankers are whiter than white, and any attempt to investigate them and their institutions will lead to a mass exodus to the mountains of Switzerland. The politicians of the Labour and Tory party alike are Bambis amid the wolves. Just consider the roll call beyond Goldman Sachs. In Ireland Sean FitzPatrick, the ex- chair of the Anglo Irish bank – a bank which looks after the Post Office's financial services – was arrested last month and questioned over alleged fraud. In Iceland last week a dossier assembled by its parliament on the Icelandic banks – huge lenders in Britain – was handed to its public prosecution service. A court-appointed examiner found that collapsed investment bank Lehman knowingly manipulated its balance sheet to make it look stronger than it was – accounts originally audited by the British firm Ernst and Young and given the legal green light by the British firm Linklaters. In Switzerland UBS has been defending itself from the US's Inland Revenue Service for allegedly running 17,000 offshore accounts to evade tax. Be sure there are more revelations to come – except in saintly Britain. – UK Guardian
Dominant Social Theme: Bankers! Stomp on the lot.
Free-Market Analysis: The beat goes on. We identify dominant social themes for a living here at the Daily Bell, and one of the themes we have been anticipating is, "Financial firms made the mess." This is a predictable promotion of the power elite and one that was last trotted out most formidably in the 1930s. But it is so? Take America. As we have learned in the Creature from Jekyll Island, the inflationary run-up of the 1920s that led to the Great Crash and subsequent depression in the US and abroad may have had more to do with a deal between the British and American central banks than it did with Wall Street.
Yes, it was a determination (we learn), at least in part, of Britain to return the pound to its pre-war eminence versus other currencies, especially the US dollar, that caused the US central bank to start to inflate – essentially reducing the dollar's value versus the pound throughout the wild monetary ride of the Roaring 20s. The gold confiscation put in place by Franklin Delano Roosevelt (we have heard from other sources) was essentially a coverup for the Federal Reserve, which in its excitement had printed more dollars relative to gold than the law allowed.
Rather than run the risk, apparently, of having citizens converge on banks and find out the truth – that there was no gold in the coffers – FDR launched a gold confiscation drive. The central bank, only around for 20 years or so, was doubly guilty as we understand it, of (1) running up the dollar until the currency was red hot and (2) doing so in a way that abrogated the lawful ratio (then) that the Fed was supposed to observe between dollars and gold.
So it was the central banking mechanism itself that seemingly caused the "Roaring 20s" and subsequent crash. But the 1930s were not to be overly kind to this apparent truth. Instead of re-examining the central banking system itself Congress, abetted by the mainstream media, went on a Wall Street witch-hunt. Now there is no doubt that during the excesses of the 1920s, Wall Street did many terrible things to exacerbate an overly inflated monetary situation. But Wall Street did not directly cause the Roaring 20s or subsequent crash because these would not have occurred, or certainly not with such fierceness, without the Fed's monetary stimulation.
But that didn't stop a wholesale reorganization of Wall Street. Enter, the SEC, the NASD, Glass-Steagall and the idea that stock exchanges should be "self-regulatory agencies." The idea of a "public" company was invented – one that had a greater fiduciary responsibility to the public than a "private" firm that didn't go through the regulatory process of listing on an exchange. None of this was pertinent to what actually happened –monetary inflation and the subsequent crash – but all of it was sold to the public as a necessary reconfiguration in order to make sure that a terrible thing never happened again.
It was nonsensical in our opinion. The problem was not Wall Street (or securities firms abroad) run amuck. The problem was and continues to be mercantilism. This is the age-old process whereby important elements of business and society obtain monopoly government privileges that result in vastly increased profits. Instead of severing the dysfunctional relationship between the financial industry and its too-powerful regulators and central bankers, Western governments in their wisdom have opted for further regulation.
Yes, instead of destroying a corrupt system, 1930s reforms in America and abroad enshrined it. The regulatory changes only increased the financial industry position throughout the West, further established the industry's mercantilist position and strengthened the levers of government that could be pulled. And what about today? Nothing has really changed.
If regulators, bureacrats, pols and the mainstream media truly wanted to make a difference – to ensure that the current horrible crisis does not happen again, they would do away with central banking and the regulatory entities that make mercantilism possible. They would ensure the severance of the terrible relationship between financial firms and their governments.
The general public in the West is not well served by current regulatory regimes. It is a dominant social theme in our opinion. Demonize the financial industry. Make people fear capitalism and the capital-raising process. And then suggest that certain failures need to be ameliorated by further regulations and the enlargement of government powers.
Thus it is that the power elite's fear based memes are relentlessly flogged to concentrate further wealth and power. It's worked in the past, so the powers-that-be are trotting it out again with the help, of course, of a compliant press. Sure there's "criminality" on Wall Street, and Goldman Sachs probably did mislead its customers, and more than once probably. Heck, if you wanted to define criminality expansively you might say that Wall Street in its entirety is a kind of criminal enterprise. In fact, modern Wall Street is a manufactured and artificial entity, one that is a product of the relentless mercantilism that has poisoned every part of the larger Western economy.
But let's go further ... ultimately the market itself is criminal (as many seem to define criminality today) in the sense that there are institutional conflicts of interest between every buyer and seller and each tries NOT to reveal more about his wares than he has to. This is the trouble with trying to regulate a market and attempting to introduce "fairness" into the process. For goodness sakes, every market is a manipulation! Every claim by the seller is likely a modest exaggeration.
What regulates a market is the Invisible Hand – competition, marginal utility and a participant's reputation for fair dealing – even in the face of institutional dishonesty. Nothing else CAN regulate a market or its innumerable transactions. (Though common law, preferably, could provide a remedy for those most aggrieved.)
The powers-that-be, as cynical and dishonest a lot as ever existed, will continue to promote regulation as a necessary corrective to "market failures" – even though the leaders of Wall Street's biggest firms love regulation and talk fondly amongst themselves of "regulatory capture." Regulators, nonetheless, will make broad accusations and prosecutors will prosecute an unlucky few. Whether they deserve it or not, a trickle of powerful men in the financial industry (expensively dressed sacrificial lambs) will likely be made to defend themselves in court. A certain number will be fined and others may even go to jail.
And what will be the result? Will things change? Will they get better? We are emphatically not apologists for Goldman Sachs, but Goldman is NOT the fundamental problem, no matter how long its "bloody snout" is. The problem is a power elite that uses corporate and business entities to engage in the mercantilism that tears down nations and ruins the middle class. Concentrate on the "criminality" of Goldman Sachs (and other such entities) and lose sight of the forest for the trees.
Regulatory democracy has been in force for nearly a century in the West. Has it helped improve people's quality of life – especially in the West? We see where all this headed. As the accusations mount against financial firms (deserved or not), more regulations may be passed –internationally this time – further tying government and the financial industry together and ensuring that the next great crisis (whenever it occurs) will be even worse. And that is just the point.
Conclusion: The whole idea is to tear down the capitalist system and substitute something else. The only difference is that this time, unlike in the 1930s, there is an alternative Internet press to point out the ludicrousness of what is about to occur. Instead of getting rid of central banking and the West's dysfunctional regulatory structure, those in positions of political and journalistic power will concentrate on demonizing what's left of the putative private sector. Shame! Here at the Daily Bell we are trying to do our bit. Hopefully others will as well.
l 
|
You must be a site member to submit suggested edits or post feedback. In addition to submitting edit suggestions and posting feedback, your Free Membership to The Daily Bell gives you access to our Member Zone where you will discover a plethora of other member benefits. Want to learn more? click here |
|||||
|
|
||||
 |
Posted by John B. on 04/22/10 12:57 AM
This is a cogent, rock-solid explanation of the current state of modern monetary economics... keep it up D. Bell!You are a clear light amidst the haze...
Reply from The Daily Bell
Thanks for the kind words.
|
Posted by Bruce on 04/20/10 02:01 AM
There is an emerging substitute for the existing system which offers a means of disengaging from fiat money and the traditional economy and it is called The Alternative Economy ( Click to view link ).
This is not just an concept, but rather an operational reality (albeit very new), that incorporates an alternative currency, sustainable local commerce, local self sufficiency, alternative currency microloans, targeted social networking, and many other features.Unlike most existing local currency systems, it has Ecommerce capabilities using the alternative currency, and without transaction fees.
It uses a monetary system totally independent of banks, and has the ability to make alternative currency payments or funds transfers using mobile Click to view link is member based with no monthly or sign up fees, and it encourages members to be not just consumers but to develop and offer a wide variety of sustainable, locally produced goods and services so as to "close the loop" locally, and enable disengagement from fiat currency and the traditional economy.
( Click to view link )
Reply from The Daily Bell
Thanks for the feedback.
|
Posted by Philip Mccormack on 04/20/10 01:31 AM
ANOTHER GREAT ARTICLE DB. SHOULD HAVE BEEN TITLED "NO STUPID IT'S THE FED".
Reply from The Daily Bell
Yes, we realized too late that the title left something to be desired.
|
Posted by Clayton on 04/20/10 12:12 AM
Again we have the assertion that people (that's you and me) cannot be trusted. However, once someone has risen through the veil into the Government, they now have that keenness of perception necessary to properly order the affairs of men. It is the new priesthood, and like with the one that preceded it,
it will be good for more than a few hood winkings in the future. The last time in the 2001 tech bust, we were treated to the Martha Stewart show. It has now progressed to the John Paulson show.
A show trial, followed by a punishment, than the human interest part of the affairs (like what its like for someone from on high to spend time in a lockdown with some of the more ordinary criminal types), culminating in a mea-culpa (perhaps a book deal) and the personification of the perfidious Wall Street type will have been properly exorsized.
Makes you wonder if the SEC isn't shilling a bit for Hollywood.You have it dead on. The above is for the ignorant masses, for the insiders it is quite different. "Regulatory Capture" equals more rents for the "Favorite Five" to go seeking.
|
Posted by Factsmatter on 04/19/10 10:59 PM
I have only recently discovered the Daily Bell. Thank you for the additional source of discovery which, sadly , is only to be found on the internet. I'm sure there will be efforts to shut down this source ... goes against the grain of the control freaks in charge.
Goldman Sachs, JP Morgan, Citigroup, BankAmerica, etc. do not represent true capitalism as a means of prosperity...their actions and attitude was enticed and birthed from the from the devil seed planted in 1913.
|
Posted by Michael Ponzani on 04/19/10 03:51 PM
The whole system is rotten, but I always thought John Paulson was merely very clever. Instead he is of Satan.
|
Posted by The Gimlet Eye on 04/19/10 03:47 PM
Yes, many things are becoming clear. Recently, it has occured to me several times that the study of economics has great "explanatory power" with respect to what is really going on in a country or a civilization.
This article certainly proves it. You have laid the bloody particulars on the table. Mercantilism, "central banking," and "regulatory democracy" are destroying the world's economies.
Now it remains to educate the general public about this and get them on our side.
Ah......the great and noble task, historically so very difficult, but now made easier because of the Internet. Yet, there is so much at stake! How long will the powers that be allow this spread of information to go on?
Until their empire of lies collapses? Somehow, I just can't see them doing that. You know what they say: power concedes nothing. Once upon a time, they fell behind in perceiving the incredible potential of the Intenet to change the world for the better. But they must be well up to speed by now.
They see what is going on and must be livid with rage over the exposure of their lies.If we keep provoking them this way, it could lead to a showdown. If I were in their boots, I don't think I could tolerate such a loss of empire.
Click to view link
Reply from The Daily Bell
Insightful, thanks. Interesting site.
|
Posted by Lance E. Schultz on 04/19/10 12:28 PM
Buried in the sinister malfeasance associated with the root causes of the Great Collapse of 29' is yet another purposefully "regulated and approved" practice of encouraging and incenting small individual investors to trade securities on margin [credit].
The Wall Street ringmasters feverishly drove the plebian masses into the Big Tent to throw off the ancient dogmas of hard work and earning one's bread and instead join the new rising tide of American [leveraged] aristocracy where one needs not "earn" his wealth but where profits from speculation replace the vigors of labor without apology.
Subsequent, as the Bell rightly observes the regulatory regimes responsible quickly assembled and permanently ensconced the privileged looter monopoly into their tightly defended bands of perfectly asymmetric disseminators of information which we know and suffer from today.
The whole spectacle of "public" stock ownership was created purely and solely as yet but another effective mechanism of market extortion designed to systematically raid, loot and plunder those invited to the circus. Risk in the hands of the general partnership knows its boundaries and is rewarded in kind.
Risk in the hands of those to whom no personal injury is anticipated because the firm now operates purely on the basis of 'other peoples money,' is a formula guaranteed to build a permanent edifice to 'moral hazard,' which shall never be torn down.
But neither Wall Street, Goldman nor even Mr. Gambino can hold a candle compared to the greatest mercantilist theft ring and plunder machine in the history of man known as the Federal Reserve and its demons.
Reply from The Daily Bell
Well done.
|
Posted by Susan on 04/19/10 09:57 AM
Just did my bit - shared you on Facebook. Keep at it Daily Bell, we need you!
Reply from The Daily Bell
Thanks so much.
|
Posted by D Elefante on 04/19/10 09:47 AM
The only result of the regulation will be an increased cost of capital passed onto the public as the banks will not absorb the additional cost.
As one knows in capital markets regulation = cost. We have to examine if this cost is worthwhile and if it fixes or reduces the problem. It does not.
The latest mess was a simple gambling problem, the house was betting with OPM or on vouchers. If they raise the reserve ratios and the risk for loss becomes greater, then the banks will take less risk (or have greater losses). Higher capitalization reduces liquidation shock, so too big to fail is out the door.
This is an easy fix in the near term.I don't hear any cries on how ruthlessly banks foreclosed on all peoples homes, the natural progression to a failed entity is to liquidate and clear out the mal-investments.
|
Posted by MarkMedinnus on 04/19/10 09:35 AM
The stream of consciousness ne'er did run smooth. Although Strunk and White might shape his ship in Bristol fashion, I liked AmanfromMars' parasailing. This from a noted Jabberwocky-liter, howe'er.
Reply from The Daily Bell
Yeah, well, a steady diet is overkill.
 |
Posted by Boatman on 04/19/10 09:15 AM
You are doing your bit and I appreciate it.
Reply from The Daily Bell
We appreciate your patronage.
|
Posted by Duane Bass on 04/19/10 08:16 AM
Thank God for the Internet, and of course The Daily Bell.
Reply from The Daily Bell
The link didn't work. Sorry.
|
Posted by Bill Ross on 04/19/10 08:03 AM
"point out the ludicrousness of what is about to occur".
More precisely, the cost of current and past ludicrousness of the artificial (contrary to natural law and therefore doomed to self-destruct) regulatory environment has reached the tipping point of survivability (ability to function), since the force that props it up is trust / tolerance of "we, the people" which has been irredeemably exceeded.
This bears repeating: REGULATION IS FUTILE (except for legal "profession" prosperity):Where to start refuting a near infinite artificial reality and dangerously false paradigm?Start by realizing that any ORGANIZED opinion has a self-interest agenda, determined by what they believe is in their self-interest in their environment which determines the choice possibilities available. In other words, any organized viewpoint and most individual viewpoints are parochial, within a narrow paradigm.
What should be clear to all competent thinkers is: REAL massive organizational failure has occurred. REAL factors are driving REAL events. The laws of reality (action inevitably leads to consequence) are imposing attrition costs for FALSITY. We, the people have already paid a hefty price for this and, the cost IS increasing.
Our children will be slaves to the debt we have bequeathed them. This is OK, by some perspectives.The first thing to do is to KNOW that regulation is an attempt of central command and control. As such, accurate information and models of reality are required, else: garbage in, garbage out.I posit that anticipation of the future even if we have correct behavioral models is IMPOSSIBLE due to information corruption as it traverses hierarchies and the fact that such information is used to the detriment of information providers, encouraging lying. Proof:
http://www.cli.gs/IntelligentChoice
The best (assuming honest regulators) that regulation can do is, in response to known action (choice) sequences that result in crime, deem these sequences illegal. This, presumably will prevent problems that have happened in the past, from recurring.But, it appears that regulators, enforcers and interpreters are coerced by the regulated (lobbyists, bribes).Another problem is that, since we live in an action precedes consequence reality, regulation must, by definition be reactive.
The result is that we have a massively expensive war (paid for by business, taxpayers and consumers) between regulators and their lawyers and innovative criminals and their lawyers. When innovative criminals manage to create a new method of fraud, such as subprime, well, they can honestly say: we were obeying law, nya nya, cannot touch us. This is a very expensive moral hazard, an environment that appears to be designed (by the legal profession) to achieve these very results.There is only one thing that can be done to restore an honest economy, given that the future cannot be predicted. Respond to crime after the fact (and compensate victims), using REAL, basic definitions of crime. Restore the "rule of law":http://www.cli.gs/RuleOfLawElse, the costs of predatory regulation (ballooning to infinity as it attempts to track and anticipate infinity) and criminals running amok will continue to collapse civilization.Mathematics of Rule irrefutably PROVES this:
http://www.cli.gs/MathematicsOfRule
We, the people KNOW we are prey. We are slowly achieving consensus regarding what to do about it.
|
Posted by Bogie on 04/19/10 06:01 AM
Great Bell alternative analysis and consistent.
 |
Posted by AmanfromMars on 04/19/10 05:08 AM
Daily Bell,
That conclusion is probably decidedly ambiguous with its text, and could have done with the addition of some bright and colorful adjectives and adverbs such as would then have provided clearer definition ....
eg The whole idea is to tear down the corrupt and perverse bits of the capitalist system and thus replace it with something leaner and meaner and greener and much better in ITs New Beta Phorm...... Revised Program Model.
But then that would be the sort of alien solution one can always expect of all of this new-fangled and quantum entangled, Network InterNetworking HyperRadioProActive IT, and a quite perfect match and parallel fit for "the ludicrousness of what is about to occur." :-)
Reply from The Daily Bell
Good points. Better expression. Shorter sentences, less capitalization. You have a good vocabulary but it gets lost in the general prolixity.
