Staying “Too Big to Fail” is a business strategy.

(9 am. – promoted by DDadmin)

The “too-big-to-fail” banks brought the world economy within hours of utter collapse in September 2008 through a chain reaction of insolvency and counter-party risk.  The fuse was lit, only to be serially and temporarily retarded by massive government infusions of taxpayer money approximating the size of our entire GDP.  A prudent response would have been to dismantle any risk-taking institution that might be considered to be “too big to fail” in any future scenario, to create a more distributed (not all eggs in one basket), and more robust system that could easily withstand isolated failures.  This was not done.  In fact, just the opposite occurred.  The banks took the massive infusions of cash and became even  fewer, bigger, and more prone to systemic failure.

Goldman Sachs:

“We consider our size an asset that we try hard to preserve.”

Or as Lloyd Blankfein might say: We embiggen ourselves!  

Simon Johnson explains the “logic” and purpose of becoming “even bigger and failer” after the first near total collapse of the global economy:

As John Cochrane, a University of Chicago professor and frequent contributor to the Wall Street Journal puts it, “The incentive for the banks is to be as big, as systemically dangerous as possible.”

This is how big banks ensure they will be bailed out.

Financial terrorism using the threat of a “financial weapons of mass destruction” is a feature, not a bug.  Holding Americans (and the rest of the world) hostage to financial terrorism is a feature that the Obama administration clearly supports by inviting the perpetrators of financial terrorism into key posts in the White House.  Try crashing those gates, Kos!  You might need some help from non-Democrats.

The Federal Reserve is fully committed to Wall Street, as well.  Fueling asset speculation by giving cheap (to the banks) taxpayer-backed money to the rich, while not one of its two mandates (of full employment and price stability) is now the Fed’s primary goal.  The Fed has abandoned its mandates of full employment and price stability in favor of letting the rich get richer by gambling with our money.  

This comment (from the previous link) explains the Fed’s strategy:

The Fed agenda is quite simple: fuel asset speculation in the hope of provoking a price inflation that will validate outstanding debt. Why can’t this work? Because the debt is owed by wage earners whose incomes are undermined by globalization.

Of course, as the comment implies, a lot of the speculation is being done in emerging markets overseas (draining away productive capacity and jobs at home) and in commodities, such as food and fuel, making everyday living ever more painful for 90% of us, while the lugals save their own bacon and embiggen themselves.

Don’t expect home prices to rise or even stabilize, even after 50-some-odd straight months of housing price declines.  We’re still a long way from rock bottom.  Of course, it’s not just the wage earners whose assets are impaired.  The government and all of its government-sponsored entities, including the six largest banks and Fannie and Freddie, will simply be the last to fold.

The real economy, including the surplus eaters (you and I), can literally drop dead.  Now.


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    • Edger on January 16, 2011 at 04:51

    “They Frankly Own the Place”

    Matt Renner, May 2009

    What happens when a powerful senator goes up against an industry which has received roughly four trillion dollars in taxpayer support to stave off complete collapse? The senator loses.

    Or at least that seems to be what happened last week when an amendment, which would have given bankruptcy judges the ability to adjust or “cram down” mortgages to help borrowers avoid foreclosure, was not able to garner the 60 votes needed to overcome a self-imposed invisible filibuster, which continues to haunt the Democrats in the Senate.

    A procedural step to cut off debate and move to vote on the amendment was defeated by a 45 to 51 vote on the floor of the Senate, with 12 Democrats crossing the isle to vote with a unified Republican Party.

    After the vote, Illinois Sen. Richard Durbin, the second highest ranking Democrat and author of the legislation, broke a taboo of the Senate with a charge of institution-wide corruption.

    “And the banks – hard to believe in a time when we’re facing a banking crisis that many of the banks created – are still the most powerful lobby on Capitol Hill. And they frankly own the place,” Durbin said.

    Consumer advocates who supported the bill were upset after being outmuscled by industry lobbyists.

    “The banking industry, after receiving hundreds of billions of dollars in federal assistance, spent millions of dollars in its campaign against this measure. As a result of today’s vote, foreclosures will continue to soar, the value of all homes will be diminished and the entire economy will be worse off,” Michael Calhoun, president of the Center for Responsible Lending, said in a statement shortly after the vote.

    more, if you can stand it…

    And we know what has happened since, with foreclosures soaring in the past almost 2 years since May 2009…

  1. this is the biggest story of our lifetimes.

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