Excessive Leverage Helped Cause the Great Depression and the Current Crisis ... And Government Responds by Encouraging MORE Leverage

George Washington's picture

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michigan independant's picture

I agree with your sentiment, may I query for a few definition's to round out my thought's?

Backstops for public funds:

Moral hazzard :

The taxpayer I assume understands the sheer recklessness of its own democratic government urged on and incensed by clever demagogues.  So add the general culture and intellectual decay unleashed by endless wars we are left stripped of the veneer of culture and shows what they really are. The article left the impression what so many understand to be we reap what we sow. I use the term valley of the dry bones in context that to many will never rise again as we see. In closing the gatekeeper may keep his timocratic government which is directly proportional to property ownership. Namely his White House which is hostage. True other villians outside are real and castigated but clearly we see the true terms of Policy as the Senate parses for nichols to illustrate morality and personal worth or maintained failure. http://fcw.com/articles/2011/04/25/qa-shay-assad-dod-acquisition.aspx

Not all taxpayer get enough time to see the trees from the forrest anymore.


This intimacy with the firms they regulate can give Fed officials crucial intelligence.

intent on taxpayers Zero, same coin measured to metric's of hard and soft plays.


The lack of importance of money is reflected in the fact that money is not explicit in the canonical New Keynesian model, commonly used to evaluate monetary policy.

 Policymakers appear to have replaced their belief in a permanent Phillips curve tradeoff with the belief that "a little inflation is good for economic growth,"

They will never "Global" abandon tbtf and so fiat will run it course. Metal in history is the only safety valve to insanity. This also explains why American socialists have always denounced the wickedness of the U.S. "military-industrial complex." One might ask the question, "Aren't American socialists in favor of their own country's survival?" To answer this question, we must turn to abnormal psychology.


cranky-old-geezer's picture

This subject has been covered a thousand times.

Go away GW, stop wasting ZH resources / bandwidth.

And take Leo K with you.

oldmanagain's picture

Excellent article.

Remember Greenspan saying,not to worry, the leverage was hedged. 

Don't remember QE as an antidote.  Seems it rewards the robbers.

sgt_doom's picture

And that is why there are so many multi-billionaires today, as they are debt-financed multi-billionaires -- time to give our money back!

honestann's picture

Fact: fractional reserve practices == CORRUPTION.

akak's picture

I will disagree.

To call fractional-reserve banking "corruption" could be interpreted as implying that it was a once-honorable practice which came under the sway of dishonorable or deceitful men.

I would state, rather, that fractional-reserve banking is inherently a FRAUD and a CRIME, at all times and in all places.  ANY time financial promises are made over and above all possible resources backing up those promises, a crime has been committed.

I have read and studied books on economics, and taken university econ classes in which the praises to FRB were sung to the heavens, and it never, EVER struck me as anything other than fraud --- and I remain to this day baffled that ANYONE has been taken in by such a fiendishly fraudulent practice, much less publicly declaring it a "public good" and "fundamental to our economy".  If one wants to define "our economy" as one of parasitism, fraud, and unsustainable Ponzi schemes, then perhaps they are correct.

honestann's picture

I agree.  Does that mean I disagree with myself?

Yes, "fractional reserve practices" are inherently corrupt.  And I agree that anyone who has half a brain, and is awake at the time, should realize fractional reserve practices are inherent fraud.

This is why I insist that people should reject all forms of paper money, and in fact, completely reject the terms "buy" and "sell".

In fact, every transaction should be an exchange of real, physical goods for real, physical goods AKA barter.  Now, I am totally happy with the idea that in most of those transactions one of the real, physical goods is gold.  This makes savings and trade vastly more convenient in most instances.  But technically speaking, there is no "buy side" and "sell side" - both sides are holding and exchanging real goods.

I am always stunned that most people except the most absurd, harmful, corrupt fictions and practices as "fundamental to our economy" or "the only practical way".

To me, it has always been instantly obvious that every human being was born, and purely by symmetry and consistency nobody has any legitimate claim to authority over anyone else... and therefore all taxes are theft, all government workers are predators, and anything done to resist predators is ethical and is simply self-defense.  And most other aspects of "society" are equally obvious, yet most humans prefer to promote and defend endless instances of the most vile, evil, corrupt, harmful predator assertions and practices, in order to "get along" better with "normal people".

Freaking hell.  How do "normal people" get so freaking stupid and self-destructive?  Public school?

oldmanagain's picture

The "All taxes are theft" and "government workers are predators" so it is therefore ok to do anything to same in the name self defense is malarkey.  Most likely the fault of our education system that produces such crap.  You might try self examination as to why you are so "freaking stupid and self-destructive". You may prefer animals to "get along with" but genetically doesn't seem to work out too well.

There is great deal of literature, including the world's religions, and governments that promote the idea of a mankinds social contract.  If for no other reason, "I think, therefore I am".  

honestann's picture

Anyone who formulates a phrase like "social contract" is certain to be a predator or parasite... or incredibly naive.

Just think about what you say.  Can I make a contract of my choosing with you, without your knowledge or agreement or signature, and then legitimately claim you must comply?

That's precisely what you claim.  My answer is, UP YOURS.

And since the term "society" is a blatant fiction, the notion that a "contract" between a real, living, breathing human being and "society" is... well, technically speaking, it is insanity.  That's like saying I have contracts with SantaClaus and the ToothFairy.

What does your term "okay" mean?  To defend yourself against theft is most certainly self-defense, and self-defense is certainly ethical.  That doesn't mean you won't get your brains blow out if you attempt to defend yourself against the wrong predators (the very pervasive and powerful ones).  So "ethical"?  Damn straight.  Smart?  Depends on who you're talking about - a random burgler, a power tripping cop, members of your friendly neighborhood swat team, who?

I am neither stupid nor self-destructive.  I know what is productive, and I know what is destructive.  And high on the list of destructive is predators on power trips.  Wake up!

Do you enjoy being a slave and defending your abusers?  Where does that come from?  School?  Intimidation?  Power lust?

akak's picture

I like you Honestann, and am in complete agreement with your every sentiment above.

But no, I don't think it is or was public schools that lead, or led, people into the mass insanity that masquerades as "normalcy" today --- it is much more fundamental, somehow, than that.  I have known since at least kindergarten, and probably before, that I was not like most other people, and resisted conformity, injustice, and blind obedience from my very earliest memories.  Even in kindergarten, I recognized that most of the other children were not just willing, but actually happy to submit blindly to authority, and to refuse to think for themselves over anything other than superficialities.  It's like there is a part of their brain that never really got "turned on", and they therefore walk through life in a half-conscious haze, seeing some of the details but never grasping the whole picture, or even realizing that there IS a whole picture.

johnnynaps's picture

Well, judging just by the driving on the road, no one likes to think anymore. When that blind sheep is led to believe that he must specialize in one area to be successful, I'm sure he lost sight of any other picture along the way.

My roomate would always sarcastically use the line "Jack of all trades, master of none" in reference to me. Kind of funny, he was a blinded sheep. Imagine being a master of auctioning off slaves.....and then it becomes outlawed! Welcome to the new reality. Pretty soon, his HR position will be totally computerized and he will be worthless.

As for being the jack.......the jack will always have something else to fall back on.....broaden your horizons.

honestann's picture

Yeah, no kidding!  It seems like 99% of drivers today are clueless and just barely conscious when they drive.  What's that all about?  Chem-trails from the sky, fluroide in the water and food, mercury in food (in 55% of high fructose corn syrup).  99% aren't on cell phones at any given time, so that doesn't entirely explain it.

michigan independant's picture

TY GW your getting close.

nah's picture

i love how the msm paints these 'complex paper structures' like their worth something... to the point theyed tear down housing... put the treasury into pawn... and unquestionly let the peoples respresentatives call anyone who questions americas 1.4 trillion a year deficit terrorists


but its not like the banks cant sell the mathmatical paper models they made... they just arnt worth a damn thing


to destroy US infrestructure, call Americans terrorists, and tease the world with our paper... really... and the worst part is if it werent for blogs... the MSM would provide LESS analysis


at least with blogging people are obviously doing a better job than the MSM so they have to ridicule and laugh at them on TV so... the sheep subconciously running from big brother avoid their paranoia



falak pema's picture

oh zeus, those the gods wish to destroy they make parabolic in their leveraged madness.

CEOoftheSOFA's picture

Excessive bank leverage was also part of the cause of the Financial Panics of 1837, 1857, 1873, 1892, and 1907. But the primary cause of every recession / depression is excessive government involvement in the economy.  They go easy on the bankers, who need to be regulated, and they stick their noses into every other sector, aggrevating all the downturns.   

tiger7905's picture

Don Coxe see's the banks and financials in general as very weak and won't get bullish until this changes. I'm not sure it ever will.

Summary of Coxe Updates:


JW n FL's picture

Lil Bush grew the dollar amount of the $0 down home loan program by 100's of % each year...

Lil Bush is quoted 100's of times saying that the $0 down home program would run for the full 8 years.

Lil Bush did pull the rug out from underneath the $0 down home program 2 years to early.

A LOT! of Wall Street was caught by surprise because Wall Street was Heavily Leveraged into the Fact that any change to this program would negatively affect GDP.. thusly is would be impossible to fathom any changes to the status quo with regard to the river of money being poured in.

This single event was the first domino in our Banking Crisis.

This event was designed to destroy the Governments Home Programs by over flooding and then, once again snatching the rug out from underneath of the participants feet. A Lesson from the Republicans about how being self sufficient is all important.


If you go back and look at the numbers.. the Republicans GREW! These programs and the Democrats shrank these same programs.. which sounds backwards until you realize the democrats were trying to provide for longevity verse the republicans were trying to destroy them.


This is all about austerity, it is all about crushing public assistance programs and it was put together by people who have no fucking concept of how the backlash would over spill onto everything else.


Bush is not sorry he fucked up housing and / or housing programs forever! Bush is upset he did NOT get to privatize Social Security.


Regardless of which side of the idea anyone may fall the fact that Wall Street will always be holding the winning hand at the Tax Payers (Trough) expense is what should be noted. No one wins except those with an Enormous Lobby in Place.. and the Banks or AAA rated Corporations have effectively a 0% FED Window to draw down from that can and does pay for the Lobby efforts.


The FED Loans the Banks Monies at 0% or 0.25% and “We the People” pay 6% in debt service on what we owe the FED. “We the People” do pay, not in a straight drop down way that can be pointed too.. But “We the People” DO! PAY! For all of this bullshit. So wake the fuck up. Left / Right??? All for the Sheepeoples Entertainment!


Dog and Pony Shows are Pedestrian forms of entertainment that we all suffer from because it keeps the MAJORITY’s lil Brains tied up in La La Land.


Freddie's picture

LOL! Democrats making excuses for their little community activist Muslim who was involved lawsuits to force banks to loan money to anyone.   The country was in decent shape until 2006 when the Dems got congress.  It is your Democrat Mugabe who gets the blame f***tard.

JW n FL's picture
by Freddie
on Fri, 04/29/2011 - 21:12


LOL! Democrats making excuses for their little community activist Muslim who was involved lawsuits to force banks to loan money to anyone.   The country was in decent shape until 2006 when the Dems got congress.  It is your Democrat Mugabe who gets the blame f***tard.


What makes you think I am in bed with any of the Lobby Whores?


Obama $656 Million LOBBY Dollars! http://bit.ly/Tu4v Obama Let the FED Print 1/2 a Trillion since Jan 1 2011 http://bit.ly/aBu9yF

Harry Reid (D-NV) $41 Million Dollar Lobby Whore, http://bit.ly/e3ptmA


You are new.. which is fine you are here to learn.. but until you have something to share with me that improves all of our chances of being free.. why dont you go sit at the childrens table, have a coke and smile and shut your dumb fucking mouth.


I understand you have outed yourself as a republican, no worries we will help you over come that party loyalty bullshit that you have been brain washed with. Just try not to be a ignorant pest while your learning to, too much.. ok sweetie?

johnnynaps's picture

The country was in decent shape until 2006? What country were you living in? I saw the shit-storm coming in 2004, and I was a fresh 25 years of age then! Housing defied simple supply and demand. You can't make $50k just by painting your house! I also remember walking down the streets of OC NJ and seeing half the homes on the block for sale.....yet prices were still on the incline. SO tell me, what country was doing fine? ALL FRAUD......and it continues to be ALL FRAUD STILL!

W.M. Worry's picture

Rant on Brother.....You getting' down to it!

Shell Game's picture

The structure of our debt requires more debt, or deflationary collapse implodes the system.  The PTB have proven they will protect the TBTF balance sheets at all costs - in other words - they will fight deflation at all costs.  All debt, municipal, state....(private?), will be scooped up as hyperinflation begins the epic, and final, parabola.

Leverage? We're only in the foothills of the coming leverage mountain..



JW n FL's picture

The Senate is trying to hide Campaign Contribution Monies from Government Contractors with the Argument of “Free Speech” LMFAO!! http://goo.gl/35V9l


this is one for you to use later George!


Great Read Above, as always.. I am spoiled like everyone else!

JW n FL's picture

One more to add George!




Predator Drone coming to Miami-Dade PD WSVN-TV - Drones coming to a Metro PD near you


Miami Dade will be the 1st City in the Country to have a full time Police Predator! Police State! 3rd World Country HERE WE COME!!!

JW n FL's picture

http://goo.gl/OeC1A Miami Metro Dade Police Predator Drone on Patrol & coming to a City near YOU! NEXT!

malek's picture

Our main problem is not excessive leverage, but not allowing the big players to go bankrupt... which usually means rewarding the less leveraged!

falak pema's picture

If they let the big players go under, without a state safety net, they are scared we will be in 1929!.. To avoid that, they need a country that can play at FDR's USA. It is not Obama's USA as its totally hocked! As is the EU, as is Japan! The only player left is China to be the USA of FDR and FINANCE on national savings basis the NEW MARSHALL PLAN. Tall order for the West to buy into...but do they have a choice?? Three blind mice...the USD, the Euro, the yen!

As you know the US Oligarchs only want to save their dirty necks...to the point where they are prepared to sacrifice the only asset left : the 401 K of the Boomers; all 50 T of it!!

Held by the pension funds now in bed with WS plutocrats!

Bazooka's picture

Year over year, from 2008 to current, has been the only time when total credit decreased! Since the 30s this had not happenned.

The uncanny similarity of the 1929 crash to today is that credit deflation also caused it.

Remember, credit is different from the physical dollar. Credit is digital and is currently imploding. However, the dollar bill has only $970 billion in circulation. When credit disappear; e.g. deflation, the desire for the physical dollar will be greatest.

FDIC only has $500 billion or so to insure deposits...when shit hits the fan, how will they insure over $2.5 trillion in deposits? They will most likely say, instead of $250k, we'll only be able to now insure $2,500...sorry. Now that will be a true WTF moment for the public.

Even today, no one wants to part with their dollars. Employers don't want to part with their dollars by not hiring, consumers don't want to part with their dollars by not spending or rather wanting more dollars to pay down debt, banks don't want part with their dollars by not lending.

It's a vicious cycle...deflation.

Current bullish euphoria is coming to an end. If the curent wave C of the ABC retracement from March of 2009 is ending, then expect Primary wave 3 down and return of credit implosiong. The Fed will be powerless.

Bear in mind that having cash at hand or equivalents (T Bills not gold..not yet, better prices come with deflation) could be prudent.


Quantum Leaped Thinker's picture

What about the dollars that you have to let go of like spending money at the gas pump? At the grocery store? Is that deflation? How can you have deflation in the midst of rising prices?

Zero Govt's picture

Bazooka is a Prechter deflationist and quite right (i think) on what we have coming down the tubes: a house of credit cards collapsing.

Rob Prechters own house of cards, the sack of shit that is Elliott Wave theory he continues to peddle like a con man, will also collapse. You're still counting waves Bazooka, did the total failure of that prick Prechter and the calamity clowns he surrounds himself with right through 2010 on every market Index not teach you anything? 

Here's the failure/fraud/fuktard Prechter in all his arrogant glory being 100% completely wrong


Here's another nob (Idiotician) whose just thrown a years wave count on Euro/USD (26 April post) in the trash


I've got tons of these totally deluded starry eyed rabbits throwing out charts, wave counts and constantly falling over their size 19 clown boots... just ask Prechter for his and his colleagues at Eliiott Wave - Hochberg, Martens, Kendall and Carolan - for their 2010 charts and hundreds of failed wave counts they threw in the bin (where they all belong). You simply can't beat a 90-100% failure rate from the worst market prediction service in the world and a bunch of crooks to keep flogging garbage

akak's picture

I detect a muddled-headed Prechtologist in our midst, still search for the edge of the flat earth.

Quick!  The unicorn ran THAT way!

hardcleareye's picture

FDIC only has $500 billion or so to insure deposits...when shit hits the fan, how will they insure over $2.5 trillion in deposits? They will most likely say, instead of $250k, we'll only be able to now insure $2,500...sorry

I share those thoughts, the question is, what is the timing?

disabledvet's picture

American "excessive leverage" won World War II GEORGE WASHINGTON.  (Not that there isn't downside risk of course.  We were not going to lose of course...but)  Now perhaps if the "left" would stop having themselves pigeon-holed as "Keynsians" and start calling themselves "FDRians" then maybe we could actually have "something less than a totally illogical debate" on the budget deficit--among other things of course.  Like...."the moon" or something.... 

Quantum Leaped Thinker's picture

The classic example of why leverage is needed is that American "excessive leverage' won WWII. That concludes that was the only way to finance it. What about taxes? What about reparations to pay back the cost? What about selling assets? Leverage has and always will lead to a house of cards that must collapse due to the unsustainable mathematics. Hence we are in a Kondratieff winter that is not nearly over. Get your snow shovels.

LawsofPhysics's picture

Duh, leverage feeds the Fed and the giant squid.

Quantum Leaped Thinker's picture

What giant squid? The tentacles of uscrupulous banksters?

Commander Cody's picture

Go with what ye know.

Dejean Splicer's picture

The Immelt cheerleading squad is all I know.

We need more Dennis Kneale.

for the fazebook phags.

mind_imminst's picture

No de-leveraging. QE to infininty instead!

falak pema's picture

Nail on the head GW! How will the US de-leverage truly these aegean stables?

Hmmm, wait and see as they go the other way!

Quantum Leaped Thinker's picture

The US won't de-leverage.The world wide market will. How will it all turn out? Hint: Check out what happened to over leveraging every single time it has happened. Start with the Romans

sgt_doom's picture

Ditto a thousand times over!!!

And securitization did exist back in the early 1900s (in share form) as attested to by the studies of Prof. George Jackson when he was at the University of Minnesota, and Chris Whalen of Risk Analytics, and Dimitris Chorafas (and the late progressive economist, John Kenneth Galbraith), but it was ended in 1933; only to be resuscitated in the '80s.

And with thousands of categories of credit derivatives, and the risk multiplier known as the credit default swap (both regular categories and the vile naked swap), we have ultra-leveraged speculation of debt, oil and commodities, the healthcare sector, and numerous subsets of speculation.

And not to be repetitive, but:


JPMorgan Chase (this applies to Goldman Sachs & Morgan Stanley, but more so to top rat JPM) was responsible for lobbying congress for the overturning of Glass-Steagall, while it created the credit default swap, and countless variants of CDOs. It has enjoyed the strongest derivatives position since that time.

JPMorgan was responsible for structuring the securitized-mortgage-foreclosure profit cycle:

they profit from lending the mortgage, then profit from its securitization, then profit from its foreclosure (especially the FHA loans, where they automatically are reimbursed almost all of the original amount), then profit from its reselling, then profit when it's securitized again.

And JPMorgan Chase has been involved, both directly and indirectly, in offshoring jobs and promoting massive offshoring of jobs -- when then leads to economic problems and unemployment, thus leading to default on mortgages, resulting in foreclosures, further profiting JPMorgan Chase.

And if those unfortunate souls then must put in for food stamps, JPMorgan Chase profits from that program, as it is routinely, nationally and locally, handled by them and their banks.

And it doesn't end there, as those jobs are offshored to countless foreign factories, and foreign production facilities, and state-of-the-art research & development laboratories and training centers of which normally are financed -- over the past three to four decades -- by US foreign aid (USAID, OPIC, various and sundry other programs, etc.).  [And people thought all those executives doing stints at those former government agencies -- they've now all since been privatized -- were actually performing public serivice?]

That's correct, you the taxpayer and your descendants, have paid for the multinationals' foreign enterprises -- while they pay almost no taxes, or usually none at all (over 70% of American-based multinationals and corporations at last count paid no federal taxes).

Just how rigged is it??? It's completely rigged.


Milestones's picture

Broom handle is gone-tra la, tra la! What do you mean, baseball bat?     Milestones