The US Today: What Happens When You Let Investment Bankers Run a Country
like me, you’ve probably looked at the US recently and wondered what has
happened to your country. I’m not talking about the GOP/ Obama situation nor am
I referring to capitalism vs. socialism…
talking about basic common sense items like: stay out of debt, don’t do
anything if it doesn’t make sense, do you homework before signing a contract,
American government (I’m including the Federal Reserve in this category) began
charting a strange course as a country when the Financial Crisis first
accelerated with Bear Stearns’ collapse in February ‘08.
flirted with government intervention several times before (Chrysler in the
‘70s, Long-Term Capital Management, etc.). But we’ve since taken it to a whole
new level. The basic risk of capitalism (failure) has been removed from the
equation for most major US businesses. However, this risk was removed at the
expense of increasing the US’s debt load and putting the dollar at risk.
remove risks so you can pursue insane business practices? Crazy deals that
offer little benefit to the parties? Doing things quickly without actually
considering the consequences?
Sounds a lot
like investment banking doesn’t it?
banking as an industry runs almost completely contrary to wealth creation since
it thrives on fees rather that capital appreciation. Investment banking
is about making DEALS (any deals) regardless of whether the deals make sense or
benefit both parties (after all, the advisors to the deals, the investment
bankers, get paid based on commission and free stock).
investment banking is one of the few industries on the planet in which you can
get rich by creating debt for others to pay off. Goldman Sachs, as you know, is
an investment bank. And this financial crisis is riddled with former Goldman
Sachs and other Wall Street execs.
can see the “investment banking” stamp everywhere. Consider the major deals the Feds have created and consider
the actual benefit they offer to the parties involved:
Stearns/ JP Morgan
US taxpayer/ Fannie Mae and Freddie Mac
US taxpayer/ AIG (and all of its counterparties)
Lynch/ Bank of America
All of these
deals were terrible. All of them were rushed through. And all of them were
allowed because of lax regulation/ poor analysis. To this day no one in the
mainstream media seems to have adequately analyzed these deals in a way that
includes actual numbers. Instead we get dopey adages like “it’s about stemming
the tide,” it’s important to “stop the bleeding,” “it’s about saving the
You can also
see the “investment banking” stamp on the Federal Reserve. Three years ago give or take, the Fed balance
sheet was just $800 billion worth
of Treasuries. Today, its balance sheet contains $2.5+ trillion worth of
assets, and with only $53 billion in capital, the Fed is leveraged at 47 to
Tons of junk
assets that aren’t properly valued? Refusal to reveal the real worth of your
balance sheet? Leveraged to the hilt?
To me this
financial crisis is nowhere near over for one simple reason: we continue to
perpetuate the VERY same business practices that created it in the first place.
It’s like a junkie getting clean by continuing to use dope. In the US
government’s case, it’s just that the junkie has super clever explanations and
jargon to explain why this is a good idea. The reality is that it’s not. And
it’s going to end very, very badly.
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