Guest Post: The Neoliberal Financial Skim

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

The Neoliberal Financial Skim

The perfection of the Neoliberal order is a parasitic financial sector protected by the Central Bank and State.

If the Status Quo is ultimately a distribution system, as correspondent Simon H. proposes, then we should focus our attention on the inordinate share of the system's profits being distributed to the financial sector. Frequent contributor B.C. has ably captured this perfection of Neoliberal economic order in five charts.

The essence of neoliberalism is that a liberalized financial sector will efficiently regulate itself via market mechanisms and make more profitable use of capital than either the State or the non-financial sectors of the economy.

The State's proper role is the classical Neoliberal view is the following:

1. Get out of the way so the financial sector is free to enrich the nation with market-based allocation of capital

2. If reducing regulation is not possible, then benign neglect will do

3. Reduce the State's skim of the economy so more of the national income flows to the private economy, where the financial sector's can allocate capital according to profit potential rather than the State's cronyism and/or political corruption.

This is the classic theory, but in practice the Neoliberal financial sector is the ultimate perfection of cronyism and political corruption, as the Central Bank and State protect the financial sector's vast skim of the national income with a combination of toothless regulations and regulations that are only enforced for purposes of percetpion management (see Soviet Show Trials).

When the aforementioned benign neglect is insufficient to divert the national income to the parasitic finance-rentier sector, then the Central Bank and State actively transfer taxpayer monies to the financial sector via tax breaks, loopholes, and massive direct and indirect subsidies.

With this context in mind, please look at the following charts to grasp the scope and scale of the State-protected financial sector skim:

Precisely what benefits from this gargantuan parasitic skim flow to the general good? Into whose pockets does this gargantuan parasitic skim flow? Hint: not the lower 90% of the American populace.

The perfection of the Neoliberal order is a parasitic financial sector protected by the Central Bank and State. That is the U.S. Status Quo in a nutshell.

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Shizzmoney's picture

We need to kill NeoLiberalism before it kills us all.

prains's picture

BOTH sides of the isle are equally culpable, it truly is a one party state, the only ism that works is kleptocorprotism until crashthesystemism takes over

Nothing To See Here's picture

"Neoliberalism" is a straw man. The only "ism" that we have had since the end of the 1800's is socialism, in different variances (fascism, corporatism, progressivism, etc.).

This idea that the banks run the State, rather than the State running the banks, is the biggest lie that traps us all.

Ghordius's picture

this point of view can only be attained by being so far apart from all the others in the political spectrum to the end result of being useless in any political discourse

Nothing To See Here's picture

As if someone who thinks like everyone else and sticks to herd behaviors have great uses in society right?

Ghordius's picture

that's the other extreme of uselesness. now how about something more in the middle, you know, moderate?

thruthfulness and moderation are the two "lacks" in the US political discourse, imho

or, the other way round

all fucking lies and extreme posturing

Nothing To See Here's picture

moderate = compromise = absence of principles and morality

truth is an extreme thing, it does not support moderation or compromises as its existence requires the absolute absence of falsehoods

freedom is another extreme thing, with unfreedom at the other end of the spectrum. I do strive for the first extreme and I now know that it is compromises which are slowly leading us to the other extreme...

once we run out of excuses to deny freedom, maybe it'll exist once again and we return to a moral society based on personal responsibility?

falak pema's picture

4 cardinal virtues : prudence, courage, Moderation, justice. 

Humans do not make perfect systems; and every man thinks honestly his view is the best. So to live in civilization you need to moderate. Nobody is God. In the long term...

AldousHuxley's picture

neoliberalism is not political system but economical system US has been experimenting since 1980s.


neo-liberal means privitization, less regulation, less institutional structure....basically laissez faire


it has shown that

  • banks are irresponsible with weak and corrupt SEC
  • illegal alien importation is bringing in 3rd world standard of living at home
  • factory outsourcing is taking the job rug under middle class to fall back on during recessions
  • only the most powerful benefit

basically led to socialization of losses, privization of profits to those with power

alangreedspank's picture

Moderation is a myth. Have you ever seen a socialist proposing socialist solutions one day and the other day be against government meddling in the economy ? (which would be ACTUAL moderation but in fact, schizophrenia with multiple personality disorder).


Ghordius's picture

yes, I have. often. in several european parliaments. it's not schizophrenia, it's forming coalitions to push common goals, and yes, often parties engage in trade. it's called setting priorities

if you think about it, you do it all the time in your family, in your business and with your gf/spouse

NidStyles's picture

Political compromise is trading in other people's liberties and wealth.


Compromise only belongs in the markets where the deals are not at the expense of others.

Anusocracy's picture

What you are dealing with are groups that think that their way of survival is the only way, or the only correct way.

The solution to our problems is to allow each group to go their own way, and succeed or fail on their merits.

Take the belief out of their beliefs and replace it with an actual outcome. Like what's happening with North Korea.

Snakeeyes's picture

Wages and salaries DROPPING as % of GDP while corporate proits SOAR as % of GDP. Kleptos.

AldousHuxley's picture

Gross Domestic Product...measure PRODUCTIVITY

pay workers less produce more = productivity increase


kind of like getting stock price to increaes by laying off employees.


today, leader who float stock prices by laying off employees gets same reward as leaders who float stock prices by making strategic decisions on revenue increases.

midtowng's picture

I'm glad its called neoliberalism.

That way conservatives won't feel the need to defend the corrupt system because they think it has something to do with hippies.

Anusocracy's picture

Simply put, the problem is the concept of government, nothing else.

Blaming it on a form of government makes no sense because the result was basically the same in alpha-male led tribes, and ever since.

Redistribution of wealth towards those in power. Call it a force of nature.

AldousHuxley's picture

problem is not the government but the citizens.


but even the stupid don't like being hungry and will attack the powerful institutions once starvations begin.


call it a force of nature.


Anusocracy's picture

You are wrong. Government has been a predator from its very beginnings. Calling it democracy or republic doesn't alter its mode of operation one bit. Look around you, most people aren't predators. Almost all are designed to coexist. It's the government that organizes (trains) them into killers.


Go Tribe's picture

Yep. Governments need to be cleansed every so often, severely pruned back like a fast-growing bush. Otherwise they become like invasive species. The Founders did their best to allow for that in the Constitution. Were that document written today, I think it would provide for systematic reboot every 10 years or so, and no, this is NOT done through elections. Our Founders weren't THAT stupid.

glenlloyd's picture

Yes it does need to be dismantled, but this will be a huge fight and they will not go willingly, it will be horrible war and not easy to achieve.

NoDebt's picture

Looks like the national debt per capita chart.

Everybodys All American's picture

It's called a public sector union.

AldousHuxley's picture

it's called private sector being too arrogant not to have  union representation. "right to work" BS.


doctors have unions

banksters have unions

politicians have unions

lawyers have unions

CEOs have unions


why the fuck not have a union when everyone else is working less and making more with unions? pride?


francis_sawyer's picture

 "percetpion" is always the key to everything...

LawsofPhysics's picture

This is what happens when paper-pushing and paper-pushers capture your government and almost 40% of your GPD - FAIL.

If you don't believe in "mark to fantasy" accounting or understand the "real value" of all that paper-pushing, a FEMA re-education camp is in your future.

Hedge accordingly.

Jason T's picture

great work here.. good perspective .. no wonder Jesus threw these money changers out of the Temple

Stock Tips Investment's picture

As the government put more regulations on a sector (financial or otherwise) will exist more rescue needs in times of crisis. There's the rub. The government does not have to take public funds to rescue a sector. For that, we must regulate as little as possible and not be afraid when crises come. Whenever a crisis occurs, the financial sector and the government press yields. That is what should not happen. That has nothing to do with the earnings of banks or bankers. We must not intervene in that.

reader2010's picture

There is nothing new under the sun. Throughout history, when public lost confidence in their democratic institutions, dictatorship always takes hold. 

Ghordius's picture

it's not lack of confidence in the democratic institutions that ushers dictatorships (in established democracies)

it's fear of some (usually one quarter of the population) from others (usually another quarter of the population)

Dr. Engali's picture

The problem isn't regulation, the problem is bailing out of any private enterprise. If there were no bail outs market mechanisms would have taken care of this problem long ago. The start of the bail outs promoted risk taking that otherwise would never had happened. The added "regulation" that came with crisis that came along promted more consolidation as smaller firms couldn't compete. This makes the system even more unstable with each new crisis. What the system needs is the ultimate regulator...bankruptcy. Which will never happen because all the politicians are showered with Benny bucks.

Ghordius's picture

imagine 6 companies providing 80% of all water, or electricity, or whatever facilities do having similar problems as the megabanks

do you just let them shut down and sit thirsty, unwashed and in the dark for a couple of months?

(no, answering "I've have my own well and wind turbine" is not the right answer, millions have not and cannot have them)

a banking system is a facility provider. a privileged provider (fractional banking is a special grant/right of the state)

you can't "let them go bankrupt" if they are "systemic relevant"

and so if you think that regulation is not necessary, then what? I note that you don't take the consequent thought that they are too big

and so yes, downsizing would be the alternate solution. it has been done several times in US history. the word is anti-trust

Future Jim's picture

Others could buy their assets and continue operations. The new owners might even retain most of the original employees. It's called creative destruction. Just imagine where we would be now with creative destruction instead of bailouts.

Ghordius's picture

continue operations immediately? without consequences? ah, well, BAC would be a good showcase for that...

and who should have the great dictatorial authority of allowing this great act of creative destruction?

Future Jim's picture


One does not require dictatorial authority to allow creative destruction, one only requires dictatorial authority to prevent it.

Your worry is that things would not have gotten back to a healthy state immediately? Seriously? Even if you assume a healthy state before the crash, it has been over four years since the crash, and we are far from a healthy state.

You seem to be promoting the thinking that turned a crash into the great depression, and which is happening again.

Ghordius's picture

nowadays you do need great powers to allow what previously could just be left crashing

just try to "do nothing" when something bad happens - people complain, you know

just trying to be realistic, something quite uncommon here in ZH and today, eh?

hidingfromhelis's picture

Too big to fail means it's too big to exist.  Institutions get that way through regulatory cronyism and are inherently destabilizing to the system.  Propping them up when they err further destabilizes the system.  The longer they're propped up, the longer we live with an unstable system.  That is an argument against continuing to bail them out and allowing them to do whatever they want.

Accounting101's picture

I agree with you Dr. that the 2008 and continuing bailouts did promote more risk taking, but that was because those bailouts were given unconditionally. What would have been the causal result of the government and FED not acting in the manner they did? Unless your answer is a severe economic contraction with an unemployment rate at 25% plus and the entire world in a global economic meltdown, then you may want to refrain from economic commentary.

Marley's picture

Let's all sit around the campfire and sing kumbayah. Our monetary god is better than their monetary god. Oh, and please pass me a billion would you? My gameboy is in need of the new Call of Duty.

ImfallibleK's picture

How is capture of the government by rent-seekers and financial douchebags neo-liberalism?


alangreedspank's picture

It's a bastardized version of classical liberalism stuffed with a lot of statist filling, hence neo-liberalism.

Ghordius's picture

and the absolute, unshakable faith in the "self-regulation" capabilities of markets

alangreedspank's picture

They don't believe that. Classical liberals do, not the neo's.

Ghordius's picture

first: there ain't any classical liberals left in the US

second: just re-read all the neo-lib's propaganda, particularly of all the bank CEOs and their reasons why banks should not be regulated anymore

third: we classical liberals never did, back to Adam Smith who pointed out the dangers of the "limited liability" corporation

we only said that it could - if the framework is right

you are reading the classic position through a lens of decades of neo-lib propaganda

Accounting101's picture

No, the term liberal is defined as applied loosely. Regulations are applied loosely or nonexistent. Alan, you are just playing tribal politics and pretending you know what you are talking about.

NidStyles's picture

What makes you think they captured the government? They were the government in the first place.

Ghordius's picture

no, only some of the biggest sponsors of political campaigns

alangreedspank's picture

Wrong. The state is and always has been a mecanism for people who control it to screw over those who don't. It never 'worked properly' then 'was unfortunately captured'