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Nothing Has Changed - And That's The Problem
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Playing monetary games has done nothing to eliminate moral hazard.
If we step back and look at the past six years since the global financial meltdown of 2008, we see that in terms of financial and political power, nothing has changed--and that's the problem. If nothing has changed structurally, then none of the problems that caused the meltdown have truly been addressed.
All that's changed is the vast expansion of monetary games has masked the dysfunctional reality that the same old vested interests that had a death-grip on wealth and power in 2008 have tightened their death-grip in the past six years.
Here's the problem facing every nation and trading bloc:
1. Vested interests institutionalized moral hazard, separating their gains from the consequences of taking risks. This is also known as privatized gains, socialized losses: vested interests reaped the gains from risky speculative bets, but then passed the staggering losses onto the central banks and taxpayers while keeping the gains.
2. The vested interests control the machinery of governance, so there is no way the central state will force the vested interests to absorb the losses that are rightfully theirs. Instead of de-institutionalizing moral hazard, governments have spewed thousands of pages of complicated regulations, in effect, grudgingly nudging the barn door half-closed after the horses of systemic risk galloped away in 2008.
3. With moral risk still institutionalized, nothing has changed: all the gains from subprime auto loans, selling sovereign bonds issued by insolvent governments, etc., are private, and all the risk is being transferred to the central banks and taxpayers.
The money-printing of quantitative easing--central banks printing money to purchase sovereign bonds and mortgages--is actually a form of money-laundering, as all this expansion of central bank balance sheets, debt and liquidity enables the vested interests to expand their control of the financial and political power centers at the expense of everyone else.
Take a look at the vast expansion of debt and the modest impact of that debt on GDP
Look at the unprecedented expansion of the Fed's balance sheet and ask cui bono-- to whose benefit?
Since moral hazard--the disconnect of risk and consequence--is the fundamental cause of the global meltdown of 2008, the only solution is to eliminate moral hazard. By this I mean de-institutionalizing moral hazard.
But de-institutionalizing moral hazard means smashing the vested interests' primary engine of wealth and political power.
The only way forward is to assign the losses that have been piled up in the shadows to those who created and bought the risk for their own gain. That means the investment banks that originated the subprime mortgages and auto loans, etc., and the mutual funds, pension funds, wealth funds, etc. that bought them as "low-risk" investments.
Right now, we're bailing out the con-artists (the banks) and their credulous marks-- the suckers who foolishly trusted the grifters of Wall Street, London, Shanghai, etc.
This re-linking of risk and consequence is not only the only moral way forward--it's also the only political and financial way to clear the poison of moral hazard from the system.
Saving vested interests from the losses they earned and they deserve poisons the entire financial system. When the poisoned system finally collapses, it will destroy everyone with a stake in the system--including the vested interests who reckoned that their political power would save them from the losses that are rightfully theirs.
Playing monetary games has done nothing to eliminate moral hazard; indeed, playing monetary games cannot possibly eliminate moral hazard, as monetary policy enforces moral hazard.
Those playing monetary games--Kuroda, Draghi, Yellen et al.--will discover this, but only after it's too late to stop the slide into the abyss.
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Institutionalized moral hazard = U.S. Congress
The Fed was designed, in part, to give 'get home free' bail-out cards to the banks after the banks had had their fun in the markets with the Fed's easy money.
It is the freebee source of first resort.
Moral hazard is not news - it is part of the institutional design of the Fed.
Endgame.
Am warning you, am warning you... ad nauseam.
Told you so, told you so, ad nauseam.
Predictive accuracy is a bitch.
When the taxpayer is on the hook, there is no hazard - only opportunity
Oh, there will be hazard, the guys who organised the ponzies and hyperinflation in yugoslavia are either dead, in exile begging to come back legally, or homeless, like Jezdimir who ran Jugoskandik bank. It's silly, but no one is out of the equilibrium. They should know that.
I found this article had legs at "The money-printing of quantitative easing--central banks printing money to purchase sovereign bonds and mortgages--is actually a form of money-laundering, as all this expansion of central bank balance sheets, debt and liquidity enables the vested interests to expand their control of the financial and political power centers at the expense of everyone else. "
And it carrried through to the finish too.
Good job CHS
Not only is it money laundering but they are protected by the government. The Mafia are amatuers.
Hehehe, I like that Soprano line when he says to his shrink, who are you to talk me about moral, you think we did more harm than the rothcildz.
imo we are born,live and die in this hellish nightmare, we don't even know what a normal existence would be, nobody has lived one.
Does the Fed manufacturing crises?
http://failedevolution.blogspot.gr/2014/11/us-debt-held-by-fed-further-i...
Please, "moral hazard" isn't real, just ask Krugman. He has a Nobel Prize, he's really smart.
/s
FED own you !
the more they get away with, the more it validates their poor decision making, the more they think they can get away with. its a positive feedback loop with exponentially worse consequences.
FEDERAL BANKS and their Fake fiat money are a CANCER !
Cure the CANCER by Elimanating the fed and bankers
Tax the Fed, declare all debts owed thereto null and void ab initio, and start printing US government notes, a la Lincoln, a la Kennedy...
I used to think gol /silver backing was "the" answer [and it seems to be what the Con. povides for, right?] but I think the single most important thing isn't backing versus fiat - it isnt even fractional reserve currency creation - although, due to the simple function of interest/debt, that's a very close second {gold/silver backing may well be better than fiat, not really arguing with anyone who thinks so, but backing, controlled by private banks is worse than fiat issud directly by the government, without attendant debt upon issuance.}
I think the biggest problem is having a cartel of private banks, themselves owned by a tiny, largely foreign elite, is the number 1 problem.
The issuing power should be taken from the banks and restored to The People - to whom it properly belongs. If Congress will not act, elect people who will, or, if bold enough, stop paying taxes.
The Federal Reserve Cartel: The Eight FamiliesJust an odd thought: if the Fed were nationalized without compensation, as should rightfully happen, wouldn't the Fed's member banks be able to sue for recovery under the Constitution's takings clause? Or could the government prevail based on the argument that the banks were handed all that cash for free back in 1913?
17 trillion dollars has changed, but we have achieved nothing for that "investment". Point taken
A cunt hair short of $18 tn, but who is counting anymore.
http://www.usdebtclock.org/
+$1,000,000 Million more every 2.666 minutes.
$18 Trillion in debt by Christmas - Amurika!
That should go down well with the turkey and stuffing Eb.
Yes and thanks to that we can all look forward to becoming trillionaires someday. If it ain't real, play at your own risk.
Miffed
I suggest 12 gauge double 00 as a nice hedge against ongoing bankster shenanigans from J-mafia.
Exactly, the State has no other option but to dry out the Casino and ring fence ALL those who hide in the shadows and make their casino plays, from dark pools or behind Caymanista curtains, where the State cannot access them.
For Moral hazard to be re-instated THEY have to dry out the Shadow banking AND Caymanista swamp. Its the only way.
But who is gonna bell the cat?
As Pax Americana Oligarchs, the main beneficiaries of this scam and their spider's web of banksta acolytes and offshored HFs, Private Capital funds etc., OWN the political deniers.
Its now or never time !
"The vested interests control the machinery of governance..."
Absolutely. There is currently a balance of vested interest power between government employee unions, welfare (takers in general) recipients, and big business. If the federal government would stick with the U.S. Constitution moral hazard would barely exist. But, when the U.S. government is so outrageously massive and intrusive in all people's lives and entrepreneur's businesses, we all end up having vested interests. We are forced to deal with the oppressive government.
2008 was an exciting time! I was well prepared for the coming of the crisis, several economics bloggers had been predicting just what happened, and they had used real numbers and analysis to point out what was about to happen. I recall listening to market reports on the radio, as I was at work all during the collapse, and being out of all markets, I could spectate without worry. That said, watching the Government step in and take all the losses onto itself and the Fed acting as insurance agent to all the losers who were long stocks and holding bad paper etc. etc. That was fucking disgusting! Smart money had gotten out, dumb money was all in. YET, Government decided a big slice of Communism would do America good. They thus proclaimed a nation emergency and used powers Stalin could relate to, to make good the losses of the well connected 1%, while foolish underwater home owners, who provided the bad mortgage paper for investment firms to peddle, they lost their asses. As a life long student of the Russian Revolution and Soviet Communism, I found it ironic that the USA could, in an instant, adopt communism when it favored the 1%, whose investment game had blown up, and our 1% stood to lose trillions! But, all those losses wer made public, or printed away with paper money, and resultant dollar devaluation at the time, put the burden onto the general wage earner by inflating away his shrinking wage package.
What was worse, was once communism had taken over, it stayed in effect. The Government uses communism now in many different spheres. But mainly in the Security Police State, and in the 1% protection schemes. Nobdy can question government, if you do, you are attacked by their cops, spies and army of highly paid media liars.
2008, brought a new era in the decline of Freedom, Democracy, Free Markets and most expecially personal responsibility. The 1% and banking did not take reponsibility for their utter failures. Nope, they used the bribed congress and president to institute a revolution from above, a communist dictatorship of the elites investment community, finance capital and the usual military industrail spy complex.
The future? War, Bailouts, War, Money Printing, War, Social Repression, War, 100% total domestic spying, War, declining real incomes, War, Higher Taxes, War, Full Prisions, War. And a record S&P index!
Great post, Jack Burton.
Moral Hazard = Legalized Theft.
.Gov = Get away car driver.
Banks = Ring leader.
FED = Accomplice.
On the bright side we know that the Pope has excommunicated all Mafia members from receiving communion. Given that Nancy Pelosi is responsible for the privatized profits and socialized losses in terms of TARP funding, we can conclude that she is going directly to Purgatory
and will not pass go or collect $200.00 USD without that get-out-of-jail-free-card issued by the Vatican Banksters and the Pope.
Moral hazard only applies to the 99%. Congress could have paid off the mortgage of everyone in America with the amount they handed to the banks - but that would result in "moral hazard." Bankers are not subject to moral hazard since they already have lots of money.
I blame FAILURE TO CONFESS. These massive deceptions by omission
http://patrick.net/forum/?p=1223928
are still ongoing, and conceal multiple excesses, that were/are inherently UNstable and founded the crisis!
Nothing here that we don't already know. When Mike Whitney was writing about all this 6-10 years ago it was an eye-opener. Now it's just a recap.
So?
For other people it is an eye-opener now.
What is a wealth creator without demand for their goods and services?
Nothing at all.
What has happened to world's "wealth creators" recently?
They are hiding on their luxury yachts waiting for National Institutions (Central Banks) to sort out the mess.
Supply creates its own demand, try telling that to China and Germany.
85 people own half the world’s wealth.
As we gradually break free of the mass delusion of supply side economics and realise that lack of global demand is the problem, then helping the rich get richer at the expense of global consumers is a non-starter.
Marx predicted that Capitalism tends to eat itself as all the wealth pools into the hands of a very few, thus destroying demand. With 85 people owning half the world’s wealth this is coming true.
The US discovered in the 1970s how to grow GDP without raising workers real wages. Later it discovered how to keep consumption going by feeding these people on debt and giving them the illusion of wealth with rising house prices. This all came to an end in 2008.
Governments are the only instrument to halt the natural instincts of the wealthy to destroy the Capitalist system through their own greed. Bankers nearly achieved this in 2008.
To keep a Capitalist system running it is essential to tax the rich on a sliding scale or an exponential one would be even better (all wealth over £10 million taxed at 100%).
To ensure they don’t hide their money, all tax havens must be closed, these are the enemies of demand after all.
Also, ensure only a limited amount of land that can be passed through the generations in inheritance, otherwise it will all end up in a very few hands.
Capitalism is eating itself and only governments can keep it going.
Casino Capitalism died March 10th 2008 @ 11:00am Bear Stearns time.
Governments were funded by Casino Capitalism and now that CC is dead so too are the governments that comprise that defunct system.
ERGO, governments cannot keep the system propped up any longer and the entire global economy will be completely dead in less than four more months.
Sure it has. Eric Holder said Too Big To Fail is Too big to prosecute.
The financial criminals are now officially empowered to commit larger crimes.
Here are central truths, and they are kept out of sight!
http://www.showrealhist.com/yTRIAL.html
Backstabbers are in control!
“Vested interests control the machinery of governance, so there is no way the central state will force the vested interests to absorb losses that are rightfully theirs.”
Alright, we are getting close to the core problem.
If “vested interests” control all forums of redress, we have to duplicate what American Founders did, minus their mistakes.
We have the same power they had: thus, Americans have the power to redress any grievance that could be named – to make any cutthroat or thief, no matter how big or small, accountable for what he has done, and Americans REFUSE to use that power.
There are three main reasons for this failure: one is that Americans have no knowledge of such power; the second, they’ve been herded into a kind of impotent stupor by medication and indoctrination; the third, that they aid, benefit or were complicit in such evil.
There’s a remedy for all three of these failures: 1) learn, and use, the law and procedures of redress (full article); 2) follow a health regimen that has REDUCED – not slowed – my biological age 50 years (it also un-does the damage done by medication and indoctrination); and, 3) see number one.
This health regimen has given me the coordination, health and physical condition of a professional athlete around the age of 20; I’m 70 years of age (for validation, video and webpage – each leads to the other).
Not only do Americans not know the power they possess, very few know ideals won/confirmed by our Revolution.
For example, Founders repeatedly declared that “no man is obligated to obey any law or pay any tax unless he has given consent to it”. Did they mean this literally? Of course they did. From the first English settlement to the Revolution this was how affairs of the colonies were managed. Every “law” and every “tax” had its origin in contracts between colonial assemblies and those who petitioned for redress of grievances. The terms of the contract were sometimes referred to as “laws” of the contract while its money payments were treated as “taxes”. And only petitioners were obligated to obey such “laws” and pay such “taxes”. When redress was completed, related “laws” and “taxes” expired.
Once you learn this right of consent, you’ll come to understand there is probably not a constitutional tax on the books.
There, in two paragraphs I conveyed to you more real history than you learned in 12 years of elementary and high schools, and 4-6 years of university indoctrination. You won’t learn this and other lessons from professors, or judges, or lawyers; the first two depend on continued grievances for their pensions, the third never learned such history, or law.
This right of consent was won with the Revolution… and who knows it?
And, such is the problem, if no American knows ideals won/confirmed in our Revolution… if no American knows the history, law and procedures of redress, who would trust such Americans to guide men thru catastrophes designed and orchestrated by a nation of cutthroats and thieves who have been perpetrating them for 5 millennia?
Without such knowledge you only launch on missions of suicide.
The only thing that has changed is that we have much more moral hazard in the business and cultural environment than we did then. The largest industry in the United States is moral hazard, and almost everybody, whether they like it or not, works in the industry.