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Bankers Gone Much Too Wild

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Of course this is nonsense. The top people who agreed to break the law should not be considered "too big to jail." Working for a business should not grant immunity to the law anymore than Nazis were protected for "just following orders."

Being asked to return what you stole is not a deterrent, especially if you don't have to return all of it. Locking the bosses up and promoting somebody else would not somehow destabilize the system. It would increase trust in the system since people would know you play by the written rules or suffer actual consequences.

Even worse is that the Dodd-Frank Wall Street Reform and Consumer Protection Act was gutted. This was supposed to be the big piece of consumer-protecting legislation designed specifically to prevent this whole sloppy mess from happening again. Matt Taibbi over at the Rolling Stone provides a grim narrative of how it was done and how friggin' impossible it is in the US to successfully pass and keep legislation desired by voters but that is opposed by a wealthy industry. This means that their is basically a zero chance of getting in legal trouble for breaking banking laws and basically no law to break anyway.

It isn't surprising that Obama sides with Wall Street when you consider he stacked his administration with Wall Street insiders. He was even been trying to put Larry Summers in charge of the Federal Reserve when Ben Bernanke steps down in 2014. This is despite Summers being an idiot who was partially responsible for the deregulating of the derivatives market that lead to this collapse in the first place. Fortunately, the Senate raised too much of a ruckus and this clown has to go away.

he Obama administration, the banks, and almost all the state attorney generals were desperately trying to prevent prosecution and prevent those defrauded from being properly reimbursed. They had agreed to a $20 billion dollar settlement for the crimes that left millions homeless and almost caused another great depression. The $20 billion would go towards "loan modifications and possibly counseling for homeowners." This is an obscenely small amount considering how much money was lost to investors due to illegal practices. In 2008, the state pension of Florida alone lost $62 billion due to investing in these fraudulently packed securities.

Fortunately, New York's Attorney General Eric Scheiderman was a principled man and refused the settlement and stalled the process. When he did so, Kathryn Wylde, a board member of the Federal Reserve who is supposed to represent the public, would state:

"It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street - love 'em or hate 'em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible."

That's a pretty messed up quote for someone who is being paid by the public to work for the public good. What they were doing was clearly illegal. I'm not sure what else it needs to be in order to be indefensible.

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Since then, things have generally gotten worse. Andrew Huszar, a former Federal Reserve official, has admitted that the Quantitative Easing program the US has engaged in, to 'stabilize the economy,' is really only benefiting the banks at the expense of the public. The program has basically consisted of the US central bank, the Federal Reserve, creating money to purchase treasury bonds and mortgage-backed securities from the banks in order to lower interest rates and free up funds to lend to Main Street. Currently, it is creating about $85 billion a month in order to buy up bonds and has bought over $4 trillion worth in the last 5 years.

As Huszar notes, this hasn't worked and the banks aren't creating more loans. It brought down the cost for Wall Street to make loans but they have simply been pocketing the difference and using it to speculate, therefore raising prices and causing a new bubble. The Fed has admitted that the return on this massive $4 trillion dollar investment has been, at most, a few points of GDP growth and possibly even as little as $40 billion.

Because of this nonsense, the big US banks have seen their stock prices triple since March of 2009 and made them even more concentrated and risk-prone than before. 0.2% of the banks have been able to buy up smaller ones and now own 70% of US bank assets. In addition, it killed the urgency of dealing with the problematic US economy which is only producing low-wage jobs at home.  

Simply handing out the cash in the form of infrastructure job programs would have been a much more logical solution. Inflation would have been a bit of a problem but it would certainly have beat this alternative. It's what FDR did during the Great Depression and it spread the wealth around enough to reboot the economy. Quantitative Easing has done the opposite and concentrated wealth so that income inequality hasn't been this bad since the end of the Roaring Twenties, right before the world fell into said Great Depression. One percent of the population owns 40% of the wealth while the bottom 80% get by with 7%. That means the richest 400 Americans have the same wealth as the bottom 150 million. That doesn't bode well for the future of the country.

It's also worth noting that that both Canada and the US have messed up central banking systems. The publicly-owned Bank of Canada was established in 1935 and allows the federal government to borrow money at almost no interest. This borrowing helped us escape the Great Depression and fund WWII. It also allowed for many amazing Canadian achievements without bankrupting the country. These include the Trans-Canada Highway, McDonald-Cartier freeway, St. Lawrence Seaway, various subway lines and airports as well as funding our universal healthcare system and Canadian Pension Plan.

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In the 70's, high inflation was the result of the OPEC oil shocks and a tendency in governments to pursue full employment through monetary policy. Together, these would drastically raise the price of all goods and services. This situation would cause our various governments to follow the advice of the International Basel Committee, a think-tank composed of the central bank governors of the G10, and start borrowing almost exclusively from private sources. It was argued that this wouldn't cause further inflation since it is old money being recycled instead of new money being added.

However, this is debatable since now it is just the private banks creating money through fractional reserve lending. They don't lend out the principle which means they are just creating cash, and inflation, the same way the central bank would. Except we have to pay interest on it.

Canada now only uses its central bank for between 1% and 5% of its financing needs. This is a big problem as it puts the Canadian government in debt to private banks when there is no need to. This means we are all in debt to private banks since the Fed's debt is our debt. Between 1935 and 1974, there was almost no inflation except for during WWII. However, wars are always inflationary so this can be considered a blip.

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http://www.theotheradamsmith.blogspot.com

25 year-old Canadian student, currently attaining my masters in political science. Work with mentally disabled individuals for employment. Try to be politically involved. A card-carrying member of the provincial and federal green parties of Canada. (more...)
 

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The Canadian government has chosen to give away it... by Adam Smith on Friday, Dec 6, 2013 at 12:20:05 PM