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Let's Make a Deal, Part I - Green Shoots, World Great Depression, or a Brand New Car!

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Behind Door Number One we have:


Ben Bernanke, Chairman of the Fed, and the ever-cheerful National Public Radio singing "Green Shoots". Bloomberg TV and all the major media picked it up and have been crooning like drunken barflies on St. Paddies Day for weeks. I must have heard "green shoots" 47 times during a single viewing of Bloomberg a few weeks ago, until I got sick of it, and turned it off. This information is useless as an aide to our understanding of the economy. It is a diversion, a palliative for the fear and pain being suffered by the economically illiterate public of the United States in the current financial crisis and recession. In terms of "Let's Make a Deal", Door Number One is a goat.

Behind Door Number Two we have:


Barry Eichengreen, Professor of Economics and Political Science at the University of California, Berkeley, formerly Senior Policy Advisor at the International Monetary Fund, and Research Fellow at the Center for Economic Policy and Research (CEPR), and


Kevin H. O'Rourke, Professor of Economics at Trinity College Dublin and CEPR Research Fellow.

Mr. Eichengreen and O'Rourke, in A Tale of Two Depressions, say the data shows world industrial output following a track very much like the first Great Depression, with the US and Poland doing slightly better, Canada, Britain, Germany, and Belgium doing about the same, and France, Italy, Chile, Japan, Sweden, and the rest of the world doing significantly worse. Don't you wish you had the hindsight of an economist, always able to tell you what happened, never what will happen, except the economy will get better, get worse, or stay the same? Oh, we have the hindsight alright. It is the foresight that is missing. Maybe if research funding existed for detailed studies of how banks, credit, and debt levels cause economic booms and busts, we could see cause and effect. No such luck, though. I wonder why.

Without looking at the big picture, the wealthy players, nation-scale economics, and the way modern banking works, there is just no way to understand what is going on. It's like studying tea leaves at the bottom of a cup and wondering why they jiggle, without noticing when earthquakes take place underfoot.

Now, now just because we cannot see booms clearly or busts coming, nor can 98% of all economists, that does not mean the big banks and bankers in-the-know cannot. Bloomberg explained how AIG's trading partners squeezed it - Goldman Sachs Group Inc. and Societe Generale SA extracted about $11.4 billion - just before it collapsed and 15 months before the bailout. Goldman Sachs eventually received about $14 billion from AIG, Societe Generale got $16.5 billion, and Deutsche Bank AG got $8.5 billion, and more than a dozen more banks got a total of about $23.1 billion, including: collateral obtained from AIG before it collapsed, after the rescue, and payments made by Maiden Lane III, a vehicle created by the Fed to retire AIG's many credit-default swaps.

If only we were privy to the information the banks and bankers in-the-know are privy to, then maybe we could have seen this bust coming too and might have pulled our money (if we had any) out of doomed investments just like Goldman Sachs and Societe Generale, and shorted the stock market or real estate and made a killing. Oh, but we cannot. That is not just a rich man's game, it is a super-rich man's game. We are mere peons, and we simply do not have access to the necessary information. Fed meeting minutes are private. Not even the US Government is privy to the workings of the so-called "Federal Reserve". As Dennis Kucinich famously quipped, "The Federal Reserve is no more federal than Federal Express".

Like Door Number 1, the Door Number 2 information is also useless to us. Looking backward does us no good. Only being able to look ahead will help us. But, we are not captains of industry, nor do we get a glimpse of the pilot's charts. Eichengreen and O'Rourke are fine fellows, but in terms of "Let's Make a Deal", Door Number 2 is also a goat.

Behind Door Number Three we have:

the Grand Prize according to my trusty pocket guide to Sherlock Holmes. OK, I was kidding about the BRAND NEW CAR. Surely, the US Government must be behind Door Number 3, in control of the economy, looking out for the public interest. We do not need to look at the Fed meeting minutes when Uncle Sam is in our corner. We need only refer again to the Bloomberg-AIG article (linked above), which quoted William Poole, former president of the St. Louis Fed, "It's not the responsibility of any private firm to determine what the public interest is -- that's why we have a government." I feel better already, knowing that Washington must be behind Door Number Three. We don't need no stinking private banking cartel. The US Treasury Department ... THAT is Federal.

Or is it? What if the US Treasury Department, like the Fed, is "no more Federal than Federal Express"? Ooh, that's crazy talk: mentally defective, tin-foil hat, paranoid. Or is it? Obama, my main man, he wouldn't let the bankers in the back, would he Jack? No way Jose. Not a chance, Lance. Get out of town, Brown. Well ... it wouldn't hurt to do a little digging to erase all doubt, so let's digress for a little while, and take a look at a few Goldman Sachs Federal Reserve - US Treasury connections, starting with the top US Government financial post, the Secretary of the Treasury

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Merchant marine experience on ocean research and oil exploration vessels in my youth. Ex-mechanical engineer, oil exploration equipment industry, commercial and military aerospace industries, SCUBA diving and respiratory protective breathing (more...)
 
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As illuminating as this article is you just get th... by Hoss Hoss on Wednesday, Jul 22, 2009 at 5:07:45 PM