The continuing story behind the most audacious power & money grab in history, and how we might put an end to it.
The financial crisis that exploded in 2008 isn't over; likely the worst is yet to come. As Matt Taibbi says in his new expose', Griftopia, the stunning rise, fall, and rescue of Wall Street in the bubble-and-bailout era was the coming-out party for the network of looters who now stand at the pinnacle of American political and economic power. These looters--the largest players in the financial industry and the politicians who do their bidding--have been growing ever more powerful for a generation, transferring wealth upward through increasingly complex financial mechanisms and political maneuvers. The crisis we've been through so far was only one terrifying manifestation of how they've hijacked America's political and economic system. And with regard to what they're going to extract from us, they're just getting started.
Skeptical? Matt's book unravels the whole fiendish story, exploring the deeper roots and wider implications of the rise of the new kleptocracy that is gradually replacing our democracy. It tells us about the backroom deals that decided the winners and losers in the government bailouts and that helped inflate the hidden commodities bubble that transferred additional billions of dollars to Wall Street -- at the cost of creating food shortages, and even some starvation, around the world.
From the story of investment bankers auctioning off America's infrastructure to an inside account of the high-stakes battle for health-care reform, here in simple language are presented the new inner workings of politics and finance in this country as well as explanation and examples of how the former is ever more thoroughly dominated by the latter.
The outlines of these financial-political arrangements are clear, and it was within the web of financial, regulatory and political malfeasance that the financial meltdown began. At the center, hucksters systematically sold trillions of dollars of fraudulent securities to unsuspecting people across the globe. And it was all done under the noses of regulators, each apparently vying for the title of "Inspector Clouseau."
Thanks to the system's policy of full non-disclosure, a $2 trillion US scam turned into a $30 trillion global meltdown. No one knew which securities were toxic. Consequently no one trusted financial companies or any of their products. This non-disclosure continues and could easily take down even a bank as big as J P Morgan.
Millions lost their jobs, savings and confidence. And without enough of the mutual trust that those three things bring, our Great Recession could still, with one more major financial tremor, become our Greatest Depression.
Uncle Sam's financial guarantees now total $24 trillion. The Federal Deposit Insurance Corporation alone backs $6 trillion in current accounts with essentially zero reserves. If there was a run on American banks, Uncle Sam would have to print those $6 trillion, causing hyperinflation, which would trigger the other $18 trillion in guarantees, meaning trillions more would have to be printed, causing even more inflation. Anyone not running for their money to buy something real would end up with worthless cash. Uncle Sam's dirty little secret is that he's guaranteeing pieces of paper, not purchasing power.
According to Matt Taibbi, in a recent conversation with Thom Hartmann, "the big banks are showing up at the Fed with essentially worthless piles of mortgage-backed securities and using that as collateral to borrow trillions of dollars, at very low interest rates, which they then use to gamble, with confidence, in the stock and derivatives markets. What gives them this confidence you might ask. The answer is the high-powered and super-fast computers they use, that can jump in ahead of other traders, taking advantage of millions of relatively small price movements in the span of minutes. Essentially they are, by constantly skimming all this cream, a million times a minute, off the top of the market, extracting a kind of tax on all other traders as well as on the American people as a whole.
Mark Moore speculates further about this in the following discussion about The Fed and The Bankster's Next Move:
The banksters have begun the next phase of "The Greatest Bank Robbery," whereby they siphon off the wealth of the country while leaving us nothing but debt in exchange. Some have wondered how they were going to initiate this phase. Now that the game plan has been set up, one can only marvel at their cunning. One can also marvel at the sheer magnitude of their rapacious malevolence. But first, let's frame that rapaciousness with a bit of history.
Their awful bets in 2008 prompted banksters to accelerate what their predecessors had been doing bit by bit for generations. Basically, this was the same crooked racket that President Andrew Jackson caught some of those predecessors at almost 200 years ago: "Gentlemen, I have had men watching you for a long time," Jackson told them. "I am convinced that you have speculated in the breadstuffs of the country. When you won, you split the profits among yourselves, and when you lost you charged it to the bank."
Yes we're now in a different century, but the same basic scam continues. The big politically connected banks still speculate with money they create out of thin air. If their picks turn out to be winners, they keep the money, as always. But as their bets get bigger, their risks get bigger too. And in 2008 it all blew up on them at once. When a little guy like you and me makes stupid and reckless investment decisions, we go bankrupt. The big guys are in some ways way ahead of us: they still have the system set up so that when they make mistakes, you and I pay for it, not them.
Here's how it worked the last time around: They took their bad investments (also known as "toxic assets' to something called the Fed discount window and exchanged them for dollars -" actually Treasury certificates (bonds) denominated in dollars. The Fed, run by and for the big banks, will not reveal to Congress how much was paid to any given bank for any given toxic asset. The excuse for the discount window's operation is that for the sake of our economy, it's necessary to provide temporary liquidity to any big bank that has a cash flow problem.
But the big banks did not have a cash flow problem -" what they had was an insolvency problem, that was falsely labeled a "cash flow problem." It wasn't that they had valuable assets that they could not sell fast enough; the assets they had were junk not worth half of what they paid for it. They were underwater in that they owed way more to depositors than they really had in net worth. But, no matter, for the Fed saved their asses by buying a good many of those toxic assets from the banks at secret prices -" and at higher price than the free market was willing to provide. In other words, it was a huge gift from the Fed to the banksters. Sometimes, the Fed loaned to them on the basis of these toxic assets being used by the banksters as collateral. Then the banksters told the Fed to just keep the collateral and that they would keep the money that had been loaned to them.
So now the Federal Reserve is stuck with a gigantic pool of toxic assets for which they grossly overpaid the banks, and the big banks are essentially "stuck' with . . gigantic piles of cash. They went from insolvent to having so much cash that they did not know what to do with it all.