Years ago in Alabama there was a postcard that was popular in tourist spots. It was a picture of a fifties-era family standing in front of a huge bail of cotton taller than the people themselves. The caption read, "Every Yankee tourist is worth one bail of cotton and is twice as easy to pick!" I feel almost certain that the Wall Street investment bankers and stockjobbers have a similar slogan to refer to the weed benders or rubes that they fleece on a regular basis.
In 1907 JP Morgan's bank began to circulate rumors that other New York banks were insolvent. It sparked a run on the banks and a crash on Wall Street and Morgan made a fortune while putting his competitors out of business. In the 1920s the Wall Street insiders would pay reporters $300 dollars under the table to write stories for the newspapers about great stocks to purchase. That was a lot of money for a reporter who, if lucky, was making $50 per week, but to the titans of Wall Street it was mere pennies for the profits that they were about to acquire.
It's the old carrot under the box trick. You lure the bunny under the box with a nice juicy carrot and then you pull the string. Last Thursday's fat finger, thousand point drop was just such a yank. Want to know who is responsible? Look at who was selling on Wednesday. These events happen and each and every time they happen, Wall Street sings the same song. "It took us by surprise and no one expected it to happen." In 1907 the song was accompanied by a ragtime piano; in 1929 it was jazz music and in 1987 it was Devo. In 2008 it was hip-hop but it's still the same song. The only era the music fell silent was the era when Wall Street was tightly regulated.
Those facts tells us two things: strict regulation works and these events are intentional. We know that 1907 and 1929 were intentional yet we are expected to believe that 1987, 2008 and last Thursday were just accidents. In every case there was a rapid expansion of the money supply followed by a soaring Dow Jones average followed by an unexpected crash that takes all the experts "completely by surprise."
Since 2008 when Hank Paulson went to the White House with a one-page outline of how to save America from economic Armageddon, his solution has been to turn on the money spigots and let the banks run naked through the sprinklers. Since that time the banks have had access to all the money they want and they get it virtually for free. They can call the Federal Reserve and say, "Hello, Federal Reserve? Send me over a tractor trailer full of hundred dollar bills and, ah, see that it's here by morning and put it on my tab!"
They are trying to blow up a balloon that has a hole in it; they give the banks free money so that they can make huge profits to cover all of their bad debts. There's only one problem with that scenario, there aren't many places left to make huge profits. They can and do invest heavily in China but that carries all kinds of risk. They don't want to invest in home loans or in small business because that bird is cooked. Credit cards once paved the road to the bankers' promised land, borrow at three percent and lend it back out at twenty percent, but that well is running dry. Millions of cardholders have defaulted and the banks have shut off millions more.
In 2008 the market crash sent the Dow Jones average spiraling down from 13,930 to 7,062. The banking bailouts and free money policy are in place and the Dow begins to recover, but why? Unemployment is rising to record levels and home foreclosures that were predicted to peak in 2008 have continued to rise. Retail sales were lousy and commercial real estate defaults are exploding. Auto giants are in bankruptcy. Bank failures break records in 2009 and are expected to break records again in 2010 and the stock market does the most amazing thing, it rises 3,900 points in a year and a half.
It was Goldman Sachs that helped the previous Greek government to hide their indebtedness through currency swaps and it was also Goldman Sachs who helped to drive up Greek bond rates. Then, due to fears of Greek defaults, the markets worldwide began to fall and then came Thursday's fat finger incident. This is where supposedly some errant trader put in a billion when he meant a million or some such ludicrous idea. The market was already nervous and ready to stampede so somebody blew the horn to get them started.
If you had bought a million shares of Citigroup on Friday afternoon for $4 a share and sold it Monday at lunch you could have earned a cool quarter million dollars in four hours. If you bought Bank of America you could have made a dollar a share between Friday evening and Monday at lunch. To poor folks like you and me these amounts are huge. However, to banks with free money to play with and billions in hedge funds it was Christmas Day and Santa was very good to them because they pulled the string and caught the bunny.
They pulled the string in 1987 when the market dropped 20 percent, and again despite economic difficulties the market fully recovered in eighteen months. This week's rise is allegedly based on the European Union's fund of near a trillion dollars to stave off predators driving down markets by driving up bond rates. There is only one problem with that scenario, it didn't work. The plan was supposed to prop up the falling euro and it didn't work. The euro is already sliding down again which will make hamburger out of a $963 billion fund.
Yet the markets soared again, ending yesterday at 10,896. Did it soar because the trade deficit rose by $2 billion to $40 billion a month leaving our economy? Maybe it was because the dome that BP had counted on to stop the oil spill in the Gulf has failed?
May 12 (Bloomberg) -- "Four of the largest U.S. banks, including Citigroup Inc., racked up perfect quarters in their trading businesses between January and March, underscoring how government support and less competition is fueling Wall Street's revival.
"Bank of America, JP Morgan Case &Co. and Goldman Sachs Group Inc., the first, second and fifth-biggest U.S. banks by assets, all said in regulatory filings that they had zero days of trading losses in the first quarter. Citigroup Inc., the third-largest, doesn't break out its daily trading revenue by quarter. It recorded a profit on each trading day, two people with knowledge of the results said."
What do we call government support and less competition in the market place? We call it the same thing that Benito Mussolini called it. "Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power."
What would you call a poker game where the house wins every hand and the suckers get fleeced? The only difference is that in Las Vegas they don't charge you fees to lose.
Meanwhile, in the other economy, Rome still burns; city, county and states face massive budget cuts due to falling revenue from the rubes and weed benders like myself out of work. Social programs are cut and eliminated while for the banks free money is just a phone call away. Free money that you and I will be expected to pay for later. The huge bank profits are earned by using your money and the bonuses will be paid with your money and the loses will be covered with your money.