'Too Big to Fail' even Bigger now
PIM of SPAIN | October 23, 2009 at 09:52 amby
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Additionally the US Federal Reserve wants to prevent bank bosses from taking excessive risks while pursuing bonuses. It proposes being able to veto the pay of any employee able to take risks that might threaten a firm's stability. But the Fed said it would not set pay caps or outlaw specific practices.
At the G20 meeting in Pittsburgh no plan for general caps on the amount banks could pay out was produced.
Actually politicians say a lot about bonuses, but little has been undertaken or achieved on this subject. Why is nothing serious undertaken in this respect? Because the banking clique does have their influences in high places and politicians want to clean their images for us taxpayers because of re-elections strategy. Isn’t this a blatant violation of people’s and taxpayers interests? It is a great very grave injustice.
So for all taxpayers’ troubles, providing the billions that were paid in bailouts, the tireless political battles, the violent market swings, what have been delivered in return? ‘Too Big to Fail’ banks are even bigger, and they are hoarding their larger market share. They hardly can be blamed for it, with such an easy ride as the Feds provide them, - you would be thief of yourself - however the taxpayer is swindled on the largest scale ever.
Some details: “In the year ending June 30, the biggest five banks in the US grew deposits by 29%, the FDIC said this week. In dollar terms, that's over $852 billion in deposits over the last year. But in spite of this, and the over $100 billion in TARP funds they've received, lending has increased only $564 billion.”
"How Wall Street Will Kill the Recovery," is a headline in BusinessWeek magazine.
Finally, everyone is catching on learning how it works. The big banks take the feds' money, and then they speculate with it, or lend it back to the Fed for an easy 4% gain.
Moreover: “It is much easier to manipulate speculative markets than it is to manipulate the real economy. Want to drive up prices? Just give speculators some free money to play with! Guarantee their debts! Bail them out of their stupid positions! That's what the feds have done. And that's why the banks - the recipients and conduits for the free money - are making profits. Goldman allocated $527,000, per employee, in compensation for the first 9 months of this year.” That is an increase of 46% over last year.
It has become very unprofitable to hold cash; the feds are creating more of it every day. Minimal rate of return on cash is obtained, while other assets go up. The feds can't stop this game, or change course, not without sinking the whole economy down the drain. Talk are going on about an 'exit strategy.' But there is no exit at all! Remember cash was created when the feds "monetized the debt" by buying US Treasury bonds. To exit from this strategy the monetary base has got to be reduced, but then the feds have to sell all those monetized bonds back into the open market. Imagine what will happen to the bond market when investors realize that the Fed is selling! It's not going to happen. Instead, “that $1 trillion increase in the monetary base is more or less permanent, and it's eventually going to turn up as inflation.”
The feds clearly don’t have an idea what is going on in the market. They consistently underestimate the market and the economic situation they are in. While they consistently overestimate their own capabilities.
"How much is too much?" According to the record, compiled and analyzed by professors Reinhart and Rogoff, it's impossible to say exactly. “One nation can support public debt of 200% of its GDP (Japan comes to mind)...another cracks up at 50% (think of Argentina). A man like Donald Trump can carry millions in debt...another goes broke if you lend him 20 bucks.”
So, how much is too much debt? It depends on to what is looked a;: the quantity of money, the value of assets in store, whether earnings are shrinking or growing, and a number of other questions. While the answers aren't simple, this question still should be asked: If one runs up a debt, how is this going to be paid back? What will happen if someone doesn’t pay back at all?
A professor at the University of Basel, Peter Bernholz, thinks he has the answer. “He studied instances of hyperinflation. He believes that hyperinflation any time the government spends 166% or more of what it receives in revenues. This should set off alarm bells.”
For the record: “The US budget is now about 170% of tax receipts.”
“The feds can't repay the record amounts they're borrowing - not without a major political crisis. They'd have to cut spending and raise taxes so dramatically it would cause a backlash.” The parasites would revolt. It would probably unseat the ruling party and break the repayment plan.
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Redwater, Alberta, Canada
Redwater, Alberta, Canada
Susan Marie KovalinskyThese members have powered this story: