Posts Tagged ‘panic’

Bankers, Banksters, Bernanke, Black and Beethoven

November 8, 2015

How’s a fellow to make sense of it all? Who you gonna call? Who you gonna believe? What’s the world coming to? What’s it to ya? and Who’s in charge here?

I’ve been trying to figure out a few things about our financial system.


About a week ago I loaded Ben Bernanke’s book, Courage to Act, and have been reading what the former Chairman of the Federal Reserve has to say about those events of 2007-8 that brought this country to its money-grubbing knees.

Now about a quarter of the way through Bernanke’s explanation of things, I must say I like the guy. He has a personal mission to bring more transparency to that enigmatic institution known to us as the Federal Reserve. I think he really wants regular folks to understand our financial system and the function of the central bank which, having been founded by Congress in 1913, tries to keep a rein on the nation’s banking system so it doesn’t become a runaway horse.

Nevertheless, the System did morph into a kind of bucking bronco back in the fall of 2008. The crash and crisis of that time may have seemed quite sudden to many of us, but in fact the collapse of Wall Street et al during September-October of that year was the culmination of a bunch of misadventures and misdeeds that had begun a year or two or more before it all came crashing down.

I vividly remember, during that time seven years ago, sitting in my car in a parking lot, a few minutes before 8 am when I would enter my day-job, and hearing on the car-radio with dread or fascination about the demise of such formerly venerable institutions as Lehman Brothers, Washington Mutual, Bank of America, Wachovia, Countrywide, Golden West,  AIG, Fannie, Freddie, even General Motors, and then about how Hank Paulson and Wall Street and the Fed, Bernanke and the President and Congress would deal with the degenerating situation by instituting TARP which was rejected by our Representatives and Senators before it was passed and implemented a week later after Hank and Larry and Tim put the fear of god in the legislators’ minds or whatever it was they told them to convince them that they should loan the distressed banks $767 billion so the whole dam bailiwick wouldn’t fall apart and drag us into another Depression, or so they said.

The world was changing. Have you ever watched the world changing? It is an awesome thing, to see history being made.

What a time a time oh what a time it was. . . a time of innocence (lost), a time of confidences (lost forever), as Paul Simon once sang. Oh what a time it was. Eventually the dust settled and the country lapsed back into normalcy or something like it but not really.

Things were different after that. You know what I’m talking about. . . the Great Recession, everybody and their brother deleveraging, budgets tightening, layoffs and downsizing, fading into perpetual “jobless recovery” with wage deflation, rising unemployment, then descending unemployment but with more part-timing and less money. . . stock-crunchers and media fixated on monthly numbers from the Fed, the gov, BLS, etc, a languid economy generating fewer jobs, then a few more jobs, then leveling out and stabilizing and lapsing into destagulation and blah blah blah. . .

And it was about that time, or actually a year of three later by n’ by, that the Occupy Wall Street crowd came along.

My wife and I visited our son in Seattle during fall or early winter of 2011. I woke up one morning and strolled down Pike Street. I stopped at the Westlake Center and entered a Starbucks where I settled in for a while. I was observing through the large glass storefront, the Occupiers who had gathered across the street in Westlake Park.

After a while I noticed among all those protesters, many of whom were carrying signs (mostly say hooray for our side) . .here comes an especially noticeable fellow with a sign. He was tall, scruffy, with a long beard. He looked like the classic cartoon image of the street-corner doomsday prophet, and his sign said:

“Jail for Banksters”

Well that’s interesting.

Now, yesterday, November 7 2015, I recalled having seen that fellow and his sign, and I was thinking about what his sign said.

I had been reading Uncle Ben’s very informative book–his plainly-written, quite “transparent” explanation of what had happened back in ’08, when the low quality of vast numbers of subprime mortgage loans catapulted those same home-loans into default, and subsequently cast a ubiquitous monkey wrench into the vastly complex financial machinery of sliced/diced tranches of mortgage-backed-securities and collateralized debt obligations and credit default swaps, etc etc  and then wall street came crashing down and all the Fed’s horses and all the Treasury’s men couldn’t put humpty dumpty together again (not for a while anyway) and the world changed forever, or so it seemed at the time and for quite a long time after that, even until now.

Yesterday, I had made note of this sentence from Ben Bernanke’s book:

“As the chain from borrower to broker to originator to securitizer to investor grew longer , accountability for the quality of the underlying mortgages became more and more diffused.”

And I was wondering, if the accountability had become more and more diffused, then who was responsible for this mess?

My own personal answer to that question is: Human nature, collectively. Shit happens.

Not everyone sees it that way, though. Some folks feel the need to investigate, litigate, prosecute, execute, and. . . as the protester’s sign said, send the “banksters” to jail.

So here I was yesterday, having taken a break from reading Uncle Ben’s book, and I was fiddling around online when I landed upon an interview that Chris Martenson did with Bill Black.

Now Bill is well-informed fellow; he’s an academic like Ben Bernanke, but from a totally different perspective than Ben’s. Bill is a regulator, investigator, earth-shaker, litigator who is crowing that Eric Holder,  former Attorney General and head of the U.S. Department of Justice, should have prosecuted the banksters for their corruptive abuse of the system. In his interview with Chris that I listened to yesterday, Bill Black said:

“Every dollar by which you inflate an asset inflates capital by a dollar and creates an additional dollar you can steal. . . they lied and they lied to the extent of trillions of dollars. They lied and made stuff that was really in the trade, right. So the bankers are actually calling these things toxic in their internal memorandum. And they are simultaneously rated Triple A, which is supposed to mean that they are equivalent to United States Treasury and are “risk free” by which they mean credit risk.”

Furthermore, whistle-blowing Bill Black says that culpability for the crash also includes the Fed’s complicity, when Bill says:

“You say Bank of America has got 50 billion of these things. They sell them to Fannie/Freddie.

Next thing we know, Black Rock is in there with the Federal Reserve helping the Federal Reserve decide which tranches of MBS to go out and buy. And the Federal Reserve vacuums up 1.25 trillion or thereabouts of these mortgage backed security pieces of paper. Here is the question. What is the chance that the Fed preferentially or accidentally (but I am going to think preferentially) went out and vacuumed up some of the worst of these things so that they could die quietly on its balance sheet rather than do damage to bank balance sheets?

So Black is implying that Bernanke shares some of the blame for the Crash of ’08.

But in my reading of Uncle Ben’s version, I see a very smart man, an honest man, who was trying to do his job–that job to which he had been appointed by the President and approved by the Congress of the United States. He was striving, as best he could, trying to stop the nation’s calamitous slide into financial oblivion. Ben writes:

 “Just as the bank runs of the panic of 1907 amplified losses suffered by a handful of stock speculators into a national credit crisis and recession, the panic in the short-term funding markets that began in August 2007 would ultimately transform a ‘correction’ in the sublime mortgage market into a much greater crisis in the global financial system and global economy.”

From Chairman Ben Bernanke’s perspective, he was doing his job– using every tool in his Reserve tool-chest  to arrest to the “panic” that would eventually impose a “much greater crisis” in the global financial system and global economy.

You can’t blame a fellow for trying to do his job. And that’s how I make sense of it all. I try to do my job, while I see everyone else doing theirs, and that’s what makes the productive world go around.

Although, every now and then shit does happen. Then, as Schumpeter said. . . it is creative destruction, and somebody’s got to clean up the mess. Jobs for everybody, cleaning up the mess from places high and low. And then reconstructing it all, a vicious (or inevitable) cycle. It’s been going on for 10,000 years. But now with hi-tech, everything goes faster and faster, until it grinds again to a screeching halt and. . . can you hear it? The music of the ages.

Glass half-Full


The Economist Illumination

April 13, 2014

I never really understood much about international finance and economics until this morning, when I read a special, long article in this week’s The Economist. In the printed edition, the text begins on page 49; it is entitled The slumps that shaped modern finance.

I’ve been subscribing to, and reading, that “newspaper” (as their editors call it, while we Americans think of it as a magazine) for several years. But I have always labored to figure out what the hell they are writing about. In surveying many past issues, I have contented myself merely to check out the obituary, which is always on the last page. Then I would thumb through in a backwards, right to left, fashion to glean a little from what’s going on in the literary and arts world.

Perhaps my years of reading The Economist with so little comprehension have prepared me, unbeknownst to my cognitive mind, for the light-bulb moment I had this morning while reading their concise, 6-page history of financial crises. Be that as it may, the light of understanding finally shone in my head when I read, on pages 51-52, their explanation of the Panic of 1857.

“I think I understand . . .” Joni Mitchell had sung long ago, “fear is like a wilder land.”

Long story short, when investors think they are going to lose a lot of money they are overtaken with Fear, so they go hog-wild. Maybe that means the bulls retreat while the bears gather, but the hogs go crazy destroying the place.

Or, as the ’60s radicals use to call them, the “pigs.”

But I wouldn’t call anybody a pig. Maybe . . . a walrus.

Anyway, here is what’s interesting about the Panic of 1857: America was at that time an “emerging nation” that had expanded its explorative and technological frontiers beyond its ability to keep all the accounts straight and well-balanced. Consequently, the Brit financiers panicked, and all the money people around the world followed suit, including us.

Today, the shoe is on the other foot. We Americans are like the well-established powerhouse that the Brits were in the 19th century, while today’s “emerging” powers, the so-called BRICs and a few others, are in a position similar position to where we were in 1857, or 1907, or 1937.

Maybe the other shoe is about to drop, maybe not.

If you want to know something about how this plays out historically, I recommend you check it out. If you want to read it online, here it is:


King Nevuhhadnuttin’s dream

January 7, 2010

King Nevuhhadnuttin had a bad dream and he was trying to figure out the meaning of it but he couldn’t and so he called in the wise satraps and the council of advisers; then seemingly out of nowhere, but actually it was from the jailhouse,  this wise woman Danielle steps forward and with mucho aplomb poses this mysterious enigma wrapped in a question:
“The other side? The other side of what?”
And King Nevuhnadnuttin exclaims: “That’s it! That’s exactly what I”m wondering, and what I’m frantically asking, in my dream just before I wake up.”
And Danielle calmly continues, “Precisely, O King, and allow me to describe your dream, for I have discerned it and I can interpret the meaning thereof.”
“Go for it!”says he. “Knock yourself out.”
Then saith Danielle: “We’re careening down a slippery road; the brakes are failing; further down the slope ahead of us in the frozen darkness is a precipice and we’re going to slide right off it into sheer unsupported air.  Here’s one guy speaking urgently from  the back seat pleading the driver to stop spending money because if we don’t we’ll slide right off the edge and plummet to insolvency and fiscal ruination that will lead to societal disintegration and national chaos.
“But over here in the passenger seat is another guy warning with controlled alarm in his voice that we’ve got to keep the money flowing and make it possible for most everyone to keep spending dollars and the only real danger is we have not yet  thrown enough money at the problem  and if we cut off the Fed supply the fall from the precipice will be very bad and our recovery will be long and protracted at best.
“So the driver–and I’m talking about not only you, O King, but your entire realm and every person in it (how’s that for high stakes pressure, huh?)–is worriedly weighing these two opposite warnings, and trying desperately to apply the brakes but finds it impossible while the passenger says just let the thing go because if we build up enough downhill momentum–not to worry–we’ll launch beyond the precipice fast enough and far enough to land on some terra firma which is surely on the other side.
“‘The other side? The other side of what?'”
“The other side of the balanced-budget misconception,” saith Danielle. “You see, according to the prevailing Keynesian wisdom, balanced budgets are an obsolete notion that no longer have any real meaning. They’re just relics from the past–holdovers from ages long gone, like the age of gold, when monetary value was tied to gold, and the age of silver when we were using silver certificates for currency, and the age of bronze when all our value was linked to industrial production, and the age of iron when times started to get hard, and now the age of iron mixed with clay when everything falls apart.”
“Falls apart?”
“O, not really, O King. I was just kidding. We’ll be okay. Have you thought about declaring a jubilee?”
“A what?”
“A jubilee. Free all the debtors from their debts, and let every person and family just take ownership of his/her/their domicile and vehicle.”
“Say what?”
“Just kidding, O King, it would never work, too disruptive and unorthodox–definitely not a workable strategy.”
“Right, Danielle. That would be a…uh…can of virtual worms.  Now who’s dreaming?”
“Me, I guess. I have a dream too.”

Carey Rowland, author of Glass half-Full