Monday, February 06, 2017

Is the Great American Heist, Part Deux, Coming Soon?

The planets are aligning nicely. Republican House, check. Republican Senate, check. Republican White House, check.

It was this very alignment that prevailed during the Panic of 1907, the Great Depression of 1929 and the Great Recession of 2007-2008. Seems like those Republicans are out to repeat the past.

Goldman Sachs is in the house, the White House. Plenty of clout in the Trump cabinet and the Great Orange Bloat is in a mood to deregulate - check, check and check. One of his first targets is to rescind the regulatory protection known as the Dodd-Frank Act.

Don't let me forget to mention Hyman Minsky. But first, Glass-Steagall.

Glass Steagall, refers to four provisions in the US Banking Act of 1933 that were intended to regulate America's banks in ways that might prevent a recurrence of the Great Depression. A line was drawn between commercial and investment banking. A bank could be one or the other, just not both. A bank could be a bank or it could be a casino. Ordinary people and small business used banks. Speculators out for larger but higher risk returns went to investment banks.

During the Clinton years, congress repealed the Glass Steagall part of the Banking Act in 1999 and the party ensued until the casino went bust in 2007.

Up here in the Great White North, Canadian banks wanted to follow suit and hectored Paul Martin (well Jimmy's dad lets him take the car) but Martin said no, banks are banks. Harper took the first steps to let banks have their way but the Great Recession hit early and he had to fall back on Martin's policies.

Anyway, in the wake of the Great Recession, Messrs. Dodd and Frank set about to put the genie back in the bottle. It took years to mop up all the blood but banks were again restrained.

Now Trump has his eyes set on  scrapping Dodd-Frank.  Josh Brown, a.k.a. "The Reformed Broker," writes that, "the nightmarish period of excessive [bank] stability will be coming to a close."

According to White House National Economic Council Director Gary Cohn, the former president of financial crisis experts Goldman Sachs, “We have the best, most highly capitalized banks in the world, and we should use that to our competitive advantage. But on the flip side, we also have the most highly regulated, overburdened banks in the world.”

Cohn deftly sidesteps the fact that our “most highly capitalized banks” have gotten that way thanks to the very regulations and increased capital requirements that are now on the menu to be carved up. To which we say, good riddance. It’s about time that America’s deposit-taking institutions got back to the business of leveraged speculation, empire building and unchecked expansion that made this country what it is today – a culturally divided paradise of extreme wealth disparity and populist rage.

The tens of millions of Americans who came out to vote for Donald Trump and the subsequent hundreds who attended his inauguration have grown sick and tired of the burdensome protections and safeguards that have been put in place for them. All across the nation, working class people yearn for a world in which Citigroup and Bank of America can borrow unlimited sums of money for concentrated bets, trade in exotic securities that are barely understood and sell whatever products they want to whomever they choose.

In eliminating toxic investment choices from the consumers’ grasp, the quasi-marxist Department of Labor has taken our freedom to not retire away from us. The idea that financial professionals should be forced to sit on the same side of the table as their less knowledgeable customers is the biggest regulatory overreach since the outlawing of asbestos in building construction. These limitations on our liberty will not stand.

So, I think you know where Josh stands. Now we've got Glass Steagall out of the way, Dodd Frank out of the way. We've covered the Great Panic of 1907, the Great Depression of 1929 and the Great Recession of 2007-2008. Oh yeah, and the unitary Republican governments that prevailed during all those calamities. Right, on to Hyman Minsky.

It was in the early 50s that economist Minsky described the dynamic that drives America's perpetual bubble economy. I'll let professor Randall Wray give you the basic idea.

Now if you want a more entertaining look into modern Casino Capitalism and the venerable Hyman Minsky, go to NetFlix and check out Terry Jones' delightful "Boom Bust Boom"

That's Minsky with the Glasses
Then you might read James Galbraith's "The Predator State," assuming you have stomach left for reading.

Why, after the Great Recession, would they do this again? In part because "they" made a lot of money. They saw it coming. That much was obvious when they began trading in trillions of dollars worth of credit default swaps which were nothing more or less than huge bets on bad investments.

Now as Trump advisor and Goldman alumnus Gary Cohn puts it, "We have the best, most highly capitalized banks in the world, and we should use that to our competitive advantage." It's time to harvest that crop again.


Toby said...

The worst form of corruption is that which has been legalized and, to a great extent, under the counter. Being screwed, the populace gets angry but doesn't quite know why or who to be mad at. The effect is anger directed everywhere all the time.

Lorne said...

No doubt, when things come crashing down on Trump supporters, the Orange Ogre will find an appropriate scapegoat.

Dana said...

Yeah they will but it won't be Trump. Just as they were stupid enough to elect him they won't be self aware enough to recognize that it was him that fucked them over.

They'll burn down courthouses and libraries and synagogues and temples and town halls. All the while chanting "Trump, Trump, Trump".

Anonymous said...

Could it be that the capitalists rape and pillage the economy ; let it fail then willfully turn it over to the Socialists to make the hard decisions only to become unpopular then the capitalists can then take control again?
There could be no finer example of this than British Columbia where the capitalists have about bled the taxpayer with LNG and BC Hydro sucking out $$Billions of taxpayer monies now and into the future?


The Mound of Sound said...

That does seem to be a recurring pattern, TB

Purple library guy said...

Just one quibble in all this:
"Anyway, in the wake of the Great Recession, Messrs. Dodd and Frank set about to put the genie back in the bottle. It took years to mop up all the blood but banks were again restrained."

No they were not. Dodd/Frank even in concept, much less by the time they were finished punching loopholes in it, was more a symbol of restraint than an actual one--a fig leaf, a camouflage to give the impression something had been done. If Trump sets about getting rid of regulations it will not be a return to the pre-recession status quo, since we are already there. Rather, it will be charting exciting new unknown waters of complete banker impunity and financial chaos.