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June 13, 2014

To answer Part I’s question of “how do we hedge our exposure” to more bailouts by Wall Street banks, hedge and equity funds etc.? We don’t; we have no hedge. Any such potential for a public hedge against Wall Street risk-taking evaporated with the repeal of the Glass-Steagall Act. Hedging for you and me means reenactment of Glass-Steagall or at least tight regulation of our giant banks and hedge funds under remnants of existing law so that we are not up as bailout patsies for such banks and other giant aggregations of capital when their crapshoots fail – and they do – as we have seen and are still seeing.
Our risk is not limited to repetition of George Bush’s bailout engineering; the lack of regulation has attracted financial sharks who are swindlers, and just as it is safe to bet that we would have more embezzlers if there were no law against embezzlement, so there are more swindlers in underregulated and wide open investment opportunities to swindle the unwary (and even the wary but greedy) by those in charge of such huge pools of capital. So why shouldn’t big banks and hedge funds take a crapshoot on derivatives or a junk bond portfolio or whatever other esoteric means of making a buck present themselves (especially with the enormously enhanced opportunity for profit in leveraging)? With repeal of Glass-Steagall, there not only is “no law against it,” but we the taxpayers will bail them out if the investment fails. This environment, of course, leads to excessive risk-taking, and again, why not? We are told the big banks are too big to fail – but we the people aren’t. Check the surge in bankruptcy filings and lackluster performance of the economy (which went negative last quarter for the first time in three years – perhaps presaging a recession – even with the Dow at historic highs).
It is worse than that. Consider just what the message was with Clinton’s (Rubin and Greenspan-approved) signature on a repeal of Glass-Steagall in 1999 (easily the biggest mistake he made in eight years as president). It ushered in an even Wilder West mentality among the underregulated Wall Street crapshooters than they already had, and it was this in a nutshell: We trust you with this new freedom from statutory and regulatory restraint, Wall Street. You will not take excessive risks which might involve pubic sharing of losses given this new freedom to intermix commercial with investment banking because you know better – you are responsible and reputable people who want the free market to work. You are experts in investment and will look after the stability of the market over your bottom lines. Thus freed of regulation (per the Phil Gramms and Newt Gingrichs of that day), you can now make investments that will make our economy hum etc. etc. etc. (Nirvana awaits.)
How utterly wrong can a policy decision be? Answer – try the result, i.e., near world-wide depression, loss of trillions in real estate values, skyrocketing unemployment, new (post-bailout) excuses for tea partiers and libertarians and right wing Republicans to strip our already tattered safety net to pay for the havoc wreaked on us by their superrich sponsors, some 16 trillion (in addition to the 700 billion dollar bailout) paid at par value by the Fed for marginal paper the banks and others had no market for elsewhere etc. etc. etc. So now that we have bailed them out of their insolvency (excepting JP Morgan Chase in banking and Ford Motor Company in industry), what is their solution for this mess? LESS TAXATION AND LESS REGULATION! Unbelievable! It’s the equivalent of the 18th century medical practice of “bleeding the patient” when the patient clearly needs a tourniquet and sutures – or a priest!
It is not just the coddled few among our ranks who are making out like bandits under the guise of “free trade” and “free enterprise” and other such myths. Institutional investors are coddled as well. Thus mutual funds (which are lightly regulated and which may contain immense resources gathered in from teachers and police and fire pensions during the latters’ working lives) may now be invested in unregulated hedge and equity funds for crapshooting. This is nothing more than a subsidy, because without Glass-Steagall or any other meaningful regulation to rein in their excessive risk-taking, you and I are again vulnerable and on the hook for risk of a bailout if the economy sours or a new Bernie Madoff shows up in the game of interweaving risk and potential return. It is the certainty of bailout, of course, that gives rise to excessive risk-taking by the crapshooters, excessive risk-taking that even the ex-Chair of the Fed and a libertarian, Alan Greenspan, noted in one his few public commentaries.
So what does this have to do with Queen Isabella, Columbus and even the English kings and queens? Perhaps it has not a lot to do with comparable transactions, considering changes in the times and vastly different methods of financing ventures. However, I find it noteworthy that both the royalty of that age as well as Columbus were capitalists; they were looking out for a buck (or a pound, lira, peso, and/or gold and silver). Government was undemocratic; it was bound up in the God-directed divine and sole right of royalty to rule. There was no public chartering system for corporations and no one questioned the right of royalty to make deals what with no congresses, no parliaments or other checks on royal infallibility. Democratic rule that largely confined such divine rulers to their castles was yet to come.
Thus it was royalty in England that gave East India Tea a royal charter and monopoly on trade with India, and it was Queen Isabella and King Ferdinand who made a deal with Columbus and Italian bankers to finance the trip to what turned out to be the New World – and all were handsomely rewarded – though note that even here “government” (such as it was at the time) was heavily involved in initiating such olden “crapshoots,” much as government facilitates crapshoots these days by our new royalty, Wall Street, with our risk-sharing, subsidies, tax loopholes and other cost-reducing giveaways, all of which are designed to enrich its bottom lines while impoverishing the rest of us, who have become mere worshippers at the new altar of this new and very antidemocratic economic and social arrangement – and one, incidentally, that cannot be sustained if our country is to survive as a First World democracy.
Philosophically, I see a connection between the God-given right to rule to the then European royalty and the new god’s (“free market’s”) right to rule given to Wall Street banks and hedge funds and their ilk in the here and now. The few or only impediments our new ruling money masters have to overcome and the old royalty did not are found to be in the legislative Diets, Congresses and Parliaments strung around the globe. In our country, paying them off (campaign contributions, bribes, government contracts for their families and/or corporations and revolving door deals for post-congressional service etc.) has become the modus operandi and a mere cost of doing business. Having overcome this obstacle, it appears there is no substantial distinction between the absolute rule of old royalty and that of today’s moneychangers and paper shufflers and (as I have blogged before in my essays on the “New Feudalism”) us serfs and vassals who serve them. That’s Athenian democracy?
Doesn’t anything ever change? Democratic government has long since officially replaced royalty but we persist in allowing  a sliver of our own to take royalty’s place. Why? Let’s paddle our own canoe. GERALD E


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