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July 18, 2014

I have discussed the to and fro “tunnel” between Wall Street and the Department of the Treasury, and although Nomi Prins points up that despicable passageway in what she writes, she does not use the term “tunnel” per se to describe it in her literary effort. It is metaphorically a 226 mile “tunnel” from Wall Street in Lower Manhattan to the Treasury building where CEOs and other Wall Street executives come and go but, unknown to most, there is in fact a real tunnel from the Treasury building to the White House – one used by presidents to slip visitors in and out of the Oval Office – and one doubtless traversed by Treasury Secretary (and former CEO of Goldman Sachs) Henry Paulson when he was giving the bad news to Bush that since Wall Street banks had goofed their way into insolvency with their big time greed, we must now reward them with bailouts and buyouts. In retrospect, I have a one-word response to this likely elucidation of a president who was hard to elucidate, and it is this: “Huh?”
Were you and I consulted on the advisability of bailing out and buying out the woes of the big Wall Street banks due to their global crap shoots gone sour (and much of it with our money)? What about a bailout of the real world economy in which we had to live, what with our foreclosures and our furniture out in the streets, rocketing unemployment, bankruptcies, reduction in pay (if employed), a dried up credit market due to fear in lending in such uncertain times etc.? Wasn’t that an emergency, too? Do only the superrich have the attention of Congress with their emergencies, emergencies they brought on themselves? What about our emergencies? Where were our regulators and prosecutors?
Answer: They were asleep. Both Republican and Democratic Attorneys General have signaled to Wall Street that they may continue their post-bailout/buyout greed without fear of prosecution (other than for a few minor officials who did some time in taking the heat for the CEOs and other high level executives for manipulation of mortgage paper etc.). Our current AG, Eric Holder, has said that he is afraid to prosecute the biggest banks because doing so may upset the economy. Question? Wasn’t our economy just a bit “upset” when Wall Street banks crashed not all that long ago? Question #2? Just what incentive have we given to the banksters to reform or else when we surrender one of our ultimate weapons before the war begins (an overhanging threat of criminal prosecution of top level bank officials)? Do you tell other players in a poker game what cards you hold in your hand?
When the Fed decided to reduce the interest rate following the crisis caused by big Wall Street banks and publicly stated that it was for the purpose of controlling inflation and fighting unemployment – and would be increased as soon as unemployment fell to a certain percentage, I was taken in. I thought that was good policy. I failed to understand that such a reduction was to become a long-term policy tool that in its implementation savaged the savings of retirees and raised the costs of pensions. Worse, I failed to understand that as it has worked out it is largely just another prop government has given to Wall Street with its virtually free money to (perhaps) facilitate more big bank excesses, and worst of all, it is money virtually given to Wall Street from the reduced interest retirees thought they were going to have in retirement, a situation which helps explain why people cannot retire, why younger people cannot get a job because would be retirees are not retiring, and also helps explain why less interest means less demand in the market, which in turn means more unemployment and increased incidents of bankruptcies in small businesses as well as among individuals. So just how wrong was I to believe that the Fed’s near zero interest rate would boost the economy? An International Monetary Fund paper shows that the Fed’s policy of buying bonds by the billions along with its zero interest rate has resulted in a subsidy to Wall Street of 83 billion dollars a year – more than the cost of food stamps, and that is only one such subsidy. Wall Street is subsidized beyond belief by provisions of the internal revenue code, trade provisions and preference in bankruptcy provisions, especially Chapter 11 of that code.
The bankers have most of the money, and what they don’t have they can borrow at fire sale rates of interest. Citigroup and JP Morgan Chase hold $4.3 trillion in assets, or more than 30 cents out of every banking dollar. Especially noteworthy is the statistic that banking (released from strictures with the repeal of the Glass-Steagall Act) now involves multiple activities, from retail lending, underwriting of securities, trading, and derivatives gambling, including trading in Greek and Argentine bonds etc. These activities in sum account for over 40 percent of overall corporate profits in this country – and rising.
This is a worrisome statistic that reenactment of Glass-Steagall could remedy. The money made from handling money is accumulated in turn from money made by others, which means that money gravitating into banking coffers is money not available for other activities in the real economy in which you and I live. Banking used to be a facilitator of industry but is now the number one industry itself. (Parenthetically, these numbers prove Piketty’s r > g formula; that as the rich get richer, there is correspondingly less opportunity for the rest of us to catch up given our diminished capital and our failure to regulate the worst excesses of capitalism.)
Prins notes that in the last 35 years (1960 – 1995) fewer than 10,000 bank mergers took place, but that in the last half of the 1990s under Clinton, more than 11,000 bank mergers were consummated. She speculates that Clinton was preoccupied with his impeachment drama and suggests that as a result he was asleep at the switch. I disagree. He may have been preoccupied, but the real problem and his worst mistake while in office was signing a repeal of the Glass-Steagall Act, which opened the floodgates for all kinds of mergers (including Citibank with Travelers Insurance Company, which could not have happened unless Glass Steagall was repealed – and it was). Citibank, already insolvent before the crash that ushered in the Great Recession, lucked out. It received a bailout of almost half a trillion dollars.
It is difficult to quantify economic losses to a country that fails its mission to represent all of its people, such as we have done and are still doing with our continuing liability to bail out an industry that does not involve our people either by law or regulation in having some say in a game in which the latter are involuntarily potential victims, but Bloomberg News has taken a stab at it, and I have no reason to believe its numbers are far off one way or the other. Bloomberg News has concluded that the final bill for banking practices that would have been barred by Glass-Steagall (had it not been repealed) plus lax regulation comes to $12.8 trillion, which is the price we paid for all the bad bets and serial misconduct of Wall Street bankers. This number represents a figure not much less than our entire economy’s output in 2009, not to mention non-financial losses to real people such as being foreclosed from their homes, the unemployed ranging from those who moved in with relatives to veterans under the bridge et al. Imagine what a fraction of $12.8 trillion would have done for such people! THAT was the real emergency!
Sorry, America, emergencies are for the rich only. The rest of you pay up and shut up. GRRR! GERALD E


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  1. Thank you, once again, for your continued commitment to put forth analytical information necessary to understand that which ails us as a society and nation. I still, after it is all said and done, come to the same conclusion: what can be done? It seems obvious that our government is in the back pockets of The Money Class. The Money Class has successfully infiltrated and transformed our government to serve their financial interest rather than serve the “common good.” They did this one congressman, one senator at a time, over a 40 year period. Over that time, they were able to do the legislating bidding and repealing for The Money Class agenda. This Money Class is bipartisan. You correctly point that out in the Secretary Treasurers, both Democrat and Republican, who come through the same tunnel out of Wall Street. As Will Rogers (I think) pointed out in another time, “We have the best government money can buy.” So, yes, there needs to be change, serious change, to turn this ship around. But how? There is absolutely no mandate for change from those who sit on Pennslyvania Avenue or in the West Wing. Why change when they are benefitting from the status quo?

    • You ask a question I fervently wish I could answer. I suppose about the only way (from our present seat at the table) is to get out in the streets. While that is unlikely to work, what other alternative will make for the common good over continuing engorgement of wealth to the already wealthy (typically in exchange for “campaign contributions, aka bribes).A turning point is coming per an article I read in The American Prospect. The younger and Latinos know that this thing is lopsided, are more liberal than we, still believe in government etc. I will be gone and you may be before this transformation takes place, and it may not take place at all if Big Money is so ensconced that nothing will work, which will flesh out my greatest fear – total corporate control of America under some form of outline found in Orwell’s 1984. Meanwhile, I propose to keep up the fight if not to stop then to slow such a catastrophic outcome. I will be blogging on China shortly. Stay tuned. Jerry

      Gerald E. Read my blog at:

      On Fri, Jul 18, 2014 at 1:14 PM, elderblogger wrote:


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