July 1st, 2012
By Frank Byronn Glenn
-- We see it playing out the same way all over the world. Bankers who made big, risky, highly speculative --and
ultimately unsound investments -- refuse to accept the losses when their gambles in hopes for extravagant, excessive, easy profits go bad. But it's actually worse than that. In the case of the government of Greece, for example, banks like Goldman Sachs put them into unsound investments, structured deliberately such that they would fail, then structured their government financing so that when the investments went bad they would bankrupt or compromise the solvency of the government of Greece -- and then bet the government of Greece would flounder so that when it did they made a lot of money. So they publicly advised the government of Greece to make bad investments, then secretly big money that they investments would got bad. Does that sound okay to anyone?
And in the case of Spain, like most of the problems in the United States, the problems began when the loans went bad. When the loans went
bad, the governments bailed out the banks, not the individuals who owed money on the loans. They could have solved the problem -- and not only restored, but super-charged the purchasing power of the consumer -- and solved the problem and replaced the crisis with a booming, consumer driven economic rebound instead of a lingering recession trying to become a depression. It's all about greed -- and the unwillingness to take a few years to make a lot of money instead of just receiving bailouts as a reward for your ill-advised investments today -- and getting lots of money cheaply in the deal -- to invest in "sure-thing" investments like U.S. Treasuries at a guaranteed rate of return -- virtually risk free. So you get billions of dollars free from the Federal Reserve -- and instead of lending it to consumers and home-buyers and businesses for modernization and expansion as was planned -- you simply invest it in U.S. Treasury bonds at 1.75 to 3%, risk-free, and make free risk-free money off money you got from the Federal Reserve in the first place. Why would you do something risky and "capitalistic" like lend out money, with the attendant risks, when you could just make money off free money from the government?
It's the same philos0phy that would apply if every time you let your child drive the family car --
and he/she put a dent in the fender -- you bought them a brand new Jetta TDR as punishment for their indiscretion -- plus a gas card with unlimited gas free for a year. Now for the quiz. Question: "Do you think your child would be more or less likely to have a recurrence of the fender-bender event in the next two years?
Banks, it seems, are just children -- with a lot more money. And when they have an accident -- instead of buying them a Jetta as punishment -
- we buy them 20 Ferrari's, 10 Lamborghini's, 5 Lexises, and free gas for 500 years. And then we wonder why they won't quit speculating in our mortgage and financial markets. Why would they -- if no matter what happens that just get phenomenally richer each time? Talk about moral hazard!
If the Federal Reserve had taken the $16 trillion dollars
it used to bail out Wall Street
banks and giant corporations and bailed out Middle Class homeowners instead, it could have paid off every mortgage owed by everybody in America and still had enough money left over to buy anybody who didn' t have a
house but wanted one -- a free and clear house.
Think of it. All the banks, their credit swap insurers
, and anybody else who was on the hook for mortgage loans that went bad -- would have been saved! It would not have cost a dime more.
And everybody in America owned their homes "free and clear" -- and would have had tons of equity to do whatever they wanted -- and the economy would have been booming! I repeat -- it would not have cost one penny more than the Federal Reserve already loaned out. Just used it differently!
Too bad they didn't use the money that way.
The recession would be long past. And even the 1% would be raking in the money like legal bandits they have always fancied them to be. And the license to steal would again have become the license to strike it rich -- legally. Only they would have had to do it the old-fashioned way.
Work for it and earn it. Maybe that would have taken too long?