g5000
Diamond Member
- Nov 26, 2011
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David A. Stockman – “The Great Deformation – The Corruption of Capitalism in America”
Myth one: The 2008 financial crisis was the result of unregulated markets. TARP and the Fed saved the country from Great Depression 2.0
Nonsense, says Stockman. The financial crisis was the consequence of the Fed’s serial bubble blowing, and it should have been allowed to burn itself out in the corridors of Wall Street. Instead, Paulson and Bernanke panicked, declared economic martial law, namely that all rules of fiscal prudence and free market capitalism be tossed aside, and demanded that, via the bail-out of ‘insurance’ giant AIG, firms like Goldman Sachs, Morgan Stanley and others be saved from choking on their own outsized speculations."
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Instead of reading some partisan hack's third person interpretation of a Stockman book, read Stockman's own words:
David Stockman: Days of Crony Capitalist Plunder
Accordingly, banks which were "too big to fail" couldn't be busted up, since they were allegedly needed to shovel more credit onto already debt-saturated household and business balance sheets. Likewise, speculators who should have suffered epochal losses during the meltdown were resuscitated by Fed-engineered zero interest rates in the money market, thereby quickly reviving the same massively leveraged "carry trades" in commodities, currencies, equities, derivatives, and other risk assets which had brought on the crisis in the first place.
Why?
I want to show the world that the narcotized is finally noticing reality.
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The securitization of the planet is why.
Let's take a wheat silo for instance. In the old days, the worth of a silo was found in what it contained in that moment of time. One silo's worth of wheat.
But with securitization, the worth of the silo is the expected contents of that silo over the life of that silo. Let's say 20 years.
So a broker-dealer can sell the wheat in that silo which won't even be grown for another 19 years!
I could buy 19-years-from-now wheat and resell it if I can find a buyer who believes the price of wheat is going to be higher in 19 years than what I paid for it.
Hell, we could securitize a hooker's income if we really wanted to!
There is nothing wrong with securitization, per se. But the result of the boom in securitization which began in the 80s was that by the year 2000 there was $70 trillion of investor money washing around the planet.
That's $70 trillion looking for a place to invest.
There are not $70 trillion of prime borrowers on the planet. Not even close.
So if you want to invest $70 trillion, you are going to have to lower your lending standards. It's as simple as that.
It just so happens that after the recession of 2001, the housing sector was the only sector performing well. So that's where everyone's attention was focused.
Now, this does not just mean loaning money to low income people. In fact, it hardly means that at all. People assume that's all it means.
But it primarily means you get prime borrowers to borrow more than they traditionally borrowed. You get them to leverage up.
And that is how you make a prime borrower a "subprime borrower", by getting them to borrow outside the prime boundaries. So you might be a AAA risk if a bank lends you $200,000. But you are a subprime risk if the bank lends you $1,000,000.
And that is what banks did. Just look at all those HELOCs! People weren't just buying houses. They were borrowing against the equity to buy SUVs, Disney vacations, fishing boats, and whatnot.
Sure, you loosen up money to negroes, too. We're talking $70 trillion, after all. But you can loan A LOT more money to a prime borrower you are pushing into the subprime zone than you can loan to a negro. That's simple math.
And you also loosen up lending to, ohhhhh....Greece! Hey, they have the full faith and credit of the entire Eurozone backing them now, so what the hell!
Even better, you can make a real shitty loan and you don't have to hold onto it. You can stuff it into the pipeline and it goes upriver to Bear Stearns and they pack it into a CDO and sell it to 401k managers. You get a commission, Bear Strearns gets a fee, and the 401k manager takes the loss if that shitty loan burns down.
What's more, Goldman Sachs can bet on that shitty loan burning down and make a profit if it does.
Life is good on Wall Street!
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