bodyguard

So-called leaders with deceitful faces
Corruption in high places
Your hands filled with bribes, mouth pours out lies
Cause of all oppression now running for protection

-- David Hinds (Steel Pulse) 1984

Bigger Isn't Better

It’s now been over a decade since the world’s major central banks reacted to the financial crisis with record-low interest rates and quantitative easing. Major central banks gave themselves a blank check with which to resurrect problematic banks; purchase government, mortgage, and corporate bonds; and in some cases -- as in Japan and Switzerland -- stocks, too. They have not had to explain to the public where those funds were going or why. Instead, their policies have inflated asset bubbles while coddling private banks and corporations under the guise of helping the real economy.

When money is cheap because interest rates are low or near zero, the beneficiaries are those with the most direct access to it. That means, of course, that the biggest banks, members of the Fed since its inception, get the largest chunks of fabricated money and pay the least amount of interest for it.  The biggest six U.S. banks have been rewarded with an endless supply of cheap money in bailouts and loans for their dangerous behavior. They have been given open access to these funds with no major consequences, and no rules on how they should utilize the Fed’s largess to them to help the real economy.

The zero interest rate and bond-buying central bank policies that prevailed in the U.S., Europe and Japan were part of a coordinated effort that has plastered over potential financial instability in the largest countries and in private banks. It has, in turn, created asset bubbles that could explode into an even greater crisis the next time around.  The risks posed by the largest of the private banks still exist, only now they’re even bigger than they were in 2007-2008 and operating in an arena of even more debt.

Today the big banks are bigger than ever and the amount of de‌bt in the system is larger than ever. There’s been no substantial reform since the financial crisis, just some cosmetic moves that have been passed off as major reform. The big banks are always ahead of the regulators.  It’s just one part of a system rigged in favor of Wall Street that has been deemed too big to fail. It’s a corrupt and incestuous system filled with perverse incentives and conflicts of interest.

-- Nomi Prins, The Daily Reckoning (Dec. 13 & 19, 2019) edited

bank regulation

The Board of Governors of the Federal Reserve System recently published their annual Supervision and Regulation Report which measures the financial condition of major U.S. banks, including loan growth and liquidity in the banking system.  Overall, 45% of U.S. banks with more than $100 billion in assets received a supervisory rating of “less than satisfactory.”  That’s not good. As we learned during the 2008 crisis, the stability of these large banks is essential to the health of our banking system.

Furthermore, this rating should not sit well with hardworking Americans who bailed out many banks during that last major crisis.  As bank lobbyists continuously push for more deregulation, it's prudent to remember what happened a decade ago with bank bailouts and a market crash.  We need more regulation, not less, if banks continue to receive less than a “C” grade on their report cards.

-- Nomi Prins, The Daily Reckoning (edited) (Dec. 7, 2019)

Speculation Encouragement

Needless to say, if you bail out speculators, they will simply speculate more. And if you do it over and over and predictably so, you will extinguish the fear of risk and loss, which is the only thing which keeps the speculative impulses in check.

-- David Stockman (as quoted in The Daily Reckoning) Sept. 24, 2019 (slightly edited)

market manipulation

The problem with any kind of market manipulation (what central bankers call “policy”) is that there’s no way to end it without unintended and usually negative consequences. Once you start down the path of manipulation, it requires more and more manipulation to keep the game going.  Finally it no longer becomes possible to turn back without crashing the system.

Of course, manipulation by government agencies and central banks always starts out with good intentions. They are trying to “save” the banks or “save” the market from extreme outcomes or crashes.  But this desire to save something ignores the fact that bank failures and market crashes are sometimes necessary and healthy to clear out prior excesses and dysfunctions. A crash can clean out the rot, put losses where they belong and allow the system to start over with a clean balance sheet and a strong lesson in prudence.

Instead, the central bankers ride to the rescue of corrupt or mismanaged banks. This saves the wrong people (incompetent and corrupt bank managers and investors) and hurts the everyday investor or worker who watches his portfolio implode while the incompetent bank managers get to keep their jobs and big bonuses.  All it does is set the stage for a bigger crisis down the road.

-- Jim Rickards (The Daily Reckoning) July 31, 2019

Too Big to Fail (Again)

In the wake of the 2008 financial crisis, the bank bailouts did not save the economy as their architects advertised. Rather, they bolstered the biggest U.S. banks from an insolvency crisis of their own creation. Those banks were, and remain, too big to fail. Their CEOs are too connected to jail.

The leaders of the major banks oversaw multi-trillion dollar enterprises that committed fraud, lost other people’s money, harassed public service members, and fired thousands of low-level employees. Worst of all, they have put the entire financial system and markets at the edge of ruin again.

Big banks know they have political and Federal Reserve support. Low or negative rates provide banks access to cheap capital if they need it, which encourages greater recklessness than if they had to “pay” more for it. They have taken this as a license to gamble large. By rescuing and supporting the big banks’ dangerous behavior, such recklessness has been not only condoned but encouraged.

The argument big banks make about their mega derivatives positions is that they are “hedged.” In other words, though the total (or “notional”) figure is large, most of the long and short positions net out against each other. The problem with that assessment is that the big banks take long and short positions against each other. They have set themselves up again in domino fashion.

We are heading for another financial crisis at some point. No one can say when for certain, but probably sooner than later. There’s a lot more money supporting the system artificially that the central banks have conjured than we had going into the last crisis. If that subsidy was to go away or be reduced, the money would come draining out of the same financial system that it’s been inflating.

-- Nomi Prins (Daily Reckoning) May 23, 2019 (edited)

Deficits Do Matter... Eventually

"Deficits don’t matter," said Dick Cheney....

If there were no tomorrow, Mr. Cheney would be right. Why not eat tomorrow's "seed corn" today? There would be no reason not to reach for another dessert, or park your car in a handicapped space, or tell your boss exactly what you think of him.

The trouble is -- there is a tomorrow. And tomorrow is when a drinking binge turns into a hangover, a bad marriage turns into a divorce, and your boss fires you. Tomorrow is when deficits DO matter. 

We don't know exactly what will happen or when. But we know the world still turns. Every boom not supported by real savings and real increases in output is phony. Tomorrow is when you find out.

Today's prosperity, such as it is, was built on fake money, fake savings, and fake signals from the Fed. The feds have pumped $37 trillion in "excess credit" -- above and beyond the traditional relationship between debt and GDP -- into the system over the last 30 years.

And now, the economy -- especially the parasitic half of it run by the Deep State -- depends on more and more fake money and fake credit. That's the one thing Republicans, Democrats, and Trumpistas agree on -- nothing will be allowed to get in the way of the fake-money flow. With the sluices open, the debt will rise. How much? No one knows. All we know for sure is that, with nothing to stop it, you can expect it to keep going up -- until the whole economy drowns in it.

-- Brian Maher (The Daily Reckoning) Sept. 22, 2017

The Undrainable Swamp

The establishment’s concerns have less to do with peace and security than raising sales, earnings, and stock prices in the Atlantic-area's military industrial complex. And the establishment won’t abide any threat to its power.

The Swamp is so undrainable that it will end up making mincemeat of Donald Trump.... The ultimate causes of his demise are anchored deep in the failing status quo. America is so addicted to war, debt, and central bank driven false prosperity that even the most resourceful and focused challenger would be taken down by its sheer inertia.

But [Trump] is so undisciplined, naïve, out-of-touch, thin-skinned, unfocused, and megalomaniacal that he is making it far easier for the Swamp critters than they deserve. To a very considerable extent, in fact, he is filling out his own bill of indictment.

-- David Stockman (The Daily Reckoning) August 4, 2017

profound political disunity

[A] nation ruled by Imperial kleptocrats is intrinsically destabilizing, as there is no longer any moral or political center to bind the nation together.  The public sees the value system at the top is [to] maximize personal profit by whatever means available (e.g., complicity, corruption, monopoly, and rentier rackets), and they follow suit by pursuing whatever petty frauds and rackets are within reach: tax avoidance, cheating on entrance exams, gaming the disability system, lying on mortgage and job applications, and so on.  But the scope of the rentier rackets is so large, the bottom 95% cannot possibly keep up with the expanding wealth and income of the top 0.1% and their army of technocrats and enablers; so a rising sense of injustice widens the already yawning fissures in the body politic....

When the system is rigged, "democracy" is just another public-relations screen to mask the unsavory reality of Oligarchy....  The conventional markers of democracy -- elections and elected representatives -- exist, but they are mere facades; the mechanisms of setting the course of the nation are corrupt, and the power lies outside the public's reach.  History has shown that democratic elections don't guarantee an uncorrupt, functional government. Rather, democracy has become the public-relations stamp of approval for corrupt governance that runs roughshod over individual liberty while centralizing the power to enforce consent, silence critics, and maintain the status quo....

-- Charles Hugh Smith (Of Two Minds blog)

The Problem of Big

So long as there are only two ways to get ahead -- the legitimate way, which leads to earned success, and the illegitimate way, which leads to unearned success or, if things go wrong, to jail -- the system of freedom and responsibility we call democratic capitalism works very well. As a rule, people who make good choices (who work hard, play by the rules, and live within their means) succeed, and people who make bad choices (who don’t work hard, don’t play by the rules, and live beyond their means) fail. This goes for institutions large and small, and for people powerful and weak. The rules for all of us start with the law and, ultimately, the U.S. Constitution.

One of the problems of Big (i.e.: an organization that has reached such a size that its continued existence and success is no longer contingent upon its quality of service) is that it creates a third option: neither obeying the rules nor breaking the rules, but changing the rules as you go. That’s what happens in cronyism, which is in effect legal cheating. [Big] institutions change the rules, so what would have been cheating, and what many people see as cheating, is actually blessed by the state. The transactions of crony capitalism -- campaign contributions on one side, policy changes on the other -- are all perfectly legal.... Big government and its Big partners rob individuals and our nation of freedom, opportunity, and prosperity.

-- Jim DeMint, former US Senator (SC), Falling in Love with America Again (2014) [quote edited]

war is a racket

War is just a racket.  A racket is best described, I believe, as something that is not what it seems to the majority of people.  Only a small, inside group knows what it is about.  It is conducted for the benefit of the very few at the expense of the masses.

I believe in adequate defense at the coastline and nothing else.  If a nation comes over here to fight, then we’ll fight....  I wouldn’t go to war again as I have done to protect some lousy investment of the bankers.  There are only two things we should fight for.  One is the defense of our homes and the other is the Bill of Rights.  War for any other reason is simply a racket.

-- Major General Smedley Darlington Butler, USMC.  1933 speech

market speculation and waste

When the central banks turn the money markets and the capital markets into carry-trade driven casinos... the result is inherently a massive, dead-weight loss to economic output and national wealth.  That's because capital and other economic resources are drastically misallocated to pointless secondary market speculation and pure economic waste....

[A]bsent the inherent checks and balances of the free market, these central bank-enabled casinos do not simply boom and bust randomly;  they do so chronically and predictably.  With the ever-increasing confidence levels developed over the bubble cycles since the early 1990s, an entrenched class of permanent, professional speculators has learned to front-run the maneuvers of our monetary politburo almost perfectly.

-- David Stockman, The Daily Reckoning (April 16, 2014)

rigged markets

Markets are so rigged by policymakers that I have no meaningful insights to offer. I am simply stunned that our policymakers seem so one-dimensional, so short-termist, and so utterly bereft of courage or ideas. It now seems obvious that in response to the financial crisis that has been with us for five years and counting, we are being told to double up on these same policy decisions [that have failed]. The crisis was caused by central bankers mispricing the cost of capital, which forced a misallocation of capital, driven by debt/leverage, which was ultimately exposed as a hideous asset bubble which then collapsed, destroying the lives and livelihoods of tens of millions of relatively innocent people.

If you listen to the [policymakers in the US and Europe], it seems that the only solution they can offer up is to yet again misprice the cost of capital, in the hope that, yet again, through increased leverage/debt, we are yet again greedy enough to misallocate capital, which in turn will lead to yet another round of asset bubbles. Such asset bubbles are meant to delude us into believing that we are now "richer." When —- as they do by definition —- these bubbles burst, those who have been suckered in will realize that their "wealth" is instead an illusion, which in turn will be replaced by default risk...

When looking for where the bubbles may be, realize this: in this current cycle, where central bank balance sheets are at the core, the bubble is everywhere — in stocks, in bonds, in growth expectation, in credit spreads, in currencies, in commodity prices, in most real asset prices — you name it! This is why I think that this current bubble, if it is allowed to fester and develop into 2013, will have such widespread consequences when it bursts that it will make 2008 feel, relatively speaking, like a bull market... When this bubble bursts, I don’t think there is an easy way out. Who will be the bailout provider?

The longer we have to wait for the final resolution to the global financial crisis, the bigger and more devastating the final leg lower will be.

-- Bob Janjuah, Nomura Investments (February 20, 2012)

bread and circuses

It is scarcely possible that the eyes of contemporaries should discover in the public bliss the latent causes of decay and corruption. This long peace, and the uniform government of the Romans, introduced a slow and secret poison into the vitals of the Empire. The minds of men were gradually reduced to the same level, the fire of genius extinguished, and even the military spirit evaporated. From long ago, when we sold our vote to no man, the People have long since abdicated our duties and cast off our cares; we who once bestowed military command, high civil office, legions and all else, now meddle no more and long eagerly for just two things -- bread and circuses."
-- Juvenal, Satire X (2nd century AD)