Banksters Saved, Jobs Lost

[Considering my preceding essay on bombing semantics, I was happy to hear Obama pontificating that: “Any time bombs are used to target innocent civilians, it is an act of terror!” Wow, what a change! Does that mean no more drone bombings on civilians? Apparently the White House mood of “targeted killings“, “untargeted killings” or “signature strikes” is getting discombobulated by what happened in Boston. More on this White House mystified soul searching, in the future.]

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THEY SAVED THE BANKSTERS, NOT THE JOBS:

Readers who are not fascinated by economists’ debate about the Great Depression of the 1930s (GD30), and  lessons therein, can jump directly to the paragraph: “Banksterism Should Have Been Liquidated”. The plutocrats got their attack dogs, the professional economists and politicians, to blissfully conflate providing a financial system for the People, with sending to the richest of the rich ever more money. Here is the result, a collapse of jobs:

Epic Fail: Banksters Saved, Jobs Lost

Basically, the real economy got starved of money. Notice the tremendous drop under great democrat Obama. All the great economists advising great democrats have to greatly explain this. Obama and his great adviser Larry Summers thoroughly approved the great Goldman Sachs plan to save the Goldman Sachs (and tax free big corporate USA) that had brought the crisis.

Then the banksters’ plan was pursued inexorably. After some hesitation, European parrots duplicated the plan. So here we are.

The red line in the graph above, the EMPLOYMENT RATE, the “Labor Force Participation Rate“, to give it its official title, is now as low as it was at the bottom of the deepest Volcker recession (the worst between GD30 and the present Greater Depression 2008). And we are plunging deeper. Much deeper, trust me.

Why much deeper? Because all those Very Serious People above trust in the great free market god, called Supply-Demand, to pull the economy through. But Supply-Demand is itself an artefact from mind control. So what needs to be controlled is mind control, and only regulations, and debate, democratically imposed, can do this.

Thus the employment situation, disastrous in Europe, is also disastrous in the USA (even though the USA is in full fracking boom, with its resulting, probably ephemeral, abundant oil and gas, that brings back to the USA lots of hydrocarbons dependent industries).

Thatcher and Reagan lowered the taxes of the rich. Now we have gone much further: the rich are outright financed by the poor. (To confuse the victims, that outrageous financing of the rich by the poor is nebulously called “Quantitative easing”, or “The Twist“, or simply “providing liquidity“.)

Far from allowing an exit of the system that caused the 2008 financial crisis, the present strategy, this Transfer of Assets to Rich People (TARP), has only made matters worse for the common economy, and for common people.

The latest twist being “austerity” programs, in Europe or the USA, supposedly to solve an alleged debt problem. But truly austerity makes it easier not to raise taxes on the hyper rich, be it only by changing the debate from the hyper-rich-are-not-taxed-enough to the poor-abuse-the-rich-with-their poverty (the latter was Thatcher’s line of personal business). 

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FOUR MAIN CAUSES FOR THE GREAT DEPRESSION OF THE 1930S:

A superficially seductive, but greatly erroneous, prescription to avoid another Great Depression was publicized by Milton Friedman, and officially embraced by many, including the present Fed Chairman, and its central bank.  Contrarily to what those worthies affect to believe, throwing money at the problem, or, more exactly, at the same exact banking system that caused the problem, is no panacea. Quite the opposite. A misreading of what happened in the 1930s presides to the present disaster. Basically, Friedman said one could run on one leg. He forgot about the other leg, the one that was on the ground before.

Friedman’s “explanation” of the Great Depression of the 1930s (GD30) is that the Central Bank of the USA (“Fed”) did not provide banks with enough “liquidity” (cash). So the banks went bankrupt by the thousands, people lost their savings, business lost access to money, and the economy of the USA faltered. That’s all entirely correct, as part of the picture. Yet:

One can tell lies, just by focusing exclusively on part of the truth.

Lying by ommission is what Milton Friedman did about GD30. His bit of truth is not an “explanation” but a sample of  observed facts. Clearly bankruptcies of the banks was a disaster. All he said above is true, but does not provide enough of a context for revealing the real truth in its full splendor.

In mathematics local minima do not have to be global minima. Same in the theory of theories: local maximal truth does not a global reality make.

Friedman’s quarter truth has come to be viewed by the economic theory in power in the USA as the be all, cure all (panacea).

A few years back, the head of the “Fed” turned to Friedman sitting in the first row and told him, flippantly, for the ages:”You are right, we did it!“. Bernanke meant that the Fed caused the Great Depression, by being too austere.  (Bernanke did his PhD on GD30, showing that some PhD are provided to reinforce the bankster managed banks.)

Let me quote from Friedman (since I quote Hitler occasionally, I may as well quote Friedman):

 “at the London School of Economics… the dominant view was that the depression was an inevitable result of the prior boom, that it was deepened by the attempts to prevent prices and wages from falling and firms from going bankrupt, that the monetary authorities had brought on the depression by inflationary policies before the crash and had prolonged it by “easy money” policies thereafter; that the only sound policy was to let the depression run its course, bring down money costs, and eliminate weak and unsound firms.”

Paul Krugman says that Friedman viewed starving the banks as evident nonsense, and advocated instead the (THEN) Chicago view that banks should have been rescued, government should have acted to reflate the economy, and moreover, that there was a strong case, as Friedman wrote: “for the use of large and continuous deficit budgets to combat the mass unemployment and deflation of the times.” I agree with all this… However…

However as many have noticed, the doctrine Friedman considered self-evident nonsense is now more or less the official doctrine of the Republican party, just as it was under republican president Hoover, and of the European Union, as it was under the French governments of the 1930s. Meanwhile the views Friedman advocated from Chicago are now, according to American conservatives, tyrannical socialism, and according to European leaders, not an option.

The wheel of opinion has turned completely… Why? How? Krugman says it’s because they are all idiots, they just don’t know the basics of macroeconomics. Yet, reality is more instructive.

The passage of Friedman above quoted was a quarter of the truth, the fourth quarter of the truth, what became the truth after Roosevelt closed all the banks. That there was excess, and it had to be wrung out of the system, prior to that, that was another quarter of the truth, the third quarter of the truth. Now conservatives are focusing on that third quarter of the truth, in the USA, and in the EU. 

What was the second quarter of the truth? International trade fighting with tariffs (started in September 1929-July1930, by the USA). The modern equivalent of this deleterious international fighting is competitive devaluations, what the honorable dear professor Paul Krugman always advocates. (And which Japan has recently borrowed from the USA, making Washington all yellow in the face.)

Oh, and what got everything launched? A drastic boom in the 1920s, engineered to drown British WWI debt. That led to inflation (real estate, Florida, say) and overproduction (cars). That was the first component of the Great Depression quartet. 

Before I explain the obvious, let me veer towards what’s wrong in the presently attempted method to get out of this unfolding Greater Depression.

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BANKSTERISM SHOULD HAVE BEEN LIQUIDATED, IT WAS NOT:

Saving a bank and saving a bankster are two different things. Two completely opposed things. It’s like confusing saving a victim and saving who murdered the victim. The banksters leveraged the banks they headed, to the max, because the larger the profit, the more money they got. Some built international airports in the middle of nowhere in Spain.

Some made bets with each other, using the fake currency of financial derivatives.

The more they bet with tremendous leverage, the more leveraged the system got, ready to collapse at the smallest loss.

Meanwhile banksters had bought jets, yachts, mansions, islands (Example: Paulson, Bush’s Treasury Secretary, bought himself an island large enough for several villages).

When the banks collapsed the banksters’ properties were outside of the disaster zone. Politicians left them there. Taking care of their own providers.

Example: Lehman Brothers, a bank, an investment bank, was not saved, but its head banksters saved for themselves the billions they made, driving it into the ground. The three top guys, including CEO Fuld, retired with five billions among them.

Starting in 2008, the structures, ways and means of banks, including the derivatives and banksters leading them were saved (see Citigroup, JP Morgan, Goldman). Everything that had caused the disease was saved, thanks to the public (taxpayers, low lives, etc.)

Whereas in truth and full morality, all that should have been saved were the small deposits (as was done in Cyprus below $130K accounts). The entire businesses, the entire bank holding companies, which had failed, should have been left to fail (free market theory).

From the ruins, banks serving the real economy ought to have been founded. Instead,  the exact same holding companies that had failed were refounded, again, same as they were before, and generally around the same imaginary activities, with the same managers. Citigroup, Goldman Sachs, were saved modulo gifts exceeding 50 billion dollars;  JP Morgan got a giant gift (Bear Stern) and got in trouble because of its “London Whale” (highly leveraged government bond derivatives).

Providing liquidity, that is aid and comfort, to a thief, or a system that steals the real economy, does not provide with an optimal outcome, especially if one is poor, because one has already been robbed by the same thief or oppressive system. But such is the business model since 2008.

A financial system that caused such a crisis, should not just be provided with liquidity, but should have been liquidated as a self serving financial entity.

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GREAT DEPRESSION OF 1930S: LIQUIDATION, THEN LIQUIDITY:

So what happened during the Great depression of the 1930s? Was the view that all the excess should have been liquidated, that the depression should have done its job, correct? (The view held first.) Or is the view that the banks should have been saved correct?

Well, both views were correct. What Friedman and Bernanke do not realize is that there was serious liquidation, for four years, before Roosevelt launched his recovery program. And Roosevelt launched recovery by closing all the banks, first, just as was done in Cyprus recently. Banks were then reopened, provided with liquidity, according to their viability.

So Roosevelt’s New Deal provided liquidity… after a tremendous liquidation. (In the preceding 4 years.)

Right now, there is obvious excess, that should be liquidated. All over the West. It spans the whole landscape of spending. From the picturesque but highly symbolic, to the vast and deep.

I will give examples of what needs to be liquidated in another essay. There is just plain too many dimensions of excess, from “poor” Greeks or Italians with secondary residences, driving expensive Porsches although they have no income, to our self glorifying leaders spending on themselves public money like crazy, while sleeping in plutocrats’ beds. and of course transnational corporations paying no taxes so that they can swallow all and any creature or business in their way. Yes, there is much to liquidate.

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Patrice Ayme

Tags: Great depression, Jobs, Labor Participation Rate, Liquidity. Liquidation, Milton Friedman, Quantitative easing