Bank Worship


I have fiercely condemned, for a decade, the policy of reducing the economy to interest rates. As I have said, and will say again below, this is identical to making (private) bankers into gods. “Liberal” (meaning “left” in the USA) economists love to say that low interest rates is all the socialism we need. Nobel laureate Paul Krugman is trying to make fun of the serious arguments found in scholarly critique of his “interest rate idolatry”. Says Paul:

I’m With Stupid.

No doubt, dear Paul, no doubt. Being stupid is more profitable, quite often, than being smart and moral.

Banksters Steal The World, And Prosper, Ever More

Banksters Steal The World, And Prosper, Ever More

Via FT Alphaville, James Montier has an interesting piece castigating economists for their “interest rate idolatry”, their belief that central bank-set interest rates matter a lot for the economy…” Montier writes down notions I used to brandish at the beginning of the Obama presidency. I stopped after I realized everybody (Very Serious People, Academia, High Finance, Politicians, Media) was on the con. That meant, in practice that, if one talked about it too much one was viewed as mentally imbalanced (just as pointing out that the Qur’an prescribes terrorism may one looks as a racist, according to the Politically Correct insects). Here is part of Montier’s well-thought essay:

A wider idolatry: the greatest con ever perpetuated

Lest you think I am being unduly harsh on the world’s poor central bankers, let me turn to the wider idolatry of interest rates that seems to characterise the world in which we live. There seems to be a perception that central bankers are gods (or at the very least minor deities in some twisted economic pantheon). Coupled with this deification of central bankers is a faith that interest rates are a panacea.

Whatever the problem, interest rates can solve it. Inflation too high, simply raise interest rates. Economy too weak, then lower interest rates. A bubble bursts, then slash interest rates, etc., etc. John Kenneth Galbraith poetically described this belief as “…our most prestigious form of fraud, our most elegant escape from reality… The difficulty is that this highly plausible, wholly agreeable process exists only in well-established economic belief and not in real life.”

This obsession with interest rates as a cure-all rests on some dubious views about the way the world works.”

Montier points out that the fundamental official argument for lowering interest rates down to zero is flawed: …”firms generally rely on internal financing to fund investment, rather than borrowing – witness Exhibit 6. Over 100% of gross investment is financed by internal funds.”

The obsession with interest rates has meant, in practice, that so-called liberal, self-described “progressive”, friends of “We The People” economists, have prescribed, implicitly, to lower taxes on the hyper-rich as much as possible. So they masquerade as left-wing, but, in truth, they are plutophiles. This is an old method, and why Polar Bears are white, instead of brown or black as their ancestors were. Montier:

“Just in case you were wondering about the much-lauded ability of the central bank to create inflation via helicopter drops of cash (or its modern-day equivalent), this is actually a form of fiscal policy, not monetary policy. As I noted above, monetary policy alters the distribution of net worth while fiscal policy alters the levels of net worth. Because helicopter drops effectively give everyone a boost of cash, this is clearly a change in net worth and thus is likely to be helpful in stimulating demand.

As you may have gathered from the preceding paragraph, the good news is that there is an alternative to monetary policy, and that is fiscal policy. These days fiscal policy is deeply out of vogue amongst policymakers and politicians. However, it has a much more direct link to growth than any of the channels suggested for monetary policy – it is part of the construction of GDP, and has a clear impact upon incomes.”

Krugman made a very feeble defense, which mostly consisted, weirdly, but tellingly enough, to laud Lawrence Summers, one of the architect of the dismantlement of the financial regulations under Clinton, to create a class of hyper-rich financiers. To his credit, Krugman published my comment:

In the USA, houses are started massively all the times. It’s a mark of unsustainability (presumably flimsy housing is replaced). Reducing the entire economy to this, is imbalanced. Why not consider infrastructure starts? Research? Health?

The fundamental question is: what is an economic activity which is profitable for the society?

The conventional answer is that banks know best. As the banks’ lending goes up as interest rates go down, bringing the latter down, improves the economy, say banks’ friends.

Let’s call that BANK WORSHIP.

Bank worship has enabled big banks’ heads and associated high financiers they collaborate with, to be so powerful and dishonest, that they changed the hearts & minds of all the power that be in society.

The latest case is the French Societe Generale: the police chief in charge of an inquiry on an eight billion dollar fraud therein, now admits, years later, that she was manipulated by the bank (a lower level employee, Jerome Kerviel, was sued, chased down, and condemned severely, although he claims he acted under orders). The fraud was reimbursed by taxpayers. This means that Societe Generale bosses, just in this particular case, of this particular fraud, stole around 50 dollars to each French citizens. Don’t worry for them: the thieves live big. An even bigger picture is that, in the leading countries, big bankers are banksters, and they corrupted institutions of the Republic (including politics, government, justice and police) thoroughly.

The problem is the same in Anglo-America: time after time, giant frauds of the biggest banks are exposed, and they are condemned to fines. In the end, a bank-too-big-to-fail condemned to a fine means nothing: in the worst possible cases, it’s tax payers who pay. It is the case where the criminals’ punishment is to make the victims suffer.

The latest such case is the LIBOR “punishment”, proclaimed today. In it, big banks in London manipulated the world’s leading interest rate (they call that the “market”). You would think that, after stealing billions the heads of banks such as JP Morgan would go to jail. No. Taxpayers go to jail.

Zero Interest Rates, To Serve High Finance Plutocracy:

Another problem is that zero interest rates have proven devastating for small savers, while providing the banks and their accomplices with quasi-unlimited funds for playing with each other the derivatives’ market, something that is not a real economic activity, except by making the richest ever richer.

One lends to the rich. By making lending ever easier, government policy has made the rich ever richer.

Correct economic activity would consist in the government encouraging activities which are profitable to the people at large, very long term.

The “market” is driven with what bankers think is profitable, short term.

Conventional wisdom by the economists in power is that we can trust the bankers to encourage the economic activity most suitable to the “market”, hence society.

Governments were told by the economists in power to make the job of bankers easier, to make for a better economy, hence better society. Trust bankers, give them all the lending capability, hence all the power they want, and We The People will become richer.

Thus the general strategy of bank worship assumes a trait that is true: a banker is a government official. A banker is a non-elected, uncontrolled government official, with unlimited funds, and inexistent oversight by the People’s representatives.

Bankers control the market, which controls the economy, which control society. Is that the society we want? Do we want to be controlled, financed, by an oligarchy of non-elected little Big Brothers who decide what activities the society will engage in?

Bankers are little Big Brothers who are free to finance the high financial class they belong to, as much as they want. That’s why derivative trading is more than ten times larger than real trade, worldwide. This is also why half of the world’s money is in Dark Pools. And so on.

The cause of this nightmarish world is bank worship. Bank worship is very smart for the Big Bankers. Krugman is NOT with stupid, as he disingenuously claim. He is with the winning crowd. To go interact with people such as Paul Krugman and Joe Stiglitz, the fact is, one needs to be seriously independently wealthy (then one can become a “student”, meaning a future co-conspirator, or mingle at parties).

It is very stupid for the rest of us to have become adulators of bank worship. Bank worship made society subject to a dictatorial oligarchy operating in the shadows.

What happened to the Enlightenment? It seems to have sunk in “Dark Pools”.

Patrice Ayme’


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24 Responses to “Bank Worship”

  1. ianmillerblog Says:

    Possibly the worst thing about low interest rates is the effect on the middle classes, who borrow furiously, and inflate the price of assets with them. In New Zealand, the Auckland housing market is heading for a classical bubble, although there are more things involved than interest rates. The point is, when interest rates rise, as they must, then only too many will lose everything. Only the rich and the very poor are exempt – the latter because they own nothing and can’t fall any lower. Then we have another “economic crisis”, and guess what – a whole lot more people get impoverished so the banksters can play their games.

    • gmax Says:

      Same in the good old USA: bubbles everywhere. Especially health and thus education. As Patrice said, it costs a fortune to go to college.

      We are heading straight to the HUNGER GAMES (the movies)

    • Patrice Ayme Says:

      Yes the bubble thing is like plutocracy breathing… Both zero interest and plutos help prop the bubbles.
      Bubbles in real estate are worldwide in places global plutocracy likes. Record last week was on the French Riviera. A villa sold for around 25,000 dollars, per square foot… $250,000 per square meter.
      Even in Silicon Valley, local plutocrats can’t keep up…

  2. gmax Says:

    Where to start? This is a classical case of corruption. Worldwide. Massive. Doom and gloom, to hide worse to come. The destruction of earth.
    The thing is that the worse banksters and politicians get, the more successful they are, so the more encouraged they feel, on top of the world, the worse they get.

    The Wall Street Journal had an article on that this week!

  3. indravaruna Says:

    The Jerusalem Temple worked as a Central Bank, this why the Pharisees (Rabbinical Tamuldic jews) crucified Jesus for expelling the money-changers from the Temple.

    The Temple was so wealthy that when the Roman Army looted in 70 AD the gold was used to build the Colosseum, the biggest Roman construction that stand to this day.

    • Patrice Ayme Says:

      News to me. The Roman SPQR had no central bank. Nor did the USA before 1914 (or around that). What the Roman SPQR had was a treasury. The treasury emitted FIAT money and also NON FIAT coins (the high gold content Solidus/Aurelius). The latter was used for a millennium. The FIAT money collapsed in the Third Century, for a number of reasons (military and police weakness). That, in turn, brought down the economy.

      One of the reasons for the collapse of FIAT was dearth of precious metals.

      The FRANKS remedied all these problems, by getting silver (“argent”), in the European East, thanks to military force, and imposed respect by boiling counterfeiters…

      When one is the only one to make money, one does not need a central bank. Private-public banking appeared with the Republic Of Florence, to pay for the army, to defend said republic… Around 1200 CE.

      Private bankers financed Charles V and Francois I when they were warring with each other. Nearly 2 centuries later the English Central Bank surfaced as a way to finance the Royal Navy.

  4. Alexi Helligar Says:

    Great article!

  5. Alexi Helligar Says:

    How do we start our own bank? If you can’t beat ’em join ’em!

    • Patrice Ayme Says:

      Very funny. Start with deep roots, burying in time. JP Morgan was central to USA high finance in 1908 already (JP Morgan stopped a Wall Street crash by buying the whole Wall Street). All other TBTF banks are the same, or even older. You are talking about institutions old and respectable enough to have financed Hitler, ex-nihilo.

      • Alexi Helligar Says:

        Seems like the best approach is to get a government mandate and do a better job than what is being done by the current banking institutions. If an ethical bank can find ways to provide superior value, then there should be movement towards that and away from the existing bankers. Has this approach ever been tried? I tend to think we have to include the current elites as part of any given solution. What is the best way forward?

        • Patrice Ayme Says:

          Patrice Ayme: The first thing to do is to ROLL BACK all the changes to high finance of the Clinton administration, which themselves rolled back the reforms of the BANKING ACT OF 1933 (FDR’s “Glass-Steagal”). The problem is not whether there are “ethical banks”, but that there are UNethical laws in power… Plus banks Too Big To Fail…

  6. Alexi Helligar Says:

    Given the fact that the Banks write the legislation, how is this going to ever happen? Your remedy is what U.S. Senator Bernie Sanders has in his platform for President, but it would require congressional action. I don’t see that happening even under a possible Sanders administration.

    • Patrice Ayme Says:

      Patrice Ayme I have not even been following what Bernie Sanders is proposing, shame on me, as he does not have a snowball in hell chance, And, as you said, if he were elected, he would still be blocked by Congress…. Although a well determined president could do much, by going to public opinion. We are still dealing with an intrinsic oligarchy of elected representarives. My solution is to go around, and go SWISS: introduce referenda. In the preceding essay, on OBAMA COMING OF AGE, I suggested to VOTE, the whole population, on the TPP, and the proposed Transatlantic Treaty (TWO votes!) That would be to start. The Swiss system has been PROGRESSIVELY installed in the last few decades (California’s better health in recent years can be attributed to referenda, in part).

  7. Alexi Helligar Says:

    How do you propose to deal with regressive popular ideas? There are times when the majority is plain wrong. For example, anti-gay marriage amendments that went to referendum and the anti-tax propositions in California that has enriched plutocrats and brought what was once one of the finest university systems to the brink.

    • Patrice Ayme Says:

      Patrice Ayme: Regressive popular ideas can be fought back on the public arena, plutocracy cannot. It is true that some Swiss “VOTATIONs” have been deplorable.

      Prohibition of minarets has been silly. The anti-EU votes were turned around by the government, as needed. Although I am 100,000% pro-European, I rather approve Switzerland refusing to submit to Brussels… Precisely because of the Direct Democracy of CH, Suisse. The vote against free circulation, which puts Switzerland at risk of a sort of war with the EU, is being turned around, sort of. Meanwhile, the Swiss have a point: they had a GIANT influx of population in, demonstrating the superiority in economic matters of the Direct Democracy. No other country I know of had such an influx.

  8. Alexi Helligar Says:

    I really do like the idea of direct democracy, however, the direct vote must be balanced by a strong judiciary, executive branch, and a class of skilled legislators to craft the laws and frame the issues that the public will eventually ratify with their votes.

    • Patrice Ayme Says:

      The beauty of my proposal, actually, is that I invented nothing. It is the Swiss practice. Switzerland, has all the preceding: strong judiciary, executive, and skilled legislators.

      OK, not as strong as in the Imperial French Republic next door (in charge of defending Representative Democracy, worldwide, with the USA, since the UK has folded). France has put Switzerland to is knees, legislatively, and even judiciarily, prety systematically, in recent years. But that has to do with the French hyper power tradition. In any case the French and USA systems could accomodate referenda, without changing ANYTHING. Just copy the way Switzerland has been coping with Direct Democracy. Nothing prevents to use the referenda as consultations, the modern equivalent of SPQR’s Senatum Consulte

  9. Patrice Ayme Says:

    [Sent to Learning From Dogs, May 22.]

    The first and most fundamental lie is that we live in democracy (People-rule), as in Ancient Athens. We don’t. What we have instead is Representative Oligarchy: a few individuals, supposed to represent us, get enormous powers. In practice, they act as puppets of the powers that be, the plutocrats who are truly those who control the legislative content.

    Some will even say: Representative Oiligarchy. The International Monetary Fund revealed this week that fossil fuel subsidies are more than 5 trillion dollars (5,300 billions), worldwide.

  10. Paul Handover Says:

    Excellent essay supported by sensible replies. Apologies for not being around recently but the final phase of my book, plus the blog, plus home life, are all taking priority.

    Alex asked how does one start a bank. But if one removes the focus of money, then one quickly comes to a core question: how does one start a community of like-minded people?

    That’s a much easier question to answer. Then one quickly learns that small communities of local people can roll back many of the reasons why one needs a bank.

    Just my two-pennies worth!

  11. Patrice Ayme Says:

    [Sent to Facebook Philosophy Group.]

    A century ago, the left was really a left, and hated the filthy rich. And the real left was very powerful. Thus things, overall, improved. By 1955, a sort of socialism had come over the West, including the USA.

    Now everybody is supposed to cry about the hard lives of the hyper rich? So that we can go back to the conditions of a century ago? Well, we have:

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