Monday, December 12, 2011

Economic Recovery Cannot Begin Without Ending the Present Financial System

The giant vampire squid, a coin termed by Matt Taibbi for the worst of the parasites

At the recent debate I was amused to hear most of the Republican candidates talk about their plans for turning the economy around and "creating jobs."   Government of course can't really create jobs, it can only produce an environment where those who can are rewarded for their risk-taking.   In that environment, more such individuals decide to take the risk, and if they are good enough, wealth is created.   
But their answers involved things like lower marginal tax rates and reducing regulation and start up costs.  Those are all good things, and in the absence of our larger problem would probably help.    But every proposal I heard failed to address the real problem, except of course Dr. Paul comments which hinted at the truth.
America's economy may have some health problems, but its bigger problem is that the large financial sector has become a parasite sucking the economic life from this nation and its people.   Taking measures at the margins to  make sure the patient is otherwise as healthy as possible considering that they have a giant parasite sucking the life blood out of them won't solve the underlying problem.   All it will do is provide maximized sustenance to the parasite for a bit longer before the host succumbs.
Put another way, suppose we worked hard and earned money but could not get ahead because the bank would steal a bit from our paycheck each week when we deposited it.   It was small amounts at first, but each paycheck the amount pilfered grew. At first we cut back on luxuries.   Finally, we were having trouble paying our bills and making ends meet.  All of our neighbors were too, because they were also losing money.  It caused a general business slowdown that cost some people their jobs.  At that point, these politicians come along and suggest that if only we could work more efficiently and have lower taxes (while they spend the same) then our troubles would be solved.  
But they would not be solved, because our problem was not mostly the efficiency of our work.  It wasn't even that taxes were too high, though they are.   Rather, it was that the bank was taking more and more of our earnings each week.   Getting our hands on more money won't help, because it will just give them more to steal.   The issue is the behavior of the banks, but the politicians won't go there.
When Paul said we needed to "liquidate the bad debt" he is referring to the trillions in bad bets that the big banks have on their books- or at least had.  By slight of hand they have loaded much of the bad debt onto our books in exchange for loans against their "collateral" of toxic "assets".    Its all this debt overhanging the economy that is holding us down.   It's the banks taking an ever larger slice of our economy and tying it up in these bad debts that keeps us from getting up.  
They want to gamble on various financial instruments, and when they win they keep the money.   When they lose, they want their buddies at the fed to give them a loan against the losing bet just as if it were a bet that could still win.   Then they take that money and go gamble again.  Rinse and repeat.     And as long as they have all this financial paper to bet on, why bother with the traditional business of consumer or business loans?   The no-lose casino is a lot more profitable.  
Meanwhile, the rest of the economy is overloaded with debt and traditional credit is shrinking.  The vast sums being created by the fed to loan to their friends is staying in a tight little circle out of the Main Street Economy.   When they have made enough churning their paper, and we are hungry enough, the banksters will take all the money they made and buy us out for pennies on the dollar.
The problem will never be solved, and the recovery will never come, by fiddling with deregulation or tax incentives.   Our economy has a giant parasite sucking the life out of us.  Until we deal with it, as painful as dealing with it may be, it will be impossible to get out of this morass.   Any increase in real wealth we manage to generate will be quickly vacuumed up by the vampire squid.   
Paul is right.  We have to close down the bank's casino.   We have to quit loaning them money on these assets and let the market find their true value.   That may mean some of these "assets" sell for big losses compared to their book value.       That's what Paul means when he says "we have to liquidate the bad debt."  If that happens big enough, yes the banks will be insolvent.   And yes, that will be painful, like the pain one feels when ripping a well-entrenched parasite off your body.   But its the only solution, and every day we wait will only make it worse.


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