Unfettered Moral Hazard Thanks to Economic Socialism.
Have you noticed that the world is on a creeping – some (that would be me) would say cascading – slide into socialism?
It started with one giant step in the direction of economic socialism.
Economic socialism is specifically the shared risk the public has been yoked into pulling on behalf of banks.
The unmistakable and indelible footprints of socialism’s latest forward march have been made by collectivist central bankers, pushed forward (at least that’s the direction for them) by their constituents, the bankers of the world.
What’s flooded into all those succeeding footprints is the stagnant future we all face. The march towards global hegemony of bankers’ birth rights makes that evident.
It’s not ironic that bankers espouse capitalist, free-market doctrines, but under cover of their ostensible handlers – their central bankers – prosper and propagate behind a Marshall Plan whose manifesto is socialized risk; it’s sickening.
The moral hazard of socialized risk, of economic socialism, is unfettered.
The United States let the biggest banks in America get bigger. We let them bridle us, saddle us, and ride us into the ground. And they are all bigger now.
How can there be any free market discipline if there is no free market? How can moral hazard be corralled if there are no fences around the risks banks are allowed to take, given their size and power?
We’re facing QE4ever (that’s quantitative easing) on account of the banks being subject to lawsuits and an attack on their capital.
Oh, you didn’t get that?
Here’s the real reason we have stimulus to the nth degree here in America…
The stimulus is not for us. It’s for “them” – the bankers.
Of course, it’s being done under the guise of the dual mandate, gifted to the Federal Reserve by our Congress a few decades ago. You know, the dual mandate that says, besides price stability, the Fed is tasked with manifesting full employment, too.
Forget that that’s an abdication of fiscal policy, an abdication by our Congress and American leadership (what’s that?).
Banks are facing billions in lawsuits. They’ve already paid out billions.
Bank of America just settled a class-action suit for $2.4 billion. What was the suit about? BOA executives misled shareholders at the time of the financial crisis. Forget the specifics; was there a single bank in America that didn’t mislead the public and their shareholders at the time of the financial crisis? Not a one.
And the Fed? Did they mislead the public? Of course they did. But they can’t be sued.
So, the Fed is making sure the banks have the money they need, the liquidity they need, to deal with ongoing litigation, litigation that won’t end any time soon.
And about those capital ratios…
Basel III was supposed to increase the equity capital ratios banks have to maintain. What happened? The benchmarks have all been raised, but they are far lower than all the academics and prudent regulators wanted.
The main equity capital ratio was supposed to be between 7% and 11%, with the consensus being 10%. We got 7%. How? The U.S. Treasury Secretary and the head of the Office of the Comptroller of the Currency undermined the Basel Committee’s intentions and teamed up with the French and Germans to lower the ratio.
How do I know? It’s in “Bull by the Horns,” the new book by Sheila Bair, the former chairman of the FDIC. (Read it.)
Socialized risk is killing the free market “clearing” mechanisms that would have made our pain coming out of the financial crisis really bad. But they’d also put us much farther along in the healing process than we are now.
Instead, today, we’re deep in the march towards socialism, with the central bankers of America and the world leading the charge.
And if this isn’t cut out like a cancer ought to be, our economic future will be subject to a constant nagging fungus – the fungus of failed capitalism.
Contributing Editor, Money Morning
Publisher’s Note: This article originally appeared in Money Morning (USA)
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