Our Ponzi Economy: The Financial System is Now Based Fundamentally on Lies

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A great piece from Matt TaiBbi at Rolling Stone

The attached essay is long but it is well worth your time. The guy who first called Goldman Sachs the “vampire squid” chronicles the greatest financial crime in the history of the world elegantly, and with just enough vinegar to make it tasty to even those who are not inclined to read about economics usually.

As we have written before, many times, the banking system has completely separated itself from market reality. (Though nothing escapes the wrath of the market over the long term which is why all of this is so scary.)

Our entire system is based upon deception as Taibbi points out. The government and the banks work together to keep everyone snowed. The attention span of the American citizenry is not very long. This can be a good thing or a bad thing, however, in the case of the bank bailouts it is a very bad thing. Most of the guys dictating the future direction of our economy and of the world would be retired in Florida (if not in the stony lonesome) if it wasn’t for the American taxpayer. These guys failed on a massive scale, yet they still are guiding the ship? That just doesn’t make sense.

Think about the fact that the banks which ended up foreclosing on millions of Americans by and large managed their books far worse than the families who couldn’t pay their mortgage.The banks should have tumbled right along with their customers. But instead, because the big banks had and have all the right friends, they got the newly homeless people to finance their bailout instead. Tell me how in any way this is right.

At this point  the big time super crony capitalists think they have gotten away with it. We should not let them. Taibbi’s still watching. So are we.

(From Rolling Stone)

This episode underscores a key feature of the bailout: the government’s decision to use lies as a form of monetary aid. State hands over taxpayer money to functionally insolvent bank; state gives regulatory thumbs up to said bank; bank uses that thumbs up to sell stock; bank pays cash back to state. What’s critical here is not that investors actually buy the Fed’s bullshit accounting – all they have to do is believe the government will backstop Regions either way, healthy or not. “Clearly, the Fed wanted it to attract new investors,” observed Bloomberg, “and those who put fresh capital into Regions this week believe the government won’t let it die.”

Through behavior like this, the government has turned the entire financial system into a kind of vast confidence game – a Ponzi-like scam in which the value of just about everything in the system is inflated because of the widespread belief that the government will step in to prevent losses. Clearly, a government that’s already in debt over its eyes for the next million years does not have enough capital on hand to rescue every Citigroup or Regions Bank in the land should they all go bust tomorrow. But the market is behaving as if Daddy will step in to once again pay the rent the next time any or all of these kids sets the couch on fire and skips out on his security deposit. Just like an actual Ponzi scheme, it works only as long as they don’t have to make good on all the promises they’ve made. They’re building an economy based not on real accounting and real numbers, but on belief.

Click here for the article.