Friday, Jan 01, 2010
So many ways to stealth-transfer taxpayer wealth to the banksters
Counterpunch: Lining up for the Wall Street gravy train
He sketches the process of the complete de-coupling of finance from the real economy. Fewer jobs, more billionaires.
Posted by icarus @ 05:46 PM (1143 views) Add Comment
24 Comments
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1. devo said...
From the article...
"Quantitative easing (QE) ... has been hyped as a way to get the banks to increase lending to businesses and consumers by creating over $1 trillion of excess bank reserves. But instead of increasing lending, QE does the exact opposite; it creates generous incentives for not lending. The banks who qualify have been taking the Fed's zero-rate reserves and exchanging them for safe, 10-year Treasury bonds which yield 3.5%. What a deal! Fed chairman Ben Bernanke has promised to maintain this policy for "an extended period" which means the banks will continue to reap the benefits of this stealth bailout for the foreseeable future."
I hope mark wadsworth reads this;he has said on a number of occasions that QE is not a form of bank bailout.
Or perhaps United States QE is different from UK QE?
2. icarus said...
QE doesn't change the net sum of financial assets in the private sector (MW's point?) but it swaps long-term bonds for reserve balances, so there is maturity substitution, which affects yields, keeping long-term IRs low. This, allied to lending facilities to banks, has kept asset prices high and minimised the need for deleveraging in the financial sector.
3. devo said...
@2 icarus
QE is temporarily propping up the the whole economy.
Is that what you meant?
Then why didn't you say so?
4. alan_540 said...
Does this mean that central banks can threaten to withhold QE funds if the recipient banks don't use a proportion of it to lend to businesses?
So QE serves 2 purposes :
1) Restores a banks balance sheet.
2) Increases lending to businesses.
Isn't this what is needed to stabilise the economy? Or are there better ways of doing it?
5. devo said...
4. alan_540
If QE stops, the financial system is revealed as the ponzi/pyramid scheme it is.
6. icarus said...
@4 It does (1) but not (2).
@3 Your second question presupposes a positive response to your first. Since you're the one making the assertion why don't you explain what you mean?
7. alan_540 said...
What alternatives exist to QE though? Or is it the best of a bad bunch of options?
8. devo said...
6. icarus said... why don't you explain what you mean?
Specialists in any field feel obliged to couch their message in flowery language in a misguided attempt to demonstrate their credentials and/or massage their egos.
9. icarus said...
WTF?
10. hpwatcher said...
What alternatives exist to QE though? Or is it the best of a bad bunch of options?
Bad banks would fail and the good, competent, banks would take over.
11. alan_540 said...
I'm just wondering if there is a better way out of the financial mess the world economy finds itself in other than what has been done to date.
If the US/UK economies are fundamentally knackered (Ponzi schemes) why not just de-globalise, clear all debts and start again from scratch?
Or does that way mean upsetting the nations we owe money to, such as China. And if we upset them too much then it's out with the guns?
12. alan_540 said...
@hpwatcher
But if banks all owe money to each other, letting one fail (one of the big ones cf. Lehmanns) could bring others down domino fashion and the whole system implodes. Wasn't it just this scenario that QE was meant to (and has?) prevented?
13. devo said...
12. alan_540 said... But if banks all owe money to each other, letting one fail (one of the big ones cf. Lehmanns) could bring others down domino fashion and the whole system implodes. Wasn't it just this scenario that QE was meant to (and has?) prevented?
That's my understanding also.
I have yet to read a convincing argument as to how QE can be anything other than a temporary fix. Once it is removed, then look out below!
14. happy mondays said...
@ devo, for my own confirmation! Are you saying that the debt hole is to massive to fill ? Can they not continue to print there way out ? Can you, in simple man's terms explain why please ? May help me get my head around this mess..
15. alan_540 said...
If QE stabilises things then it's back to business as usual I guess. Albeit in a fundamentally flawed system. The other option is to write off all debt and start again. But the consequences of that would be possible global war.
That's my understanding of things. Feel free to put me right if I'm way off course.
16. devo said...
I can only do simple man's terms icarus - that should be obvious
I'll be back later.
(Don't expect any great revelations)
17. estrader said...
@14 Happy Mondays, listen to this. It is long but very interesting and Peter Schiff explains fiat currency and the folly of "money printing" in simple English.
http://www.youtube.com/watch?v=eksf2ScG6yU&feature=related
Listen to the whole thing, you will be glad you did.
18. devo said...
@happy mondays
Yes, I am saying that the debt hole is too massive to fill. A quadrillion dollars+ is an impossible amount to deleverage.
As to whether it's possible to print their way out - at a UK level, no. A debt Jubilee seems the only solution to me.
19. devo said...
15. alan_540 said... The other option is to write off all debt and start again
As a rule of thumb, take the lack of response from the 'experts' as an affirmation that you're on the right lines.
20. alan_540 said...
I'm interested to know if there are better options than what has been done already.
If you look at the Dow going back to 1920 it's basically a flat line up to the 70s and then it takes off like a rocket to where we are now.
What changed then? How can it be sustainable? I don't see how it can be. When we are unable to meet the interest payments on outstanding debts (let alone repaying them) what happens? Maybe it doesn't actually matter. Maybe the system can be kept going indefinately by QE measures and other such methods yet to be used. Maybe it's all just a big game that doesn't really matter.
I agree that the silence is deafening. But I suppose most contributors are nursing hangovers today!
21. devo said...
"If you look at the Dow going back to 1920 it's basically a flat line up to the 70s and then it takes off like a rocket to where we are now."
That's what's known in the financial world as a 'bubble'.
22. alan_540 said...
It's the scale of it today that's scary - 1929 looks like a very minor correction by contrast.
23. devo said...
22. alan_540 said... It's the scale of it today that's scary - 1929 looks like a very minor correction by contrast.
That's right
The financiers are slowly beginning to realise the true meaning of 'it's different this time'.
When the history books don't help...... that's scary.
24. Jacobite said...
Why is that that no new banks that offer good retail banking and lending to small businesses are starting up. I would think this would be a great time to start as I think a mojority of people would support them.