The Greater Abomination: Washington’s Lies About TARP’s ‘Success’ Are Worse Than The Original Bailouts, Part I

The mainstream economics narrative is so far down the monetary rabbit hole that the blinding clarity of the chart below has no chance whatsoever of seeing the light of day. That’s because it dramatizes the real truth regarding all the Fed gibberish about ‘accommodation’ and ‘stimulus’. Namely, that what lies beneath its ‘extraordinary measures’, such as ZIRP, QE, wealth effects and the rest of the litany, is a central banking regime that systematically destroy savers. Period.
Just take the simple case of a worker who joined the labor force in 1969 at $100 per week or $5,200 annually, and worked at the average non-supervisory weekly wage posted by the BLS every year through 2009. By that point he or she would have attained an ending wage of $600 per week or $31k annually, and a 40-year average annual income of about $20k in nominal terms. With a normal load of payroll and state and local withholding, the latter would have left about $15,000 per year on an after-tax basis.
Upon retirement this BLS tracking worker could have possibly accumulated $100,000 in a savings nest egg – -but only if he or she had been completely atypical and set aside an average of 17% of after-tax income each and every year. Needless to say, that would have precluded nearly all everyday ‘luxuries’ such as a regular new car, an occasional trip to Disneyland, a bass boat for weekend fishing and most other like and similar modest indulgences. Instead, deep thrift would have been the omnipresent watchword of this household.

This post was published at David Stockmans Contra Corner on December 22, 2014.

The Keynesian PhD Brigade Strikes Again: Sweden’s Riksbank Joins The ZIRP Mania

Folks, it’s a tyranny of the PhDs. Recently, the central bank of Sweden was subject to a withering tirade by that oracle of Keynesian rubbish, professor Paul Krugman, who accused it of ‘sado-monetarism’ for leaving the Swedish economy exposed to the mythical economic disease of ‘deflation’.
So the Riksbank threw caution to the wind, and a few months ago joined the global central bank plunge into ZIRP and promised to ladle out free money until at least 2016. To leave no doubt, it is currently cranking up for direct lending, ‘asset purchases’, negative interest rates (N-ZIRP) and the rest of the recently invented central bankers voodoo kit. Anything to achieve its sacred 2% inflation target!
So still another central bank has been infected by the 2% inflation shibboleth – -a folly the greatest central banker of our era dispatched recently with a single sentence:
Mr. Volcker, who believes the Fed’s main goal is to defend the dollar’s stability, said he doesn’t even understand why the Fed adopted a 2% target for inflation. He asked, ‘Do we want prices to double every generation?’
Yes, today’s Keynesian central bankers don’t particularly care what happens in the next 30 years or even 30 months. It’s all about the noise-ridden ‘in-coming’ data and whether the gap between actual production and employment, one the one hand, and a theoretical figment called full employment or ‘potential’ GDP, on the other, has been closed.
It is downright amazing that the $75 trillion global economy is in thrall to the stupid math models of a couple of hundred PhDs. And these so-called DSGE models (dynamic stochastic general equilibrium) are, indeed, just plain stupid.

This post was published at David Stockmans Contra Corner on December 19, 2014.

Central Banks Are Now Uncorking The Delirium Phase

Virtually every day there is an eruption of lunacy from one central bank or another somewhere in the world. Today it was the Swiss central bank’s turn, and it didn’t pull any punches with regard to Russian billionaires seeking a safe haven from the ruble-rubble in Moscow or investors from all around its borders fleeing Mario Draghi’s impending euro-trashing campaign. The essence of its action was that your money is not welcome in Switzerland; and if you do bring it, we will extract a rental payment from your deposits.
For the time being, that levy amounts to a negative 25 bps on deposits with the Swiss Central bank – -a maneuver that is designed to drive Swiss Libor into the realm of negative interest rates as well. But the more significant implication is that the Swiss are prepared to print endless amounts of their own currency to enforce this utterly unnatural edict on savers and depositors within its borders.
Yes, the once and former pillar of monetary rectitude, the SNB, has gone all-in for money printing. Indeed, it now aims to become the BOJ on steroids – -a monetary Godzilla.
So its current plunge into the netherworld of negative interest rates is nothing new. It’s just the next step in its long-standing campaign to put a floor under the Swiss Franc at 120. That means effectively that it stands ready to print enough francs to purchase any and all euros (and other currencies) on offer without limit.
And print it has. During the last 80 months, the SNB’s balance sheet has soared from 100B CHF to 530B CHF – – a 5X explosion that would make Bernanke envious. Better still, a balance sheet which stood at 20% of Swiss GDP in early 2008 – -now towers at a world record 80% of the alpine nation’s total output.

This post was published at David Stockmans Contra Corner on December 18, 2014.

David Stockman: Energy Crunch Will Morph Into a Replay of the Housing Crash

The spiraling energy meltdown is the new housing crash, according to David Stockman, White House budget chief in the Reagan White House. Just as the 2007-09 housing plunge did not put a dime into consumers’ pockets – even though average home prices tanked by about 30 percent, from $230,000 to $165,000 – the energy crunch likewise is not going to add to consumer wallets, Stockman asserts. At the peak of the mortgage boom, he notes, the U. S. savings rate had actually vanished, falling to about 2.5 percent of personal income from pre-Greenspan rates of 10 percent to 12.5 percent.
‘Stated differently, the mortgage credit boom exploded uncontrollably in the run-up to the financial crisis because free-market pricing of debt and savings had been totally distorted and falsified by the monetary central planners at the Fed,’ Stockman writes on his Contra Corner blog.
‘Drastic mispricing of savings and mortgage debt in this instance touched off a cascade of distortions in spending and investment that did immense harm to the main street economy because they induced unsustainable economic bubbles to accompany the financial ones.’
Now Stockman predicts it will be deja vu all over again for Federal Reserve Chair Janet Yellen and her minions at the Fed.
‘Substitute the term ‘E&P [exploration and production] expense’ in the shale patch for ‘housing’ investment and employment in the sand states, and you have tomorrow’s graphs – that is, the plunging chart points which are latent even now in the crude oil price bust.

This post was published at David Stockmans Contra Corner on December 18, 2014.

I’m Not Buying It – – Not The Wall Street Rip, Nor The Keynesian Rap

First comes production. Then comes income. Spending and savings follow. All the rest is debt…….unless you believe in a magic Keynesian ether called ‘aggregate demand’ and a blatant stab-in-the-dark called ‘potential GDP’.
I don’t. So let’s start with a pretty startling contrast between two bellwether data trends since the pre-crisis peak in late 2007 – debt versus production.
Not surprisingly, we have racked up a lot more debt – notwithstanding all the phony palaver about ‘deleveraging’. In fact, total credit market debt outstanding – -government, business, household and finance – -is up by 16% since the last peak – from $50 trillion to $58 trillion. And that 2007 peak, in turn, was up 80% from the previous peak (2001); and that was up 103% from the business cycle peak before that (July 1990).
Yes, the debt mountain just keeps on growing. It now stands 4.2X higher than the $13.6 trillion outstanding just 24 years ago.

This post was published at David Stockmans Contra Corner on December 17, 2014.

I’m Not Buying It – – Not The Wall Street ‘Rip’, Nor The Keynesian Dope

First comes production. Then comes income. Spending and savings follow. All the rest is debt…….unless you believe in a magic Keynesian ether called ‘aggregate demand’ and a blatant stab-in-the-dark called ‘potential GDP’.
I don’t. So let’s start with a pretty startling contrast between two bellwether data trends since the pre-crisis peak in late 2007 – debt versus production.
Not surprisingly, we have racked up a lot more debt – notwithstanding all the phony palaver about ‘deleveraging’. In fact, total credit market debt outstanding – -government, business, household and finance – -is up by 16% since the last peak – from $50 trillion to $58 trillion. And that 2007 peak, in turn, was up 80% from the previous peak(2001); and that was up 103% from the business cycle peak before that (July 1990). Yes, the debt mountain just keeps on growing.

This post was published at David Stockmans Contra Corner on December 17, 2014.

The Fracturing Energy Bubble Is the New Housing Crash

Let’s see. Between July 2007 and January 2009, the median US residential housing price plunged from $230k to $165k or by 30%. That must have been some kind of super ‘tax cut’.
In fact, that brutal housing price plunge amounted to a $400 billion per year ‘savings’ at the $1.5 trillion per year run-rate of residential housing turnover. So with all that extra money in their pockets consumers were positioned to spend-up a storm on shoes, shirts and dinners at the Red Lobster.

Except they didn’t. And, no, it wasn’t because housing is a purported ‘capital good’ or that transactions are largely ‘financed’ at upwards of 85% leverage ratios. None of those truisms changed consumer incomes or spending power per se.
Instead, what happened was the mortgage credit boom came to a thundering halt as the subprime default rates became visible. This abrupt halt to mortgage credit expansion, in turn, caused the whole chain of artificial economic activity that it had funded to rapidly evaporate.

This post was published at David Stockmans Contra Corner on December 16, 2014.

Myths And Legends Die Hard – That’s Why The Casino Never Stops Expecting More Free Money

This week has already seen a ‘shocking’ move from the PBOC that essentially disqualified almost half of repo collateral from usable status. That amounts to a massive tightening in a manner that is wholly unfamiliar to economists that remain fixated on simple variables like interest rates. The response to the move, especially with further economic data from China, is as if it never happened.
‘It [inflation at a 5-year low] will likely convince policymakers to ease their policy stance further and we continue to expect a RRR [bank reserve requirement ratio] cut in the near term, most likely this month,’ he told Reuters.
Last month, the country’s central bank unexpectedly cut interest ratesfor the first time in more than two years to spur activity.
The first paragraph is this very denial; while the second misreads what happened totally. Again, the PBOC is engaged in a stepped process of removing full monentarism from its presence and thus its toolkit. But they cannot simply go from A to B; instead they are taking a measured approach to figure out stress points (as best as they may be able).
After the February/March yuan occurrence, they went back and began to fortify the ‘good’ parts of the financial system in anticipation of the next step in ‘reform.’ In that context, this assumed ‘rate cut for the first time in two years’ makes perfect sense in that it was preparing and targeting the ‘good’ parts of the system in anticipation of what was about to follow it (the ignored tightening). With the next step in the ‘reform’ process currently taking place, that means there will be no broad PBOC ‘stimulus’ because that is exactly the expectation and reality they are trying very hard to erase.

This post was published at David Stockmans Contra Corner on December 10, 2014.

Dream On Herr Hatzius: You Dwell In A Giant Collapsing Bubble

How ever-loving stupid do they think we really are?
Goldman’s plenipotentiary at the New York Fed, William Dudley or B-Dud, has been running around pointedly emitting a new word signal called ‘patient’ rather than ‘considerable time’ to describe the Fed’s interest raising plan. Then right on cue, his alter ego back at Goldman central, Herr Hatzius, yesterday dug out and circulated to the clientele an identical 10-year ago audible from when the Fed last changed its password in 2004:
In the 2003-2004 playbook, ‘considerable period’ gave way to ‘patient’ as a signal that the hikes were drawing closer, and it is interesting that the words ‘patient’ or ‘patience’ have shown up quite frequently in recent Fed speeches.
Finally, like clockwork at 6:30 PM last night, the Fed’s official out-sourced spokesman, Jon Hilsenramp, delivered the definitive message to the casino players through Rupert Murdoch’s drop box.
Federal Reserve officials are seriously considering an important shift in tone at their policy meeting next week: dropping an assurance that short-term interest rates will stay near zero for a ‘considerable time’…….
Mr.. Dudley – a part of Ms. Yellen’s inner circle of advisers – has suggested recently that the Fed could replace the assurance of low rates for a considerable time by stating more vaguely that it expects to be patient before moving……. The Fed took this approach the last time it was trying to engineer a liftoff from low rates, in 2004….(when it)dropped an assurance rates would stay low for a ‘considerable period’ and said it would be patient before raising rates.

This post was published at David Stockmans Contra Corner on December 9, 2014.

The Birth of a Monster

The Federal Reserve’s doors have been open for ‘business’ for one hundred years. In explaining the creation of this money-making machine (pun intended – the Fed remits nearly $100 bn. in profits each year to Congress) most people fall into one of two camps.
Those inclined to view the Fed as a helpful institution, fostering financial stability in a world of error-prone capitalists, explain the creation of the Fed as a natural and healthy outgrowth of the troubled National Banking System. How helpful the Fed has been is questionable at best, and in a recent book edited by Joe Salerno and me – The Fed at One Hundred – various contributors outline many (though by no means all) of the Fed’s shortcomings over the past century.
Others, mostly those with a skeptical view of the Fed, treat its creation as an exercise in secretive government meddling (as in G. Edward Griffin’s The Creature from Jekyll Island) or crony capitalism run amok (as in Murray Rothbard’s The Case Against the Fed).
In my own chapter in The Fed at One Hundred I find sympathies with both groups (you can download the chapter pdf here). The actual creation of the Fed is a tragically beautiful case study in closed-door Congressional deals and big banking’s ultimate victory over the American public. Neither of these facts emerged from nowhere, however. The fateful events that transpired in 1910 on Jekyll Island were the evolutionary outcome of over fifty years of government meddling in money. As such, the Fed is a natural (though terribly unfortunate) outgrowth of an ever more flawed and repressive monetary system.

This post was published at Ludwig von Mises Institute on DECEMBER 1, 2014.

Why Crony Capitalism Will Be Hard To Uproot: Interview Of David Stockman

David Stockman was elected to Congress at age 29 back in 1976; he was an avid student of Austrian economics and supported a gold-backed money system and a balanced budget. He later joined the Reagan administration as Budget Chief, where he watched in awe as the Reagan administration quickly became the most profligate spenders in the history of the United States.
After leaving the Reagan Cabinet, he worked at the well-known investment house Salomon Brothers, and later co-founded the Blackstone Group alongside legendary hedge-fund manager Steve Schwarzmann.
In his most recent book, The Great Deformation: The Corruption of Capitalism in America, Stockman systematically repudiates and dismantles the myths surrounding the Fed’s supposed past successes at helping the US economy avoid major breakdowns, going all the way back to the crash of ’29. Instead, as he explains, ‘Programs born out of desperation or idealism 75 years ago have ended up as fiscal time bombs like Social Security or as captive fiefdoms of one crony capitalist syndicate or another… Policies undertaken in the name of public good inexorably become captured by special interests and crony capitalists.’
The most important lesson I took from the book and the interview? Remember that there has never been a time of such profound debt saturation, coupled with intense crony capitalism, as today. No one has ever been here to tell how it turns out. We truly are in an unprecedented era…
David, can you explain how the ‘Fed put’ works on the stock markets and bond markets? How exactly does it translate into artificially higher stock prices and lower interest rates?
The Fed injects massive amounts of liquidity into Wall Street through the dealer system – that is, the 21 authorized treasury-bond dealers. The liquidity comes in the form of new credits to their bank accounts supplied by the Fed in return for the governments bonds, notes and bills, and even the GSE (Government-sponsored entity) obligations that it buys from them. The credit that the Fed supplies to the dealers is manufactured out of thin air; therefore it expands total credits and liquidity in the system. The dealers use it to buy other types of securities – stocks, bonds, derivatives positions and so forth.
Historically, the purpose of the Fed’s open-market intervention in this form was to encourage the banking system to extend credit to the business and household sectors, thereby stimulating economic growth, as predicated by the Keynesian model. That was always a one-time parlor trick, however, because with each cycle of easing leverage ratios in the business and household sectors were ratcheted steadily higher. Household debt ratios, for example, went from 80 percent of wage and salary income prior to 1975 to 220 percent by 2007.
The problem today is that we have reached ‘peak debt.’ The household sector has $13.3 trillion of debts1, even after the modest post- crisis deleveraging; the ratio is still sky-high at 180 percent of wage and salary income.

This post was published at David Stockmans Contra Corner on November 24, 2014.

SP 500 and NDX Futures Daily Price – Audit or End the Fed

“Politics is the loom that weaves and spins the fabric of our democratic social cohesion. The politics of democracy is the social blanket that we all willingly come together under, huddled awkwardly, for our national identity. The interwoven threads of multi-media, technology, financial, and shared social myths bind this political blanket into our national identity as a democratic republic.
When the democratic political process has been stealthy co-opted over many years by financialization, which seamlessly connects the financial industry and the government, we become members of a fascist form of state (inverted totalitarianism), without collectively knowing it yet.”
Joe, the Angry Hawaiian
The financial system in its existing form is excessively arbitrary and non-transparent.
An external standard provides a flywheel, which prevents the expansion of the money supply at the discretion of a central authority that also has the power to monetize debt and set interest rates, within some longer term limitations.
In its worst form, short of an overt tyranny, the central banking power has the ability to create money at will, and distribute as they see fit, to their cronies, for whom they are also a powerful friend and regulator governed by a self-defined class that moves freely between government and the financial industry.
This is the precise reason why President Andrew Jackson vetoed the Second Bank of the United States. The Banks speculated in the goods of the nation, keeping the profits, but using the power of their Central Bank to shift the losses to the public.

This post was published at Jesses Crossroads Cafe on 10 November 2014.

Another Pension Scandal – The Crony Love Affair Between North Carolina, Credit Suisse and Erskine Bowles

In North Carolina, managing the retirement savings of teachers, police officers, firefighters and other public employees is big business. As the sole fiduciary of the state’s $90 billion pension fund, Treasurer Cowell, a Democrat, was recently named the world’s 18th most important institutional investor by the Sovereign Wealth Fund Institute. The State Employees Association of North Carolina (Seanc) estimates that North Carolina is on track to spend a billion dollars a year of retirees’ pension money on fees to private financial firms. Roughly half of all North Carolina pension deals involve placement agents, and Seanc estimates that has generated roughly $180 million in placement agent fees – costs that are effectively paid by the pension fund, according to critics.
Credit Suisse’s own internal regulations say the company aims to ‘establish a management organization that avoids the creation or appearance of conflicts of interests.’ But the North Carolina agreement (the provisions of which were secret until Seanc’s open records request earlier this year) explicitly allows Credit Suisse to engage in ‘actual and potential conflicts of interest.’ The agreement noted Credit Suisse could receive ‘placement fees’ from the firms in which it invests North Carolina pension money.
– From David Sirota’s excellent piece in Investors Business Daily: Pension Deal Spotlights ‘Placement Agent’ Business, Raises Conflict-Of-Interest Questions
When it comes to how the U. S. economy of fraud functions in 2014, the following article has it all. A government official, a global investment bank and a businessman/politician, all working together to enrich themselves at the public’s expense. It demonstrates how big bucks are really earned by insiders in the new American Dream, characterized by extreme cronyism and corruption. As might be expected, this post highlights another excellent piece by David Sirota, who has been doing the best investigative journalism on the topic of public pension corruption. In this article, he zeros in on what’s known as ‘placement agents,’ which are often large financial firms with connections across the political spectrum, and are often money managers themselves, such as private equity giant Blackstone. However, they don’t need to have any expertise in financial matters, they simply need to be connected. As such, placement agents are sometime even former NFL stars.
These agents are paid by money managers to recommend their funds to huge pools of capital, such as public pension funds. In this article, global investment bank Credit Suisse plays the role of placement agent. The investment pool is played by the North Carolina state pension fund, led by Janet Cowell, while the asset manager looking to earn pension fund fees is played by Carousel Capital, a firm run by Erskine Bowles.
As a refresher, Janet Cowell is no stranger to this site. I covered her cronyism back in June in the post, Meet Janet Cowell – The North Carolina Treasurer Desperately Pushing to Keep Criminal Public Pension Fees Secret. Here’s an excerpt:

This post was published at Liberty Blitzkrieg on Oct 22, 2014.

Sports Stadiums: Temples to Crony Capitalism

The NFL is running one of its own games on the public, and as one of the most subsidized non-profit organizations in American history, the NFL excels at tackling the American taxpayer. It should be of no surprise that with its religious-like following, the NFL receives the same tax-exempt status as a church, exempted under the IRS 501 (c) 6 code from paying federal taxes. The legislation puts the NFL as a non-profit trade association which it has been under since 1942.
But over the past twenty years, 101 new sports facilities have opened in the United States – a 90-percent replacement rate – and lately there has been a rising tendency for renovation costs to skyrocket into the hundreds of millions, which, according to Harvard University urban planning professor Judith Grant Long, the taxpayer foots on average 70 percent of the bill, with often not a penny coming out of the pockets of the team or its owners. The rest of the funding comes from tax-exempt municipal bonds supported under the G4 stadium loan program, which provides loans in return for revenue generated from ticket sales and premium seating.
As is the case with ‘too big to fail’ financial institutions, the NFL is given politically-favored status, and protected by a trench of antitrust exemptions. But unlike the overpaid (read: taxpayer-subsidized) CEOs of Goldman Sachs and Chase Bank, NFL commissioner Roger Goodell earns twice as much as them, thanks to an NFL flush with taxpayer cash. Goodell earned more than $44 million in 2013, and in the past five years he has made over $105 million.

This post was published at Ludwig von Mises Institute on Friday, October 03, 2014.

The Counter-Intuitive Rise of the U.S. Dollar

As things get dicier globally, assets in periphery nations typically get dumped as mobile capital flees risk and migrates to lower risk core nations and currencies.
I received many thoughtful comments on Why the Dollar May Remain Strong For Longer Than We Think. Given the many weaknesses of the U. S.–ballooning social-welfare and crony-capitalist liabilities, free money for financiers monetary policies, etc.–a strengthening dollar (USD) strikes many as counter-intuitive. The dynamic complexities of fiscal and monetary policies, global capital flows and the foreign exchange (FX) market complicate any inquiry, so I try to keep it simple. In my view, the USD serves both transactional (global trade) markets and the global need for currency reserves (i.e. as a store-of-value). Sorting out the various influences on its relative value in each capacity is complex enough, but there is also the X Factor–the hard-to-quantify components of any currency’s relative value. For the USD, the X Factor is hegemony, which includes financial dominance based on debt issued/denominated in USD and what might be called the real-world assets of the issuing nation: that nation’s food, energy and water security (what I call the FEW resources), its proximity to potential enemies, its external environmental costs, its overseas financial assets, the strength of its legal system in protecting private assets, its demographic profile and of course its ability to project power to defend its interests. By these basic measures, the U. S. scores pretty well. We can get some perspective on this by putting ourselves in the shoes of wealthy people in periphery nations where the risks of capital controls, currency devaluation, etc. are perceived to be high, or in the shoes of corrupt elites in countries where they fear their ill-gotten gains might not survive blowback (hence the almost universal desire of elites to leave China with their loot).

This post was published at Charles Hugh Smith on SUNDAY, SEPTEMBER 21, 2014.

The thriving cronyism of the stock market: 81 percent of stock market wealth held in the hands by 10 percent of the population. Housing also being snatched from middle class families.

Most Americans are confronting a system where the deck is stacked against their interests. Most Americans saw the true colors of the system during the Great Recession panic when government joined forces with Wall Street to essentially fire the middle class with explicit and hidden bailouts. There is unfortunately a large amount of cronyism embedded in the current system. Most Americans have very little in stock market wealth. Over 81 percent of stock wealth is held by the top 10 percent of the population. This is why for most, retirement is largely one pipe dream. Yet the problem of the bailouts was the split of corporate welfare for connected institutions and austerity measures for the rest of the country. Wall Street is driven by profits and companies were able to slash their way into profitability while boosting earnings and using large safety nets and golden parachutes for those at the top. Banks that should have failed survived thanks to the too big to fail mantra. This is why, after a record stock market run since 2009 many Americans still view the economy as performing poorly. For them it is. You also have Wall Street invading the one asset where Americans used as a forced savings account, housing. Even in this one asset class Americans are being pushed out.
Not buying the stock market rally
The data is clear in that very few Americans own any substantial amount in stock wealth. 81 percent of stock wealth is held with 10 percent of the population. The recent rally was driven by slashing wages, cutting benefits, leveraging bailout funds, and ultimately using the recession as proof that labor was fully disposable. The days of corporatism are gone and now the reality of company loyalty is long gone. The government and lobbyists will assist those at the top but for most middle class Americans, the game is over.
This is how you can have a stock market peak with such poor sentiment:

This post was published at MyBudget360 on September 10, 2014.

Big Banks Headed Straight for Another Bailout

The 2010 Dodd-Frank Act, which included the orderly liquidation living wills requirement, was meant to prevent future rescues of systemically important financial institutions. But the idea that current regulations are capable of solving the too-big-to-fail problem was challenged by the recent regulatory rejection of 11 banks' living wills. Some argue that living wills are a work-in-progress that will improve over time. However, the truth is that living wills are a myth meant to calm the populace. It is impossible to neatly unwind a failed SIFI, since the failure of such a large institution will necessarily cause unacceptable collateral damage.
The most likely course of action is that regulators will maintain the status quo and change nothing of substance, relying on cosmetic fixes to give voters a false sense of security. Some free market enthusiasts might argue that the status quo isn't so bad, so long as customers and not regulators decide how big banks should be. But the SIFI market is anything but free. The big bank model failed in late 2008; in a free market, these banks would have ceased to exist. They survived because they are the creations of the government, not the free market. Exempt from market discipline, they represent crony capitalism at its worst.

This post was published at American Banker

How We’ve Devolved into the Current System of Crony Capitalism

In this interview with Bill Moyers, David Stockman, who first coined the term Crony Capitalism, explains what’s happened in the political-economic realm since his post as Budget Director under Reagan. The evidence that we’ve embarked on a “new system” has become more obvious with time. Beginning with the $20 billion bailout of the Mexican peso in 1994, progressing with the bailout of Long Term Capital Management in 1998 and the recent bailout in 2008 with the $700 billion Wall Street package, Stockman explains that the benefactors are not limited to those being bailed out. The investors who financed those failures are the ones who’ve really benefited.  These are the so-called cronies, who have ties to those in high positions, capable of bending laws to ensure the majority of profits go to themselves, while losses are always taken by the tax payers.