Punchinello's Chronicles

January 5, 2012

The So-Called Unfair Wealth Gap

Filed under: Word of the Day — Punchinello @ 1:54 am

Here we are, starting January 2012, and The Protester was the “man of the year” on Time magazine. We remember the “Occupy Wall Street” movement, made up of people inarticulately angry at all the money the bankers are making. Their main chant is that 99% of the population makes a barely living wage, while 1% of the population owns all the money and assets. What do we do about it? They have no clue, other than turn American into a socialist system. They want the government to fix it!

The government caused the problem in the first place!

So how come there’s all this money at the top? Why is it so hard to get credit? How come small businesses are being shut down because they can’t get a line of credit from the big banks? What’s this “too big to fail?”

Over the past decades, laws have changed allowing banks to merge and have branches all over the country. As smaller banks have failed because of real estate crashes, the FDIC offers them to the bigger banks rather than use federal money to pay out the insured claims of depositors. The big banks get bigger, the small banks fail and disappear.

We also know that the reason the real estate market crashed is due to government laws mandating that banks provide low-cost loans to anyone who can draw an X on a piece of paper. They don’t need a job, don’t need a past, don’t need a credit rating, and don’t need a down payment. If the banks do NOT make those loans, they face government sanctions.

“Liar’s loans” were a moral hazard, where a bank would be guaranteed a loan they made to anyone. The government would make those guarantees through Freddie Mac or Fannie Mae. Additionally, we have “notional value,” which means that the value a bank places on a property is whatever they say it is.

In the old days, “mark to market” meant that a property would periodically be assessed at some market value. If that value went up, then the value was carried on the bank’s books at the higher price. Lower assessments, the asset value would be reduced. As real estate prices began to crash, banks had to reduce their asset values on the books. So Congress repealed “mark to market.” What we now have is what some people call “mark to unicorn.”

Remember, banks hold only a small percentage of actual money or property to back up loans. Decades ago, the Federal Reserve set the rules that a bank could lend out 10 times what they had on the books as assets. Today, that number is almost unlimited. The Fed has allowed banks to lend out 30 times or more of their assets.

So “asset” means all sorts of important consequences. If the assets go down, then a bank has to call in loans and can’t make more loans. With “mark to unicorn,” a house that was originally mortgaged for $400,000 but is now worth $300,000 is still carried on the books at $400,000. That’s the “notion” of what it’s value would be if everything went back to normal. It doesn’t matter what’s going on now, for how long.

In the real world, that house has lost 25% of its value. In the real world, the bank would have to cut back on lending to match the reduced asset value. In the real world, someone might be able to buy the cheaper house and take it off the market. With “mark to unicorn,” the bank can keep the value, keep their loans outstanding, foreclose on the house and make more money by selling it again while collecting penalties on the loan. And the person living there, ends up in the streets.

Banks began having major trouble meeting the Federal Reserve banking rules, not to mention SEC regulations. They’d borrowed money at zero interest from the Fed, then used that money to bet on the stock and commodities market. They stopped lending money to people, and made the money from investing. In fact, the end of the Glass-Steagall Act, repealed during the Clinton administration, made it legal for a bank to be both a customer bank and an investment bank.

Banks are allowed to use whatever money they have to invest, presumably on “behalf of” the customers. The SEC used to make sure that “invest” meant something reasonable. Now, with the SEC watching porn videos, “invest” means gambling.

But the casino is falling apart. Occult investments in derivatives, credit-default swaps, currency swaps and so forth, have meant that hundreds of BILLIONS of dollars have been borrowed, then used to gamble. Estimates of the currently outstanding derivatives market make it $500 TRILLION!!! That’s a half a QUADRILLION dollars outstanding!

What happens when people start making claims on all those pieces of paper? The total, entire, complete, EVERYthing value of the Entire United States is $54-trillion dollars. If we sold every tree, rock, river, mountain, house, building, bike, doll, bushel of corn and everything else, leaving us without even the dirt we’re standing on, we’d need Ten Times that amount to meet ONLY the obligations created by ONLY the banking and financial industry!

With only 10 banks controlling around 90% of the entire national asset list and financial structure, Congress and the Federal Reserve noted that these banks were “too big to fail.” If they failed, they would collapse the entire world economy, shutting down the whole concept of money, ending all trade, and bringing on a Dark Ages. They say. Therefore, there’s no way these banks can fail.

But what if they do?

Throughout all of nature, the most basic principle has always been competition. Bad actions lead to failure. Good actions are those that succeed. Humanity has, in the past, also said that “good” actions mean moral actions. Then we go on to create religions and philosophies about what’s good. Banks, based on the Chicago school of economics claim that “whatever succeeds is good.”

According to modern economics, ALL profit is good. That means morally good! That means that any time you make a profit, no matter how you do it, you are doing a morally good thing. Does it matter who gets hurt, killed or destroyed? No, as long as you’re making a profit. It’s up to the “other guy” to watch out for their own best interests. If they don’t make a profit, then that’s too bad. They’re “bad.”

The end result is that profiteering with no moral code at all is considered the new moral standard. Crony capitalism means using other people’s money to make a never-ending profit. “Moral hazard” means that IF you fail to make a profit, AND you’re a bank, THEN the government will bail you out. With other people’s money. OUR money! Money taken from the 99%. Too bad the morons in the protest movement don’t understand a frickin’ thing about all this!

The reason that wealth has concentrated more and more into the hands of fewer and fewer super-billionaires is that they can’t fail! They’re not allowed to fail! They’re too big to fail! No matter what stupid-ass decisions they make, they’ll be bailed out. No matter what dumb-ass investments they make, if they lose they’ll be bailed out. By the government. The same government the Occupy Mars movement wants to “fix” things!

More importantly, no matter what laws are broken, regulations are disregarded or ethical principles are ignored, the federal government will be there to bail out the criminals. Banks can’t fail. Major industries like the automobile companies won’t fail. The government will levitate them, no matter how bad their actions and investments.

What would it be like if you could start a business with an unlimited amount of money? No matter what you did, no matter what product, no matter what market or lack of market, no matter what decisions, no matter what kind of business practices, all you’d have to do is show your books every few months. If you made money, you get to keep it. If you lost money, the government would re-stock your bank account. If you wanted to borrow more money to go to Las Vegas, the government would give you an open-ended credit card.

You go to Las Vegas, spend money on food, hotels, shows, clothes, jewelry and whatever. All reimbursed. Then you go gamble. If you win, you get to keep the winnings. If you lose, the government covers the bill.

How hard would it be for YOU to become one of the super rich?

The problem is: Where does all this government money come from? You? The taxpayer? Of course not! There isn’t enough money in the universe to make up all the dollars flying around. Instead, it’s all being printed by the US Treasury, which borrows the “authority to print” from the Federal Reserve. That’s the American continental central bank, a private bank having nothing to do with the United States.

If you went to buy a bolt of cotton 10 years ago, you would pay, say, $50 in US dollars. That means that one dollar would purchase a certain amount of woven fabric. The world markets set the “exchange” rate as to how much was the value of that dollar in terms of cotton — how many dollars it takes to buy a certain amount of cotton.

Today, to buy the same bolt of cotton you would have to pay $75 US dollars. What happened? Did the cotton get more expensive? No. The value of the US dollar has dropped by 50% in the world markets. The cotton is the same, it’s the dollars that have become worth…less. Worthless. Why? Because the Federal Reserve has printed so many new dollars, they have nothing whatsoever backing them.

So to make sure the big banks can continue their unrestrained, out-of-control gambling spree, the Federal Reserve has authorized an unlimited credit line to the US Treasury. That credit line is what Congress wants raised and raised and raised every few month. Keep in mind that while the banks are gambling trillions of dollars, the US government is also spending trillions of dollars to buy a constant supply of voters.

Is it unfair that the super wealthy have so much money? Not really. It’s only that they can’t fail. The banks and investors buy the politicians and their votes. We repeal or negate laws meant to protect free markets. We make new laws designed to take more money from taxpayers, and every election a larger number of people have no idea what’s happening. The Occupy Mars people want to re-elect the same government, over and over again. Republican or Democrat, it doesn’t matter. Same thing.

To make it all fair again is a simple thing: Allow failure to fail! That’s it, pure and simple. If General Motors makes a bad car and nobody buys it, the company should go bankrupt. If Citigroup or Bank of America can’t collect on their loans, then let them go bankrupt.

If that had happened ten years ago, we would have maybe had an economic depression for a year or two. Instead, we kept it all floating and kicked the can down the road. Now, if these mega-institutions were to fail, it would bring down the entire financial structure of the world. Would we survive? Of course. But we’d have some major chaos for awhile.

To just keep kicking the can down the road means that every single last dollar available from working people has to feed the maw of the never-ending gambling spree on the part of the big institutions and Congress. I say stop the credit card, cut up the credit card, and let the failed businesses fail. T’row da bums out!


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