Posts Tagged ‘Goldman Sachs’

Unfortunately, Capitalism is the de facto religion of America. I say this is our religion because one is pretty much considered to be un-American if you don’t believe in this economic system. It is equated with freedom itself – even though it is not freedom. To be opposed to Capitalism is to be considered a Communist in America. To be a patriotic American, one must BELIEVE.

The problem is: it doesn’t work. It’s that simple. The current collapse of the U.S. and world economy is not a one time thing – it is a recurring phenomenon in our history. Everyone knows about the Great Depression that began in 1929. But couldn’t that just be a weird coincidence? Two events don’t exactly prove that Capitalism doesn’t work, does it? No, it doesn’t. How about the Bank Panic of 1907? Would that help? That’s the one where J.P. Morgan had to use his private resources to save the entire country from financial disaster. Not enough? OK, how about the bank panic of 1893? Still not enough? How about the bank panic of 1873?  Let’s not even start with the recessions that come in between the depressions.

Even Alan Greenspan had to admit that his free market ideas were wrong and that they led to the collapse of the stock market. Yet, about half the country still worships the concept of a free market capitalist economy, refusing to see what is plain to see: American-style Capitalism is seriously flawed. As the Occupy Movement people point out, it is deliriously wonderful for about 1% of the population who own about 25% of the national wealth. It is the other 99% who suffer. The question we should be asking is this: why doesn’t Capitalism work for everyone? The answer is simple: it is literally out of control. The bankers of Wall Street control U.S. monetary policy. It almost seems that it has become a requirement these days that in order to be Secretary of the Treasury you first have to have a top position at Goldman Sachs – just so the government can be sure that you know how everything is supposed to work.

We have, in this country, a true oligarchy that cares only for the few wealthiest people in America. The one thing in America that the government feels compelled to protect is the wealth of the wealthiest. Consider the last collapse (not the one we are feeling right now – I mean the one George Bush created). What did the government save? The banks. Consider the situation in Europe now. The Euro zone is on the verge of collapse. Some countries, like Ireland, have already experienced a collapse of their economy. What was and is being saved in Europe? The banks. Why? Are these particular banks so crucial to the survival of mankind? Of course not. However, it is the extraordinarily wealthy people who own these banks who also own the governments of the major Capitalist countries.

The problem with Capitalism is that none of the wealthy Capitalists will acknowledge that it is not perfect and that it must be controlled. They hate the very idea of controls. (Good thing they’re not airline pilots.) You see, it cuts into their ability to make billions of dollars at the expense of the common man.  So…. we don’t have controls. And our economy periodically collapses. And the government saves the wealthy while letting the average citizens fend for themselves. After all, what do you expect from an oligarchy?

The time has finally come for the entire world to wake up and realize that uncontrolled Capitalism is horribly imperfect. It needs to be controlled. The wealthy people also need to be controlled. They must be prevented from grabbing control our government through bribery via lobbyists.  The governments of our “democracy” must be more democratically elected. Why is it that essentially every Senator and Congressman in our government is a millionaire? It’s because no ordinary person can afford to run for office.  We have a political system that perpetuates an oligarchy.

Capitalist greed has infected our banking system and our government to the extent that the people at the very top of government have lost touch with the people.  They only use the power of government to perpetuate their own wealth and – above all – preserve the banks. Preserve the banks at all costs, that is their mantra. That is literally their religion.

It doesn’t have to be this way. It shouldn’t be this way. The first step in fixing the problem is to nationalize all of the banks. Cut the head off of the snake. Banks should be operated only as a utility for the benefit of all citizens – so that all citizens can enjoy the fruits of Capitalism. The greedy moneylenders of America should be told to get a real job and stop being bloodsucking parasites on the 99%.

Gargantuan banks are not necessary for Capitalism to succeed. Indeed, they have been shown, time and again throughout our history, to be the cause of the failure of Capitalism. Monster banks, out of control, are an imminent danger to democracy and a free economy. History has demonstrated this time and again. So why doesn’t our government fix the problem? Because our monster banks own our government.

And that is why American Capitalism has had a history of recurring, catastrophic failures for well over 100 years.

Yet, we still believe.

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As another nation, Ireland, now peers into the abyss of economic chaos, once again governments are being called upon to bail out the banking industry. Does this sound vaguely familiar? Of course it does . We have been hearing this tune for the past couple of years, perhaps the most loudly in the U.S. where those bastions of our economy like Goldman Sachs, Bank of America, and many more were once facing oblivion and financial Hell. A fate, perhaps, well deserved – but avoided by the intercession of our government. This act of semi-divine intercession is about to be repeated in Europe as that which must not come to pass is prevented from coming to pass.

Of course, I am referring to the collapse of the banking industry in Ireland. The current Irish government, similar in philosophy to the Bush/Cheney Republicans of the U.S., enjoyed the ride while they could. The run up in housing prices, the run up in wages, the run up in credit. It was all a bubble, no different from America’s bubble and equally unrecognized by the Republican economic philosophers at the time. Everyone thought it could go on for ever, except for a few economists. America had its Cassandra economist, Roubini.  Ireland had its Cassandra, McWilliams. Both were right. They called the collapse long in advance, but neither government will admit it, and neither will seek the advice of these bright economists to this day.  Why? We can only wonder.

Here’s another “why”. Why did the U.S. government feel the need to bail out the banks and why does the European Union feel the same? Does anyone know how to spell oligarchy? We are led to believe that the banks are the sine qua non of our economy. The loss of our banks would spell doom for civilization as we know it. Really? Just the banks, I suppose.  Oh no,wait. General Motors too. We couldn’t live without them either. But what about the thousands of individuals who lost their homes? What about the millions who are out of work? Do we not need them also? Apparently not. At least not with the same sense of urgency as the banks.

So let’s take a look at the banks. What, in essence, do they actually do? Well, at their core, they are a source of money. They make loans that people and businesses need in order to carry on their lives. But how does that work, you say? Here’s an example. Suppose old J.P. Morgan had a lot of money (which he did) and he decided to use that money to open a bank (which he did). You go into his bank and you borrow $1,000. Great! Now you only have to pay it back in easy installments of $49.99 for a period of about twenty – two months. Twenty-two? Wait, shouldn’t it be about twenty? Ah, we’re forgetting the interest of about $100, aren’t we? See, you borrow $1,000 but you have to pay old J.P. back $1,100. That’s how he makes money. As Ebenezer Scrooge said, “It’s business.”

But, here’s where the magic comes in: After you pay back old J.P. his money plus interest, he pockets his profit and then what does he do? He loans out that same $1,000 again! Yes! Isn’t that amazing? J.P. can loan out the same money over and over again and make money each time he does so, and his $1,000 never wears out! The best thing for old J.P. is that he doesn’t have to do any work to make money. He doesn’t produce a product, he doesn’t farm any land, he doesn’t build anything, he doesn’t even sell anything. Being a banker has to be just about the best job in the world because you don’t have to work to make money! Even better, bankers make more money than anybody and if they screw up and made stupid loans where they don’t get paid back, the government gives them all the money they lost so they can start lending all over again.

Now imagine you were a banker – like those Payday loan guys. You could loan out money  at $300% interest and get it back in a week! Or, what about if you were a different kind of banker – a credit card banker? You could loan money at 30% interest and it would take years and years for people to pay you back – maybe even a lifetime. Of course you would get your principal back pretty soon, but the poor credit card holder will be paying interest for a semi-eternity. But that is the beauty of the system – you can then loan out the original amount over and over again! And you don’t have to take risks like building televisions or cars that might not sell, or refrigerators that might be defective and people want their money back. No, banking is the ideal business for making tons of money – and the best thing of all is that our governments won’t let you fail! Who could want anything more?

How about the American people? Wouldn’t we want something more, something different? One might think so, but I don’t hear a lot of people complaining about our banking system. I guess that’s because if we change anything it would make us communist or something even worse – just like with health care, and public schools. Still, I have to wonder…why can’t our government run the entire banking system like a utility?  Do we really need privately owned banks that produce no tangible product and charge the highest interest rates possible? Why can’t we just get loans from a government bank at 0% interest? Why not? It would be our money anyway – you know: our tax money. Isn’t that a good use for our tax dollars? If the government, via the Federal Reserve, can print all the money it wants and then give it to the banks at extremely low interest rates, why can’t the government do the same thing for the citizens and eliminate the middlemen bankers who bleed us and our economy while doing no productive work at all? Is it really so un-American to even think about a redo for America’s banking system? Think about it….

Why wouldn’t it work?

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In 1933, Fred Zwicky, an astrophysicist at Cal Tech noticed an anomaly in his star data.  The measured motion of certain galaxies did not agree with what theory predicted.  He decided that there must be some unseen matter that affects the motion of these galaxies.  His work was noted and soon forgotten. It was not until forty years later that Vera Rubin,  a young astronomer at the Carnegie Institution of Washington noticed the same effect in the motion of stars within spiral galaxies, including our own Milky Way. Her measurements indicated that there had to be much more matter in these galaxies than we had thought – we just couldn’t see it.  Today, the existence of this undetectable matter, improbable as it seems, is accepted as a fact by the scientific community. It even has a name: Dark Matter.

I mention this because it illustrates an important point.  We all have our own view of the world and how things work.  However, sometimes we encounter events that don’t fit into our explanation of the world.  We are confronted with a set of data that, no matter how we look at it, turn it sideways or upside down, we just can’t make it fit into our neat little picture of the way things are.  It is at times like these that we have to consider whether our concept of the world is wrong in some way, and, if so, what is a truer picture of the world?  Just as Zwicky and Rubin found that they could not overlook some data that didn’t make sense, we are now confronted with an analogous situation in our society. Something doesn’t make sense about our country and its economy. Something just doesn’t seem to add up about the way our banks operate and how our government interacts with these wealthy institutions.  It make me wonder if there is perhaps some dark matter here too.

We are perhaps, all of us, already too familiar with the collapse of our economy.  Remember how the government helped rescue Bear Stearns but let Lehman Brothers fail? Remember how Secretary Paulson suddenly said the sky was falling and he had to give hundreds of billions to Goldman Sachs and the other big banks – but he wanted a piece of paper signed by someone in authority that said he could never be prosecuted for any part of his role in bailing out the banks?  Didn’t that seem a little strange, like maybe his orbit was a little eccentric?  Remember how a bill was rushed through Congress and John McCain called off his campaign (temporarily) so he could go back to D.C. and do nothing? Wasn’t that a little odd? Did that fit in with our idea of how things work in our government?  Remember how the banks took the handout of $300 billion or so from Congress and then refused to say how they spent it – all the while giving out multi-million dollar bonuses to their employees, even while the banks, like Merrill Lynch were disintegrating? Does that make sense?  Remember how the GM, Ford, and Chrysler execs flew to D.C. in their corporate jets and told Congress they were broke?  And then Citibank goes out and buys a $50 million corporate jet after they received $45 billion in bailout money.  Somehow this just doesn’t add up, does it?  There has to be some dark matter here, I think.

This all started to make sense when I saw Bill Moyers show on PBS a few days ago. His guest was Simon Johnson, a professor of economics at MIT’s Sloan School of Management. Simon contends that we don’t have a democracy in this country; instead we have an oligarchy – rule by an elite group of very powerful people.  Oligarchies were a problem in ancient Greece; so were plutocracies, i.e. rule by the wealthy. The problem with an oligarchy is that they often try to be invisible; indeed, that is partly how they maintain their control. They work behind the scenes in such a way we never see them moving, we only see the tracks they left behind.

Here is one of those tracks: when Secretary Geithner was testifying before the Senate Finance Committee last week, and he was asked by Senator Sanders the following question, “In 2006 and 2007, Lloyd Blankfein, the CEO of Goldman Sachs was the highest paid executive on Wall Street, making over $125 million in total compensation. Due to its risky investments, Goldman Sachs now has over $168 billion in total outstanding debt. It’s laid off over 10 percent of its workforce.  Late last year, the financial situation at Goldman was so dire that the taxpayers of this country provided Goldman Sachs with a $10 billion bailout. Very simple question that I think the American people want to know.  Yes or no, should Mr. Blankfein be fired from his job and new leadership be brought in?

Mr. Geithner replied, “Senator, that’s a judgment his board of directors have to make….”

What???? The CEO of Goldman Sachs drives the company so solidly into the ground that the government has to provide emergency funding or Goldman Sachs will vaporize, and Secretary Geithner can’t figure out whether the CEO should be replaced????

There’s dark matter here all right, and lots of it.  Its getting hard to know where Goldman Sachs and the other big banks on Wall Street end and our government begins.  I’m not so sure there is an end or a beginning.  Maybe its just one big, smooth, money-law continuum where the laws are not absolute, money can be created from laws and laws from money, and everything is, in general, relative.

The problem is that we’ll never know until someone shines some light on the dark matter – but who is going to do that?

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I’m pretty sure that if I crawled into the shiny-bright, luxurious offices of Goldman Sachs, Morgan Stanley, or any of the other big Wall Street banks on my hands and knees I wouldn’t have a chance in Hell of getting any of them to loan me a dime. Not this year or any other year; past, or future. That’s probably true for 90% of the U.S. population and for 99.9% of the world’s population.  Do you think these bankers suspect there might be a little resentment by the U.S. taxpayers about the bailout?  Probably not , or if they do have some inkling of this, they probably don’t care anyway. That’s because there is really only one constituency they, and our present government, care about anyway: the people of China.

At last count, the population of China was over 1.3 billion people, i.e. China outnumbers the U.S. four to one.  These Chinese resources, oops – I mean people, are as valuable to the U.S. businesses as Arab oil is to our “energy” companies.  Remember about twenty years ago how most U.S. businesses changed the name of their “personnel departments” to “human resources”?  A real change came over our nation some time ago, it’s hard to pinpoint exactly when, but it was reflected in our use of language.  Our businesses started feeling odd about having departments made up of “people”. It made them uncomfortable. Maybe it made everything too personal. So American employees changed from being people and became “resources”, like oil or money.  This depersonalization made it easier for Big Business to think of people as commodities that can be bought and sold, acquired and disposed of, without feeling guilt about actually affecting someone’s life.As they say, “it’s not personal, it’s business”.

The human resources of China are astounding. They are hardworking, they work very, very cheap, and they don’t complain. They don’t agitate for safer working conditions, they know their place in life, and they are conveniently far away and out of sight.  They are infinitely better than troublesome, noisy, complaining workers who are always asking for more benefits, like health insurance and time off to go to their kid’s baseball game.  The solution for American business, of course, in so many ways, was to outsource as many of our jobs to these unnamed resources in China. Our multinational companies have made billions by getting these resources to make all the things we buy with our credit cards.  Hell, they even make the credit cards.  We, of course, used our credit cards to buy everything because we didn’t have enough cash.  That’s  because we hardly made enough money to pay our adjustable rate mortgages, let alone our adjustable rate credit cards.

It all had to end sometime, I guess.  Eventually too many of us ran out of credit cards that still had an available credit balance on them that could be used to pay the minimum payments due on all the other credit cards.  Then the whole absurdity really started cascading downward with the collapse of the U.S. toxic housing market pyramid scheme.  It was about this time that the bankers of Wall Street, who wouldn’t normally give either you or me the snot from their noses, turned to their golf buddies in the insurance business. They told them that “now” would be a good time for them to pay off on the insurance policies they had purchased to cover the loans they had made to the ordinary, everyday, cutthroat banks who had made real estate loans to the American peasant masses.

Imagine the surprise on the faces of Messrs. Goldman, Sachs, Morgan, Stanley, and the other blue bloods of Wall Street when they learned, to their abject horror, that their insurance policies (also known as “credit default swaps” so no ordinary person could figure out what they were really for) didn’t actually cover all of their losses.  You see, the insurance companies are really the same thing as big time Las Vegas gamblers. They don’t really ever have enough money to cover everyone’s losses at the same time (just ask any homeowner who ever survived a big hurricane, like Hurricane Andrew), insurance companies, like AIG, plan on only a very small number of claims ever actually being filed. Guess what Wall Street nobility?? Ooopsie!!

Getting back to our unnamed, and barely human, resources in China, it turns out that the noblemen of Wall Street, the princes and earls of our elite society, didn’t actually have enough of their own money to lend to all the cutthroat banks either. They are, after all, not THAT rich.  So they borrowed a lot of that money. A lot of money, most of it came – at extremely low interest rates – from the top dogs who oversee the Chinese human resources.  It was a lot of money. Lots and lots of money.  More money than the mafia has.

These are the same Chinese top dogs the U.S. had to turn to in order to finance the Iraq War because we don’t have enough money ourselves to wage that kind of endless war either. The thing to take away from this is that we owe China one helluva lot of money.

And now, as the earls and princes of Wall Street stand by in abject horror and their golf buddies in the government cover their aghast mouths with hankies and make strange gurgling noises, they all know one thing: if these last two remaining financial institutions on Wall Street melt into cute little golden rivulets that flow softly away into the sewers of New York, somebody in China is going to be very unhappy.  Very, very unhappy.  You know what I mean paisan?

Someone in China is going to be wondering what happened to the trillions of dollars that he lent in good faith to the demented sharpies of Wall Street. This unhappy camper controls 1.3 billion people, and he has nuclear weapons.  He has a slew of intercontinental ballistic missiles, and just completed a space walk equivalent to the Apollo program. This unhappy camper also fabricates most of the stuff we buy because we shut down all our factories and outsourced everything to the faceless, uncomplaining  Chinese resources.  We are totally dependent on this Chinese top dog.

A few days ago, our President and Secretary of the Treasury looked us in the eye and, voices choked with fear, they quakingly told us to be afraid, be very afraid.  We should be.  Our King Bush II has told us peasants that we have no choice but to bail out the earls and princes of Wall Street and save their gold from melting.  It’s all for the good of us peasants, they say. “Peasants to the rescue!”  They even have an a plan anointed by Congress. It goes like this: they’ll give some of our money right away to the princes and earls because their treasuries are running dry. But, don’t worry peasants, they won’t give them everything they asked for! We are being protected. Instead of buying all of Wall Street’s rotten trash, also known as toxic mortgages, the government will instead merely insure a lot of these mortgages.The U.S. government is going to insure mortgages for Wall Street!

Insure the mortgages?!?  Can you believe it? The U.S. government is going to issue Credit Default Swaps to Goldman Sachs and Morgan Stanley, and we peasants are going to fund the whole thing because we are terrified of what will happen if we tell China that they have to eat the losses!  These credit default swaps are one of the main reasons the whole financial world is crumbling down around us and now, in the eleventh hour,  the U.S. Government wants to play the game too???  This is the ultimate solution??

This sounds like government by The Three Stooges, doesn’t it? The only thing I wonder is who are the real stooges here? Any ideas?  Any ideas?

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We’re doomed.  The inmates have taken over the asylum.  Secretary of the Treasury, Henry Paulson, former Chairman and CEO of Goldman Sachs, a man whose career at Goldman Sachs spanned twenty-two years before he was appointed Secretary of the Treasury only two years ago, is now demanding that Congress immediately sign up for a $700,000,000,000 (and maybe lots more) bailout for Goldman Sachs, Morgan Stanley, and others.  Nobody is asking about the propriety of his engineering a bailout of Goldman Sachs at the expense of the U.S. taxpayer while only a week earlier he stood by and let the investment bank of Lehman Brothers, a competitor of Goldman Sachs, simply evaporate.

We’re doomed.  It’s not only those investment bank “whiners” on Wall Street, suffering from a “mental recession”, who are being bailed out by the U.S. government. Now the U.S.  government has changed the wording of the bailout bill to include any financial institution having “significant operations in the U.S.”  Swiss megabank UBS and British bank, Barclays, are already lining up.  It seems they didn’t understand what they were purchasing when they bought all those toxic mortgages, and now they want the U.S. taxpayer to reimburse them too.  It seems that the bailout is a gift from the U.S taxpayers to the poor banks.  Frankly, I would have made it a loan that starts out at 0% interest for the first three months, and then goes up to 33% interest after that, with severe penalties for late payments. I would also reserve the right to change the interest rate again, at any time, for any reason, up to any amount.  I’m sure the banks would understand.

We’re doomed.  The U.S. government has just announced that the last two remaining U.S. investment banks, Goldman Sachs and Morgan Stanley, can now become Bank Holding Companies, i.e. combined commercial and investment banks. In the wake of the 1929 Stock Market crash and the ensuing Great Depression, the U.S. Congress enacted the Glass-Steagall Act in 1935. This Act prohibited banks that lent money, as part of their business practice, from also investing money in stocks, etc. This Act essentially created two types of banks: commercial banks and investment banks. It had been found that, prior to the Depression, U.S. banks had been mixing depositors funds, like savings account money, with investment funds which led to many internal abuses and eventually the collapse of banks during the Great Depression. The Glass-Steagall Act served the country well for over sixty years, but it was repealed in 1999 via the Gramm-Leach-Bliley Act (That would be Phil Gramm of “whiner” and “mental recession” fame). Phil Gramm is now one of John McCain’s chief financial advisers.  He is also currently an investment banker at the Swiss bank of UBS.

We’re doomed.  Secretary Paulson says that we need to act immediately to bail out the investment banks so that our banking institutions will have the confidence to start lending money again and people can get mortgage loans. He believes that easy credit is critical to the functioning of our economy and that if we can just make it easier for people to get mortgage loans people will start buying houses and our economy will improve. He doesn’t understand that our economy collapsed because the housing market was a pyramid scheme and that we don’t have a true underlying economy because we have outsourced the engine of our economy to China. Think about it: When was the last time you bought something (other than food in a supermarket) that had a label saying, “Made in USA” on it?

We’re doomed.  Albert Einstein said that the definition of insanity is “doing the same thing over and over again and expecting different results”.  The inmates have truly taken over the asylum.

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