Tuesday, April 28, 2009

About that "free markets failed us into crisis" narrative...

... it's really worth reading Bill Bonner at Fleet Street Invest today:

Even Henry Kaufman, writing in today’s Financial Times, says that the Fed’s "libertarian dogma" prevented it from controlling the banks properly.

But the Fed is hardly a libertarian organization. It’s a banking cartel. As a cartel, it looks out for its member banks - and doesn’t hesitate to use state power to do so. There is nothing libertarian about it... and no dogma associated with it - except as Greenspan’s eyewash - that is even vaguely libertarian.

The Fed colluded with member banks to fix interest rates. In so doing, it helped create the biggest bubble in credit the world had ever seen. It was a terrible thing for the average fellow - who was lured deep into debt by rising house prices and cheap credit. But it was a great thing for the members of the Federal Reserve cartel. Profits in the financial sector - notably, the big Wall Street investment banks - soared.

But bankers are vulnerable to too much of a good thing - just like everyone else. Soon, they made the classic Wall Street mistake - they came to believe their own hype. Not only did they gin up trillions of dollars’ worth of preposterous financial instruments... they actually bought these debt bombs from each other.

This posed a grave danger to the nation’s economy... and to the banking system. Henry Kaufman claims the regulators dropped the ball because they put too much faith in the free market. But the regulators were little more than front men for the banks themselves. After Alan Greenspan came Henry Paulson as head of the Fed. He was probably still replying to messages at his old address when the crisis began. And the head of the New York Fed - now, US Treasury Secretary Tim Geithner - was elected to his post by the very institutions he was supposed to be overseeing.

Neither of them was about to stop the party; they and their friends were having too much fun.

And it would be really very interesting to see somebody actually following up Steve Cordasco's lead regarding the details of insider trading in bank take-overs and the curious role played by a small coterie of former Goldman Sachs people. [You have to fast forward about 35 minutes in the show, or else skim the transcript.]

Because what's happening right now in DC still isn't about the difference between free markets and managerial capitalism, it's still about the profits and power of an extremely small group of people, who have absolutely no intention of allowing you to see behind the curtain what they are doing with trillions of your dollars.


Hube said...

Brief aside: Did you know Cordasco is a native Delawarean? He lived across the street from me growing up...

Nancy Willing said...

My own brother-in-law started in on my on my blog this morning because I have been keeping up with the news that keeps peeling away the onion skins surrounding the pile of crap that is this Wall Street bailout and I don't have a degree in economics...No Shit.
We need people to investigate what's happening and we need bloggers to blog about what is being reported. It matters.

Bowly said...

Distributed Republic had a great point on this topic today: "One of the reasons I think we libertarians might be missing opportunities for outreach with the Left and overstating them with the Right is that each group seems to think that the 'free market' means the current economic system."