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« Max Keiser: On PIMCO's El-Erian Warning Of Financial Repression In The United States (Savers Vs. Speculators) | Main | Tim Geithner: "I Never Had A Real Job" »
Monday
Jul112011

Former Reagan Budget Director David Stockman Annihilates Wall Street, Federal Reserve Debt Monetization & The Bailout Super Culture

Another holiday week flashback to fiscal sanity.  Make sure to follow the link back to the NYT on this one; it's an exceptional piece.

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By David Stockman

Make no mistake. The banking system has become an agent of destruction for the gross domestic product and of impoverishment for the middle class. To be sure, it was lured into these unsavory missions by a truly insane monetary policy under which, most recently, the Federal Reserve purchased $1.5 trillion of longer-dated Treasury bonds and housing agency securities in less than a year. It was an unprecedented exercise in market-rigging with printing-press money, and it gave a sharp boost to the price of bonds and other securities held by banks, permitting them to book huge revenues from trading and bookkeeping gains.

Meanwhile, by fixing short-term interest rates at near zero, the Fed planted its heavy boot squarely in the face of depositors, as it shrank the banks’ cost of production — their interest expense on depositor funds — to the vanishing point.

The resulting ultrasteep yield curve for banks is heralded, by a certain breed of Wall Street tout, as a financial miracle cure. Soon, it is claimed, a prodigious upwelling of profitability will repair bank balance sheets and bury toxic waste from the last bubble’s collapse. But will it?

In supplying the banks with free deposit money (effectively, zero-interest loans), the savers of America are taking a $250 billion annual haircut in lost interest income. And the banks, after reaping this ill-deserved windfall, are pleased to pronounce themselves solvent, ignoring the bad loans still on their books. This kind of Robin Hood redistribution in reverse is not sustainable. It requires permanently flooding world markets with cheap dollars — a recipe for the next bubble and financial crisis.

Moreover, rescuing the banks yet again, this time with a steeply sloped yield curve (that is, cheap short-term money and more expensive long-term rates), is not even a proper monetary policy action. It is a vast and capricious reallocation of national income, which would be hooted down in the halls of Congress, were it properly brought to a vote.

The baleful reality is that the big banks, the freakish offspring of the Fed’s easy money, are dangerous institutions, deeply embedded in a bull market culture of entitlement and greed. This is why the Obama tax is welcome: its underlying policy message is that big banking must get smaller because it does too little that is useful, productive or efficient.

Continue reading at the NYT...

 

 

 

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Reader Comments (6)

The wizard speaks! That cap-toe wearing genius still speaks the truth.

For those of us old enough to remember, Stockman was the one who saw clearly and was integral to bringing us out of the last "great recession." (I still believe the 70's was considerably worse.)

This man is "the man." Listen to brilliance. It has a certain ring.
Jan 20, 2010 at 8:13 PM | Unregistered CommenterOberron4life
"Taxing Wall Street Down to Size"! What a marvelous concept.
Jan 20, 2010 at 8:40 PM | Unregistered CommenterRecoverylessRecovery
By: James_Quinn

What we've got here is failure to communicate.
Some men you just can't reach...
So, you get what we had here last week,
Which is the way he wants it !
Well, he gets it !

MUST SEE PICTURE..LINK
http://marketoracle.co.uk/Article16560.html
Jan 21, 2010 at 2:02 PM | Unregistered CommenterKen
I still believe the 70's was considerably worse.

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i would agree...

didn't stockman have some scandal that brought him down..personal of some sort...i can't remember and i have no time for even a 2 minute google search...
Jan 22, 2010 at 2:38 AM | Registered CommenterDailyBail
stockman was interviewed for an article for "the atlantic" ( '87 i think) magazine and basically stated that supply side economics ("Laffer curve" ..they extrapolated it too far) was bunk....the numbers toward the end of the 80's didn't add up and that the "reagan revolution" wasn't panning out as planned...the big elephant in the room. (see "triumph of politics" by stockman ...excellent) ...stockman was just stating the obvious, but reagan called him in to the office and fired him on the spot. another triumph of politics indeed/ stockman has been a personal hero of mine since then....it's a matter of honesty.
Jul 11, 2011 at 8:47 AM | Unregistered Commenterdave oldaker
Putin brands US as 'hooligans' for printing money

http://en.rian.ru/russia/20110711/165137466.html

[snip]

Russian Prime Minister Vladimir Putin accused the US of hooliganism on Monday over the US government's efforts to ease its financial problems by injecting hundreds of billions of dollars into the economy.

"Thank God, or unfortunately, we do not print a reserve currency but what are they doing? They are behaving like hooligans, switching on the printing press and tossing them around the whole world, forgetting their main obligations," Putin told a meeting of economic experts at the Russian Academy of Sciences.
Jul 11, 2011 at 10:22 AM | Unregistered Commenterjohn

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