Saturday, May 1, 2010

Let The Reign Of Terror Begin


Yes, Wall street is rotten to the core, but rotten only with the grand assistance of the politician. After all, Wall street pays 4,5 Billion US$ per year to Congress for massaging points of view of the honorable members of Congress. And 44% of members of Congress are Millionaire, so it is difficult to say Congress represents the American society as far a wealth is concerned.

Money (Banks) and Power (Congress) are so intertwined and their incestuous relationship so strong that it looks at the moment we have to live with this as a matter of fact.

Can you imagine the Power these people have? The power to manipulate everything? Interest rates, commodity -, especially precious metal, prices, stock exchange, statistics, even the consumer confidence index cannot be trusted. The sad thing is also that there is nothing that stops them as the (financial) media is stone dead with Zombie journalists, too afraid to betray their Masters, the financial institutions with their adverts.

The arrogance of Keynesian. Luckily there is a natural law in this world called "the law of unintended consequences". You can try to manipulate, but you will never get what you want. And after 50 years of subsidies, import duties, media releases, manipulated statistics, -shares, - prices, everything "pops" to a standstill. We're now waiting for the "hard pop", the second leg down, no escape possible.

Expect mass demonstrations and people demanding change. No, not that change: real change.

So, it will not be long before the politician will bite the head off of the banker. He/she has to, not out of moral reasoning but because he/she wants to get re-elected as his constituency is getting angrier by the day. And with that comes the dirt.

Can't wait.


Let the Reign of Terror Begin

The Daily Capitalist

Congress has been looking for a scapegoat for the crash. It appears that Goldman Sachs is it. Let the show trials begin.

The government always finds someone who did something rotten, blames them for everything, they are tried and convicted with proper bloodletting, the public is satisfied, and everyone forgets about it. This is what happens after every economic crisis yet the cycles keep coming and no one seems to know why other than the usual answer that “greed” caused it.

Greed has nothing to do with the crises, boom or bust.

Greed is a human trait and as such it always exists. This trait is magnified on Wall Street where legions of young MBAs are turned loose, striving to become another Paulson, Soros, or Buffet. Nothing wrong with making money. Greed is moral issue not a legal one. Yet if greed is always there, why aren’t business cycles perpetual?

If you are a follower of J. M. Keynes, then the reason we have business cycles is “animal spirits.” Not a very satisfactory answer from such a lauded economist. All of a sudden, for no apparent reason, our animal spirits, greed or whatever, turn loose and we create booms and busts. Keynes just couldn’t think it through very well.

Fortunately, Ludwig von Mises did. In 1912 he wrote his famous The Theory of Money and Credit which is a groundbreaking study of money in the Austrian tradition. It looks at individual action rather than “national” economic quantities. Begun by Carl Menger, this Austrian School created what is now known as the Marginal Revolution. It rejects the aggregate approach of looking at the economy such as espoused by Keynes. Keynes was an arrogant technician and liked the idea of manipulating things like national money supply, national demand, national wages, and like. Austrians view the economy as the behavior of billions of individuals (Mises referred to this as “human action” or by the Greek name he invented, “praxeology”). Good luck, the Austrians say, trying to figure out what the multitudes are all up to at any given time.

What creates the business cycle, says Mises, is the inflation of money and credit. Only the Fed can do that. This is the key ingredient that Keynes and many Classical economists missed. Turn lose the money spigot and it will flow where opportunity exists. Flood the economy with money and of course greed will occur. So will a boom and bust.

Yes, I know this is quite technical. But the point is that Mises and the Austrians have discovered something quite extraordinary and it was rejected by Keynesian technocrats, now called econometricians, who like national aggregate concepts because they want to control the economy. The only problem is that they don’t know how to do this and their nostrums have never worked in real life. They think that we humans are just some dumb tool to manipulate, sort of a mechanistic, Newtonian view of human behavior. I think we all know that we aren’t “units.” If there ever was a maxim to capture this it would be “I think therefore I am … going to do what I damn well please, so piss off!”

Which gets back to the cause of our crisis. Most Congressmen are Keynesians, whether they know it or not. They believe companies like Goldman caused the crisis by their egregious behavior. All members of Congress want to be re-elected and greedy business people are always good vote getters. They are looking for heads to chop.

This is what is called a “show trial” in less free economies. Stalin loved them because no one knew who would be next and the terror it caused was delicious for a dictator. Chávez is doing the same thing now: Let’s create new laws today and then arrest people for what they did yesterday even though it wasn’t illegal then.

So here is the first trial in a reign of terror on Wall Street:

Federal prosecutors are conducting a criminal investigation into whether Goldman Sachs Group Inc. or its employees committed securities fraud in connection with its mortgage trading, people familiar with the probe say.

The investigation from the Manhattan U.S. Attorney’s Office, which is at a preliminary stage, stemmed from a referral from the Securities and Exchange Commission, these people say. The SEC recently filed civil securities-fraud charges against the big Wall Street firm and a trader in its mortgage group. Goldman and the trader say they have done nothing wrong and are fighting the civil charges. …

Prosecutors haven’t determined whether they will bring charges in the case, say the people familiar with the matter. Many criminal investigations are launched that never result in any charges.

The criminal probe raises the stakes for Goldman, Wall Street’s most powerful firm. The investigation is centered on different evidence than the SEC’s civil case, the people say. It couldn’t be determined which Goldman deals are being scrutinized in the criminal investigation.

Here it comes:

The development comes amid public calls for more Wall Street accountability for the industry’s role in the financial crisis. Though there are multiple ongoing criminal and civil investigations, no Wall Street executives connected with the meltdown have been convicted of criminal charges. …

[I]n the more than two-century history of the U.S. financial markets, no major financial firm has survived criminal charges. Securities firms E.F. Hutton & Co. and Drexel Burnham Lambert Inc. crumbled after being indicted in the 1980s. In 2002 Arthur Andersen LLP went bankrupt after it was convicted of obstruction of justice for its role in covering up an investigation into Enron Corp. The conviction was later overturned by the Supreme Court.

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