Bear Stearns and moral bankruptcy

Rod, there are lots of Bear Stearns out there. Most of these firms are zombies who've experienced massive losses in off-the-books "conduits". When they get a "margin call" (i.e., when their loans are called in), they have to bring these losses onto their balance sheet. The Fed is desperate to forstall a panic so when one of these zombies looks to be exposed for what it is, it quickly applies makeup. They're just buying as much time as possible before the meltdown so they can have a plan in place to deal with it. It won't work. The Fed can only supply liquidity. What good does a cheap loan do someone who is bankrupt?

There has never been a free market. The central banks of the world (such as the Fed) use an essentially socialist tool of setting short term interest rates. Where else does the government (or a quasi-governmental entity like the Fed) try to set prices in the economy? And they have abused this tool by keeping interest rates artificially low for decades (since 1987 in the case of the Fed and early 90's in the case of the Bank of Japan, etc.). This is the root of our current problems, because bankers and the like have used this "free money" to speculate on rising asset prices. The reason asset prices have risen to bubble-like levels is because the real economy does not need this "exogenous" money to meet real needs. So the money plays games.

There is nothing conservative or libertarian about GOP economic policy *** as actually practiced ****. Because of all the "rent-seeking" (the power of government used to manipulate the markets to reward the well-connected) in the global economy, I think it fair to say that "crony capitalism" would be a better name for GOP economic ideology. These guys have been feeding at the government trough for years, and the little people have been screwed (mainly because there has been no market for their savings since the Fed was willing to provide so much "free money" -- i.e., at an interest rate at or below the rate of inflation.

Deneen overstates the situation. In the happy liberal Minneapolis neighborhood where I live -- and the conservative online community of this blog -- people don't live the way Deneen rails against. And I think our way of seeing things is becoming more and more popular all the time. My friends and neighbors has chosen smaller homes, smaller environmental footprints and a clear focus on family and community.

Unfortunatly we haven't had a true free market in a long time. There are a conciderable amount of controls to prevent another depression. There have been for a long time.

I think its sad that bear sterns expected a bail out because they were big. As to whether or not they should have been its a tough call. Letting them go under would hurt a lot of people and be very painful. Many of those that would be hurt would be normal people that don't have any "biggness" to fall back on.

I really wish there wasn't a double standard for those that a big and those that are small. Unfortunatly in this case I can see a reason why you'd want to bail them out even though every bone in your body wants to let them go under.

All I can say is I'm glad I'm not involved in making decisions on bail outs. I might have chosen the pain option on principal.

The weakening of (well, "attack on" is not that unfair) regulation/oversight, short-termers attitude and the "I make reality and don't you tell me anything that disagrees with what I want to hear" leadership style that is in vogue among both business and political leadership: there are common links here. Short-sighted arrogance and self-centeredness.

Slow, sound and sustaining - not the sexiest words, but making a comeback!

People of faith have a horse in this race: the Jesuits of Salamanca defined a "bank" as a partner in trade that had 100% of demand deposits, not as we moderns permit market players to gamble with hedge fund reserve ratios as high as CCC's $26 of leveraged borrowings on every $1 of fungible deposits:

"Murray N. Rothbard was one of the theorists who defended with the most creativity and coherence the need for free banking subject to general legal principles, in other words, banking with a cash ratio of 100 percent of demand deposits.

excerpted from "New Light on the Prehistory of the Theory of Banking and the School of Salamanca" by Jesus Huerta de Soto at www.mises.org/journals/rae/pdf/RAE9_2_4.pdf

My cynicism prevents me from joining you in your conclusion, pyrrho, but you have certainly hit several nails on the head.

We are still suffering from the "chicken in every pot" approach to campaign rhetoric. The core problem is not so much that the feds et al have mishandled things -- and they certainly have, big time -- but that they are expected to do exactly those things by the general public. We (the public) want all the benefits of the free market with none of the risks. We want the profits of innovative approaches but we don't want to pay the piper when those innovations fail.

The ghost of Marie Antoinette sits next to me, looking over my shoulder. "Mes pauvre petites," she whispers ethereally. "I may have been naive, but these people are downright stupid."

Clare --

Demand accounts are checking accounts. That is a tiny, tiny fraction of overall bank reserves. It's true, however, that banks have been using "sweeps" to lend out demand account monies overnight. I don't know what they're doing now due to the crisis in interbank lending.

I have a lot of respect for the Austrian School (of economics). I think Rothbard, von Mises et al. have been unfairly demonized because they are not "politically useful" to the powers that be. Their moment has arrived, that's for sure.

Pyrrho - I suspect that, given the presumption of perpetually-appreciating houses, we probably would've seen lots of bad loans even _without_ securitization. Retention of the loans they originate has not prevented banks from lending recklessly in the past. However, I agree that with such retention, while we probably would've still had bad loans, there wouldn't have been quite so many. And those loans would now be busting standard-issue banks, instead of investment houses & hedge funds.

As for the GSE's - of course they _say_ their loan porfolios are "stress tested" via simulation, but one can't help but wonder if (say) GIGO might strike once again. Talk about "too big to fail"...if Fannie goes bust, it'll make the BS bailout look like a walk in the park.

Pyrrho, I have no hope in any present candidate for president. For all the gains Mr. Clinton accomplished by balancing budgets during his watch, he disaccomplished other things. I'll spare us both the details, becaue Mortgage guy pegged it succinctly: it's all about greed, and no president has the tools to fight that successfully. All the president might do is reposition the greed or provide alternate targets.

Handling of financial markets is not even on my decision radar. I've had a ringside seat for far too long to expect even the semblence of sanity therein. :-(

"There are about 50 trillion dollars in outstanding derivatives."

Oops, I meant to say 500 trillion. Ponder that number for a moment.

Clare --

I read your most recent comment several times and still haven't figured out what you're driving at. Perhaps it's my fault. I'm running a fever today.

It's important for all to realize that these innovative financial instruments dwarf the amount of stock, bonds, precious metals, commodities, etc. that any of these institutions are holding. The Fed is trying to prevent a liquidation of these derivatives by any of the major players because they will be exposed as practically worthless (20 cents on the dollar, optimistically). This is the same reason the rating agencies are under pressure to maintain an AAA rating for the monoline insurers (the companies that insure against default). They're trying to make the Potemkin village look as realistic as possible for as long as possible so that can figure out how they are going to handle the apocalypse.

At any rate, I'm trying to keep this discussion simple.

Steve --

It might be 750 trillion, but nobody knows! These are essentially private contracts, and are not publicly traded.

Can you imagine if even a tiny fraction of these things blow up? Annual US GDP is about 12 trillion, I think.

Chase bought a name, basically. There aren't going to be many Bear Stearns people retained. I worked for EF Hutton in college, and when they went under who ever bought them pretty much fired everyone.This is the scary thing about Wall Street; the salary and bonuses are great when times are good, but when the worm turns no one is promised anything, not even a job.

Can a system really be 'free' when some agents within it have enough power to alter the system in their own favour?

Consider the dictionary definition of 'privilege', literally 'private law':

priv·i·lege /ˈprɪvəlɪdʒ, ˈprɪvlɪdʒ/ noun, verb, -leged, -leg·ing.
–noun
1. a right, immunity, or benefit enjoyed only by a person beyond the advantages of most: the privileges of the very rich.
2. a special right, immunity, or exemption granted to persons in authority or office to free them from certain obligations or liabilities: the privilege of a senator to speak in Congress without danger of a libel suit.
3. a grant to an individual, corporation, etc., of a special right or immunity, under certain conditions.
4. the principle or condition of enjoying special rights or immunities.

This is why we have such a messed up economy. People think innovation is bad and bankers are evil, so we need the government to protect us. But all that protection means that business is less risky, so people can afford to take more risks. Things fail again, so the government makes it even less risky. This continues until you reach a breaking point as we have in the past year.

The real problem is the Federal Reserve. Alan Greenspan did three bailouts: during the Asian Crisis, Long Term Capital Management (they went down just like Bear Stearns and interestingly, all the Wall Street banks ponied up cash to prevent LTCM from becoming a crisis. Except for one bank: Bear Stearns...), and post 9/11, teaching banks that there was no risk.

His move after 9/11 was the big one, cutting interest rates to 1%. At 1%, a lot of things look profitable. You can borrow at 1% and invest at 2% and earn a profit. Consumers can't get money that cheap, but banks can and they loan it to customers. Those customers invested in businesses and assets, and bought homes and consumer goods. Except these business ventures were not good investments. The consumption was not a good use of money. But the Fed made everyone think it was profitable and rational by changing the most important price in a modern economy: the price of money.

People were thinking, "is this a good idea?", "home prices are kind of high...", etc., but the Fed made it profitable. Now that things failed, some want to take rational decisions made earlier and use 20/20 hindsight to turn them into criminal acts. There were plenty of stupid decisions and outright greed on the part of lenders and borrowers. But hardly any of this could have happened (and nowhere near the magnitude) without the Fed printing money as fast as it could.

Selling the stock at $2 a share is the equivalent of a bankruptcy, except it keeps the enterprise going. It's not a bailout as with Chrysler or Boeing.

We have plenty of corporate welfare, but this ain't it.

This is corporate welfare because JP Morgan is getting $30 billion from the Fed to do this.

There was nothing immoral about these loans though, generally speaking. Let me give you a realtively simple example. If you borrow at 4% and lend at 5%, you make 1% in gross profit, before expenses. Let's say you lend to $1 million to 100 people, for a $100 million total loan portfolio. You earn $1 million a year (it costs you $4 million in interest but you get $5 million in interest).

In the above portfolio, if 1 person can't pay their loan each year(assume they have no assets), you lose all your profit. You will work really hard to make sure everyone pays their loans.

Now imagine Franky Fed comes along and says he'll lend to you at 1%. It's a good deal, so you grab the money and start lending it out at 5%. Now you're making $4 million a year on $100 million in loans. If 1 or 2 people can't pay, you're still up 100%!

That is basically how it happened. Banks lowered their standards because they could afford to, thanks to the Fed.

Clare,

The Fed doesn't publish M3 because they don't control M3 money supply, they only can change M1. M3 includes credit created by banks. It has a relationship to M1, but it is not as important. The Fed has been cutting the money base for two years now, and we are finally seeing the policy bear fruit.
http://www.lewrockwell.com/north/north568.html

Pyrrho, I don't know your father-in-law's educational or experiential background, but I strongly suggest you not try (again): I spent 14 years trying to explain such things to attorneys, CPAs and the employers we were all trying to serve. I still have some of my original hair on my head... somewhere... there's one... I was a second-team midwife to ERISA: imagine a clerk called into an office with his supervisor, the chief actuary and chief attorney, to ask his opinion of just what the heck key portions of Sec. 415 might mean... and I'd been there all of six months. I'm a smart guy, but really...

I try to avoid prognosticating, because like Cassandra, I'd only get what I deserve for being right... but I sincerely believe that the US monetary machine could collapse in a matter of weeks. Acts of God (well, in my case, the gods) leave me little room for comfortable analyses of trends and probabilities. It does seem quite possible to me that there will be a Tar Baby affect involved: no matter how bad the dollar gets, at some point the rest of the world will act to avoid our crash because their impact will follow ours almost immediately.

Robert Heinlein put it best (not verbatim, from memory): WWII imposed a high fever on our economic ills, doing little to fix them and much to take minds off of them. Modern economic strategists (as distinct from modern economists) may think they can impose a similar time-buying conflict, but I believe they will be quickly disabused of that notion.

Other Jim, please do me a favor and call him Freddie Fed, Arthur Fed, or even J.P. Fed. Thanks. ;-D

Your pal,
Frankie

Other Jim,
correct, but they also don't control the dollar reserves (or diminishing value thereof) in foreign hands (Gulf States, Japan, China etc). The CPI may console domestic consumers of fast food dollar-menu items, but go do some retail therapy overseas and you'll soon see you can't buy many pommes frites, pizza or Peking ducks with our greenbacks. How does our government keep us informed of what factors relate to the dollars long term value?
They track M3, that fraction of commercial money supply (the increase in money supply multiplied by loaning out Fed deposits under the fractional-reserve lending system) available for long term instruments used to cover short positions in securities speculations. M3 off the charts? Hard money supply oversubscribed by repo trades backed by questionable default swaps. Insolvency of institutional players when creditors demand satisfaction of the repo rate of collateral securities at face values higher than market rates.

The Fed is still conducting repo business at face values... they are perpetrating fraud by leveraging portfolios of mortgage contracts as AAA-rated when they know that the market value of the collateral (the value of the deeded property) is less than the security being credited. In other words, falling real estate prices tarnish the prime AAA-rating of securities status of "sound" leveraged capital instruments, weakening demand and lowering prices. Borrowing curtailed by reduced home equity weakens demand for over-priced stock returning share prices to more realistic income-capital ratios, but gutting the hedge funds of their potential for capital gains, leading to more defaults. The re-insurers are very nervous -- they can't reimburse their clients if they all make claims concurrently.

Actually, the bias towards bigness is largely a consequence of "fiat money", when money is created by a government or central banking system, instead of being something which "can't" be rigged, whether it's gold or silver, or even something like cowrie shells that used to be used once in West Africa. In practice, it not only means continual inflation (masked in our own days by fiddling the inflation index by leaving out things that are going up too fast) but a growth of government regulations, and the undermining of small traders and small communities as well.

Basically, fiat money means those who borrow (over the long term) make a profit at the expense of those who save, especially the small people who can only put money in the bank. Ultimately, those who can borrow most will end up buying everything, because they never have to pay back the full amount. And those who borrow are the people that have easiest access to credit, the government or the banking system: in other words, the big boys.

What's worse, though, is that it's undermined local government. Because ultimately, if the central goverment prints the money, that's where the power lies, and it has the financial resources to penetrate local society and institutions as it pleases, and to evade any constitutional safeguards that may theoretically exist. Whereas if money is something that "can't" be printed, like gold or silver, and a central government has to extract it from (usually reluctant) local communities, then not only will the government (in practice) always take a rather smaller slice of the national cake, as it were, but it will be forced to consider local wishes and compromise with local communities. And will not churn out huge numbers of new laws and regulations. It means that even in a supranational empire, local communities in practice have a very high degree of autonomy - whereas in a paper (or electronic) money system even a legally independent country can in practice be manipulated or co-opted by outside powers - something that the US has often done very successfully since the war. And ideas like "democracy", whether good or bad in themselves, become increasingly meaningless, because the system gets sown up by vested interests, once they have the money to do it.

It's also meant that the small-government conservatism you champion is a hopeless case, and always will be, as long as a central banking system can create money out of thin air. In fact, this sort of conservatism has been in retreat ever since this money system was invented, and it is no accident. It's because the big boys (and the government especially) can easily pay for all their big programs, and bribe (or sometimes coerce) the population without much immediate cost - putting off the bill till later.

Basically, the system came about as part of the price we all paid for the two world wars and the cold war, a price we are continuing to pay, because however justified one may think them, such wars do "not" come cheap, and the full reckoning (and cultural costs) many not be visible to contemporaries. It's no accident that this period has in practice seen the gradual retreat of conservatism. The first war (and in the US, which came into it late, the lending to other participants and the credit the Federal Reserve kept plowing into the markets through the twenties) broke the interchangability of bank notes and gold coinage, because the banks had lent more money than could actually be repaid in gold. We ended up with currencies "fixed" to gold, but not interchangeable. The second war broke even that, through most of the world, ending with almost all other currencies fixed not to gold but to the dollar (the Bretton Woods agreement), which allowed the Americans to more or less "buy" up control of the rest of the world, simply by increasing the money supply. The third war, the "cold" war, of course, broke the link to gold altogether, and though the US continued to be able to indirectly tax the world by inflating the dollar, it's been a much more chancy process, dependent (I think) on a mixture of threats and propaganda, and which looks like it's finally coming to an end. Hence the current crisis, because not only the US, but western countries generally have been living beyond their means. It's the only way, for instance, that the US has been able to outspend the rest of the world in military terms, and (until recently) could appear to afford it. But my main point is that each stage of this process of replacing precious metal with fiat currency has made it much easier for bigger businesses to raise the money to buy smaller ones.

To some extent, small countries, who had to defend their currencies with high interest rates, were in a somewhat more old-fashioned position, and smaller shops and businesses were more normal. I've noticed in Greece, for instance, that the growth of big chains has made great strides, since the introduction of the Euro!

As for how all this came about? It's a sad truth that countries that were able to borrow successfully to fight wars were able to defeat countries that weren't, and (if they were lucky) the profits of victory (new territories and revenues to tax) could pay the interest on the debt. That's (mostly) the true reason for the growth of the British Empire in the 18th century, which outborrowed, outspent and out-taxed the French and Spanish and several others, until the French finances finally cracked, the principal cause of the revolution.

England had an almost insurmountable debt at the end of the Napoleonic Wars, but managed to pay it - principally because we weren't a democracy. But the price of a generation of austerity budgets (high taxes and low spending) to pay off the debt was a breaking of the authority and legitimacy of England's Ancien Regime, until it cracked in 1832. By the end of the first world war, we had democracy, and this sort of austerity neccessary to pay off such war debts was politically quite impossible.

(Actually, that's one of the principal weaknesses of democracy as against older hereditary-based systems: it has an in-built bias towards the short term, and I don't know what can be done about it).

If Britain's finances "had" cracked, and the debt not been repaid, it's difficult to imagine what would have happened, except that the whole of nineteenth century history would have been quite different. My personal belief is that the nearest model would have been Spain, which had actually recovered and modernised substantially in the eighteenth century, but where overborrowing and imperial bankrupcy at the end of the Napoleonic Wars led to the unravelling of the entire Spanish empire (in a rather messy way) political instability in both homeland and colonies, and massive delay in industrialisation. The unravelling of the Spanish empire (and the instability and wars that punctuated it) may be precisely what will happen to the American empire, now that financial reality seems to be catching up with it. I don't know. I'm sure it's going to be unpleasant and messy for all concerned, though.

Still, as with Britain at the end of the Napoleonic wars, massive spending cuts and high food prices (which allowed land to be highly taxed, by protecting its profits) were able to gradually restore the country's finances, and in the long run to free capital for technological development, even though the austerity was politically extremely costly.

What made the 20th century different (apart from the oil age of cheap energy, which meant that more people were freed up from economic subsistence to do other things, like govern each other, and tax each other) was that in order to fight a series of wars, governments started to borrow more money than they would "ever" be able to repay without some sort of default. Sometimes governments continued to do this in peacetime, creating a false prosperity to win votes. And partly because of democracy, even trying to repay it was politically impossible. And this carried massive long-term cultural costs that weren't immediately visible, like the undermining of local government and small traders generally, a bias towards the short-term in government and big business alike, and a massive growth in badly-made law and regulation.

Don’t believe one optimistic word from any public figure about the economy or humanity in general. They are all part of the problem. Its like a game of Monopoly. In America, the richest 1% now hold 1/2 OF ALL UNITED STATES WEALTH. Unlike ‘lesser’ estimates, this includes all stocks, bonds, cash, and material assets held by America’s richest 1%. Even that filthy pig Oprah acknowledged that it was at about 50% in 2006. Naturally, she put her own ‘humanitarian’ spin on it. Calling attention to her own ‘good will’. WHAT A DISGUSTING HYPOCRITE SLOB. THE RICHEST 1% HAVE LITERALLY MADE WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. Don’t fall for any of their ‘humanitarian’ CRAP. ITS A SHAM. THESE PEOPLE ARE CAUSING THE SAME PROBLEMS THEY PRETEND TO CARE ABOUT. Ask any professor of economics. Money does not grow on trees. The government can’t just print up more on a whim. At any given time, there is a relative limit to the wealth within ANY economy of ANY size. So when too much wealth accumulates at the top, the middle class slip further into debt and the lower class further into poverty. A similar rule applies worldwide. The world’s richest 1% now own over 40% of ALL WORLD WEALTH. This is EVEN AFTER you account for all of this ‘good will’ ‘humanitarian’ BS from celebrities and executives. ITS A SHAM. As they get richer and richer, less wealth is left circulating beneath them. This is the single greatest underlying cause for the current US recession. The middle class can no longer afford to sustain their share of the economy. Their wealth has been gradually transfered to the richest 1%. One way or another, we suffer because of their incredible greed. We are talking about TRILLIONS of dollars which have been transfered FROM US TO THEM. All over a period of about 27 years. Thats Reaganomics for you. The wealth does not ‘trickle down’ as we were told it would. It just accumulates at the top. Shrinking the middle class and expanding the lower class. Causing a domino effect of socio-economic problems. But the rich will never stop. They just keep getting richer. Leaving even less of the pie for the other 99% of us to share. At the same time, they throw back a few tax deductible crumbs and call themselves ‘humanitarians’. Cashing in on the PR and getting even richer the following year. IT CAN’T WORK THIS WAY. Their bogus efforts to make the world a better place can not possibly succeed. Any 'humanitarian' progress made in one area will be lost in another. EVERY SINGLE TIME. IT ABSOLUTELY CAN NOT WORK THIS WAY. This is going to end just like a game of Monopoly. The current US recession will drag on for years and lead into the worst US depression of all time. The richest 1% will live like royalty while the rest of us fight over jobs, food, and gasoline. So don’t fall for any of this PR CRAP from Hollywood, Pro Sports, and Wall Street PIGS. ITS A SHAM. Remember: They are filthy rich EVEN AFTER their tax deductible contributions. Greedy pigs. Now, we are headed for the worst economic and cultural crisis of all time. Crime, poverty, and suicide will skyrocket. SEND A “THANK YOU” NOTE TO YOUR FAVORITE MILLIONAIRE. ITS THEIR FAULT. I’m not discounting other factors like China, sub-prime, or gas prices. But all of those factors combined still pale in comparison to that HUGE transfer of wealth to the rich. Anyway, those other factors are all related and further aggrivated because of GREED. If it weren’t for the OBSCENE distribution of wealth within our country, there never would have been such a market for sub-prime to begin with. Which by the way, was another trick whipped up by greedy bankers and executives. IT MAKES THEM RICHER. The credit industry has been ENDORSED by people like Oprah Winfrey, Ellen DeGenerous, Dr Phil, and many other celebrities. IT MAKES THEM RICHER. Now, there are commercial ties between nearly every industry and every public figure. IT MAKES THEM RICHER. So don’t fall for their ‘good will’ BS. ITS A LIE. If you fall for it, then you’re a fool. If you see any real difference between the moral character of a celebrity, politician, attorney, or executive, then you’re a fool. No offense fellow citizens. But we have been mislead by nearly every public figure. WAKE UP PEOPLE. THEIR GOAL IS TO WIN THE GAME. The 1% club will always say or do whatever it takes to get as rich as possible. Without the slightest regard for anything or anyone but themselves. Reaganomics. Their idea. Loans from China. Their idea. NAFTA. Their idea. Outsourcing. Their idea. Sub-prime. Their idea. High energy prices. Their idea. Obscene health care charges. Their idea. The commercial lobbyist. Their idea. The multi-million dollar lawsuit. Their idea. The multi-million dollar endorsement deal. Their idea. $200 cell phone bills. Their idea. $200 basketball shoes. Their idea. $30 late fees. Their idea. $30 NSF fees. Their idea. $20 DVDs. Their idea. Subliminal advertising. Their idea. Brainwash plots on TV. Their idea. Vioxx, and Celebrex. Their idea. The MASSIVE campaign to turn every American into a brainwashed, credit card, pharmaceutical, love-sick, celebrity junkie. Their idea. All of the above shrink the middle class, concentrate the world’s wealth and resources, create a dominoe effect of socio-economic problems, and wreak havok on society. All of which have been CREATED AND ENDORSED by celebrities, athletes, executives, entrepreneurs, attorneys, and politicians. IT MAKES THEM RICHER. So don’t fall for any of their ‘good will’ ‘humanitarian’ BS. ITS A SHAM. NOTHING BUT TAX DEDUCTIBLE PR CRAP. In many cases, the 'charitable' contribution is almost entirely offset. Not to mention the opportunity to plug their name, image, product, and 'good will' all at once. IT MAKES THEM RICHER. These filthy pigs even have the nerve to throw a fit and spin up a misleading defense with regard to 'federal tax revenue'. ITS A SHAM. THEY SCREWED UP THE EQUATION TO BEGIN WITH. If the middle and lower classes had a greater share of the pie, they could easily cover a greater share of the federal tax revenue. They are held down in many ways because of greed. Wages remain stagnant for millions because the executives, celebrities, athletes, attorneys, and entrepreneurs, are paid millions. They over-sell, over-charge, under-pay, outsource, cut jobs, and benefits to increase their bottom line. As their profits rise, so do the stock values. Which are owned primarily by the richest 5%. As more United States wealth rises to the top, the middle and lower classes inevitably suffer. This reduces the potential tax reveue drawn from those brackets. At the same time, it wreaks havok on middle and lower class communities and increases the need for financial aid. Not to mention the spike in crime because of it. There is a dominoe effect to consider. IT CAN'T WORK THIS WAY. But our leaders refuse to acknowledge this. Instead they come up with one trick after another to milk the system and screw the majority. These decisions are heavily influensed by the 1% club. Every year, billions of federal tax dollars are diverted behind the scenes back to the rich and their respective industries. Loans from China have been necessary to compensate in part, for the red ink and multi-trillion dollar transfer of wealth to the rich. At the same time, the feds have been pushing more financial burden onto the states who push them lower onto the cities. Again, the hardship is felt more by the majority and less by the 1% club. The rich prefer to live in exclusive areas or upper class communities. They get the best of everything. Reliable city services, new schools, freshly paved roads, upscale parks, ect. The middle and lower class communities get little or nothing without a local tax increase. Which, they usually can't afford. So the red ink flows followed by service cuts and lay-offs. All because of the OBSCENE distribution of bottom line wealth in this country. So when people forgive the rich for their incredible greed and then praise them for paying a greater share of the FEDERAL income taxes, its like nails on a chalk board. I can not accept any theory that our economy would suffer in any way with a more reasonable distribution of wealth. Afterall, it was more reasonable 30 years ago. Before Reaganomics came along. Before GREED became such an epidemic. Before we had an army of over-paid executives, bankers, celebrities, athletes, attorneys, investors, entrepreneurs, developers, and sold-out politicians to kiss their asses. As a nation, we were in much better shape. Strong middle class, free and clear assets, lower crime rate, more widespread prosperity, stable job market, lower deficit, ect. Our economy as a whole was much more stable and prosperous for the majority. WITHOUT LOANS FROM CHINA. Now, we have a more obscene distribution of bottom line wealth than ever before. We have a sold-out government, crumbling infrastructure, energy crisis, home forclosure epidemic, 13 figure national deficit, and 12 figure annual shortfall. The cost of living is higher than ever before. Most people can't even afford basic health care. ALL BECAUSE OF GREED. I really don't blame the 2nd -5th percentiles in general. No economy could ever function without some reasonable scale of personal wealth and income. But it can't be allowed to run wild like a mad dog. ALBERT EINSTEIN TRIED TO MAKE PEOPLE UNDERSTAND. UNBRIDLED CAPITALISM ABSOLUTELY CAN NOT WORK. TOP HEAVY ECONOMIES ALWAYS COLLAPSE. Bottom line: The richest 1% will soon tank the largest economy in the world. It will be like nothing we’ve ever seen before. The American dream will be shattered. and thats just the beginning. Greed will eventually tank every major economy in the world. Causing millions to suffer and die. Oprah, Angelina, Brad, Bono, and Bill are not part of the solution. They are part of the problem. THERE IS NO SUCH THING AS A MULTI-MILLIONAIRE HUMANITARIAN. EXTREME WEALTH MAKES WORLD PROSPERITY ABSOLUTELY IMPOSSIBLE. WITHOUT WORLD PROSPERITY, THERE WILL NEVER BE WORLD PEACE OR ANYTHING EVEN CLOSE. GREED KILLS. IT WILL BE OUR DOWNFALL. Of course, the rich will throw a fit and call me a madman.. Of course, they will jump to small minded conclusions about 'jealousy', 'envy', or 'socialism'. Of course, their ignorant fans will do the same. You have to expect that. But I speak the truth. If you don’t believe me, then copy this entry and run it by any professor of economics or socio-economics. Then tell a friend. Call the local radio station. Re-post this entry or put it in your own words. Be one of the first to predict the worst economic and cultural crisis of all time and explain its cause. WE ARE IN BIG TROUBLE.

correction: my 3:06PM posting "(never before granted to a non-cash-deposit bank)" is factually imprecise - seven months ago the Fed granted the brokerage arm of CitiBank an identically large bail out, but since it was funnelled thru the commerical banking business it was "legit" see Pam Martens "Too Big to Bail- The Fed's Wall Street Dilemma" at http://www.counterpunch.org/martens03172008.html