It's always darkest before all the lights go off...
Bob O'Brien's Sanity Check
by: bobo
10/13/2009 8:53 AM
So, I was sitting around, reading all about the SEC's response to the massive naked short selling of the US capital markets by gangs of hedge funds, aided and abetted by their prime brokers, and was struck not so much by the complete banality of that response, but rather by the sense of anticipation by some that this time might actually be different.
For those living in Siberia, the SEC, after some of the largest financial firms in the world declared naked short selling to have been the primary driver of the destruction of those companies, and after the US markets were brought to the brink of failure, chose to respond with a stern and swift......round table discussion largely populated by the same brokers being sued for their role in naked short selling by companies like Overstock, among others.
After nearly 5 years of non-stop protest from investor advocates, after emmy-award winning exposes, after pubs like Rolling Stone are publishing easy-to-comprehend descriptions of how the practice has fomented global havoc, the SEC chose to do worse than nothing - instead of reform or exposure, they had a cozy chit chat with the criminals responsible for the practice in the first place. A well staged event where criminals of a like mind could argue against any necessity for more or better laws.
Nobody who knows me was thrown by my utter lack of surprise.
The SEC was created to reassure the unwashed masses that it was safe to invest in the markets, after the Great Crash of 1929 proved it was anything but. It was a PR firm for Wall Street, slipped through as an alternative to a regulator who would or could actually do anything to curb the real crookery on Wall Street. At the helm was one of the greatest stock manipulators of all time, Joe Kennedy, who along with Percy Rockefeller and others amassed incredible fortunes running stock pools in the 1920's. For those who don't know what a stock pool is, it's a hedge fund whose sole purpose is to manipulate stocks, first up, then down, making money in both directions. Which was enormously lucrative for the operators of the pools, and the investors therein - the only losers were always the general investing public, and other participants who weren't on the inside. I would argue that's precisely what some of the most lucrative hedge funds of modern times also do - there aren't a lot of ways to beat the market with 30 or 40% returns, year after year, that don't involve larceny and criminal behavior, at least in my study of the last century of market history.
So why would anyone in their right mind be at all surprised that the SEC, under the leadership of Mary Shapiro (who formerly ran FINRA, whose acheivements include completely missing the Madoff and Stanford frauds, and being named by whistleblower Markopolos as corrupt), elected to engage in yet more inaction and blather rather than fixing the system? I mean, don't get me wrong. I was touched by the testimony that requiring a pre-borrow would essentially make it more expensive to trade - you'd actually have to possess what you were selling, instead of just printing stock out of thin air. I can understand how that would cut into profits for groups like Goldman, who lobbied very hard against any sort of action.
Folks, I concluded a while ago that the rot in the system is pervasive, runs from top to bottom, and is largely unfixable. You have oligarchs, powerful and rich familes and corporations, who are having their bought-and-paid-for politicians operate the country for their personal enrichment, at the direct expense of everyone else. Unlike an economy where greater overall prosperity raises all ships, the paradigm of these oligarchs is feudal - everything is zero sum. In order for them to win more, you need to lose more. By you, I mean the taxpayer, or the investor.
They own and operate the US now like their personal vending machine/casino, where they alone get access to the loaded dice and the pedal below the roulette wheel. The design of the paradigm is decidedly antipodal to prosperity - it's all about you losing so they can have more. It's the antithesis of prosperity for all. It's mercantilism in its modern iteration, arguably far more destructive than mercantilism of old, due to the global reach of the bad guys, and the cross-border capacity of the criminal syndicates. Whereas in the old days, mercantilism was largely the operation of one government for the enrichment of the monopolies within a nation, the international nature of today's economy eliminates a lot of the nationalism. Hey, if you can get the US government to play ball, as well as the European Union, and maybe even Russia, you have a scenario where you can impoverish the entire world for your direct enrichment, not just the population of your own country.
Ain't progress wonderful?
I think things are going to get way, way worse. Lately, I've been researching the level of corruption in the pharmaceutical arena, and the utter control big pharma has over the reporting of science and medecine, as well as its absolute sway over how doctors treat the plethora of "new" diseases that essentially turn entire populations into pill poppers. It's every bit as bad as the financial markets. Maybe worse.
My point is that absolute power and wealth enable one to control the safeguards that were put into place to protect populations. By co-opting politicians and capturing regulators, the bad man is allowed to come into the room and do whatever he wants, whenever he likes - and the captured media merely pretends that it can't hear the cries for help or investigate the countless damaged lives. It's as bad as Russia under the communists, or perhaps worse.
If that seems like an exaggeration, consider how poorly the dollar has done in the last year. The world is telling the US that it is finished supporting its bankrupt lifestyle and crooked economy. As an example, the dollar is down about 31% against the yen in a year. That's a 31% decrease in real world buying power against the currency of a stagnating country in the grip of its own financial turmoil, going on 20 years now. Your dollar now buys 31% less of everything than if you'd just parked it in yen for the last 12 months.
You don't read about that much, huh? That's because it runs counter to the party line, and would cause any even semi-coherent human to calculate what return they'd need to see in the markets just to stay even. And we can't have the unwashed rubes figuring out that they'd need to see 40% ROI per year just to keep up with currency devaluation and inflation (that's where things like commodities cost way more today than a year ago, like gold or silver or copper or zinc or anything else of real worth). No, you can't have the average Joe figuring out that he would have to outperform SAC Capital just to stay even with his wealth erosion, as then nobody would play in the crooked, rigged casino that are the US markets, and the criminal elite couldn't continue to rob America blind while their regulators assist.
Patrick likens it to an aquarium, where you have slick hucksters encouraging the population to pour their wealth into the top, while the crooks drain the wealth out of the spigots located on the bottom. That's a great image, and an accurate one.
I think we are entering a period of the elimination of the American middle class as we know it. Just as in the 50's, where a gas station attendant could support a family, house and car on his salary, the current two-earner family struggling to remain prosperous (if living in a McMansion and being in hoc to the gills is prosperity) will be an anachronism within 10 years. It will be extinct, just as our gas station attendant's reality is extinct. In place will be a ridiculously indebted nation of working poor and uber rich, where the juice of the nation was sucked dry by those uber rich special interests, and where the working poor have little chance of ever attaining anything remotely like the American Dream.
Think I'm exaggerating? Consider Britain from the 50's to the 70's, and how the middle class there virtually evaporated. The most powerful empire in the world at its time was reduced to an also-ran within a generation or so, the butt of bad dental hygiene jokes and not much else.
We are there. We don't manufacture anything anymore. We don't even design much anymore. That's all been outsourced. What we do is borrow money from China and the Middle East, and then launch wars with that borrowed money right in their back yards - and it's getting more and more expensive to do so every month, and they are undoubtably getting tired of it. We borrow money to buy things we can't afford and we don't need, all the while as the mantra that we are still "The Best Country In The World" is repeated by a press hell bent on whitewashing the huge spots of metastizing rot that now characterize our systems.
And as in some Kafka-esque stage play, wrong is now right, and the rule of men is far more important than the rule of law. Witness a Federal Reserve system which refuses to answer questions about how it is giving away taxpayer dollars, a government whose rhetoric is of loosening and stimulus even as it encourages banks not to lend (via the Fed paying interest on deposits there for the first time in history, as well as due to the arbitrage created by allowing banks to borrow at near zero interest, and then buy government bonds at 3%), and an apparatus that pretends to be just and fair and yet is as corrupted as a Hanoi streetwalker's blood test.
I don't see how this ends well.
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