The Lobby Economy

Mind you, the mariner observes the world from dockside. He is a generalist and an idealist and his assumptions, while based on factual research, may not be simpatico with all readers. That is fine with the mariner. He wants only to inform on all matters of interest, leaving the reader to receive the information as the reader chooses. This has been a public service announcement.
The mariner is finished with the future of work. It is an alien world to our capitalist society; only large numbers of unemployed will force change in the Federal and State Governments. Fortunately, we have a foot in the door to future work with the existence of entitlement programs and safety net programs like Social Security, Welfare, Medicaid, and unemployment insurance. It is important in coming elections not to let entitlements slide backward. Generally speaking, this means democrats must control Congress.
The topic in this post is to ponder the economy the US has today given that a handful of major industries control both social and economic priorities for our daily life, cost of living, and what the policies portend for the future. Specifically, the mariner will look at banking, fossil fuels, agriculture, alternative resources, guns, and an overview of issues related to personal rights. This is another series requiring more than a single post.
In this post, we will look at banking.
No doubt, the reader remembers the recession that began in 2007 and, in some respects, continues today. The noisy headlines of media focused on the Federal Government bailing out Chrysler, General Motors and Wall Street. The phrase commonly heard was, “The banks are too large to fail!” but fail they would if fiscal conservatives and libertarians had their way. The reader may remember that shady dealings with subprime mortgages bundled and rated AAA were priced accordingly and sold despite the fact that the mortgages in too many cases were sold to homeowners under false pretenses and were bound to be foreclosed when balloon payment came due. A domino effect ran through the mortgage industry calling in loans that were under water. 1.2 million families lost their homes and any equity they may have had. Real estate values plummeted.
Interestingly, from the beginning Goldman-Sachs purchased insurance against failure of the derivatives – knowing that the derivatives were overrated and likely will not hold the price. Some large investors went so far as to put short orders on the derivatives and when the derivatives fell, made tens of millions of dollars.
Some analysts were shrewd enough to ask the real question: Why had these mortgage shenanigans caused a recession? The basic banking answer is the banks did not hold enough liquid reserve to cover their losses and compensated by covering risk with their own insurance which still was charged against the bank’s bottom line. But there is more.
Unfortunately, the banks were gambling with depositor savings, something the Glass-Steagall Act in 1933 prohibited until it was repealed in 1999 when President Clinton signed the Financial Services Modernization Act into law. The battle continues today as Congress tries to dismantle the Dodd-Franks bill passed in 2010 that restored the separation mandated by the Glass-Steagall Act. Note: Of all lobbying contributions, the banking industry is the by far the largest.
The real question remains. Why are the banks running the economy? Why is the idea that banks are too big to fail even a catch phrase?
The answer is that the banks are filling a vacuum. In a healthy economy, the Gross Domestic Product (GDP) is driven by companies that produce something – manufacturing, agriculture, oil, technology, etc. In recent decades, corporations have moved manufacturing overseas; agriculture has a dysfunctional economy heavily underwritten by government subsidies and loans; oil is not a meaningful export; technology is international. What theses normal GDP industries have in common is that they hide profits overseas and may be unnecesarily leveraged to banks. Being in debt to a bank, as is often quoted, is like having a partner.
This is an overly simplified analysis; it identifies the fact that banks need regulation by governments as much as any industry. There are other fiascos like the power of eight people on the Monetary Policy Committee in Great Britain that determines worldwide interest rates; collusion abounds. Still, the banks have power because they are the big boys on the cash flow field. The US and private enterprise are on the dime to restore manufacturing, correct hidden profit schemes, to stop moving corporate headquarters to places like the Cayman Islands, and to reorganize agriculture.
At the consumer level, credit cards are a profit tool for banks. Interest rates are exorbitant – pushing as much as the consumer market will bear. As consumers move into a non-cash world, they are susceptible to interest rates as high as 29%. What happened to usury laws? The mariner recommends strongly that un-indebtedness is the most important family policy; it can make the difference between a quality life and being owned by the banks like a tick owns a dog.
Ancient mariner

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