Friday, February 12, 2010


Money Morning is one of the investment newsletter sites I regularly visit. After reading the articles below you'll understand why. In a few words, we're being conned by Wall Street again ... big time.

The first piece, "Warning: This is Not Another Conspiracy Theory, These are the Facts," underscores my comments about our evolving banking cartel. Specifically, the author argues that the United States government has "allowed a cabal of financial interests to hijack America." The commentary, and the questions the article raises about AIG and Goldman Sachs, should be on the desk of every member in Congress.

In "Wall Street's Stranglehold on the Economy is Choking Americans" the author makes it clear that Wall Street's financial institutions are getting taxpayer money virtually for free from the government (U.S. taxpayer). Worse, they're then turning around and lending it back to the federal government, and you and me, at market or above market rates. The article also makes this stunning claim: "Bear [Stearns] and Lehman [Brothers] were ruthlessly crushed by their competition so there would be more business to be had by fewer players." The goal was to take over their rival's market share, and make themselves so big that the government couldn't afford to let them die.

This article, "It's Time for 'Banks' to Stop High-Risk Trading," takes a jab at Goldman Sachs, the "bank". Recall, in order to be a bank you have to accept deposits, allow customers to write checks, and make loans. Goldman does none of these. Yet Goldman was allowed to achieve bank status during the market meltdown so that it could secure FDIC guarantees, and access cheap money from the Federal Reserve. Instead of collapsing and taking all their swashbuckling and arrogant "investors" out - as is the case in a real market economy - Goldman Sachs dumped $28 billion worth of debt (backed by the FDIC) and secured a $10 billion loan from the Fed after Sept. 2008 (when they got bank status).

Worse, Goldman Sachs is now making more bets with what they claim is "their" money (this is called proprietary trading). The problem is that as a bailed out, and FDIC-backed, "banking" institution Goldman Sachs can access cheap Federal Reserve taxpayer-backed funds, with government guarantess. More simply, Goldman Sachs isn't using their money. The article makes it clear that (1) proprietary trading by taxpayer backed financial institutions makes "socializing the losses, privatizing the gains" legal, and (2) we need to rebuild the firewalls we had between banks and investment banks.

Absent serious financial reforms, which are especially needed for the ratings agencies, the next market collapse and bailout is only a matter of time. A mob with pitchforks and torches may not be far behind.

- Mark

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