January 12, 2014

Asset Speculation And Impoverishment

A reader suggested a topic on policy and housing bubbles. “The Federal Reserve and the myth of the disinterested technocrat. Ain’t no such thing as a disinterested human being in economic affairs. Especially affairs which impact oneself, family and friends.”

“The policy of encouraging ever-increasing house prices is: 1) A generational wealth transfer, from young to old. 2) Also, it is a reverse Robin Hood wealth transfer from poorer to richer. 3) And it is a wealth transfer from outside the FIRE sector to within it.”

The Fiscal Times. “Just how big are the largest banks in the U.S.? Here’s a little perspective: In the past few months, JPMorgan Chase has agreed to pay, depending on how you do the math, somewhere between $22 billion and $25 billion in fines and penalties for various illegal activities, from hiding its suspicions about Ponzi schemer Bernie Madoff to misleading investors about the notorious London Whale.”

“Meanwhile, as of the third quarter of 2013, 99.1 percent of banks chartered in the U.S. had less than $20 billion in total assets on their books. Think about that for a moment. In the space of less than 90 days, JPMorgan Chase has agreed to fines greater than the total value of all the assets held by almost every bank in the country. And not only is it still in business, it’s generating revenues roughly equal to all those fines every quarter. And its stock price is soaring.”

“The point here is not to pick on JPMorgan alone. The very largest banks in the U.S. are posting almost uniformly spectacular financial results that have seemingly inured them to the regulatory and legal penalties they are made to pay.”

“A hearing held Wednesday by the Senate Committee on Banking, Housing and Urban Development addressed one of the reasons why the banks are doing so well even as they face continued legal actions: They enjoy a massive subsidy rooted in the market’s belief that, should they ever get in trouble, the government will bail them out. That enables those banks to borrow more cheaply than their smaller competitors and leads shareholders to believe that they are protected from downside risk should the bank get in trouble.”

“In the hearing Wednesday, Lawrance L. Evans, Jr., Director of Financial Markets and Community Investment for the Government Accountability Office, testified that during the financial crisis, the more than $1 trillion in support given to the financial markets by the federal government went largely to the biggest banks. Evans said that a follow-up report, due out sometime this year, will quantify the financial benefits that large banks receive as a result of the public’s expectation that the government will not allow them to fail.”

“Professor Cornelius Hurley, who directs the Boston University Center for Finance, Law & Policy, said that he expects public support for shrinking the biggest banks to coalesce ‘once the public realizes that bailouts are not just something that happened in 2008 but something that’s going on today.’”

The Asian Times. “Piracy is confiscation of wealth by brute force. Money counterfeiting confiscates wealth, and so does swindling. Bernie Madoff was sentenced to 10 years in jail, simply because swindling is a crime; his victims lost their wealth that they had entrusted to him. Yet, when outgoing Federal Reserve chairman Ben Bernanke prints every US$85 billion every month out of thin air, this act is considered a virtue - even though it is forced confiscation of wealth. It is called an economic ’stimulus’ in that, according to its proponents, it boosts the economy and moves it towards full employment.”

“He only encouraged intense asset speculation and brought about financial disorder, and impoverishment. He is not alone in this, for sure - many economic theories their proponents claimed to be exact, such as communism and Keynesianism, have failed miserably and caused disasters wherever applied. Now we can add or Bernanke-ism to that roll of dishonor.”

“Bernanke’s ‘money helicoptering’ is not manna from heaven. Although Bernanke possessed the power of confiscation, he had zero power to create wealth. Money creation out of ‘thin air’ is a pure redistribution of wealth. Bernanke injected close to $3.5 trillion; yet, he did not create even one gram of wheat or one pair of shoes.”

“Through mortgage buying, Bernanke became (the) biggest buyer of houses in the US, causing housing prices to escalate by 14% in 2013. For politicians, this is not inflation - even though such a rise would have been impossible without Bernanke’s near-zero interest rates. It is considered a ’strong’ housing recovery - yet a similar ’strong’ recovery in 2003-2008 led to millions of foreclosures. Bernanke’s housing recovery will intensify speculation, make housing unaffordable, and increase dramatically income from property taxes.”

“President Barack Obama may be appalled by the US income gap - yet, he is not concerned by Bernanke’s massive wealth transfer in favor of lucky beneficiaries at the expense of unfortunate losers. Bernanke carried out his money destruction with the full seal of the US Congress. US congressmen firmly believe in Bernanke’s absurdity that zero interest rates bring forth full-employment, even though years have gone by without this relation materializing concretely. Adhering firmly to Bernanke’s absurdities, President Obama nominated Janet Yellen, a staunch supporter of Bernanke and this week confirmed to succeed Bernanke, as the new Fed chairman to carry further Bernanke’s fallacies.”

Bits Bucket for January 12, 2014

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