Bernanke's Congressional Testimony And Wall Street's Greatest Hypocrisy
Thursday's testimony by Federal Reserve Chair Bernanke, SEC Chairman Cox and others is available on C-SPAN. It is listed under the recent programs and the title is Senate Banking, Housing & Urban Affairs Committee On The U.S. Credit Markets, Panel One.
For what it's worth, the questioning by Senators Bunning, Tester and Menendez was very thought provoking although the entire process was interesting and comical at the same time. But, it is necessary to go through a discovery process before any impactful changes can be instituted. The video loads immediately from C-SPAN at the link above. You can then go directly to the their questioning. Bunning and Tester's questioning starts at 2:05 and Menendez's starts at 2:43 of the video.
I'm going to take the rest of this post to address the positions and comments by many regarding free markets, bailouts, moral hazard, truth and a dose of reality. It was easy to predict the outcome of Wall Street's ongoing fiasco would be testimony and blame games between Wall Street, regulators and politicians. And, that we would enter a period of more regulation as I wrote back in 2006. The entire process is very disheartening but necessary. First let me say that I have great respect for the political leaders and regulators involved in these proceedings. I truly do believe they have the best interests of the country at heart. But this brings up a key point that is one of the most important I'll ever write of on here. One that we as society generally do not contemplate. In any great monopoly on power, in this instance government, bankers or regulators, there exists a paradox in the wants of individuals within these institutions to do the right thing and the bureaucracies themselves. The very fact that these institutions are seeking truth is a paradoxical event. The root of this crisis was indeed caused by these very institutions. Or put most eloquently by a great American, Henry David Thoreau, in his essay Civil Disobedience:
"Others--as most legislators, politicians, lawyers, ministers, and office-holders--serve the state chiefly with their heads; and, as they rarely make any moral distinctions, they are as likely to serve the devil, without intending it, as God. A very few--as heroes, patriots, martyrs, reformers in the great sense, and men--serve the state with their consciences also, and so necessarily resist it for the most part; and they are commonly treated as enemies by it. ........
Let me use Senator Bunning, a fine man, as an example of what I am talking about. Senator Bunning asks the legitimate and necessary questions of how we could get to the point in our economy where one institution could threaten to bring down the whole financial system and secondly what ever happened to free markets allowing companies to fail. I'm glad Senator Bunning asked this question and unlike the panel before him, I'm going to answer it clearly. Not that the panel might not have answered this question but it is as Thoreau states above, they've likely never thought through the answer. Or clearly understand the answer. They serve the state with their head as opposed to their conscience as Thoreau advocates.
Congress has responsibility for writing law. Amongst others, it is your fault Senator Bunning. Not yours per se but that of the institution you serve. That being Congress. As far as the question about free markets, who ever said Wall Street is a free market? It never was and never will be. It is no different than the OPEC cartel controlling access to much of the world's oil. Wall Street controls access to America's capital. The only difference between Wall Street and OPEC is that Wall Street's monopoly is even more encompassing. And, with lax enforcement of anti-trust (anti-monopoly) regulation, we have actually seen even greater consolidation on Wall Street to create mega institutions thus reducing competition even further. Allowing mega institutions also creates increased risk. These institutions control capital through monopolistic access to the Federal Reserve. Something I cannot do. Nor can any other person or corporation or entity in the world. Free markets? Now that's funny. As long as the financial markets are monopolistic, there will be systemic risk. Moral hazard is a fundamental building block of a financial market controlled by a cartel and not by free markets. Moral hazard was created the minute we restrict access to capital as is the case with the current system. Not that the system it replaced, and many yearn to return to, didn't have moral hazard. Because it did. Senator, because Wall Street is a monopoly, regulation is a necessary evil and why those opposed to regulation in the spirit of free markets are completely misguided.
What society gets without regulation of a monopoly is effectively hegemony over any and all parts of society and the economy that particular industry or institution influences. Hegemony that is often tyrannical in its methods. Which is why monopolies are regulated. With the industry of capital, that influence would be all aspects of the economy and society. The very problem this presents is also why we have checks and balances in the Federal government and a further check of State's Rights against the Federal government hegemony. It's also what Thoreau was writing about above. It is what the founding fathers of this country understood all too well. The founders of this country went further with checks and balances against concentration of power than has ever gone before them or after them. Why? Because they were historians. Because the outcome of concentrated power is a timeless truth. It's time to think about the monopolistic practices of Wall Street and the implications for the economy as the founding fathers of this country thought of concentration of power in their day. Tis no different. Nor are the outcomes.
Free markets? Let's give everyone equal access to capital in the U.S. and around the globe. Me, you, the Chinese government, the Australian government, Siemens, Wall Street, Toyota, citizens of the Sudan, small business owners in Brazil, etc. Everyone. Today, in a world where dollars are generally required for international trade, even countries are often at the mercy of the U.S. financial system for access to capital.
Let's make Wall Street compete in a globalized world as they believe I should compete. Let's make them compete equally with every entity and person on earth for access to the same capital. Wall Street is very clever. It is good at telling Americans free markets dictate that they compete with someone making $2 a day in a far off land. But that is the greatest hypocrisy and scheme ever perpetrated on the American public. I'm as pro free markets as anyone but if you believe this hypocrisy perpetrated by a monopoly shielded from international competition, you've been deluded by the greatest mind bending machine ever created.
To make matters worse Congress jeopardized our deposits by allowing depository institutions to partake in risky schemes with our money by risky trading, risky leverage, unsound risk practices, risky business models, risky derivatives and on and on and on. Something that never should have been allowed. Something I have harped on repeatedly. Commercial banks have absolutely no business being involved in these risky schemes if they are also charged with protecting our monetary system. Especially because they represent a monopoly. A monopoly that has an amazingly powerful ability to truly distort international markets. But, of course, lobbyists have worked their miracles at our expense. There's your answer Senator Bunning. Congress helped create this mess.
I am simply pointing out the hypocrisy of the system. The system being the status quo. And, now we see that as in any great concentration of power, the status quo will do and say anything to maintain its livelihood. For history also tells us any great bureaucracy will first act to save itself when threatened. That includes telling us that the crisis has passed. That all is now well again. That we are now seeing the greatest opportunity of a life time to pick up Wall Street's assets on the cheap. I am not espousing some conspiratorial position held by many fringe thinkers that hidden forces control the world economy. Or that central bankers are somehow part of some grand scheme to control humanity or reap billions for a secret society. To the contrary, I have significant disregard for those messages. They are not based in substantiated fact and many have racist undertones that I abhor. As I have stated often, I am not opposed in the least to the Federal Reserve. I'm simply stating the fact that access to capital in the U.S. is controlled by a monopoly and as such, must be regulated. The same situation exists in every country with a central banking structure similar to the U.S. Is that all bad? Not if managed properly. (That is a systemic problem in itself. To allow discretionary management of a monopoly is a moral hazard.) Has it served society well? It has served some very well, many reasonably well but many not well at all. Have I personally benefited from it? I suppose. Could it be better? Yes. Could it be worse? Yes. Is there a better model? Yes. Is it the gold standard many point to? In my estimation, no.
If nothing else changes, one thing must. Society has the legal and moral authority and responsibility to be granted increased transparency. In a society that cherishes freedom as a fundamental truth, we can achieve no truth without knowledge. And we can achieve no knowledge without transparency. Therefore there is no truth without transparency. Transparency in all government policy, transparency into all lobbyist activity, transparency into all Federal Reserve policy, Transparency into all SEC policy and transparency into all of Wall Street practices. It is any society's basic right to have fundamental truth and we are at a point where there is no truth. Politicians aren't truth. Wall Street isn't truth. Opinion isn't truth. Knowledge is truth. That is one reason why the system as it is cannot save itself.
As was said thousands of years ago, "Only truth will make you free.". How timeless is humanity's brilliance at knowing universal truth? Yet, how foolish we have become.
For what it's worth, the questioning by Senators Bunning, Tester and Menendez was very thought provoking although the entire process was interesting and comical at the same time. But, it is necessary to go through a discovery process before any impactful changes can be instituted. The video loads immediately from C-SPAN at the link above. You can then go directly to the their questioning. Bunning and Tester's questioning starts at 2:05 and Menendez's starts at 2:43 of the video.
I'm going to take the rest of this post to address the positions and comments by many regarding free markets, bailouts, moral hazard, truth and a dose of reality. It was easy to predict the outcome of Wall Street's ongoing fiasco would be testimony and blame games between Wall Street, regulators and politicians. And, that we would enter a period of more regulation as I wrote back in 2006. The entire process is very disheartening but necessary. First let me say that I have great respect for the political leaders and regulators involved in these proceedings. I truly do believe they have the best interests of the country at heart. But this brings up a key point that is one of the most important I'll ever write of on here. One that we as society generally do not contemplate. In any great monopoly on power, in this instance government, bankers or regulators, there exists a paradox in the wants of individuals within these institutions to do the right thing and the bureaucracies themselves. The very fact that these institutions are seeking truth is a paradoxical event. The root of this crisis was indeed caused by these very institutions. Or put most eloquently by a great American, Henry David Thoreau, in his essay Civil Disobedience:
"Others--as most legislators, politicians, lawyers, ministers, and office-holders--serve the state chiefly with their heads; and, as they rarely make any moral distinctions, they are as likely to serve the devil, without intending it, as God. A very few--as heroes, patriots, martyrs, reformers in the great sense, and men--serve the state with their consciences also, and so necessarily resist it for the most part; and they are commonly treated as enemies by it. ........
Let me use Senator Bunning, a fine man, as an example of what I am talking about. Senator Bunning asks the legitimate and necessary questions of how we could get to the point in our economy where one institution could threaten to bring down the whole financial system and secondly what ever happened to free markets allowing companies to fail. I'm glad Senator Bunning asked this question and unlike the panel before him, I'm going to answer it clearly. Not that the panel might not have answered this question but it is as Thoreau states above, they've likely never thought through the answer. Or clearly understand the answer. They serve the state with their head as opposed to their conscience as Thoreau advocates.
Congress has responsibility for writing law. Amongst others, it is your fault Senator Bunning. Not yours per se but that of the institution you serve. That being Congress. As far as the question about free markets, who ever said Wall Street is a free market? It never was and never will be. It is no different than the OPEC cartel controlling access to much of the world's oil. Wall Street controls access to America's capital. The only difference between Wall Street and OPEC is that Wall Street's monopoly is even more encompassing. And, with lax enforcement of anti-trust (anti-monopoly) regulation, we have actually seen even greater consolidation on Wall Street to create mega institutions thus reducing competition even further. Allowing mega institutions also creates increased risk. These institutions control capital through monopolistic access to the Federal Reserve. Something I cannot do. Nor can any other person or corporation or entity in the world. Free markets? Now that's funny. As long as the financial markets are monopolistic, there will be systemic risk. Moral hazard is a fundamental building block of a financial market controlled by a cartel and not by free markets. Moral hazard was created the minute we restrict access to capital as is the case with the current system. Not that the system it replaced, and many yearn to return to, didn't have moral hazard. Because it did. Senator, because Wall Street is a monopoly, regulation is a necessary evil and why those opposed to regulation in the spirit of free markets are completely misguided.
What society gets without regulation of a monopoly is effectively hegemony over any and all parts of society and the economy that particular industry or institution influences. Hegemony that is often tyrannical in its methods. Which is why monopolies are regulated. With the industry of capital, that influence would be all aspects of the economy and society. The very problem this presents is also why we have checks and balances in the Federal government and a further check of State's Rights against the Federal government hegemony. It's also what Thoreau was writing about above. It is what the founding fathers of this country understood all too well. The founders of this country went further with checks and balances against concentration of power than has ever gone before them or after them. Why? Because they were historians. Because the outcome of concentrated power is a timeless truth. It's time to think about the monopolistic practices of Wall Street and the implications for the economy as the founding fathers of this country thought of concentration of power in their day. Tis no different. Nor are the outcomes.
Free markets? Let's give everyone equal access to capital in the U.S. and around the globe. Me, you, the Chinese government, the Australian government, Siemens, Wall Street, Toyota, citizens of the Sudan, small business owners in Brazil, etc. Everyone. Today, in a world where dollars are generally required for international trade, even countries are often at the mercy of the U.S. financial system for access to capital.
Let's make Wall Street compete in a globalized world as they believe I should compete. Let's make them compete equally with every entity and person on earth for access to the same capital. Wall Street is very clever. It is good at telling Americans free markets dictate that they compete with someone making $2 a day in a far off land. But that is the greatest hypocrisy and scheme ever perpetrated on the American public. I'm as pro free markets as anyone but if you believe this hypocrisy perpetrated by a monopoly shielded from international competition, you've been deluded by the greatest mind bending machine ever created.
To make matters worse Congress jeopardized our deposits by allowing depository institutions to partake in risky schemes with our money by risky trading, risky leverage, unsound risk practices, risky business models, risky derivatives and on and on and on. Something that never should have been allowed. Something I have harped on repeatedly. Commercial banks have absolutely no business being involved in these risky schemes if they are also charged with protecting our monetary system. Especially because they represent a monopoly. A monopoly that has an amazingly powerful ability to truly distort international markets. But, of course, lobbyists have worked their miracles at our expense. There's your answer Senator Bunning. Congress helped create this mess.
I am simply pointing out the hypocrisy of the system. The system being the status quo. And, now we see that as in any great concentration of power, the status quo will do and say anything to maintain its livelihood. For history also tells us any great bureaucracy will first act to save itself when threatened. That includes telling us that the crisis has passed. That all is now well again. That we are now seeing the greatest opportunity of a life time to pick up Wall Street's assets on the cheap. I am not espousing some conspiratorial position held by many fringe thinkers that hidden forces control the world economy. Or that central bankers are somehow part of some grand scheme to control humanity or reap billions for a secret society. To the contrary, I have significant disregard for those messages. They are not based in substantiated fact and many have racist undertones that I abhor. As I have stated often, I am not opposed in the least to the Federal Reserve. I'm simply stating the fact that access to capital in the U.S. is controlled by a monopoly and as such, must be regulated. The same situation exists in every country with a central banking structure similar to the U.S. Is that all bad? Not if managed properly. (That is a systemic problem in itself. To allow discretionary management of a monopoly is a moral hazard.) Has it served society well? It has served some very well, many reasonably well but many not well at all. Have I personally benefited from it? I suppose. Could it be better? Yes. Could it be worse? Yes. Is there a better model? Yes. Is it the gold standard many point to? In my estimation, no.
If nothing else changes, one thing must. Society has the legal and moral authority and responsibility to be granted increased transparency. In a society that cherishes freedom as a fundamental truth, we can achieve no truth without knowledge. And we can achieve no knowledge without transparency. Therefore there is no truth without transparency. Transparency in all government policy, transparency into all lobbyist activity, transparency into all Federal Reserve policy, Transparency into all SEC policy and transparency into all of Wall Street practices. It is any society's basic right to have fundamental truth and we are at a point where there is no truth. Politicians aren't truth. Wall Street isn't truth. Opinion isn't truth. Knowledge is truth. That is one reason why the system as it is cannot save itself.
As was said thousands of years ago, "Only truth will make you free.". How timeless is humanity's brilliance at knowing universal truth? Yet, how foolish we have become.
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