21 November 2009

Toto, I Don't Think that We're In Kansas Any More

Alan Grayson on Dylan Ratigan (2:24)
Crooks and Liars has a very illuminating clip on just what Alan Grayson expects to find in an audit of the Fed.

While I love Grayson's line that, "Well we are in Emerald City right now. We’ve arrived in Emerald City. Toto has just run underneath the curtain…," the important quote, and the important question is the more significant quote, "Well what I think is favoritism towards selected big banks that have failed and led us to the brink of national bankruptcy."

What is clear is that for a long time, at least since Alan "Bubbles" Greenspan became Fed Chairman, was that the "Greenspan Put", which Wiki calls:
The Fed's pattern of providing ample liquidity resulted in the investor perception of put protection on asset prices. Investors increasingly believed that when things go bad, the Fed would step in and inject liquidity until the problem got better. Invariably, the Fed did so each time, and the perception became firmly embedded in asset pricing in the form of higher valuation, narrower credit spreads, and excess risk taking. It has been criticized as a form of privatizing profits and socializing losses, and as inflating a speculative bubble in the lead-up to the 2008 financial crisis.
(emphasis mine)

Has been a factor of life.

Basically, if you were big enough, and f$#@ed up badly enough, the United States Fedral Reserve System would bail you out.

I think that there are a number of reasons, the first being that in doing so, you can make yourself look good, and I also believe that in the Ayn Rand addled mind of Greenspan, speculators are Rand's noble capitalists, and as such need to be coddled and protected.

The best example of this is probably the collapse of Long Term Capital Management (LTCM), where Greenspan set up a bailout that competed with a much more severe haircut for the investors, to see this, but it happened over, and over, and over, and over again.

The only reason that Greenspan could get away with this, and be called a genius for getting away with this, was because he concealed, and in some cases flat out lied, about what he was doing.

That needs to end.

It is corrosive to democracy, it is corrosive to society, and it is corrosive to finance.


Post a Comment