Nothing is more amusing in the reports of Parliament for 1857 and 1858 concerning bank legislation and commercial crises than to hear of “the real rate produced” as the directors of the Bank of England, London bankers, country bankers, and professional theorists chatter back and forth, never getting beyond such commonplaces as that “the price paid for the use of loanable capital should vary with the supply of such capital,” that “a high rate and a low profit cannot permanently exist,” and similar specious platitudes. Customs, juristic tradition, etc., have as much to do with determining the average rate of interest as competition itself, in so far as it exists not merely as an average, but rather as actual magnitude.
Karl Marx, Capital, Volume III, Chapter 22
As this crisis develops, if you are an equity portfolio manager and you want to outperform the market, you are going to have to position your portfolio so that it benefits most from your own wealth destruction and that of your family, friends and colleagues. Almost everybody is going to lose and there aren’t many places to hide. This is deeply unpleasant but you can blame the central planners.
Paul Mylchreest, Thunder Road Report, July 5, 2012
The human mind is conservative by instinct. We naturally want to be able to trust authority, because if we can’t, then we have nobody to rely on but ourselves and each other, and that is scary. The more power and influence that a person or institution has, the more we instinctively believe them when they say they know what is best for us—in fact, the more we root for them to be correct in their pronouncements. Surely they know better then we how the world really works, we reason, because the alternative is too terrifying to ponder.
But if those who govern us do in fact have such knowledge of how the world works it does not follow that they willingly share all of it with us, for they know that if they did, they would not be governing us for very much longer.
For decades now, political and social stability in the United States has depended on the economic and financial illiteracy of her people. Year after year, as American wages stagnated, American workers borrowed, spent, saved, and invested based upon certain assumptions about the meaning of value and wealth that simply do not add up when one actually does the math.
When it became clear that the factory job their fathers retired from would no longer be around, they borrowed huge sums to attend a university in order to increase what some snake oil salesman economist referred to as their “human capital.” They took out mortgages from bank representatives who told them the property would appreciate forever and that their ability to make the payments would therefore not depend on income from any source other than rising equity in the property itself. And they stood by trustingly when their employers replaced their retirement pension guarantees with money set aside from their own wages that some “professional” money manager would turn into more money through the magic of globalized securities trading.
And the entire time this was happening, the American worker believed that the USA (and the entire rest of the world after the fall of the Berlin wall in 1989) was governed by something called a free market, which was something real complicated that involved a lot of math but which made it possible for anyone with even mediocre drive and initiative to have a two-car garage, a giant flat screen TV, and a cushy air-conditioned job.
That America was abandoning her productive capital wholesale, that American employers were setting up shop in Asian countries and hiring workers in those countries at wages that would be illegal in the United States itself only to sell the products these “competitive” workers produced back to American consumers at inflated prices, which said consumers could increasingly afford only with borrowed money, did not seem problematic when the “smartest guys in the room” incessantly told the American worker that his country was now a post-industrial “knowledge economy” where value came not from producing goods and services that people need but from ideas!
Now that the jig is up, now that we are finally getting wise to the fact that the those sober, pragmatic grown-ups who now tell us there’s no such thing as a free lunch are the same bullies who stole our lunch money in the first place, more and more of us are peering into the world of the financial services industry and beholding the utter banality of Atlas shrugging.
The banking industry is nothing more than a bunch of dudes sitting in front of computer screens playing World of ClassWarcraft. At the end of the day, whichever brohim racks up the most points in the game wins. Its just that these numbers on the screen are not just points in a video game—they are real currency that can be exchanged for food, clothing, shelter, and all the necessities of life that millions on the planet desperately lack.
In order for John Pierpont Morgan-Chase to unload his losing London Whale sperm all over America’s face and thereby save himself (and human civilization) from total collapse, Mr. Morgan-Chase needs to find willing dupes to buy these worthless securities. These “muppets” include union retirement funds, municipal governments, and millions of trusting, conservative Americans who are just trying to be good savers and not live beyond their means, who understand that the global economy is volatile and risky these days and want to put what little they have somewhere safe where it might grow a little.
Many of these good, patriotic Americans regularly watch Fox News, served or have family who served in the military, and have a personal relationship with Jesus Christ. Whatever will they do when the King of Kings returns to earth and the money-changers give Him a big ol’ Cleveland steamer?