Friday, February 1, 2008

Wall Street Likes Big Government

This story from Bloomberg highlights how the big banks are pleading for fiscal and monetary government intervention.

"With U.S. mortgage foreclosures set to top 1 million this year and home prices falling at the fastest pace since the Great Depression, Lehman Brothers Holdings Inc. Vice Chairman Thomas Russo says the government must take action to prevent a recession.

``The direction we are heading in isn't a good one,'' Russo said in an interview. ``We need significant fiscal and monetary intervention.''"

Can you guess why the banks are in favor of stimulus? Why are banks ever in favor of anything? Answer: the bottom line.

Why are bankers so stirred up about this? Answer: fat bonuses in jeopardy. (Maybe you missed this story?)

Unfortunately, fiscal and monetary stimulus does not create wealth, it merely redistributes it. Fiscal measures like the one working its way through Congress now take wealth from taxpayers and, well, give it back to taxpayers. The net effect redistributes wealth from the more affluent to the less affluent. Business as usual for the U.S. government.

Another part of business as usual for the U.S. government (since 1913) is less well-known. This is the part where the government takes wealth from holders of U.S. dollars and gives it to large financial institutions. You haven't heard of this one? It's known as the Federal Reserve System. They are the ones in charge of "monetary stimulus".

To make a long story short, monetary stimulus is when the Fed prints new money (when they start printing it faster, they call it "lowering interest rates"). In doing so, they take wealth from holders of U.S. dollars (via inflation) and give it to the people who get the money first (banks). This setup enabled bankers to rake in nearly $40 billion in bonuses last year. Sort of a rip off, huh?

For an excellent and detailed explanation of this whole Fed thing, watch this video from the great folks at the Ludwig von Mises Institute.

1 comment:

Mark said...

You ain't seen nothing yet.

I saw a John Edwards quote in my local newspaper today that scares me. He said that Hillary and Obama "both pledged to me and more importantly, that as President of the United States, that they will make ending poverty and economic inequality central to their presidency."

Did you catch that? ECONOMIC INEQUALITY

Take all the money in America and divide it equally between each citizen--heck, let's be generous--each person living in America regardless of citizenship!

Welcome to the USSR of North America. This is no longer just socialism-this is communism.

Won't this be great for the US economy?