The financial sector is waging war to control and extract tribute from the "real" economy of production and consumption. Their agenda is to make the Federal Reserve the sole watch dog. These events, taking place in committee, are being buried under the Haiti story.
By far the major enabler has been the Federal Reserve Board (FRB). Acting as the banking system's lobbying organization, its tandem of Alan Greenspan and Ben Bernanke fought as a free-market Taliban against attempts to introduce financial regulation. Working with the Goldman Sachs managers on loan to the Treasury, the Fed managed to block attempts to rein in debt pyramiding.
Mr. Bernanke ignored the very first lesson taught in business schools in the 17th century: The market price of land, a government bond or other security is calculated by dividing its expected income stream by the going rate of interest that is, "capitalizing" its rent into what a bank would lend. The lower the rate of interest, the higher a loan can be capitalized. An interest rate of 10%, a $10,000 annual income is worth $100,000. At 5%, this income stream is worth $200,000. Mr. Bernanke thus rejected over three hundred years of economic orthodoxy in testifying recently that the Fed was blameless in fueling the real estate bubble by slashing interest rates after 2001. Financial fraud also was not to blame. Anointed with the reputation for being a "student of the Great Depression," he showed himself to be clueless.
He is not really clueless, of course. His role is to play the "useful idiot" whom financial elites can blame to distract attention from how they have gamed the system. Wall Street's first aim is to make sure that the Fed remains able to disable any real check on loading down the economy with more debt so as to "borrow its way out of the bubble."
Sheila Bair explained how the Fed had acted as an agent of the commercial banks perpetrating fraud, protecting their sale of toxic mortgage products against consumer interests and indeed, the solvency of the economy itself. What utter folly it would be to put Creditor Fox in charge of the Debtor Henhouse.
The aim of bank marketing departments backed by the Obama administration is to steer credit to re-inflate the bubble and thus save financial balance sheets from their current negative equity position.
This policy cannot work. One constraint is the balance of payments. The competitive power of U.S. exports of the products of American labor is undercut by the fact that housing costs absorb some 40% of labor's family budgets today, other debt 15% , FICA wage withholding 12%, and other taxes another 20%. U.S. labor is priced out of world markets by the economy's FIRE sector overhead even before food and essential needs of life consume the 13% that is left.
We are seeing finance capitalism autonomous from industrial capitalism instead of its servant. The problem is how to restore a more balanced economy and rescue society from the financial sector's self-destructive short-term practices.
Excerpted from Michael Hudson @ Counterpunch
