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The article below speaks plainly, although at some length about the role of money and the role of Wall Street, the need for regulation and where we should look for remedies for what ails our society.
While the author is entirely correct from a theoretical standpoint, the fact that corruption and abuse emanates from Wall Street is conveniently side-stepped. So I conclude that it is a planted article written by someone who understands too well what went wrong.
To begin with money is not merely a social construct with the sort of neutral value or nature that the author portrays. Money has become the dominant religion in America. In other countries the presence or absence of money is not nearly as important as the services and protection of government that the citizens expect. Here money has assumed a religious component in two respects — first, in order for it to exist and be useful, people must believe that the paper or numbers on their bank statement are real purchasing power and second, Americans have accepted a unique perspective on money extending far beyond the concept of respect for those who have made a lot of money. They are like gods above our laws and whose wrath is to be feared.
The purchasing power of the dollar has been declining since the Wall Street scandal began. The can was kicked down the road a few times because the victims of Wall Street’s antics in Europe are reacting appropriately to the rug being pulled out from under them. So the dollar looked safer than the other currencies that are in chaos or transition now. But everyone knows that Wall Street caused this chaos, and they did it because our government pulled the referees off the playing field leaving only the bullies to make up their own rules. The religious fervor with which our policies are dominated by money and banking to the exclusion of services and protection of our citizens is appalling and precisely why the large banks must crash and be taken apart with pieces going to the real players in the banking system that do fit the description of banks in the article below.
Our failure to take responsibility for not regulating the banks and letting them into the rooms where the levers of power are pulled is precisely why the belief of everyone other than Americans who don’t trust the dollar or the U. S. will ultimately topple the dollar as the world’s reserve currency. And, when any credible alternative to the dollar emerges, everyone including rich Americans will flock to the new currency. It’s strictly business. The U.S. has so debased its currency, its economic foundation and its infrastructure for power, transportation and public safety that we don’t stand a chance.
Where other countries are wrangling with the problems of delivery of safety and opportunity to their citizens, the American government is still arguing about ” class warfare.” The discussion here is not on point and while Europe looks more chaotic now, they will look a great deal better later because they did deal with the real issues of people and the purpose of government.
Excusing Wall Street from lying, cheating, and corrupting our society and marketplace through the sorrowful and stern pronouncement that private banks have one goal which is to make money for their owners — begs the issue of the long term viability of any enterprise whose only goal is to make money. As the Citizens United case told us, corporations are fictions, but they are legal fictions entitled to act like a legal person under the law. True enough. And people who commit wrongs are ordinarily held accountable for anti-social behavior. In America they are not held accountable and the victims are seen as bugs who should be squashed with every step.
Bullying, emanating from the power that we gave up when we started worshipping money, is how the regulations were removed, how the judicial system allowed millions of fake foreclosures to go through on the premise faked defaults, and why even the Massachusetts Supreme Court while admitting the wrongful behavior declined to apply it retroactively. Those who steal far less money are forced into making restitution to diminish the loss of their liberty. Here the loss of liberty is not on the table and restitution is thus left to innovative homeowners and attorneys who can outwit the new world order of money and property.
The corruption of our title caused by MERS is a perfect example. The only valid way of handling the situation is to void all MERS transactions. Instead we now have a hybrid of transactions laced with corrupted title and claims that are now sitting in the files of the county recorder’s office. So the choices we have are that we accept title as it is which rewards thieves, or we just convert our system to MERS and caveat emptor as to title. Either way we will never know the real status of our title or our mortgages.
These things won’t happen in countries that see money as a vehicle or tool. And that fact is going to isolate the U.S. from the rest of the world. A marketplace where the certainty of transactions completed and the title is always subject to clouds or defects is a third world unstable country. Welcome to America, 2012 — unless we do something about it.
Misunderstanding Banking Is Bankrupting The Entire Society
Much has been written since the JP Morgan trading fiasco and the big Congressional hearing last week – some of it enlightening, but most of it confusing some of the basic elements about banking and money in general. I was reading this piece yesterday on Bloomberg about the responsibilities and the “job” of banks. It got me thinking about how badly people confuse the role of banks in our system. So I thought I’d chime in.
Banks are, at their core, profit seeking establishments that serve as the lifeblood of a complex payments system in the monetary system. Banks make a profit by having liabilities that are less expensive than their assets (well, it’s more complex than that, but let’s keep things simple here). They compete for deposits and business by offering various products and services. In the USA banks are almost exclusively owned by private shareholders (as in, not the government or public sector). Like most other private profit seeking entities the goal of a bank is not just to service the smooth facilitation of this payments system, but to to make money for its owners. Most of the time, these two functions do not conflict, but at times the risks banks take can indeed jeopardize the functioning of the system. Despite all the bad press that banks receive the progress surrounding their various services have actually had a positive impact on the world (for the most part). Bank accounts, credit cards, debit cards, investment services, business hedging services , etc are all elements that make the institution of money more useful and more convenient. Seeing as money is a tool and a social construct it makes sense that banks have evolved products and services to help facilitate the ease of its usage (all in the name of competition and profit generation, of course).
But we have to ask ourselves the question again. What is Wall Street’s job? Wall Street’s job is simple. It is to increase earnings for their shareholders. It is not to provide jobs for the private sector. It is not to make sure the US economy is running smoothly. It is not to make sure you feel good about your day to day life. It is to generate a profit for its owners. This is the essence of private banking. To generate a profit. But banks play a unique role in our capitalist system. I’ve explained before that banks are not the engine of capitalism. They are simply the oil in the machine. As the oil in our machine, banks must be functioning smoothly in order for the machine as a whole to be functioning smoothly. So when big banks do bad things that threaten their well-being parts of the system begin to malfunction. And sometimes when these mistakes are big enough the contagion leads to the entire machine malfunctioning and requiring a major repair (hello 2008!).
But make no mistake, your local bank is not your best friend or a public purpose serving charity. For instance, when a bank extends a mortgage (a word literally meaning “death security pledge” from the latin root “mortuus” for death and germanic “security pledge”) they are not doing you some charitable service to help you buy your home. They are rating your credit risk and evaluating you as a potential profit engine for their shareholders. That might not be the most pleasant way to think about it, but it is what it is. A bank is not a charity. It does not really care if your mortgage results in jobs or happiness for you. Of course, it would be great if this did because that might result in more future business, but the bank does not need these things from you in order to generate a profit. It really just wants to manage its risks in a way that helps to generate a profit for their shareholders without excessive risk. Obviously, the debtor finds the mortgage advantageous, but don’t confuse this service for charity work. It’s just good old fashioned profit seeking and offering a service where one is needed (in this case, the debtor being able to obtain money they could not otherwise currently obtain).
The business of private banking is largely about risk management. A good bank manages risk by understanding how the various business components threaten the stability of the overall bank and align with this goal of generating a profit. And as we ripped down the regulations structuring the amount of risk these institutions can and cannot take (in addition to making the risk taking business more complex) we realized that banks just weren’t very good risk managers. This is not surprising to anyone who has been around markets for a while. Investors and people in general are irrational, inefficient and poorly suited to manage the risks associated with complex dynamical systems. So, for some reason, we all seem shocked when these profit seeking entities take excessive risks and prove to be poor risk managers. And since we would never blame ourselves (the home buyers for instance) we blame the banking institutions. And we write silly things about how they’re not doing their “job” or how they’re all out to screw the whole world. It’s just not that black and white.
From a social perspective, this is all an extraordinarily interesting discussion. Money is a social construct and a simple tool that helps us achieve certain ends within our society. But money is something that is to be earned within our society (or utilized by the government in a democratic manner that is in-line with our goals as a society). So there’s an interesting reality at work within the banking system. Banks, as loan originators, act as a way to obtain access to money for someone who has not yet earned money. And in return, they are charged a fee for “borrowing” this money that is technically not yet theirs. If there was no interest fee attached to loans the demand for this money would obviously be through the roof and it would render it worthless. Likewise, if banks make credit standards too lax, fail to properly asses risks and make credit plentiful they can create an imbalance within the system (by lending to people who can’t service their debt) that threatens the viability of the monetary system through the risk of excessive debt, defaults and inevitable de-leveraging (as we’re seeing now). In this world of “what have you done for me lately” and “get rich quick” (or more often, appear rich quick!) you have a messy concoction of borrowers who want their McMansion YESTERDAY and lenders who are willing to give you the money to obtain that McMansion TODAY so they can generate a bigger profit TOMORROW.
To me, none of this is a conflict though and does not mean the system, at its core is corrupted or failing. Banks are private profit seeking entities who play an important role in our society, but are not public servants and should not be public servants (a government managed loan system would almost certainly be a disaster waiting to happen). Obtaining money is a privilege, not a right. And a private profit seeking banking system serves to regulate the ability to obtain money before one has necessarily earned it (though there are certainly instances, such as some forms of government spending, where money is rightly distributed by political choice). But because banks deal in distributing the social construct that binds our society together we have a responsibility to oversee that money so as to bring the interests of these profit seekers in-line with the interests of society as a whole. So to me, it is not the capitalist profit motive that is evil here. Nor is it the greedy consumption driven actions of the borrowers that is evil. These are crucial elements of a healthy functioning monetary system.
I think we need to recognize that money is a social construct that is to be protected by the society that creates it. But we must also understand that, while private profit seeking banks are a superior alternative to a government managed loan system, these banks will inevitably be poor risk managers at points during the business cycle. There is plenty of blame to go around for the current debacle that is the US economy. Home owners were greedy in the run-up and the profit seeking banks were quick to turn that extra demand into higher earnings per share. This production/consumption component is a healthy functioning part of the capitalist machine. But when it involves the very oil that greases the engine we must understand that this is a component of the economy that requires great oversight and better regulation. I fear we still do not have this despite the recent changes. And the result is that this boom/bust cycle is likely to continue causing people to believe the very essence of capitalism is corrupted when in fact, it is the users and their misunderstandings who have abused the system. In failing to properly oversee the institution of money we have allowed it to fail us.
In sum, it is the misunderstanding of the essence of money that is evil here, not the system itself. We have misunderstood the essence of money as a tool and a social construct and how it relates to modern banking. And in doing so, we have allowed both borrowers and lenders to abuse that social construct. And with 8% unemployment and a floundering economy it is not just the banking system that appears bankrupt, but our society as a whole. Better oversight of the institution of money might not be able to fix our current problems, but it can certainly ensure that future generations don’t have to suffer through these same events.
Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud Tagged: | Blomberg, citizens united, Cullen Roche, JP Morgan, Massachusetts Supreme Court, McMansion, MERS, misunderstanding banking, money, Pragmatic Capitalism, regulation, US economy