The Socialism of Goldman Sachs
Posted by John JMesserly
The fact of the matter is that the GOP favors a socialistic system for Wall Street. Deregulation appeared to be the opposite of this, but what it meant was that Banks could now gamble with other people’s money in financial markets, with the implied backing of the US government. Until the 2008, the “implied” bit was hotly debated, because if it was true, then the system would be socialism. The meltdown ended the debate.
This system was sold to the US as a good deal- this would have the beneficial effect of allowing rapid liquidity and risk taking needed for bold economic activity. The idea was that the US backstopping the banks would never be necessary. The fatal flaw in this theory of Federal Reserve Chairman Greenspan was that his libertarian philosophy was wrong- Wall Street was incapable of self regulation. The unintended consequence of the deregulation was that Wall Street created a massive domino effect: A complex thinly collateralized system of cross leveraging that tied all Wall Street players together like Alpinists bound by a rope. Due to the absence of regulators overseeing their balance sheets, none of their leveraged positions were sufficiently collateralized so that when one slipped into a crevasse (Lehman), they all started to slide in.
Wall Street knew that the US government recognized that the system was both too cross-leveraged and too big to fail, and realized this meant they were looking at a gold mine. The logical conclusion was that they could not lose: all their bets were backed by the US government. They had the perfect system. Heads they win, tails the US taxpayers lose. That is why the GOP actually is ironically the party of Socialism. Financial socialism for the top 1% of the population, with all benefits flowing to them when the bets paid off, but with the 99% holding the burden of the social safety net for them when they failed.
Ok. So dealing with that issue adequately will tend to retard Wall Street’s ability to drive our economy into the toilet again. It doesn’t get us out of the ditch.
The argument that America has had it too good and simply has to tighten its belt is a familiar one. The reality? Like it or not, 70% of our economy is based on consumption. No one is consuming because they don’t have jobs or are afraid of losing them. Because no one is consuming, businesses are shutting down rather than hiring. It is a self feeding death spiral. Austerity measures that you suggest at this point in time serves to accelerate that death spiral.
There is no question that either spending will have to be cut or taxes will have to be raised to bring the Bush’s lunatic balance sheet back into the black as it was during Clinton’s final term. We are low on gas now, but you don’t cut the gas to your engine when you are in a stall and crashing to the ground.
You may not have a solution, but the President does. It happens to be backed up by the academic community. Wall Street doesn’t like the prospects of having their socialized candy shop closed down. Their surrogates in the GOP have their back and really could care less what happens in the near term to the economy. US corporations are sitting on 2 trillion in cash and can figure the best bet is to see if they can do everything they can to get a better deal in 2012. Therefore, they do not want any progress on the economy.
What I am saying to my friends on the right is that they need to perform an honest assessment of who is representing their interests, and who is not.