“As I see it, the bankers are not clueless at all. They understand the game, they understand that the government is going to clean up the mess that they and their friends in Congress and the Bush and Obama administrations have created, and they understand that their antics are going to give them what they always have wanted: a nice, cozy, financial cartel which will provide sweet political contributions for the political classes, bonuses and high pay for themselves, and very little for everyone else.

And if Krugman cannot see it, then the guy truly is clueless. However, my take on the matter is much more cynical, and I don’t think I need to go any further on that subject.”

Read more by Bill Anderson at Lew Rockwell.

My Comment:

Because I believe in boiling an argument down to its essence, here’s what I call this unholy economic trinity: KKK.
Kleptocrats – the people in the government who shill for the banksters
Kartels – the banking and financial elites who monopolize and strangle the market.
Konfidence Men – journalists, academics, and analysts who cynically tailor their writing to fit the mob in control…they exploit your confidence in time-honored names and awards in the same way that confidence men gain your trust through friends, reputation, and feigned solicitude for your well-being

Take-aways from the piece:

Krugman and the left-liberals are trying to spin the whole financial crisis into something caused by Reagan and deregulation, ignoring two facts:

1. Deregulation was not the only form of government intervention in the economy at the time.
2. Besides overt government intervention in the economy, there were political actions that had an indirect effect on the economy. I’ll address those in another post.

Anderson’s piece deals with the first of these two – economic intervention.
As he tells it, economic intervention was not confined to deregulation.
There were other places the government intervened that are more responsible for the changes in banking.

1. The artificial increase in credit caused by interest rate manipulation
2. The de-linking of the currency from gold

In Nationalization in a Time of Monopoly, I made much the same point.

The growth of the financial sector beginning in the 1980s came about because money became cheaper than its actual cost. When you make something cheaper than it should be, you get more of it than you need. Then all kinds of artificial demand for it arises.

And that’s what happened.

So, the issue of the regulation of the banks is beside the point, because most of the new credit was created outside the banking system. That’s what junk bonds were all about. And that’s why a whole lot of other outfits began to get into the banking game. It was lucrative for them to do so. It was also lucrative to focus on short-term horizons, which is what corporate raiders did.

It wasn’t a kind of shareholder activism, which was the financiers’ spin on it. Shareholders were the excuse, but what was happening was that predatory speculators turned businesses into nothing more than physical locations tacked onto paper certificates. The movement of the paper certificates displaced the reality of the business. The raiders squeezed all the value out of the business into short-term price movements that they creamed off. Then they moved on. In other words, they were flipping businesses in the same way people flipped houses in the housing bubble or tech stocks in the tech bubble.

Cheap money also meant that bigger companies that were able to borrow more benefited at the expense of the smaller ones, which created incentives to get bigger and bigger. Thus we got monopolies.

So several things happened:

• More and more businesses found it profitable to become quasi-banks or lenders. Finance began to become a larger share of the economy and financiers became more important.

• Businesses found it more profitable when they became bigger and better connected politically. So bigger outfits began to dominate the economy and began to become more symbiotic with the state.

• Debt became more profitable than cash. Credit became the life-blood of the economy.

• Horizons became shorter. Speculators began to displace investors and businessmen.

• Risks and rewards got disconnected because of government back-stopping and insurance. Rentiers, arbitragers, and managers displaced risk-takers and value creators.