Everything You Need to Know About Dodd's Financial Reform Bill: "This Legislation Will Not Stop the Next Crisis from Coming"
Instead of going into a lengthy analysis about the pros and cons of Chris Dodd's financial reform bill, I'll let the Senator speak for himself:
This legislation will not stop the next crisis from coming. No legislation can...
What Dodd is really saying is that there's no use in doing any of the things which all of the top independent economists and financial experts say need to be done to stabilize the economy. See this, this and this.
Poor old Wall Street has to become a victim to the business cycle and get bailed out once again:
"Not to be funny about it, but my daughter asked me when she came home from school 'what's the financial crisis,' and I said, 'Well it's something that happens every five to seven years,''' [JP Morgan CEO Jamie] Dimon said.
And the poor little politicians have to raise enough money to get re-elected.
That's just the way it is.
How Far Down The Rabbit Hole Must We Go?
The Truth is that we now require about $5 of debt to generate $1 of GDP.
The Truth is that the reason you were not asked to approve $700 billion to capitalize 10 new banks, thereby creating seven trillion in lending capacity is that the economy cannot soak up that new lending capacity; each dollar of new debt generates almost no aggregate GDP. If this were not true then that would be the logical and effective cure for the 'credit crunch" - if the borrowing capacity and impact on GDP necessary to help existed. They do not.
The Truth is that you were lied to about the purpose of the TARP/EESA, because what you were sold was mathematically impossible. It is supposed to be unlawful to lie to Congress.
As I pointed out at the time, the reason they didn't create that $7 trillion in new credit issuance is that there was no more capacity to take on new debt in the private sector.
They knew it.
They lied about what "had to happen" for stability to be restored.
They lied because the alternative was that their friends - powerful friends - would have to go bankrupt.
But it gets worse. Some of the other points:
The Truth is that the absolute worst thing you can do when "in the hole" like this is to spend even more on a deficit basis, thereby driving the debt ratio higher and return-per-dollar-of-debt in GDP lower. The last eight years have been disastrous in this regard.
Yet that is exactly what we have done - we have replaced fully 10% of private GDP with public spending, and while the claim was made that this is "temporary" the CBO says it is not, Obama's budget says it is not, and the credit contraction that is continuing in the private economy says it is not.
Bernanke and Paulson, and now Geithner, know that this attempted "reflation" won't - and can't - work. They have put forward this path not because it is the right thing to do, but because the alternative means a lot of people with power and money will go bankrupt and the Government of The United States will have to change how it finances itself, removing the corrupt influences that have been used to "cook" the books - and outcomes - for the last 30 years.
We have blown three trillion dollars since these intentionally-wrong decisions were made, and we will continue to blow more and more money until the entire banking and economic system collapse unless we change course.
Now let's be clear: Essentially all money is debt in our current system. As such attempting to "print" your way out, or attempting to "inflate" out, or attempting any act other than forcing the default of the bad debt in the system results in digging the hole deeper and deeper - that is, depressing private GDP further.
Government's efforts have not helped, they have destroyed the four years we had before "zero hour" was reached. Bernanke's interference in the mortgage market didn't "help" that market, he effectively entirely replaced the private market. The Government's "interference" in the private markets by borrowing and spending $3 trillion over the last two years - more than 9% of GDP annualized - is an attempt to "paper over" the insolvency of private actors in the markets - both borrowers and creditors.
These acts of interference did lead to a huge stock market rally, but just as with all forms of cooking the books they are false dawns and false hopes. They present a picture of "solvency" that does not actually exist. They present a picture of private demand in the economy that does not actually exist.
Since we are now below the "zero line" of GDP-contribution from further debt issuance we simply tighten the monetary flat spin by trying to further print or deficit spend.
Government is enacting "health care reform" today not to reform health care, not to provide health care, but rather to impose an immediate tax on all Americans to attempt to pull up even harder on the monetary stick.
It won't work folks. It can't work. More than 18 months ago I identified the primary failure in the path that was being taken, and why. We have tried it Bernanke, Paulson, Geithner, President Bush and President Obama's way now for nearly three years, and yet there has been no resolution of the debt problem, no resolution of the housing market and no actual economic growth. Instead we have papered over insolvency and lied about the health of both our banking and economic systems.
Meanwhile the cracks in the dam continue to grow. Greece is not just "one little problem" over in Europe. Behind Greece is Spain, Portugal, Italy, Ireland and even Great Britain. None of these nations have yet taken the actions necessary to resolve the problem, for the same reason we have not - it is politically very difficult to tell the entrenched banking interests "you must eat your own cooking - even if you choke on it."
We still have time to choose between bad and horrifically awful. We can choose between recognizing the Depression we are already in (private GDP has contracted by more than 10% from the peak, which is the definition of economic Depression) or we can risk Zombieland or Mad Max becoming reality.
Since Europe and the rest of the world show no desire or expectation to do the right thing, we must either firewall ourselves off from their collapse or we will inevitably go down the bowl with them.
We are risking severe civil unrest and the possible destruction of our republic by our continued refusal to face the mathematical facts, not just a "double dip" recession. What Greece and other nations are seeing now is nothing compared to what is on the horizon and will reach us if we do not act.
