Friday, September 2, 2011

The Multi-Trillion Dollar Bankster Robbery

Write Nassim Nicholas Taleb and Mark Spitznagel:
For the American economy – and for many other developed economies – the elephant in the room is the amount of money paid to bankers over the last five years. In the United States, the sum stands at an astounding $2.2 trillion. Extrapolating over the coming decade, the numbers would approach $5 trillion, an amount vastly larger than what both President Barack Obama’s administration and his Republican opponents seem willing to cut from further government deficits.

That $5 trillion dollars is not money invested in building roads, schools, and other long-term projects, but is directly transferred from the American economy to the personal accounts of bank executives and employees. Such transfers represent as cunning a tax on everyone else as one can imagine. It feels quite iniquitous that bankers, having helped cause today’s financial and economic troubles, are the only class that is not suffering from them – and in many cases are actually benefiting.

Mainstream megabanks are puzzling in many respects. It is (now) no secret that they have operated so far as large sophisticated compensation schemes, masking probabilities of low-risk, high-impact “Black Swan” events and benefiting from the free backstop of implicit public guarantees. Excessive leverage, rather than skills, can be seen as the source of their resulting profits, which then flow disproportionately to employees, and of their sometimes-massive losses, which are borne by shareholders and taxpayers.

In other words, banks take risks, get paid for the upside, and then transfer the downside to shareholders, taxpayers, and even retirees. In order to rescue the banking system, the Federal Reserve, for example, put interest rates at artificially low levels; as was disclosed recently, it also has provided secret loans of $1.2 trillion to banks. The main effect so far has been to help bankers generate bonuses (rather than attract borrowers) by hiding exposures.

Taxpayers end up paying for these exposures, as do retirees and others who rely on returns from their savings. Moreover, low-interest-rate policies transfer inflation risk to all savers – and to future generations. Perhaps the greatest insult to taxpayers, then, is that bankers’ compensation last year was back at its pre-crisis level...
Following this insightful analysis, Taleb and Spitznagel suggest that investment managers have a moral and professional responsibility to play their role in bringing some discipline into the banking system. Huh!

There's a simpler solution. Simply stop the government from backing these banks up. Other than knowing how to play footsie with government, senior management at these banks don't have a clue on how to run a profitable bank, as evidenced by how they regularly need to be bailed out. Without the bailouts, these banks would crash and burn all on their own.


  1. $5 trillion siphoned to banksters, financiers and Wall St. via gov't and FED constructed pipelines engineered and built expressly for this purpose can hardly be considered a commie business model.

    just my .02 (soon to be inflated to .10) cents.

  2. Anony, it's just another form of collectivism, Fascism aka Crony Capitalism actually a sister of the big C.

  3. Indirect govt. control of the economy is fascism. Direct control is communism. But whether it is the college version or just the high school version of socialism, it is still socialism.

    So Tom Rose, retired econ prof from Grove City College.

    As for the Fed Reserve, a private banking cartel that price fixes the interest rate - no, it ain't capitalism either.

    [The repeat in the quote in the article needs to be edited.]

  4. Fascism, communism, socialism. These are all labels borrowed from history. Debate gets hung up on the old labels - that may or may not have been relevant to earlier debates, while the trillion dollar welfare queens get away with it.

    Hilaire Belloc, the distributist, and author of "The Servile State", in his book "The Free Press" described the power of "Finance" thus:

    "[Finance is] the domination of the state by private Capitalists, who, taking advantage of the necessities of the State, fix an increasing mortgage upon the State and work perpetually for fluidity, anonymity and irresponsibilities in their arrangements.."

    Not bad for 1918.

    The new Financial Statism is of course barely "capitalist" in any meaningful sense. It is all based on bailouts, state enforced cartels, fiat money, insider financial engineering and massive tax penalties imposed on any newcomer competition.

  5. It looks like the theft referred to in the article and its effect on future growth are ignored by economists. Abandoning bank stocks is not the solution. There should be political force to quash the power of the bank's lobbyists.

  6. I wonder where all the trillions of money goes? and how come we owed so much to those banks.