It was a few months ago that I realised the size of the divide between us ordinary Earthlings and the government-venerated banking royalty had gone past the tipping point and that we were now separate species. Survival of the fittest? Darwin was right. We are the peasants with pitchforks gathered below Frankenstein’s castle where mysterious new things are happening.
We understand each other but not “them”.
It was during the marshmallow-tough “interrogation” of Dick Fuld, the former Fuhrer of Lehman Brothers that scales fell from eyes. Fuld was asked a perfectly reasonable question, to which he replied scoffingly, “You are confusing liquidity with capital.” That short sentence was made up of short words which, individually, I am sure most of us understood – but as a sentence, it was meaningless. The separation was complete.
This evolutionary fiscal quantum-leap is illustrated best by a look at just one company.
So far this year, Goldman Sachs has set aside $11.4 billions to compensate its workers. Why not? The second quarter of 2009 has produced $3.4 billions in profit. But are these REAL or merely the usual brand of illusory profits, created by a combination of gamble, accounting and government offerings.
In the first quarter of the year, world leaders were talking of the “compensation culture” and the fact that the current system of compensation contributed big-time to the Global credit crisis. In the first quarter, even our own Gordon Brown was talking in terms of commission “clawback” , a reform of compensation structures, unacceptable risk-taking and “short-termism”. So where is the reform to the short-term compensation structure? The compensation structure which encouraged and apparently STILL encourages excessive risk-taking .
We know that the “Financial instruments” used by the investment bank barrow boys are called YM and when they make a mess of things, they are bailed out by an even more interesting flavour of financial instrument called the TM – which really is another form of YM.
Confused by yet more jargon and acronym? YM is Your Money and TM is taxpayers’ money. Now we can all understand.
As Joseph Stiglitz, the Nobel Prize-winning economist said: “….in effect, it (the compensation system) encouraged excessive risk-taking. In effect it paid them to gamble. When things turned out well, they walked away with huge bonuses. When things turn out badly – as now – they do not share in the losses.”
The ultimate WIN-WIN!
So these Investment Bank screen monkeys are able to distort the market say, by either buying or selling a large volume of someone else’s shares or they are able to distort the price of a stock electronically. Whatever they do, it is designed to generate profit for them. (Or am I confusing profit with revenue?)
Last November, Goldman Sachs, an Investment “bank” was offered Federal protection – the sort of protection normally available only to a commercial bank. The screens were placed around Goldman Sachs with almost indecent haste as they were wheeled away and then they suddenly disappeared from the headlines. Why?
Think of them as the American Government’s personal bank. The sort of bank that they cannot upset because the Goldman Sachs knows where the Government has buried all of its financial bodies.
But why should Goldman Sachs have such privileged information and why should it be granted such special favours? There are a couple of answers to that conundrum.
Goldman Sachs has a unique deal with the American Federal Government. It participates in a scheme called the “Supplemental Liquidity” provider.
The Supplemental Liquidity provider is a system whereby in the event of a Market Crash or large adjustment in share price, selected quoted NYSE companies are provided by cash through Investment banks trading in the NYSE companies’ shares, thus providing “Supplemental Liquidity.” To date, there is but one participant in this scheme. ONE company is the Supplemental Liquidity provider to the New York Stock Exchange. You have already guessed – Goldman Sachs.
The scheme was to last until April 30th 2009 but it is now set to continue until October 2009. Goldman Sachs effectively controls the NYSE.
In 1988 Ronald Regan was persuaded that in the event of a Stock Market Crash,the United States financial industry needed a protection system – a fail-safe device to prevent market meltdown. Accordingly, Reagan signed Executive Order 12631. That resulted in the “Plunge Protection Team”. The PPT’s job was simple. The clandestine and illegal purchase of stocks and other financial instruments in order to stablilse any falls in market prices. The purchases are made with Uncle Sam’s money.
So who runs the Plunge Protection Team? Former Goldman Sachs employees.
GS has evolved into an untouchable millionaire-making cash-machine and it is sucking money out of the world economy because (it seems) that our leaders do not have the will to kill this modern-day Frankenstein. After all – they created it and now have to protect it.