Financialization in the USA & UK

The People are Frogs being Slowly Boiled

Queen Elizabeth II on the 2008 Global Financial Crisis:  "Why did nobody see it coming?" But many people did see it coming—just not those entrusted with taking care of the country, its finances and its people.

• The incentive for politicians/top officials/financial elites to feed off each other and to deceive the public is massive and irresistible.
• The lust for power and for wealth within government and vested interests grows and grows—what exists to hold it back?
• Arrangements are put in place to transfer money from the populace to the moneyed elite in a myriad of mysterious ways; or even openly, like inflation targets.
• Politicians use the whole population as a sink of money to be raided — always, they assure the populace, for good purposes. The 2008 bank bail-outs with vast sums enabling monstrous salaries to continue for the very executives who caused the crisis is just a recent egregious examples.
• The public is duped through nominally rising salaries and decisions fomenting bubbles in assets. Inflation figures are massaged to minimize worry, reduce social security payments, and ensure that salary increases do not compensate for rising costs.
• Pension promises and reasonable expectations have been destroyed.
• Tax laws are designed to protect the wealthy who are close to government. They can find work-arounds by paying expensive accountants and lawyers to master the thousands of pages of tax rules.

Failure of the Political-Financial Elites

It appears that the theoretical scenario described in the Transition has been realized, because, in the past decade, we have witnessed in the USA and UK:

The failure of politicians through… removing depression-era protection against financial disasters, encouraging lending to people who cannot afford a mortgage, ruthlessly pork-barrelling and misallocating funds, wilfully damaging markets, over-spending on services both useful and useless, refusing to regulate derivatives, allowing banks to measure their own risks, supporting institutions that are too big to fail, bailing out political friends, and ignoring or knowingly enabling all the other failures, & more.

The failure of central banks through… aiding and abetting asset bubbles, knowingly generating inflation, hiding information from the public, knowingly pumping credit to avoid upsetting politicians, & more.

The failure of high-ranking officials through… willingly manipulating statistics, permitting unsustainable levels of leverage at the investment banks, promoting EMH (Efficient Market Hypothesis)when times are good and recognizing sentiment when times are bad, & more

The failure of regulatory authorities through… ignoring governance failures in the financial sector; turning blind eyes to Ponzi schemes; allowing massive leverage, piled on top of leverage, on top of yet more leverage; failing to keep up with financial innovations; & more.

The failure of rating agencies through… knowingly giving misleading ratings, maintaining false ratings until after the facts are evident to all, allowing themselves to be bought off by investment banks, & more.

The failure of leadership in big banks through… denying risks, deviating from their useful social role, seducing the best and brightest away from proper jobs, obfuscating and hiding balance sheet realities, using bonuses to foster excessive risk-taking, taking hefty salaries and golden handshakes while the banks were receiving taxpayer funds, & more.

The failure of large asset managers through… thinking a bull-market made them intelligent, for not doing due diligence, for misleading advertising, for suckering the public with past performance charts of asset classes that are peaking, for improper selling, for excessive charges [in UK fees are >40% of the final pension], for drifting from their mandates, for asset stripping, & more.

The leaders in all these political-financial entities incestuously interacted, exacerbating the financial mismanagement to their own benefit—benefit which was sometimes more wealth-based and sometimes more power-based.

US Examples: Hank Paulson was CEO of Goldman Sachs and then Secretary of the Treasury. The US Vice-President, Dick Cheney, was the former CEO of Halliburton, a firm that received enormous government contracts during the Iraq war.

Refusing to regulate, the politicians colluded in truly poisonous developments, which let banks disseminate vast amounts of assets that were «toxic waste» (their term), while generating vast and undeserved fortunes for the elites.

At the time of writing (Aug-09) and latest revision (Mar-14), virtually no-one has been indicted and big banks are even more privileged and protected than prior to the crisis that they were instrumental in producing. None of the recognized causes of the crisis—excessive leverage, banks too big to fail, mixing speculation with banking, unregulated trading—have been addressed.

As one senior european politician explained: "We all know what to do, we just don’t know how to get re-elected after we’ve done it."

What conclusion do you draw from this?

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• More on the coming political transition, and then

• How politics will be turned upside down.

Originally posted: July 2009; Last updated: 27 Mar 2014