"Buying Time" Doesn't Fix Financial Crises, It Makes the Next One Worse
(June 3, 2014)
The strategy of "buying time so the financial system can heal itself" by protecting a systemically destabilizing financial sector has failed because it could only fail.
The core strategy of central states and banks to fix the Global Financial Meltdown of 2008 was to buy time: take extraordinary emergency monetary and regulatory measures to save the parasitic too big to fail banking sector and the rest of the crony-capitalist Wall Street parasites, and initiate an unprecedented transfer of wealth from savers and Main Street to the banks and Wall Street via zero-interest rates and credit funneled to the very players who caused the crisis.
The idea was that the system would "heal itself" if authorities simply "bought time" by saving the financial sector from its own predation. The second phase of "buying time so the financial system can heal itself" was to institute policies (ZIRP, etc.) that restored the financial sector's obscene profits and socialized its losses by transferring them to the taxpayers.
The terrible irony in the official strategy of "buying time so the financial system can heal itself" is the policies prohibit healing and guarantee the next financial crisis will be greater in magnitude than the last one.
There is only one way for any financial system to heal itself: enable the open market to discover the price of capital, credit, assets, collateral and risk. When participants finally discover the market price of their assets and collateral are much lower than the valuations claimed in credit bubbles, the market clears itself of bad credit and overvalued collateral in a market-clearing event in which overpriced assets are marked down, firms that overleveraged weak collateral are declared insolvent and liquidated, and creditors who can no longer afford their loans are declared bankrupt and their remaining assets liquidated to pay their creditors.
There is no other healing process but this one: enable transparent, open markets to discover the price of capital, credit, assets, collateral and risk and let those firms and individuals who overleveraged and made bets that blew up go bankrupt.
What "buying time" has done is destroy the market's ability to price capital, credit, assets, collateral and risk, stripping the system of the essential information participants need to make rational, informed decisions. By crushing the market's ability to generate accurate pricing information, central state and banking authorities have insured the system cannot possibly heal itself while maintaining perverse incentives that guarantee the next financial crisis will dwarf the previous one.
The official policy of "buying time" has another fatal flaw: it maintains a parasitic financial sector that expanded to a structurally unhealthy dominance over both the political and economic sectors. Once financial profits ballooned from a modest share of corporate profits to dominance, this enabled financiers and bankers to buy political protection of their skimming and scamming:
The strategy of "buying time so the financial system can heal itself" by protecting
a systemically destabilizing financial sector has failed because it could only fail.
The policies that "saved the financial system" only saved it from the healing
process of the market discovering the price of capital, credit, assets, collateral and risk.
Get a Job, Build a Real Career and Defy a Bewildering Economy (Kindle, $9.95)(print, $20)
Are you like me?
Ever since my first summer job decades ago, I've been chasing financial security. Not win-the-lottery, Bill Gates riches (although it would be nice!), but simply a feeling of financial control. I want my financial worries to if not disappear at least be manageable and comprehensible.
And like most of you, the way I've moved toward my goal has always hinged not just on having a job but a career.
You don't have to be a financial blogger to know that "having a job" and "having a career" do not mean the same thing today as they did when I first started swinging a hammer for a paycheck.
Even the basic concept "getting a job" has changed so radically that jobs--getting and keeping them, and the perceived lack of them--is the number one financial topic among friends, family and for that matter, complete strangers.
So I sat down and wrote this book: Get a Job, Build a Real Career and Defy a Bewildering Economy.
It details everything I've verified about employment and the economy, and lays out an action plan to get you employed.
I am proud of this book. It is the culmination of both my practical work experiences and my financial analysis, and it is a useful, practical, and clarifying read.
"I want to thank you for creating your book Get a Job, Build a Real Career and Defy a
Bewildering Economy. It is rare to find a person with a mind like yours, who can take
a holistic systems view of things without being captured by specific perspectives or
agendas. Your contribution to humanity is much appreciated."
NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
"You shine a bright and piercing light out into an ever-darkening world."
Or send coins, stamps or quatloos via mail--please request P.O. Box address.
Subscribers ($5/mo) and those who have contributed $50 or more annually (or made multiple contributions totalling $50 or more) receive weekly exclusive Musings Reports via email ($50/year is about 96 cents a week).
Each weekly Musings Report offers five features:
At readers' request, there is also a $10/month option.
What subscribers are saying about the Musings (Musings samples here):
The "unsubscribe" link is for when you find the usual drivel here insufferable.
Dwolla members can subscribe to the Musings Reports with a one-time $50 payment; please email me if you use Dwolla, as Dwolla does not provide me with your email.
The Heroes & Heroines of New Media:
oftwominds.com contributors and subscribers
All content, HTML coding, format design, design elements and images copyright © 2014 Charles Hugh Smith, All global rights reserved in all media, unless otherwise credited or noted.
I am honored if you link to this essay, or print a copy for your own use.
Terms of Service: