"We must break the Money Trust or the Money Trust will break us."
- Louis D. Brandeis, 1913
When the economy appeared to be melting down last September, Wall Street bank representatives began showing up in Congress like mobsters walking into a mom-and-pop business looking for protection money.
"Nice economy ya got here.(crash!) It would be a shame if something were to happen to it."
Mobsters and Robber Barons have a lot in common.
Neither has any respect for the law or morals, only for power. Neither can ever be satisfied with any amount of wealth. They will always need to steal more and more and more until they've completely bankrupted their victims.
We are now at the mercy of modern Robber Barons, and if history is any judge, it is either them or us.
Bank Wars
"The great monopoly in this country is the money monopoly. So long as that exists, our old variety and freedom and individual energy of development are out of the question."
- Woodrow Wilson, 1911
On February 28, 1913, the House of Representatives released a report with the most banal name imaginable - Committee Appointed Pursuant to House Resolutions 429 and 504 to Investigate the Concentration of Control of Money and Credit.
In spite of the long-winded and innocuous title, the testimony in the report revealed to the world an unseemly and corrupt conspiracy of Wall Street bankers that threatened the very foundations of our democracy. Despite the dangers, many of the recommendations of the Pujo Committee were ignored until after the 1929 Crash.
Arsene Pujo
As a species and a nation, we seem to be doomed to repeat our mistakes.
Dirty political battles between Washington and eastern bankers are not a new concept in America. The Bank War between President Jackson and the Second Bank of the United States is the most obvious and public of these exchanges. Nicolas Biddle, the Second Bank's President, purposely caused the 1834 Depression, by restricting the money supply, to use as leverage against President Jackson.
Src: The Smoking Argus Daily, Allison Bricker
Unfortunately for Mr. Biddle, his arrogance regarding his ability to cause an economic collapse allowed his ego to get the best of him. He continued boasting, now publicly that relief would only come if Congress renewed the bank’s charter. When Pennsylvania Governor George Wolf, a previous supporter of the central bank was made aware of the bank President’s sentiments, he immediately came out against extension or renewal of the bank’s charter.
When someone mentions trusts and trust-busting, people tend to think of John. D. Rockefeller's Standard Oil, J. P. Morgan's Northern Securities railroad company, and Andrew Carnegie's U.S. Steel.
What frequently gets forgotten is the Money Trust of Wall Street. The reason that it isn't mentioned is because it was never totally broken. Instead the decision was to regulate it via the creation of the Federal Reserve. Nicolas Biddle's dream was finally realized.
Src: The Smoking Argus Daily, Allison Bricker
Our Financial Oligarchy
"Far more dangerous than all that has happened to us in the past in the way of elimination of competition in industry is the control of credit through the domination of these groups over our banks and industries."
- Pujo Committee
"The dominant element in our financial oligarchy is the investment banker. Associated banks, trust companies and life insurance companies are his tools...Though properly but middlemen, these bankers bestride as masters America's business world, so that practically no large enterprise can be undertaken successfully without their participation or approval."
- Louis D. Brandeis, 1913
What frequently gets lost in economic discussions is that the current depression is different from all other post-WWII recessions. All previous recessions were caused intentionally by the Federal Reserve.
The Fed would raise interest rates in order to choke off inflation. Once the inflation was contained they would lower interest rate. Consumer demand, which was artificially suppressed by the Fed's high interest rates, would then be released and the economy would boom.
That didn't happen this time.
The Fed didn't raise interest rates to choke off inflation. There was no consumer demand that was artificially suppressed, thus there was no pent-up demand that was waiting to be released when the Fed cut rates.
What little "less bad" news that we've heard with home and auto sales has been almost exclusively to do with the tax rebates for first-time home buyers and the cash-for-clunkers program. Both of these programs are limited in time and scope, and both bring future demand to the present, which will leave an even bigger gap in demand once they are finished.
What happened this time was an economic collapse that emanated directly from Wall Street. It's source was bad loans that the bankers and rating agencies pushed onto the financial markets of the world, knowing full well that it was only a matter of time before they blew up and took down the world economy.
The economy didn't collapse because of government regulations. It didn't collapse because the government taxed too much or spent too little.
It wasn't because the American consumer stopped spending.
It was because the financial system knowingly overpriced a major financial asset class, and then leveraged itself against that asset class in the vain hope that the Day of Reckoning never came.
The whole financial crisis only came to light because of what amounts to a falling out amongst thieves.
War Between the Ruling Kleptocracy
"Gentlemen: You have undertaken to cheat me. I won't sue you, for the law is too slow. I'll ruin you.
Yours truly, Cornelius Vanderbilt."
- 1853
It is sometimes forgotten that the 19th Century Robber Barons spent much of their time wasting resources trying to crush each other.
For example, the Erie War crippled what should have been the most profitable railroad in the nation, not to mention the cost from the corruption of the entire New York Assembly. An even more colorful battle involved the Albany and Susquehanna Railroad that resulted in hundreds of paid goons crashing trains into each other and engaging in shooting wars.
History has proven that the unrestrained greed of an unregulated economy is neither fair, nor efficient. It also often leads to economic crisis.
Wall Street knows that you can make enormous amounts of money during an economic crisis, and no crisis is more fortunate than the failure of a leading competitor. The perfect example of that is the Panic of 1907.
John Pierpont Morgan again used rumor and innuendo to create a panic that would change the course of history. The panic of 1907 was triggered by rumors that two major banks were about to become insolvent. Later evidence pointed to the House of Morgan as the source of the rumors.
J. P. Morgan
J. P. Morgan's false rumors created a real panic and it threatened to bring down the entire financial center. Morgan then nobly contacted his European sources and managed to borrow $100 million worth gold bullion in order to stem the panic. History remembers Morgan as saving the day, and also helping to convince the public that we needed a central bank in this country.
Morgan didn't save the system from a crisis of his own creation out of the goodness of his heart.
Of course Morgan did not go unrewarded. Recall from our story of two weeks ago that Teddy Roosevelt, despite his antitrust proclivities, allowed Morgan to purchase the Tennessee Coal and Iron Company for about $45 million when the true value was closer to $700 million, thus expanding Morgan's steel empire.
If this sounds somewhat familiar, it should. Recall the failure of Bear Stearns.
Bear Stearns had been unpopular with the rest of the Wall Street oligarchy since it refused to participate in the bailout of Long-Term Capital Management in 1998, despite helping to create the problem.
The most suspicious fact of the Bear Stearns failure was the massive increase in short positions on March 10 and 11, with only five days left before expiration. Some insiders knew something they shouldn't have. John Olagues makes a strong case that it was insiders at JP Morgan Chase that were shorting Bear Stearns and helping to create a "run" on their stock, knowing full well that they would be taking over the bank with the Fed's help.
How would people at JP Morgan Chase know that ahead of time? They were in position to make the deal.
The Fed and U.S. Treasury brokered a deal for J.P. Morgan in haste without question. Usually, such huge deals or mergers would go through committees or FTC oversight, but none of that here –a quick weekend jaunt in the park. It was not surprising that no red flags were raised about J.P. Morgan’s chairman, James Dimon holding a board seat at the Federal Reserve Bank of New York when the deal was made.
Bear Stearns was bought by JP Morgan Chase at a price of $2 a share. A week later it was raised to $10 a share. Was it shame or a guilty conscience to caused JP Morgan Chase to give back a small amount of their quick profits?
JP Morgan Chase was in a position to profit from Bear Stearns demise, and another profit from its taxpayer-funded acquisition, just like in 1907.
Later on that year, JP Morgan Chase managed to purchase Washington Mutual, a bank with $307 Billion in assets, for the price of $1.888 Billion after the FDIC seized the bank.
Back in April JP Morgan Chase offered to purchase WaMu at a far, higher price, but WaMu refused.
"You should have sold to JPMorgan Chase in the spring, and you should do so now. Things could get a lot more difficult for you."
- Treasury Secretary Paulson to WaMu CEO Kerry Killinger, August 2008
A Naked Coup
"We're moving to an oligopolistic situation."
- Kenneth Guenther, Independent Community Bankers of America, 1999
"The goose that lays golden eggs has been considered a most valuable possession. But even more profitable is the privilege of taking the golden eggs laid by somebody else's goose. The investment bankers and their associates now enjoy that privilege. They control the people through the people's own money."
- Louis D. Brandeis, 1913
It's too big of a coincidence that the biggest winners on Wall Street are also the most politically connected, and no one is more connected than Goldman Sachs.
Bush’s Treasury secretary, Hank Paulson, is a former Goldman C.E.O., and his replacement at Treasury, Tim Geithner, was mentored by Goldman alumni. Mario Draghi, who is leading the crisis response for the E.U., is a former Goldman vice chairman.Merrill Lynch C.E.O. John Thain was once Goldman’s co-president, and Wachovia chief Robert Steel was a vice chairman. Ed Liddy, the new C.E.O. of A.I.G., was Goldman’s vice chairman. World Bank president Robert Zoellick was a managing director. Even Neel Kashkari, the 35-year-old tapped to oversee the $700 billion Troubled Assets Relief Program, served at Goldman as a vice president.
And the list goes on. Robert Rubin, President Clinton's former Treasury Secretary, was once the co-chairman of Goldman Sachs. Jon Corzine, now the governor of New Jersey, is a former Goldman Sachs CEO. A top aide of Tim Geithner is former Goldman lobbyist Mark Patterson.
It's so obvious, so in-your-face, that one must assume that Goldman Sachs feels itself invulnerable.
By now everyone should be aware that Goldman Sachs was the biggest beneficiary of the AIG bailout, to the tune of $12.6 Billion, and will be the winners again if AIG finally goes under.
With Paulson in charge of the Treasury at the time, it appeared that Goldman Sachs was bailing out Goldman Sachs. Rich bankers were bailing out rich bankers, and working-class taxpayers were footing the bill.
America has been purchased in a leveraged buyout. For about $5.2 Billion Wall Street has purchased the complete deregulation of the the financial sector, and unprecedented political influence that even now allows them to defeat any new regulations they choose. It's actually a very good return on investment.
“America’s economic system is where it is today because gambling became the financial sector’s principal preoccupation. The pile of chips grew so big that the Money Industry displaced real businesses that provided real goods, services and jobs.”
- Harvey Rosenfield
This corrupt collusion between financiers and government officials was spelled out in no uncertain terms in Simon Johnson's article, The Quiet Coup. Simply put, America is following the path of petty Banana Republics.
elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.
Johnson goes on to say that chaos and confusion are very much in the interests of the ruling oligarchy, as it lets them take things, both legally and illegally, with impunity.
This message is echoed by Matt Taibbi in his article The Big Takeover.
The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.
It seems hard for you and I to believe that anyone, any group, would purposely engineer an economic crisis for personal benefit. That's because you and I aren't consumed with ego, greed, and lust for power like the bankers on Wall Street are today. History has shown, time and time again, that this is exactly what these people do. Why should now be any different?
Goldman Sachs and JP Morgan Chase have already benefited from the crisis.
The spirits of Nicolas Biddle and John Pierpont Morgan are alive and well today in the plush offices of Wall Street.
Comments
And some people say that income inequality doesn't matter
Income inequality feeds this financial oligarchy. We are creating a feudalistic system. A two track economy: one where the aristocracy is ok and everybody else is struggling - not a very efficient system.
RebelCapitalist.com - Financial Information for the Rest of Us.
RebelCapitalist.com - Financial Information for the Rest of Us.
Same Song, Different Verse
A little bit louder and a little big worse!
If only the public either had mandatory financial/economic history courses as part of their education.....
or all people could have extended memories, transferred from their elders right into their brain..
it's like each new generation has not experienced this same song and dance of take from the poor and give to the rich, wipe out those guilds/middle classes/merchants/workers....
that has been going on throughout history.
Very nice post midtowng. I think you must have been like me and didn't go to sleep when the class was shown all of those videos. (I loved 'em, it was the teacher who droned on like a bumbling bee!)
I'm not so sure about Biddle
but for the purposes of attacking the present oligarchy, he can certainly be made into a credible villain. The quote you use is enough by itself to think the man so.
But, in the broad sweep of history, my judgment at this time is that Biddle's fight to secure the re-chartering of the Bank of the United States was an attempt to preserve the Hamiltonian program of national banking. Thus far, I think Bray Hammond (who used to be the Secretary of the Fed's Board of Governors, back before Arthur Burns I believe, so he might not be all that bad) pretty much gets it right. Especially in Hammond's critique of Arthur Schlesinger's astonishingly sloppy treatment of Biddle (see Hammond’s article in the May 1947 Journal of Economic History, reprinted in Jackson versus Biddle, one of the “Problems in American Civilization” books put out by the Department of American Studies at Ameherst in the late 1940s).
Basically, what Hammond argues is that beyond the obvious of Jackson representing the Jeffersonian distrust of and hostility to Eastern bankers, the chaos that reigned in American banking after Jackson successfully denied the re-chartering of the Bank of the United States allowed a much-needed nth degree of freedom to the banking and finance in the rapidly developing west – which at the time, remember, included Ohio, Indiana, Illinois, Tennessee, Kentucky, and so on. However, the habits, customs, and traditions that developed and calcified in the period from the 1830s to the 1850s clashed violently with what was required to mobilize the North’s economy for Civil War with the South in the 1860s. Here is Hammond in his smaller book, Sovereignty and an Empty Purse: Banks and Politics in the Civil War (pages 56-57):
“The government was in a state of impotence produced by conceptions of its duties which had become firmly established in Andrew Jackson's day, which had come to be taken for granted, and which now could not be dismissed instantly from most men's minds, as it could from Thaddeus Stevens'. In the intervening years, the Union had deferred to its component states time after time; and members of Congress, though legislators for the Union, seldom put second their sentimental and practical loyalties to the sovereign states of which some were ambassadors and to the local interests of which some were representatives. They remembered who elected them. They shrank from sending armies of federal tax-gatherers to violate state sovereignties; and while they cursed the rebels, swore to punish them, and voted for taxes, they chose measures that put off the dreaded break with the dear and happy past. They were not ready to do what was necessary to enlarge federal powers and reduce those of the states, except those states that sought to preserve slavery and leave the Union. They had grown up taught and believing that the federal government was the best in the world because it interfered with them so little. The Union had accepted faithfully and modestly the Jacksonian dictum, "the world is governed too much." And now it had to gird itself to restrain the intransigence of South Carolina and her sisters, without offending Kentucky, Ohio, New York, and others loyal to the Union.”
To continue, here is Hammond in his massive tome, Banks and Politics in America from the Revolution to the Civil War (excerpts from pages 719 to 722):
“Congress had been loud during a generation of debates on slavery and states9 rights; but otherwise the federal government had withdrawn into the modest performance of minor routines. It had turned virtuously away from the policies of Alexander Hamilton and neglected even the humane projects of Thomas Jefferson and Albert Gallatin. It had hesitated to assume responsibility for the Smithsonian Institution. Steamships had been crossing the ocean for thirty
years and navigating rivers and lakes, but the little American Navy was still largely under sail and very beautiful to look at. It had less than 10,000 officers and men. The Army had less than 20,000, which was about enough to watch the Indians.
“If this were all it might not have been bad, because it might reflect the pacific instincts of a noble people. What it reflected rather was pusillanimity. Departmental organization was antediluvian; the civil service belonged to the politicians; and the business administration of the government's affairs might as well have been direct,,~ from Kamchatka so little was it influenced by the energy, adaptability, and efficiency of the economic world around it. This was nowhere more conspicuous than in the fiscal and monetary responsibilities of the government, which were trailing so far behind the progressive world outdoors that they had barely braved the turn from the 18th century into the 19th made by the rest of creation sixty years before. One result of this, and perhaps the one most appalling, was that when Mr. Lincoln entered office in March 1861, confronted by the worst exigency, material as well as spiritual, in the country's experience -- an exigency requiring ships, guns, men, food, and all the needs of an immense physical effort – his Treasury was empty.
II
“It was this rudimentary state of federal powers that prolonged the war. The South's advantages were the North's unreadiness and inability to pull itself together, the decisiveness and energy of the southern leadership at the outset, and the military genius of General Robert E. Lee and his associates. Only one of these advantages was lasting. The advantages of the North were all lasting. She had the population, the wealth, the resources, the commerce, the equipment, the diversified productivity, and the diversified skills. If thewar were prolonged, she was bound to win. But the condition of the government was such when Mr Lincoln became President that she could win only if it were prolonged.
SNIP
“In only a matter of months, the war already had outlasted all expectation, the number of seceded states had increased from seven to eleven and disunion was menacing in three or four others; arsenals, Navy yards, custom houses, mints, ships, arms, and men had gone with secession. Fort Sumter had been given up, and the first battle of Bull Run had been lost. By December, when Congress met again, it was plain that far more money than had been supposed was going to be needed, and that more effectual means of getting it must be found. Harsh necessity required that the government and the economy be reunited; the happy divorce they had long enjoyed must end. The first step sadly taken toward this reunion was the stoppage of specie payments by the banks and the Treasury at the close of the year. Secretary Chase, instead of learning with surprise of the banks' suspension and then complaining ignorantly about it as his predecessor in President Van Buren's Cabinet had done in 1837, resignedly concurred in its inevitability. I
“The reform that was needed was both constitutional and practical. It must entail the undoing of two Jacksonian triumphs. Not only was the federal government obstructed, under the Jacksonian legacy, from exercising an essential function-it was forbidden to act normally and to its own advantage as a transactor in the economy. No meeting ground between a government and its people is of more vital importance than that of monetary payments; yet the federal government was denied the use of the money the people used. Any business corporation or individual could borrow at banks, but the government could not. Even in a time of terrible need, the Treasury was forbidden to touch the common means of payment, either as borrower, as payor, or as payee. It might have been confined, with less serious results, to ox carts for conveyance, to quill pens, and to candle light.
“This practical fencing-in was rendered suddenly intolerable by the war, which was also intensifying the anomaly of the federal government's impaired control over the monetary system. In terms of .the Constitution and of common sense, control of the monetary system irrefragably belonged to sovereignty and if there were any reason at all for federal union, no single one was more basic than that it was needed in order that it might supply the economy a uniform circulating medium.”
Echoes of what we face today! The idea that the world is governed too much has been pushed much too far (largely because of the financial oligarchy you discuss in the OP); deregulation has played no small part in creating the conditions of financial calamity in which we now find our nation. In fact, we must now deal with a population a full third of whom are openly hostile to the concept of “general welfare” embedded in the Constitution. The problem with consigning Biddle to the ranks of the evil financial oligarchy arises because there are different interpretations and beliefs of the best way to promote the general welfare. In his struggle with Jackson, was Biddle fighting for the Hamiltonian vision of spurring America to industrial and commercial greatness? Or was he serving only the narrow, selfish interests of himself and a coterie of fellow financiers? And what of Jackson? Was he driven entirely by his ideological aversion to powerful banks, or were his motives and intentions less than pure? I have before me the 1967 reprint of Thomas F. Gordon’s 1834 polemic, The War on the Bank of the United States which explains in part how Jackson supporters would profit handsomely from the termination of the Bank. The parallels with today should be obvious: look at the rich vein of material that Thomas Frank had to work with in his book The wrecking crew: how conservatives rule which explores the interplay between wrong-wing “free market” economic ideology, and the rapacious self-enrichment of Bush’s “have-mores.” In other words, what if Biddle were actually the Brooksley Born of his day, trying to salvage what he could of Hamilton’s scheme for national banking and a national currency?
I really cannot say with final certainty. I started looking at Lincoln’s Greenbacks as a possible map for where we have to go today, but found that almost all the material on the subject had been written by von Hayekian Austrian whack-jobs. When I came upon Hammond, it seemed to me I finally had found someone who understood that the principal objective of national fiscal, monetary, and economic policies should be to build the nation. Thus, in the end, we come down to what has all along been my special pet peeve about the economics profession today: policies and actions must be judged by the unapologetic moral test of nation building.
Proper Attribution of Copyrighted Material Contained Within this
Dear midtowng:
Thank you for thinking enough of my article so as to include portions and original artwork created by 'The Smoking Argus Daily'.
However, since this is a monetized blog utilizing both standard advertisements and Google Ad Words, please ad proper attribution on pictures used and analysis provided by me.
Respectfully,
Allison Bricker
Dear Allison
I just accredited you but believe me this site does not make enough money for coffee.
But you're right folks, if you are borrowing images, etc. from other people (versus my fav. the Fed!) try to put the author, the source, in a link as above.
Or just get something from open source, for example, wikipedia has no issue with you linking to their many images directly.
The Securitization of EVERYTHING
An exemplary and outstanding column post, well written and thought out with excellent background material. Justice Brandeis's brilliant expose, Other People's Money (somewhat updated by Nomi Prins' similarly titled book published several years back, and can't wait for her latest, It Takes a Pillage - unabashed plug here), perfectly laid out the web of connections via interlocking directorates back then, which still exist today.
And the earlier forms of a type of securitization which led to the Great Depression, are back in force a thousand times stronger today, and that "shadow banking system" - now in overt control - and long out of that "shadow," will lead us to a continuing meltdown and serfdom. (End of my pompous diatribe.)
Justice Brandeis
I was wondering if anyone would catch that those quotes were coming from Other People's Money. I'm glad it didn't get lost.