What Wall Street Wants, Wall Street Gets

By Larry Levin.- CME trader

I’m not sure what kind of “ism” is controlling our financial lives right now; socialism for the elite, financial collectivism, crony capitalism, or corporatism ... but I sure know it is not free-market capitalism. “Fascism should more appropriately be called Corporatism because it is a merger of state and corporate power.” — Benito Mussolini


Sure, ‘ol Benito was referring to far more than just financial power, but it seemed appropriate with the takedown of Bear Stearns and yet another massive slash in interest rates Wednesday afternoon. Maybe we should call today’s current governmental and Wall Street arrangement “tailism;” that is, the tail is now wagging the dog. I have a feeling, left to his own devices; Helicopter-Ben would have already cut rates to zero and announced a tightening bias. “Damn the torpedoes (currency), full steam ahead!”

Wall Street didn’t quite get the “shock & awe” 100-point interest-rate cut it had demanded, but it was close. The disappointment of a still-huge 75-basis point cut was short-lived -- the Dow exploded 420 points, replete with Dowgasms for everyone. After all, what Wall Street wants Wall Street gets.

Can more lending from the Fed actually improve the real economy? In fact, it makes it worse by propping up failing companies, increasing speculation, misallocating resources and adding to debts that will have to be paid -- eventually -- by somebody. Alan “bubbles” Greenspan has already proven that this approach is pure madness – it will only make matters worse.

But what does that matter? We have a Fed that is far too accommodative, congressmen who 8 cwant to “do something,” and now heretofore real capitalists that are demanding outright financial collectivism – to suit their own purposes, of course. Property is private and enterprise is free until the outcomes don’t conform to the preconceptions of big government planners (all Americans must have a home) or big business (we want profit without risk). In that case, any means are deemed permissible to make reality conform.

Wall Street is addicted to Fed intervention, and has been for some time. During the Mexican and Asian crises, the nation's largest banks and brokerage houses yelled for full-scale financial collectivism, demanding money from Congress, international agencies, and the Fed's printing presses for their foreign clients. But it didn’t stop there. Wall Street demanded, and received, massive rate cuts and liquidity during the LTCM debacle, the Russian default, the mini-recession of 2001, and of all things – the Y2K nonsense.

These responses in so-called times of crisis have now established a principle that apparently applies in normal times. The Fed is expected to use all its power to prevent even so much as a tightening of lending standards or a downtick in the Dow. The Fed has happily obliged all year long, with ever-lower interest rates, now reaching in real terms – negative interest rates.

In a 1998 speech during the Asian financial crisis, Lawrence Summers, then Deputy Secretary of the US Treasury preached the merits of American-style “transparency and disclosure.” A new term, “crony capitalism,” was coined to describe the cozy relationship between Asian governments' regulators and the private sector. If that were said today, it would be like the pot calling the kettle black.

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” Thomas Jefferson - 1802


I was fairly surprised (to put it mildly) to hear that the call for the Fed to buy mortgages from investment banks and Fannie Mae and Freddie Mac is almost deafening. And it is also coming from professionals that had been free marketers, like Bill Gross, for example. I heard him strongly recommend that the Fed should do exactly that just yesterday.


Here’s the question, though, how does any of this help Americans pay their mortgages? Have your credit card rates been lowered as the Fed slashes rates? Yeah, I know ... that was funny. No, credit card rates are not dropping, and neither are 30-year mortgage rates! Making inter-bank credit cheaper isn’t even encouraging banks to lend to one another. The Fed had to step in and become a direct lender to prime brokers.

Is Helicopter-Ben going to make 100% of the Fed’s balance sheet available for swapping this junk for cash? If Wall Street had its way, yes. Well, when Helicopter-Ben runs out of Treasury bonds to lend to these banks, he’s going to have to buy more. If he’s technically broke, how will he manage that? He’ll have to create new money to do it. He may also be jawboned into purchasing outright the collateral held by Fannie Mae and Freddie Mac, which will take new money, too.

Remember, what Wall Street wants Wall Street gets – and it’s pushing that agenda now ... hard. I can see it now, the government will either pass a law to approve it, or more likely, the Fed will just say it can – period. And why not just say “we can” when NOBODY sees any of this as troubling? So a new authority will be set up to purchase the assets of Fannie Mae and Freddie Mac and hold them in trust. Then, millions of Americans will have Uncle Sam as their landlord (overlord).

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” – Henry Ford

Trade well and follow the trend, not the so-called “experts.”

 

Where did this come from? Ive seen Larry on TV many times, but not in print

 

Hi, he writes everyday here
www.tradermonthly.com