David Stockman pulls zero punches in this excellent rant (“Shoot Bank Of America Now—-The Case For Super Glass-Steagall Is Overwhelming,” Contra Corner, Feb. 11, 2015) on how a company like Bank of America in any legitimate legal context would be considered to be and treated as an insolvent, criminal institution. But in the “too big to fail” and “too big to jail” atmosphere that’s been created since 2008, everything they do is considered A-OK. Stockman says:
“In short, BAC’s six-year CEO, Brian Moynihan, is guilty of such chronic malfeasance and serial management failure that outside the cushy cocoon of TBTF he would have been fired long ago. Indeed, it is hard to believe that he would have survived very long even running a small chain of car washes in east Nebraska.
Since 2009, in fact, BAC has been the number one employer of criminal and regulatory defense attorneys in the USA and the armies of accountants, consultants, forensic specialists, etc. which support them. So vast is the dragnet of lawsuits and legal actions that have been brought against it that BAC’s defense team amounts to an entire industry that should have its very own SIC code at the Commerce Department’s data mills.”
Who doesn’t love some debt?
Stockman even touches on a theory that has been making the rounds lately–espoused by people like Paul Krugman—that what will fix everything is not less but more and more debt:
“Indeed, the only reason that—–six years after what is claimed to have been a near Armageddon event—–we are still plagued with TBTF, the regulatory monstrosity known as Dodd-Frank and the continuing tenure of the likes of BAC and Brian Moynihan is the whole misbegotten notion that America’s $17 trillion economy can’t do without cheap and easy debt; and that main street jobs and prosperity require more and more of it each and every quarter.
At the end of the day, it is the false belief in the debt elixir that undergirds the inexhaustible pettifoggery and cowardice displayed by Washington politicians and regulators alike when it comes to fixing the banks. The latter simply threaten a lenders’ strike, and any resolve to get to the root of the problem promptly dissolves.”
Indeed, here’s what Krugman said in his bizarre article, “Nobody Understands Debt” (New York Times, Feb. 9, 2015):
“Many economists, including Janet Yellen, view global economic troubles since 2008 largely as a story about “deleveraging” — a simultaneous attempt by debtors almost everywhere to reduce their liabilities. Why is deleveraging a problem? Because my spending is your income, and your spending is my income, so if everyone slashes spending at the same time, incomes go down around the world.
Families who run up debts make themselves poorer, so isn’t that true when we look at overall national debt?
No, it isn’t. An indebted family owes money to other people; the world economy as a whole owes money to itself. And while it’s true that countries can borrow from other countries, America has actually been borrowing less from abroad since 2008 than it did before, and Europe is a net lender to the rest of the world.
Because debt is money we owe to ourselves, it does not directly make the economy poorer (and paying it off doesn’t make us richer). True, debt can pose a threat to financial stability — but the situation is not improved if efforts to reduce debt end up pushing the economy into deflation and depression.”
Krugman’s bank boot-licking has never been more obvious—in his calculation above, somehow an indebted family is somehow separate from the world economy. An indebted family owes money to others, but the world owes…itself? The implication is of course that the family has to “pay back” every last dime plus interest but that “the world”—which sane people would correctly say includes indebted families—would do well to never pay off debt and in fact, take on more and more. Oh brother.
This same idea about debt being a good thing can also be found in two other recent articles. Here’s one from Zero Hedge (“The Problem of Debt As We Reach Oil Limits”, by Gail Tverberg, Feb. 11, 2015):
“Many people ask why we can’t just cancel all debt, and start over again. To do so would probably mean canceling all bank accounts as well. Most of our current jobs would probably disappear. We would probably be without grid electricity and without oil for cars. It would be very difficult to start over from such a situation. We would truly have to start over from scratch.”
From my perspective, this article completely misreads Graeber, who argues that debt is a good thing in the sense that it gives everyone an excuse to maintain contact and keep society together, not in the sense that electricity or oil are available only because of financial debt. It’s as if the author had never heard of solar power. Or wind power. Or electric cars.
And then there’s the Salon interview with Mark Blyth (“’It’s complete horse sh*t!’: Watch an Ivy League professor dismantle GOP’s austerity lie,” Salon.com Feb. 9, 2015):
“[Comment from interviewer] It seems that politicians often frame their argument in the same way. Like, “We’re saddling our grandchildren with debt…” and so forth.
This is a classic canard as well; it’s complete horse shit! The sum total of public debt is equivalent to the assets of the private sector. Who do you think is buying these things? At the end of the day, the public’s debt is simply a transfer of income and interest from one side of the public to the other; you owe yourself the money. The argument that you have to cut it now so that you don’t leave your kids in debt is totally fallacious because if you cut now what you’ll leave them instead is a smaller economy by the time they become adults, which means that the same amount of debt will actually be bigger.”
So it’s okay with this guy that banks take people’s houses because they can’t pay their debts even though in reality “you owe yourself the money?” A bigger argument in favor of TBTF vs. the little guy I cannot imagine…which takes us back to Stockman.
Stockman’s last word on BoA/BANA/BAC
One last point on BAC’s malfeasance and the foolish wisdom of debt:
The fact is, BAC’s loan book today is smaller than it was on the eve of the crisis because US households and businesses have reached a condition of “peak debt”. Accordingly, in a free market the current central bank driven deformation of pricing would be unwound. Interest rates on savings would rise more than yields on borrowings because demand for market rate debt would fall sharply.
Stated differently, BAC is solvent only because its earnings have been indirectly manufactured by the monetary central planners in the Eccles Building. Indeed, its $11.4 billion of reported earnings for 2014 pale in comparison to the Fed’s $30 billion gift on its deposit cost. Yet however a free market in interest rates might ultimately shake out, this much is certain. There is not a chance that the $60 billion in dividends BAC has paid out over the last 10 years could have been earned in an honest free market.