Federal Reserve banks rob the people a minimum $400 billion annually through ZIRP, so far have paid just $125 billion in fines for financial crisis crimes

Bank of America is a chief offender appearing in the lists. The latest fine against it, among others, is detailed here:

"The Bank of America deal announced Thursday, the government’s largest-ever settlement with a single company, means the nation’s second-biggest bank will shell out $16.65 billion over allegations that it knowingly sold toxic mortgages to investors. ... The sum surpasses Bank of America’s entire profits last year and is significantly higher than the $13 billion it offered during negotiations in July."

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The story doesn't mention the nearly $90 billion paid out by the FDIC Deposit Insurance Fund for the failed banks which have numbered over 500 since 2007, the funds for which are supplied by insurance premiums extorted from the honest banks. But it is the depositors who end up paying for that cost of doing business in the end. Nor does it ruminate on the effects of the Federal Reserve's Zero Interest Rate Policy, which allows those first in line for money to get it rock bottom cheap and speculate with it. The financial sector now rivals the household sector in stock ownership. Savers meanwhile get the crumbs which fall from their masters' table. Ten years prior to 2007 the country was finally beginning to recover from a decade long Savings and Loan crisis which witnessed over a thousand institutions fail, costing the taxpayers directly about $130 billion. No sooner was that over in 1995 when the wizards of smart conspired to abolish the Glass-Steagall banking regime in 1999, precipitating the recent panic less than a decade later. And, of course, the Great Depression after 1929 followed closely on the heels of the establishment of the Federal Reserve itself in 1913, signed into law by one Woodrow Wilson, Ph.D., Johns Hopkins University. Over 700 banks failed in 1930, and 9,000 over the ensuing decade. The professionals have a long history of failure. The prudent avoid them.

Rush Limbaugh whitewashes Republicans' central role in abolishing Glass-Steagall

Are we supposed to believe Rush Limbaugh doesn't know that three Republicans co-sponsored the Gramm-Leach-Bliley Act of 1999 which overturned Glass-Steagall? How did their names get on there, by accident? And that both parties overwhelmingly voted for it in the end after 205 House Republicans and 53 Senate Republicans voted to get it to conference in the first place? Were it not for those Republicans the bill never would have seen the light of day, but here's Rush Limbaugh yesterday, boob extraordinaire, spreading the lies, misinformation and stupidity he's ranting against:

[I]f anybody eliminated regulations on the bank, it wasn't the Republicans. It was good old Bill Clinton and Robert Rubin. Those are the two architects. You could even say that the repeal of Glass-Steagall is what led to the so-called financial crisis in 2008, and there's not a Republican fingerprint on it.  It's all Bill Clinton and Robert Rubin. ... [T]his is just insane, the level of lying, the misinformation and the stupidity of people who accept it and buy it, because we have a corrupt media who is willing or unknowing, could well be they're ignorant, too, spreading all this drivel. ... [T]here's not one Republican fingerprint on that. They might have voted for it in the end, but the whole impetus for it was Bill Clinton and Robert Rubin.

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Amazing.

What's Worse? Frequent Financial Panics Over Quickly, Or A Long Great Depression?

Unfortunately, you won't read about the Federal Reserve's role in the run-up to the Great Depression from Roger Lowenstein's discussion of the creation of the Fed beginning on this date 100 years ago, here in The New York Times:

One of the plan’s most strident critics, Representative Charles A. Lindbergh Sr., the father of the aviator, predicted that the Federal Reserve Act would establish “the most gigantic trust on earth,” and that the Fed would become an economic dictator or, as he put it, an “invisible government by the money power.”

Savers know the dictator. Executive Order 6102 in April 1933 made them hand over their gold at $20.67 for an ounce only to learn in May the price per ounce was "raised" to $35. Savers now experience the same trick in a different form because they earn nothing for a lifetime of trouble due to ZIRP. It is not a coincidence that Lowenstein just leaves out the fact that one of the world's most gigantic busts occurred not 17 years after the creation of the Federal Reserve, just as it is not a coincidence that the current bust occurred not 10 years after Gramm-Leach-Bliley undid the banking reform of Glass-Steagall which had to be passed to fix what was wrong with Federal Reserve banking.

Particularly insidious is Lowenstein's use of the terms Fed "framers" and Fed "originalism" in discussing the Federal Reserve's origins, which had nothing to do with the framers of the constitution or the originalism which seeks to recover their lost ideas, ideas which were already long lost in 1913. Apparently those ideas still need to be killed.

Methinks the liberal doth protest too much of "ghosts".

Former Sen. Phil Gramm Underestimates The Cost Of Obama's Debt Bomb

Sen. Phil Gramm for The Wall Street Journal, here:

Since the World War II era, the average maturity of outstanding federal debt has been about five years, and the average interest cost on a five-year Treasury note has been 5.9%. At this interest rate, the expected cost of the Obama debt burden will eventually approach some $590 billion per year in perpetuity, exceeding the current annual cost of any federal program except Social Security.

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As might be expected, the senator who didn't understand the consequences of the final repeal of Glass-Steagall in 1999 grossly underestimates the cost of carrying the national debt under a normalized interest rate environment.

Interest expense on the debt for fiscal 2009-2012 has averaged $404 billion annually. The debt to the penny on October 1 for each year 2009-2012 has averaged $14.1 trillion annually. Therefore the implied interest rate has been 2.87% annually. Normalized to 5.9% as he suggests, which is just a little more than double the current average rate, the debt service interest expense would have been $832 billion annually, over 40% higher than the former senator predicts down the road.

Of course, not all debt resets instantly in a rising interest rate environment, but in view of the number, size and long duration of many of the securities on the fed's balance sheet which would suffer immediate declines in net asset values, it is difficult to imagine how the fed could prevent a bond market debacle and unwind everything as gradually, and as imprudently, as it wound it up in the first place.

This is what passes for conservatism, folks.

Mish Finally Calls This Economy Fascism

Took him long enough, here:

"In short, the problems we face are not the result of free market capitalism, but rather the results of Fed sponsored corporate and military fascism."

The instrumentality through which fascism is expressed in the United States today is the banking system reorganized in 1913 under the Federal Reserve. The brakes put on it with the Glass-Steagall Act in 1933 after it cracked-up the first time after only twenty years were released in 1999 with the passage of the Gramm-Leach-Bliley Act.

It took only nine years to crack up the second time.

Ben Bernanke Is Trying But Failing Miserably At Money Printing

And it's not exactly his fault.

Historically in the postwar period, the increase in Total Credit Market Debt Outstanding (TCMDO) has closely shadowed the increase in Total Net Worth, seemingly helping to finance it, until the late great recession when for the first time, and very briefly, net worth flagged below the level of the debt owed. (Ignoramuses in the Doomosphere everywhere cried "Insolvency" at the time, not understanding the meaning of the term "net"). Ex post facto, net worth has made a dramatic upswing while the debt owed has increased at a much reduced rate by historical standards. To quote a famous president, "That doesn't make any sense."

Despite all the debt naysayers out there, total credit market debt is not increasing at anything like it should be, and appears to be disconnected to a significant degree from the recent increase in total net worth, which is up 29% since its nadir at the beginning of 2009, or $14.7 trillion. For the whole five year period from July 2007 (the last time TCMDO doubled, going back to 1999) to July 2012, TCMDO increased at a rate of just 12% and real GDP increased just 2.9%, whereas TCMDO increased at a rate of 100% between 1949 and 2007 on average every 8.25 years. The shortest doubling times have included two periods of 6 years each, one of 6.75 years, one of 8 years, one of 9.5 years, one of 10 years, and one of 11.5 years. The very worst real GDP performance of all of those was for a 6 year doubling period when we got 14% real GDP, nearly 5 times better than we're getting now. All the rest posted real GDP of between 23% and 56%.

It is evident that Ben Bernanke's quantitative easing program (right scale) anticipated the leveling off of TCMDO (left scale). Clearly he expected the troubled banks to need a push to keep the credit money creation process going, but didn't understand how fruitless it would be. One notes that he has added about $2 trillion to the monetary base from the middle of the late great recession. By contrast, TCMDO is up (only!) $9 trillion from the beginning of 2007. By historical standards TCMDO should be up $25 trillion by now if TCMDO is to double again in ten years from 2007. And it should be up a lot more than even $25 trillion by now if it's to double sooner than ten years. At the average doubling time of 8.25 years, the $49.8 trillion of TCMDO in July 2007 should hit $99.684 trillion by October of 2015 if the postwar pattern is to continue. Instead, at the current rate of growth in TCMDO, it's going to take an unprecedented 27 years to double it, unless of course there are limits to borrowing to fuel growth, as many are beginning to tell us. In either event one can only assume there will be only pathetic real GDP growth going forward, if there is any at all.

Clearly something is horribly amiss in the transmission process of credit money creation for the first time in the postwar. Seemingly gargantuan quantities of money from the Fed through the process of quantitative easing should be seeding the banks who in turn should be creating massive amounts of credit way beyond the $9 trillion so far created. Instead, the banks are doing something else with it, by-passing the normal distribution channel. Some of the seed money is being held back to comply with increased capital requirements, to be sure, but more appears to be going directly into household net worth creation through investment gains from the stock market, enriching a very few bondholders, shareholders and banking industry players through the private trading desks of the banks, a unique development by historical standards made possible only since 1999 with the abolition of Glass-Steagall through the Gramm-Leach-Bliley Act. As an act of Congress, Ben Bernanke can't do much about that even if he is the most powerful man in the country.

In the absence of a creative policy change from the Fed whereby Congressional intent would be thwarted and money would actually reach the marketplace through a different avenue than the uncooperative banks, one must conclude that the Fed thinks it necessary to continue the various easing schemes because it judges the banks to be still too fragile to risk stopping them. That would be putting the best construction on the matter, to borrow a phrase from Luther's catechism. Either that, or the Fed itself has been completely captured by the bankers.

TNR Blames And Credits JK Galbraith For Contemporary Financier Fascism

It would be nice if liberals could make up their mind.

The New Republic's Tim Noah here traces TARP, Dodd-Frank and ultimately the general state of regulatory capture (Stigler) of the government by the banks to John Kenneth Galbraith's vision in his 1967 The New Industrial State:

Galbraith (who died in 2006) argued that big U.S. corporations had become immune to competition. Any effort to break them up into smaller companies would neither succeed nor—given the complex challenges of a modern economy—be especially desirable. Better to keep them in harness through a partnership with government. “Planning,” Galbraith wrote (in a sentence you could probably get arrested for writing today), “must replace the market.”

Galbraith was writing about manufacturing giants like General Motors and U.S. Steel. These seemed indestructible at the time, but of course they would soon prove all too susceptible to competition from abroad. Still, Galbraith’s vision of the regulatory state comes pretty close to describing today’s relationship between the federal government and a different oligopoly: the Big Six megabanks. ...

When the 2008 financial crisis hit, the feds went into Galbraithian planning mode. They bailed out the banks through the Troubled Asset Relief Program (TARP), arranged mergers, and, through the Dodd-Frank bill, required big banks to prepare “living wills” showing how they would dismantle themselves in orderly fashion should the need arise. ...

Conservatives were wrong to oppose the government’s bank rescue . . ..

For conservatives who feel queasy advocating the breakup of private enterprises, MIT’s Johnson offers this consolation: Remember George Stigler. Stigler, a conservative economist who died in 1991, won the Nobel for a theory that basically said Galbraith’s partnership approach didn’t work because of “regulatory capture,” i.e., the various ways corporations tame their minders—for example, by maintaining a revolving door between industry and government. Rather than try to control powerful corporations, Stigler thought government should use antitrust law to break them up and let competition rein them in.

What's wrong with this analysis is that banking is not a private enterprise and hasn't been since 1913. The then new partnership of banking with government in 1913 failed in less than 20 years, requiring Glass-Steagall in 1933, which was reactionary liberalism at work. And what we have just witnessed is an instant replay of that debacle, only in faster motion. The Gramm-Leach-Bliley Act of 1999 overturning Glass-Steagall took only 9 years to blow up. But unlike Glass-Steagall, the grotesque of interventions in the wake of this latest panic has done nothing to demarcate clearly the public vs. the private in banking, and consequently keeps the public, and the country, at risk while insuring advantage to those closest to the printing presses at the Treasury. Money goes to money, as they say out in the sticks.

It's not much solace that liberalism's fingerprints have been and continue to be all over the inception and development of financier fascism in the United States. There don't seem to be any conservatives smart enough to understand the advantage it presents to them, and to the country. Or maybe it's just that they've been captured, too.

The Banks Own 32% Of The Stock Market, Households 37%

This Bank of America chart from July 2012 seen here shows bank ownership of the equity markets at 32% in Q1 2012, a stunning number rivalling the household sector's share of 37%. In 1950 households (an elastic category including much more than simply retail investors) held roughly 90% of the market in their hands (admittedly far fewer retail investors than today, but that's another story).

So you've got to ask yourself why ultra cheap loans to banks by the Federal Reserve have gone into markets in such spectacular fashion? To help them recapitalize after the housing implosion, that's why. Banks can't make money the old fashioned way anymore because the owners' equity of household real estate of consumers is down to about 45% (it had sunk as low as 39% in 2010 and 2011), a decline of over 45% since 1950. Think cash-out-refis at artificially low interest rates and HELOCS and the housing market collapse. The banks are left holding the bag, or the Feds are, on 5 million repossessed properties in the last seven years, leaving a huge capital hole in their off-balance-sheet balance sheets. Having plundered John Q. Public by selling him the rope he hung himself with (HELOC reform 1986 Tax Reform, Taxpayer Relief Act of 1997 2-Year Rule on Sale of Principal Residence, Repeal of Glass-Steagall 1999), the government-banking cartel has had to look elsewhere for profits. They're finding them.

Care to buy stocks? 

Charles Gasparino Fingers Clinton For Housing Bubble But Misses Key Fact

Charles Gasparino fingers Pres. Bill Clinton for the housing bubble, here, pointing as many others have to the baleful influence of repealing Glass-Steagall and of expanding the Community Reinvestment Act and the role of the GSEs in housing. There is no question that these were enormously important contributing factors, except to ideologues.

What's still missing in the national discussion, however, is an appreciation of the important influence of the tax law changes in 1997 which effectively turned housing into money, the velocity of which shortly became a veritable storm rushing through the American economy when it became possible to sell every two years and pocket the capital gains tax-free. This goosed not just existing housing prices, but waves of new (over) construction, house-flipping, the home improvement mania and wide swaths of retail sector spending from giftware to landscaping to furnishings and durable goods, and especially the rapid expansion of financial products developed to exploit the trend. The housing bubble inflates just like a balloon in 1997 immediately after Clinton signed the provisions into law, passed by a Republican Congress still under the leadership of Republican Speaker Newt Gingrich.

Tax law changes have always been potent instruments for altering financial behavior. In this instance the changes in behavior were not anticipated by the many, and consumers were sold only on the incremental benefits to them. Meanwhile the few who facilitated this financialization of the economy stood ready to profit handsomely, and they did. They have been reluctant to tell this story, and understandably resist doing so to this day. But the country desperately needs to hear it if we are ever going to think clearly about establishing our affairs on a sounder basis going forward.

That's Hysterical: Do 2 Recessions Equal 1 Depression?

So Paul Vigna in The Wall Street Journal, here:

"Do two global recessions equal a modern depression? We seem destined to find out."

Notice the word "modern",  as if to say we in our time are much too advanced to have an old-fashioned depression like they had way back in the day. You know, a god-awful depression where massive numbers of people go hungry and die before their time.

The fact is depressions happen. They have a technical character. You can measure them. Some are indeed severe, as in 1920. Some are also short, as in 1920. Some are relatively shallow, as in 2008 or 1937, and go on forever due to incompetence. Some are severe and go on forever due to incompetence, as in 1931, or in Greece today. Our problem is that we won't agree to agree on a name for this depression enemy this time around because depressions don't happen in "modern" times. Insisting that depressions don't happen in "modern" times is actually a form of hubris. And you know what cometh before a fall. But try telling that to an entire civilization.

By the way, isn't the "modern" age over already? The old right in America, you know, the opposition to FDR in the 1930s, used to stand against the modern age which FDR, and Wilson before him, represented. There's still a magazine in print by that name which hails from the conservative ethos of that very time and continues to talk about this, which really is a mark of true conservative distinction, seeing that conservatism at its best brings forward into the present the truths, and critiques, of the past. But "modern" truly is an old conception which is getting a little long in the tooth to continue to be used of this age when we have clearly moved on in any number of ways, except perhaps in our conceits. An exception to this might be our nostalgia for Glass-Steagall, which makes us sort of conservatives of modernism, if it's permissible to speak that way.

But I digress.

What thoughtful people are worrying about at this moment is that we could re-elect this incompetent boob, Barack Obama, who is working on the choom gang, and finally go really and truly insolvent while he fritters away four more years getting in touch with his inner Arnold Palmer. Some people think insolvency is actually his objective, which to my mind gives him way more credit than he deserves. He seems to think money grows on trees, planted by the financial, insurance and real estate sectors, but hasn't yet figured out that his usefulness to them comes with an expiration date not unlike the expiration dates which attach to all the promises he has made and end up going poof into the air.

When liberals finally do conclude the emperor has no clothes on, this indeed will be all over, but the problem with that is that most liberals went to public school. They won't figure it out until it's way too late. Say 2022, if they live that long.

The left already figured it out, however, in the first year of Obama's presidency, but decided to make their strategy of destroying the country Obama's strategy by continuing to support him. This was an inflexion point where all that stupid talk from the right about how we share some common ground with the left should have come to an end. I don't recall the left saying they had any common ground with us. Instead what we got and continue to get from Republicans and other liberals is incredulity about Obama's failure to have learned anything by now.

Here's a newsflash for you: He has no intention of learning anything. Republicans continue to misunderstand his opposition, as is their wont. Saddam Hussein was not worth getting angry about, but they did, and Barack Obama is worth getting upset about, but their response is . . . Romney. No wonder Democrats have contempt for Republicans. The stupid party.

No, everything now depends, unfortunately, on the residuum of common good sense among the rank and file out there, the apolitical people who simply have had enough of this. Considering the depths of our social dissolution, however, and Obama's attempts to subsidize that with food stamps, free cell phones, disability payments and the revivification of welfare (what else would you expect from a drug addict?), it is hard to remain optimistic about them, but that's probably all we've got remaining.

"The Great Depression, after all, actually comprised two technical recessions, 1929-1933 and 1937-38, not that most people could tell the difference.

"What would you call a 7-10 year period of suppressed growth and stagnant wages, of economies on the verge of collapse and overwhelmed leadership? You could do worse than “depression” – lowercase “d” to be sure, and we’ll hope for a great new age on the other side of it. But a depression all the same."


I'll see you at the polls in November, voting for Romney. I'll be the one with a clothes pin on my nose.

And I'm going to keep it because I have a feeling I'm going to be needing it.

Glass-Steagall Was An Expression Of Hierarchical System Modularity

That is the unstated conclusion of Mark Buchanan's "Living Cells Show How to Fix the Financial System" for Bloomberg.com here:

In “The Architecture of Complexity,” an extraordinarily original paper published 50 years ago, the economist, psychologist and artificial-intelligence pioneer Herbert Simon asked the question, Why does nature so consistently organize itself into hierarchies? Why, that is, are so many of its creations designed as systems of systems? ...

Both high concentration and high interconnectedness contribute to an “everything is linked to everything” outcome that is the very opposite of modularity, and a likely recipe for instability. Financial engineering should learn to avoid this architecture, just as surely as biology has.

Abandoning Glass-Steagall in 1999 was obviously not a milestone of evolutionary progress.

Basel Capital Rules Reinforce Fascist Financialization Of The Global Economy

Robert Barone for Minyanville summarizes better than anyone else I have read the process whereby banking in partnership with government has grown out of all proportion to the real economy and throttled it, here:

Under all of the Basel regimes, "sovereign" debt is considered riskless.  Everything else has a varying degree of risk to it which requires a capital reserve.  Loans to the private sector have the highest capital requirements. ... The bias imparted with this sort of capital regime makes loans to the private sector unattractive, especially in times of economic stress where bank capital is under pressure.  But, it is in times of such stress that loans to the private sector are needed to create investment, capital spending, and jobs. ... Simply put, the banking model in the west now promotes moral hazard (banks making bets that are implicitly backed by taxpayers) and Too Big To Fail (TBTF) policies while it stifles private sector lending. ... Isn't it clear that the relationship between the US federal government and the banking system is unhealthy, perhaps even incestuous, to the detriment of the private sector?  That very same banking model is emerging in Europe with the emergency funding by the European Financial Stability Fund (EFSF) to recapitalize the Spanish banks and talk of a pan-European regulatory authority and deposit insurance.

What's missing from this otherwise penetrating analysis, however, is an appreciation of the extent to which banking has been redefined, particularly in the US as a result of the Gramm-Leach-Bliley Act of 1999, which finally overturned the Glass-Steagall Act of 1933.

Now companies as diverse as automobile manufacturers, investment banks, insurance companies and highly diversified multinationals like GE are deemed banking institutions which qualify for government TARP bailouts, FDIC protection, or preferred treatment at the Federal Reserve's discount window. Almost any big business that gets in trouble can now get "help" from the taxpayer by becoming a "banking" concern under the new definition of the rules, to the detriment of those trying to compete in our so-called free market.

Moral hazard doesn't extend now just throughout the traditional banking system, stiffing the disciplined, prudent smaller banks with high FDIC premiums to bailout the failures, it now effectively short-circuits the process by which an innovative small firm might grow one day to challenge GE's gargantuan share of the household appliance market, or in aircraft engines, nuclear reactors and the like.

As financialization of the economy deepens and grows, companies as they are with their relative advantages have those advantages locked into place, while those without market heft are frozen-out. Some people call this crony capitalism, others state capitalism. Almost any euphemism will do, it seems, the latest being venture socialism, which gets us closer to the truth.

In the end it's just good old-fashioned fascism from the 1920s. Obama absolutely loves it. George Bush practiced it. Bill Clinton signed it into law, with the help of Newt Gingrich.

But please don't call this stagnating, ossified, economy failed, free-market capitalism. Just like Christianity before it, you can't say something is a failure which isn't at all being practiced.

Dodd-Frank is 848 Pages Long, Glass-Steagall was 37 Pages

Robert Lenzner reminds us here that the shorter one worked pretty well for a pretty long time, but the longer one which replaces it is already a disaster.

For The Economist article referred to by Lenzner, see here, including an important cost correction correcting billions to millions. (Oops).

Rush Limbaugh's Mission Accomplished: Tea Party Absorbed by Republican Party

Otherwise, Rush would not have tried so hard today to disagree with a caller who suggested the Tea Party was born of outrage over the bailouts. He even repeated the MSM mantra that TARP has been repaid in full by the banks, even though the program will end up costing taxpayers $37 billion.

It is apparent Rush now discounts Santelli's galvanizing rant against HAMP on CNBC in February 2009, which first floated the idea nationally of a Tea Party at Lake Michigan in August.

The nascent Tea Party didn't wait for summer.

The reason, of course, is that it is now safe for Rush to spin all that, with Palin and her cronyism message safely out of the way, since she announced yesterday she is not going to run.

Rush doesn't want the troops confused by an anti-bank message now that the left and the unions in league with Democrats and George Soros are in the process of co-opting the original message of the Tea Party. Rush is clearly aware that the Tea Party doesn't have the edge anymore, is politically leaderless, is inured to the problem, and just plain old too tired to mount a new charge against government bailouts. Most of us are graying baby-boomers, after all, taking naps in the afternoon, or wanting to. And some of us are broke.

Besides, Republicans have their mits all over the banking crisis, with New Gingrich and Phil Gramm leading the charge to overturn Glass-Steagall in 1999. Better now to emphasize the private, capitalist character of the banking industry as a target of the socialist left, rather than its dependence on and compromised relationship with the public, government institution called the Federal Reserve Bank, with its phony money and monetarist mission.

Rush Limbaugh the chameleon turns on a dime once again. 

Up Until February 2010, Sarah Palin Was A TARP Republican

Many have pointed out Gov. Sarah Palin's hypocrisy on the bailouts, especially after her book Going Rogue appeared in late 2009, which codified her support of the extraordinary measures of 2008. I documented her statements supporting the bailouts, here and here.

With a speech in February 2010, however, she made news not just because she chose to give the speech in a Tea Party venue instead of at CPAC, but because she basically flip-flopped on the issue of the bailouts just months after her book had appeared.

Someone had straightened her out in the interim.

I'm actually not surprised by this shape shifting behavior, but it disqualifies her in my mind as much as the same sort of flip-flopping disqualifies a Mitt Romney or Tim Pawlenty, or even a Rick Perry. Turning currents seem to sweep people one way and then another regardless of gender these days.

The trouble, however, is that Bush was for TARP, Paul Ryan was for TARP, Nancy Pelosi was for TARP, John Boehner was for TARP, Sen. Reid was for TARP, Sen. McConnell was for TARP, Sen. Obama was for TARP, Sen. McCain was for TARP, and so was Sarah.

They're all responsible for interfering deeply and dangerously with the free exercise of the markets at a critical time when we most needed our leaders to trust in the ability of capitalism to prove its superiority to socialism, to fascism and to communism. And they all blinked.

It was a horrible failure of nerve. Many acted out of fear. And many acted out of fear of the money they would lose.

The latest speech in Iowa yesterday is a diatribe against the bailouts, against crony capitalism, and against the entrenched interests in Washington, DC. You can read the full transcript here and make of it what you will.

It doesn't mention the banks or TARP per se, just "big finance" and Wall Street. That the public/private nexus of banking is at the heart of the mortgage debacle is nowhere in evidence, which inspires zero confidence that Sarah Palin knows anything about the correct way forward. 

As a solution to our many problems the speech expresses a naivete about human nature which would be breathtaking if it came from an actual statesman, say, a Margaret Thatcher. In point of fact, Sarah Palin is as sanguine about the prospects of cleaning house as Barack Obama is about perfecting our union. Just get a new team in there and make them accountable, that'll fix it.

As if there are human beings in our world who are not corruptible. 

If we really wanted a resurrection of the spirit of the founding era, it would begin with a deep suspicion of human nature and a construction of policies and institutions meant to check it as a matter of first importance. Republican enthusiasm to overturn Glass Steagall was an expression of the opposite. As a Christian Sarah Palin should know better.

As it is, the notion that good and evil dwell mixed up together in each of us might as well be an item of organic chemistry, Latin grammar or Greek philosophy. It is incomprehensible to the current generation who seem to retain boundless faith in the essential goodness of human nature, or at least of the human nature of their particular tribe.

Whether Republican or Democrat, however, this makes them all creatures of the left, including Sarah Palin.

To which I say, No, thanks.

The response from the right would be that human nature is essentially evil (David Mamet), and thus requires either theocracy or monarchy, or from the center that human nature is mixed and requires a mixed polity such as the founders bequeathed to us in the form of the constitution. The latter is classical liberalism, a kind of half-way house, and true moderation! Think gray-heads marching in the streets, but without the litter.

This is the Tea Party, a form of reactionary conservatism trying to recover a classical liberalism which looks ever smaller in the rear view mirror with every passing day. The brave new world lies dead ahead if they do not succeed.

And I do mean dead.

Joe Nocera Takes a Look at the Passage of the Glass-Steagall Act in 1933

For The New York Times, here.

Glass-Steagall separated investment banking from commercial banking and created the FDIC to protect the latter.

Nocera fails to note how the abolition of Glass-Steagall in our time left the FDIC in place to protect the former, which leaves taxpayers on the hook for the speculative failures of the trading desks of the big banks.

He poo-poos the Republican charge in 1933 that it all amounted to socialism. He's right. It's fascism, and it has gotten a whole lot worse.

The Current Shape of the 78 Year Emergency

Robert G. Wilmers, a defender of community banking, doesn't explicitly mention the abolition of Glass-Steagall, but he lays out some of the consequences of that nonetheless, one of which is that the FDIC is now on the hook for the mistakes of speculators, something it was never intended for:

In 1990, the six largest financial institutions accounted for 9 percent of all U.S. domestic deposits. As of Dec. 31, 2010, the six biggest banks accounted for 36 percent of deposits. ...

In 2010, the six largest bank holding companies generated $56.1 billion in trading revenue, or 74 percent of their $75.7 billion in pretax income. ...

The Big Six institutions earned more than 93 percent of the trading revenue generated by all American banks during the past two years. ...

The major Wall Street banks operate under the taxpayer-backed umbrella of the Federal Deposit Insurance Corp. and, as we saw in 2008, the Treasury Department and the Federal Reserve. To pay for the cost of such protection, legislators and regulators have forced thousands of Main Street banks like the one I run to absorb a larger, more expensive set of regulatory costs, including higher capital and liquidity requirements. ...

Regulators have failed to distinguish between trading activity and traditional banking, or to recognize that the activity of an institution, not its form, should be the proper focus of oversight.

New Rules Needed

Main Street banks are heavily regulated -- and have been for generations -- to ensure their safety, soundness and transparency. A new generation of regulation must now be applied to what has become a virtual casino. ...

Those financial institutions that engage in trading should live and die by the pursuit of their fortunes, rather than impose a burden on the whole economy.

It’s time to disentangle the trading of big financial institutions from their more traditional commercial banking operations and put an end to this unsafe business model.

Make sure to read his entire op-ed at Bloomberg, here.