The Global Attack on Bankers at Large

12/15/09 London, England – Cleaners provide society with more value than bankers, says a report on the BBC. The news item cited a group called New Economics Foundation, whose study showed that hospital cleaners create $10 of value for every $1 they are paid. Bankers, on the other hand, DESTROY $7 for every dollar they earn.

While we are sympathetic to their conclusion, the New Economics Foundation must be a bunch of imbeciles. How do they know how much ‘value’ a profession adds? There ain’t no such thing as an objective measure of value. All we have to go on is the price. Each of us has to figure out the value for himself.

But everybody is jumping on the bankers’ case. Good ol’ Paul Volcker is giving them hell. He told a group of bankers that the only innovation they came up with that actually added value was the automatic teller machine.

England and France are imposing surtaxes on bankers’ bonuses. An update on how these work (we had it wrong when we first reported it): in the UK, the tax is levied on the bank. The banker still has to pay regular tax rates. It’s designed to stop banks from giving bonuses…so the government won’t look quite so stupid for having given the banks money in the first place.

In America, the president is getting tough on bankers too, at least according to the papers. He calls them “fat cats” and has asked them to make “extraordinary commitments” to lend money and help the economy recover. What does that mean, exactly? We don’t know. Why would anyone encourage bankers to lend against their better judgment? It’s just one of the many mysteries of our time.

And here comes Tim Geithner with more smoke. Yesterday, he gave out the news that the TARP program earned a profit for the federal government. Let’s see, how does that work? You lend banks money below the real cost…so they can borrow for practically nothing. Then, they lend the money back to you for a cool 300 basis point spread. Then, you buy from them the speculative investments they made that didn’t pay off. They keep the ones that go up. And you pump money into their counterparties so they don’t take the losses they richly deserve. And then, you “invest” in them through the TARP program…and when their stocks go up…well, you’ve made a profit!

We have to hand it to the Geithner/Bernanke team. They are financial geniuses after all. We take back every word of doubt. We eat our words of criticism and take a bite out of our hat too. We were wrong.

But such is the mixed message sent by the feds’ meddling in the marketplace that no one really knows whether the US lost money or made money. You create enough funny money, and even keeping score becomes impossible.

But there’s nothing funny about gold. It is what it is. No more. No less. But is it a buy or a sell? Is it correcting in a bull market…settling into a bear market…or is it just as confused as the rest of us?

It’s hard to say. On the one hand, the feds are still pumping in liquidity. And there is Paul Krugman, recent winner of an award from the same group that gave Obama a “peace prize,” who urges the Fed to expand credit by buying a further $2 trillion in assets…

Whew! It wasn’t enough to multiply excess reserves 500 times…or to put $12 trillion on the line in a bet on Keynesian economic theory…or to add more to the Fed’s monetary base in 18 months than had previously been accumulated in 96 years…now Mr. Krugman wants another 150% increase. The Fed saved wrecked banks…it should save wrecked lives too…says Krugman.

What would that do the dollar? To gold? To the world monetary system?

No one knows. Here at The Daily Reckoning headquarters in the building with the golden balls, we don’t even want to find out. But we probably will.

Because Krugman is right about one thing… The depression hasn’t gone away. It will be with us for a long time. And the feds will try to fix the situation with every fishy means available. In their simpleminded, neo-Keynesian way of understanding economies they have no choice. They’ll probably keep adding to the monetary base until the whole system blows up.

In the meantime, the dollar is going up…and gold is correcting. Our old friend Jim Rogers:

“Over the past couple of months I have been accumulating US dollars…because there are too many bears.”

We’ve been thinking about this situation as deeply as we can. After a night of heavy drinking and light prayer, we’re beginning to understand it more clearly. Later this week we hope to have something worth saying about it.

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill’s daily reckonings from more than a decade: 1999-2010. 

 

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