The Panic-Free Zone
Implausible Deniability
Panic at the Savings Bank of Berlin after the failure of the German bank
Darmstadt und Nationalbank (1931) - Credit: Bundesarchiv, Bild 102-12023
Georg Pahl / CC-BY-SA (modified in Gimp)
I. Have No Fear - Have Another Beer
Earlier this month, the New York Times reported that rogue Ukrainians diving from a mysterious yacht sabotaged the Nord Stream undersea gas pipelines and no Americans knew about or participated in the clandestine operation.
Abroad, the guffaws were deafening. Domestically, even the most childlike and credulous could barely swallow the story. Yet the western media continue to flog the party line as though, if it were endlessly repeated, eventually the implausible tale would be deemed true.
Recently, Silicon Valley Bank (SVB) spectacularly collapsed. It was the second biggest bank failure in U.S. history. Abroad, the guffaws were again deafening. Domestically, only the most childlike and credulous believed it was a non-event. But the media continue to report that there was nothing to see here and nothing to worry about, as though saying so makes it so.1
Secretary of the Treasury Janet Yellen, reading from her script, assured us that we should feel confident in a banking infrastructure which is "safe and sound." Nor would it be necessary or appropriate, she assured us, to bail out SVB. During a weekend appearance on CBS’ Face the Nation, Ms. Yellen said that the U.S. government would not save the investor class the way it had in 2008. “During the financial crisis [of 2008]," Secretary Yellen said, "there were investors and owners of systemic large banks that were bailed out, and the reforms that have been put in place means that we’re not going to do that again.”2
A day later, in a joint statement issued by the Treasury Department, the Federal Reserve Board and the FDIC, the Government reversed course. With a sprinkle of accounting pixie dust, they announced that the Government would not bail out SVB; and then immediately proceeded to bail it out.
And Signature Bank. And, presumably, other banks, too, as the cavalcade of tottering financial institutions grew longer. The banks and the federal government linked arms to ensure that those who had a lot of money on deposit would have immediate and full access to their money.3
By mid-week, Switzerland was scrambling to prop up the tottering Credit Suisse and its financial network of interconnected financial instruments and obligations.
By the end of the week, major banks in the United States were pooling resources to bolster First Republic Bank headquartered in San Francisco before it followed SVB into receivership. This weekend, Credit Suisse went belly-up and multiple actors engineered yet another buy-out.
Parroting the joint statement of the Treasury Department, the Federal Reserve Board and the FDIC, Mr. Biden has reiterated the mantra that "Americans can have confidence that the banking system is safe."
The message is clear, even if the sales patter is not: the banking system is safe -- just not for ordinary people.
America is a panic-free zone. We have nothing to fear but fear itself. Everything will be alright.4
Maybe.
II. The Cup and Ball Game
Honestly, what else could the regulators have said, other than "have no fear?" Would we expect them to tell us "Panic! The Sky Is Falling!"? Of course not. But other than getting an earful of cheer-leading, how does any ordinary person know what the truth is and, ultimately, does it matter if we know?
Notably, these were not bailouts of the common man or woman.
It was a bailout of the investor class, namely those who have much, much more than a quarter million dollars on deposit in any bank. It was a bailout of corporate America and venture capitalists and irresponsible risk-takers. It was a bailout of the banking system itself.
It was a clear message that there is no "moral hazard" whatsoever for dicey financial leveraging by the ownership class: Uncle Sam will save that class no matter how much it overreaches, no matter what risks it takes.5 It's like casino gambling where the House pays off every wager no matter who wins or loses, no matter how stupid the bet. But only the bets of the high rollers.
The money for the bailout will come from the same digital thin air as has every other bailout. Basically, the money supply will be inflated which results in deflating purchasing power. Everything will cost more for those who have to buy stuff to survive. Whether viewed from the "left" or the "right," most economists will acknowledge that inflation is a form of taxation on those on the lower end of the economic ladder. It falls hardest on middle and lower income wage earners, and on those who are retired and on fixed income.
But inflation is a tax that boosts the price of assets the likes of which are owned by the same folks who benefit from the SVB bailout. Thus, inflation in food, fuel and housing prices - all necessities excluded from the Government's "core inflation" calculations - hurts people whose incomes do not rise as fast as prices do.6 By contrast, inflation in food, fuel and housing prices are practically irrelevant to those who have a whole lot of wealth. The only "inflation" they care about is "wage inflation," because the cost of labor is the one thing that directly squeezes profit. That is why most of the State's efforts at controlling "inflation" are not focused on actually reducing the cost of fuel, housing or food, but on increasing unemployment so that there is more competition among workers, thus forcing wages to go down.7
The government bailout of SVB was a not so sleight-of-hand demonstration of the not so hidden hand of a not so free free market economy. In 1848, Friedrich Engels and Karl Marx wrote presciently that the specter of communism was haunting Europe.8 In 2023, another specter haunts the West. It is the specter of sclerotic financial capitalism and political-economic necrosis, a capitalist zombie stumbling from one crisis to the next.
This week, the State demonstrated that it can act with alacrity when those who own the State - its true stakeholders - feel threatened. Yet it barely lifts a finger when the health and economic well-being of the majority non-stakeholders are threatened, such as in Norfolk Southern's toxic train wreck in East Palestine, Ohio in early February 2023.9 Your eyes did not deceive you: the weekend emergency operation to salvage the banking system was definitely NOT a bailout of the average working class John or Jane Doe.
Look again at the painting of "The Conjurer" by Hieronymus Bosch at the head of this section. Look closely and you will see the gentleman leaning forward to study the conjurer and the ball that is not where he thought it was. Look again and you will see that while the gentleman is concentrating on the conjurer's patter and sleight of hand, the conjurer's assistant standing just behind is picking the gentleman's pocket.
It's the same cup and ball game now as depicted in the painting. While you are distracted by the patter and sleight of hand, your pocket is being picked.
III. The Show Will Go On
If the weekend show of solidarity for the financial sector does, indeed, save its rentier skin, you know that it is only temporary. The show will go on, because the show must go on. For now. The story will be swept under the rug only to reappear later, because it must reappear later. Nothing will be remedied because nothing can be remedied without a fundamental reboot with a fundamentally different operating system.
The immediate reaction of both political parties, however, was predictable: the Republicans blamed Joe Biden and the Democrats; the Democrats blamed Donald Trump and the Republicans. No one accepted responsibility. They cannot accept responsibility because they are both responsible.
One should steer past the mindless banter of "bipartisanship" blaming one political party or the other for what is happening. This is itself a distraction no different than the "bipartisan" train wreck of the Norfolk Southern in Ohio or the coordinated efforts of both political parties to distract people from important issues by focusing them on goofy ones. Republicans bear responsibility for relentlessly promoting legislative relaxation of banking regulations and Democrats bear responsibility for relentlessly promoting legislative relaxation of banking regulations. President Donald Trump promoted it. Democrat Congressman Barney Frank and President Bill Clinton championed it, too.10
And we, too, own this because of our own cupidity.
In America, if the Emperor has no clothes, we still "invest" in the clothes the Emperor doesn't have.
In America, if the Emperor has no clothes, neither do any of the rest of us.
Since 1971, every dollar bill states that it is backed by the full faith and credit of the United States Government. That means what it says. The true value of the dollar is pegged to the integrity of the U.S. Government and to faith in its financial system. If the dollar stated, instead, that it was backed by the fear and chicanery of the United States Government, the statement, as such, might be true, but it would not inspire the requisite trust and confidence.
If the dollar stated that it was backed by the fear and chicanery of the United States Government, it would inspire neither trust nor confidence.
When trust, confidence and integrity wither, the Government must - by economic coercion or by force of arms, or both - compel others to accept U.S. dollars at face value. That explains why, as the U.S. economy becomes less vital and more hollow, the Government increases its military spending and becomes more coercive.
But military and economic coercion cannot fully compensate for the loss of economic, political and financial credibility. Your dollars are simply worth less when trust in the Government has eroded, when its credit has tanked and when its financial system perceptively has been corrupted. This is as true domestically as it is in foreign affairs, for the dollar is the world's reserve currency and the U.S. economy is integral to the world economy. A government that dispenses trade sanctions like gunboats, that pirates the natural resources of other peoples, that confiscates the wealth of other countries, and that sabotages pipelines while blaming it on others... that is a government that has no claim to anyone's faith or credit.
In Europe, during the early 21st Century, the so-called "PIIGS" of Portugal, Italy, Ireland, Greece, and Spain needed a bailout from the wealthier central banks of the European Union. The investor class of Portugal, Greece, Italy, Ireland and Spain had made oodles of money by committing the full faith and credit of the PIIGS to useless or wasteful projects. The price of the useless and wasteful projects, and the eventual price of the "loans" needed to finally bail them out, was "austerity." The cost of that austerity, in the form of inflation, higher taxes, higher unemployment, and shrunken public services, was born solely by the working and retired citizens of those countries. It was painful, but only for the working and retired citizens of those countries.
When the U.S. government bails out its own financial sector, no matter how the source of the money is camouflaged, you can be certain that now, too, it will lead to "austerity" imposed as a cost on working and retired Americans: inflation, higher taxes, higher unemployment, and shrunken public services, to be born mostly by the working and retired citizens of this country.
The only difference between what happened to the people of Portugal, Greece, Ireland, Italy and Spain and what is happening, and will happen, to the people in the United States, is that neither the word nor the effects of "austerity" will be mentioned. There will be sacrifice, by many if not all, but it will not be acknowledged. The show will go on, even unto the moment when the curtain comes down.
When faith in, and the credit of any government falls, it inevitably leads to ever harsher and more ridiculous narratives. The greater the crisis, the more powerful the distractions must be. The narratives - and the actions - will become ever more shrill - and reckless - to stir up latent racism or nationalism or war fever.
It will take great effort to divert attention from the fact that the stakes are great and so are the problems.
Nevertheless, the constant narrative about the strength and safety of the financial system disturbs us precisely because we, collectively and individually, are not stupid.
Your pet dog or cat knows when you are trying to trick it, and we are no less smart than the average dog or cat.
Your dog or cat, recognizing you are fooling it, might just snarl or hiss, and walk away from you. We, perhaps less self-reliant than our house pets, and probably more domesticated, will, for now, just hiss or snarl and not walk away. Because we can't.
So we continue to live in a make-believe panic-free zone. For now.
One should be careful about blaming one nation or the other, or one political party or the other, for media disinformation. Throughout history and around the globe, the "press" usually has been in the service of the State and controlled by the ownership class. The exceptions were innovations in their time such as 1) the simple movable type hand-operated press that allowed for the dissemination of handbills and affordable newspapers delivered by inexpensive mail, as in colonial America during the second half of the 18th Century; and 2) the Internet, as it was once seen circa 1990-2010 as a non-commercial, distributed network disseminating democratized information. Once the "press" (and the Internet) became centralized, monopolized, capital-intensive operations, they reverted to what the media usually is: a tool and mouthpiece for the Leviathan, as Thomas Hobbs described it.
Nothing changed for the better as a result of the financial crisis of 2008. At that time the Treasury, The Federal Reserve Bank, the legislative and executive branches all teamed up to hide and, indeed, worsen systemic problems. They did this through "quantitative easing" (essentially, the purchase of commercial bonds and fanciful debt instruments at fraudulent asserted book value, when their market value was likely zero because they could not be marked to market) and an apparently irreversible program of "free money" resulting from repressing interest rates. They doubled down on the financial white wash with periodic interventions in the "Repo Market" during 2018-2019. Today's bank crisis is as much the bastard child of policies implemented in response to the last financial crisis. And so forth back to the financial crisis before that. And it will be so that the next financial crisis will also trace itself back to today's failure to truly solve any problems. As to the Savings and Loan debacle of the 1980s, there is, indeed, a fundamental difference compared to our current banking crisis. Today, for many people, there are only"loans" and no "savings."
"Ordinary" deposits up to $250,000 per account are "insured" by the FDIC. The SVB bailout, however, is for those whose personal... or business... accounts exceed the $250,000 cap. The "blue sky" is the limit. All depositors will be made whole, according to the announced bailout plan. But not all depositors are equal. Despite the narrative, it is definitely not the butts of "working class" people that the government has saved.
In his inaugural speech in 1933, Franklin D. Roosevelt said that "we have nothing to fear but fear itself." The original phrase may have been borrowed from Michel de Montaigne, a 16th Century French writer, or from Francis Bacon writing in 1623. Similarly, Thoreau wrote in 1851 in reference to atheism "Nothing is so much to be feared as fear." Of course, Franklin Roosevelt did much more than just wax poetic about turning a blind eye to fear. In the face of a devastating economic depression, the likely collapse of the capitalist world order and the attractive alternatives offered by nascent socialist states like the USSR, Franklin's administration forced through major changes to our political-economic structure including the founding of the Social Security system, bank reform such as the Glass-Steagall Act, the introduction of child labor laws and the creation of the GI Bill (signed in 1944) giving ordinary soldiers (now that they had experienced the wider world and trained in the arts of combat) financial support for higher education.
Fed Chairman Alan Greenspan's signature garbled messages typically took both sides of the debate about unlimited government support fostering an investing environment of "moral hazard." See, "The Greenspan Put – An Investment Strategy Or Moral Hazard?"Anandini Badhwar, Symbiosis International University.
The Federal Reserve Board justifies looking primarily at "core" or "headline" inflationary factors as an effort to exclude highly "volatile" economic factors. This, of course, is pure baloney. As comedian Henny Youngman once quipped, "Americans are getting stronger. Twenty years ago, it took two people to carry ten dollars' worth of groceries. Today, a five-year-old can do it."
The Reserve Army of Labor is a recognized feature of class oriented economic planning. Karl Marx first described the Reserve Army of Labor in Das Kapital, Vol. I, Chapter 25. The Reserve Army of Labor explains why all western states - including the U.S. - encourage mass immigration, not to replace, but to compete with the existing work force to help keep wages down. This also explains why the U.S. and its European cohorts encourage civil war and civil unrest all around the world. They deliberately create negative living conditions such that skilled and unskilled workers will feel compelled to immigrate just to survive. The influx of immigrants will increase the ranks of the Reserve Army of Labor in the host country (which is often the actor responsible for having created the dire circumstances the immigrant labor is trying to flee), thus increasing job and wage competition within the host country among workers.
This is the first sentence of The Communist Manifesto by Friedrich Engels and Karl Marx. Was the "specter" really haunting Europe, or was it just imagination and a guilty conscience? It's too soon to tell, Zhou Enlai purportedly said when assessing the long-term effects of the 19th Century French Revolution or the Paris Uprising of 1968. No matter whether Zhou Enlai did or did not use those exact words, in either context, he could have and should have because it truly is too soon to tell.
Both Democrats and Republicans bear responsibility for the derailing of America's railroads. One party relaxed the transportation safety rules and the other party allowed those relaxed rules to continue. Both political parties plus the White House acted collegially to bar railroad unions from striking in December 2022. The railroad workers were concerned about the increasingly unsafe operation of the trains. The political parties were concerned only about preserving the economics and profits of the holiday shopping season. Both parties sacrificed the train workers - and East Palestine, Ohio - in favor of the donor class who contribute the most to the politicians' reelection campaigns.
The Glass-Steagall Act was repealed during the Clinton Administration at the behest of the banking industry. It was enacted during the Great Depression to separate depository from investment banking in an attempt to erect fire-breaks in the financial sector. Today, thanks to the assiduous efforts of both Democrats and Republicans serving, essentially, the economic interests of their donors, the only constituency that counts, those fire-breaks largely have been torn down.