Something Is Wrong, But Exactly What?
That seems to be the mood over at the Occupy Wall Street protests. Strangely, the lame-asses in the mainstream media wonder what they're upset about, or worse, why they have no specific demands. Jim Kunstler noted just this today:
The Boomer-owned-and-operated media was complaining about them all week. They were "coddled trust-funders" (an odd accusation made by people whose college enrollment status got them a draft deferment, back when college cost $500 a year). Then there was the persistent nagging over the "lack of an agenda," as if the US Department of Energy, or the Senate Committee on Banking, Housing, and Urban Affairs was doing a whole lot better.
This is the funniest part to me: that leaders of a nation incapable of constructing a coherent consensus about reality can accuse its youth of not having a clear program. If the OWS movement stands for anything, it's a dire protest against the country's leaders' lack of a clear program.
I would diverge from Mr. Kunstler's assessment, though, that the country's leaders lack a "clear program." Programs can be summed up nicely as those things enacted into law by the leaders themselves. For me, simply examining the raft of programs enacted since the crisis in 2008 - and, for that matter, the programs whose enactment led to the crisis - shows very clearly a program and what that program is designed to do. The problem, the issue at which the OWS protesters are venting their frustration, is simply that these programs are either not working as intended or are working toward an intended aim so diabolical that common people have no recourse but to squat in public spaces until someone else notices that something is amiss.
Take, for example, the various stimulus programs various agencies have enacted to stave off a worsening bank crisis. There was the Troubled Asset Relief Program, or TARP, designed to buy bad financial paper from banks in order to infuse liquidity into those banks and allow them to avoid insolvency. The Fed's learned quite a bit from the Lehman Bros. collapse, namely that all the banks took out bets on the insolvency of all the other banks, meaning if another went down, the entire edifice would be dragged down with it. One author, I believe Yves Smith in her book EConned, noted that the acronym here was appropriate. A bankruptcy liquidation opens the books held by a bank; a TARP covers the whole mess up, keeping the mess messy but unproven.
TARP, however, used federal dollars. Since the federal government is currently spending at a deficit, though, these are necessarily borrowed dollars which must be repaid with interest. Not to worry. The Federal Reserve, not to be mistaken for a federal government program, jumped into the fray as well with its Quantitative Easing program. The Federal Reserve, a coalition of private banks tasked with managing the nation's money supply, has the authority to simply buy troubled assets at face value from banks in return for money it simply creates out of whole cloth, no nasty interest payments necessary.
And the goal for all these TARPs and QEs? First, to get banks financially solid by getting those bad debts off their balance sheets. Second, to get the economy rolling again by getting the newly solidified banks lending again. That, at least, was the publicly admitted set of goals.
Why, then, are banks being rewarded for keeping money in their vaults? Ken Houghton over at the Angry Bear notices the reward, quoting actual Federal Reserve policy:
The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.
Employing the accelerated authority, the Board has approved a rule to amend its Regulation D (Reserve Requirements of Depository Institutions) to direct the Federal Reserve Banks to pay interest on required reserve balances (that is, balances held to satisfy depository institutions' reserve requirements) and on excess balances (balances held in excess of required reserve balances and clearing balances).
(I and Ken emphasized)
Here's the story. Banks don't keep money in their vaults simply to keep the greenbacks dry; they are there to back loans the bank is authorized to make. Banks make money when they create new money for lending and collect the principal and additional interest. Additional money in the bank's vault beyond the required reserve balance do not back new money and therefore do not back new interest income. By paying interest on balances the bank is required to maintain and on excess balances, the Fed is rewarding banks for keeping the money out of circulation. As Ken points out, this has led to the obvious:
Expand the Excess
If I read this correctly, that's $1.6 trillion sitting in vaults and not creating jobs. Strangely, the Quantitative Easing program infused about $2.1 trillion to the same banks. I guess the balance must have gone to the jerks who posted this funny sign right over the Occupy Chicago protests:
Subtle.
I am encouraged, however. Until this little PR nightmare appeared, the mainstream media pretty much ignored the protests. Now, sympathy seems to have shifted. These protests might not do any good in and of themselves, but I'm confident more will start looking around and seeing that there are quite a few things worth protesting.
The Boomer-owned-and-operated media was complaining about them all week. They were "coddled trust-funders" (an odd accusation made by people whose college enrollment status got them a draft deferment, back when college cost $500 a year). Then there was the persistent nagging over the "lack of an agenda," as if the US Department of Energy, or the Senate Committee on Banking, Housing, and Urban Affairs was doing a whole lot better.
This is the funniest part to me: that leaders of a nation incapable of constructing a coherent consensus about reality can accuse its youth of not having a clear program. If the OWS movement stands for anything, it's a dire protest against the country's leaders' lack of a clear program.
I would diverge from Mr. Kunstler's assessment, though, that the country's leaders lack a "clear program." Programs can be summed up nicely as those things enacted into law by the leaders themselves. For me, simply examining the raft of programs enacted since the crisis in 2008 - and, for that matter, the programs whose enactment led to the crisis - shows very clearly a program and what that program is designed to do. The problem, the issue at which the OWS protesters are venting their frustration, is simply that these programs are either not working as intended or are working toward an intended aim so diabolical that common people have no recourse but to squat in public spaces until someone else notices that something is amiss.
Take, for example, the various stimulus programs various agencies have enacted to stave off a worsening bank crisis. There was the Troubled Asset Relief Program, or TARP, designed to buy bad financial paper from banks in order to infuse liquidity into those banks and allow them to avoid insolvency. The Fed's learned quite a bit from the Lehman Bros. collapse, namely that all the banks took out bets on the insolvency of all the other banks, meaning if another went down, the entire edifice would be dragged down with it. One author, I believe Yves Smith in her book EConned, noted that the acronym here was appropriate. A bankruptcy liquidation opens the books held by a bank; a TARP covers the whole mess up, keeping the mess messy but unproven.
TARP, however, used federal dollars. Since the federal government is currently spending at a deficit, though, these are necessarily borrowed dollars which must be repaid with interest. Not to worry. The Federal Reserve, not to be mistaken for a federal government program, jumped into the fray as well with its Quantitative Easing program. The Federal Reserve, a coalition of private banks tasked with managing the nation's money supply, has the authority to simply buy troubled assets at face value from banks in return for money it simply creates out of whole cloth, no nasty interest payments necessary.
And the goal for all these TARPs and QEs? First, to get banks financially solid by getting those bad debts off their balance sheets. Second, to get the economy rolling again by getting the newly solidified banks lending again. That, at least, was the publicly admitted set of goals.
Why, then, are banks being rewarded for keeping money in their vaults? Ken Houghton over at the Angry Bear notices the reward, quoting actual Federal Reserve policy:
The Financial Services Regulatory Relief Act of 2006 originally authorized the Federal Reserve to begin paying interest on balances held by or on behalf of depository institutions beginning October 1, 2011. The recently enacted Emergency Economic Stabilization Act of 2008 accelerated the effective date to October 1, 2008.
Employing the accelerated authority, the Board has approved a rule to amend its Regulation D (Reserve Requirements of Depository Institutions) to direct the Federal Reserve Banks to pay interest on required reserve balances (that is, balances held to satisfy depository institutions' reserve requirements) and on excess balances (balances held in excess of required reserve balances and clearing balances).
(I and Ken emphasized)
Here's the story. Banks don't keep money in their vaults simply to keep the greenbacks dry; they are there to back loans the bank is authorized to make. Banks make money when they create new money for lending and collect the principal and additional interest. Additional money in the bank's vault beyond the required reserve balance do not back new money and therefore do not back new interest income. By paying interest on balances the bank is required to maintain and on excess balances, the Fed is rewarding banks for keeping the money out of circulation. As Ken points out, this has led to the obvious:
Expand the Excess
If I read this correctly, that's $1.6 trillion sitting in vaults and not creating jobs. Strangely, the Quantitative Easing program infused about $2.1 trillion to the same banks. I guess the balance must have gone to the jerks who posted this funny sign right over the Occupy Chicago protests:
Subtle.
I am encouraged, however. Until this little PR nightmare appeared, the mainstream media pretty much ignored the protests. Now, sympathy seems to have shifted. These protests might not do any good in and of themselves, but I'm confident more will start looking around and seeing that there are quite a few things worth protesting.