Feeding the Circling Leviathan
By Robert Romano
Washington is now the financial capital of the world. And its rule will be by fear.
Central banks and creditors across the globe now lend it trillions of dollars to feed the voracious Leviathan. Banks, mortgage brokerages and other investment firms now depend on its “capital” to fuel their daily operations. And markets all over the world now hang on its every word and then respond by panicking on cue.
All of which suits the money changers just fine.
In February, when Treasury Secretary Timothy Geithner unveiled his more than $2 trillion financial “stability” plan, critics argued that the advent of “stress tests” would weaken financial institutions that fared poorly, which of course contradicts the stated goal. Those institutions deemed weak are given the equivalent of a kiss of death. Private capital then bolts as shareholders run for the door to save their money. It's really a financial destabilization plan, in that sense.
Which is what Washington wants as it seizes power.
A quick refresher: First the federal government offered banks some $700 billion in “loans” to buy up “toxic” assets. Then it decided that that was not such a good idea, but that instead the institutions would be “recapitalized.” Next, it decided that the “loans” were not really loans after all, that they could not be repaid, but instead would be converted into stock. And finally, it is releasing “report cards” in the name of “transparency.”
For a little preview of what is about to happen, one need look no further than Tuesday's premature release of the “stress tests.”
Shares of Bank of America and CitiGroup fell drastically earlier this week after government officials—probably in the Fed and/or Treasury—leaked the results of their stress tests to the press, indicating they had failed and need more capital.
The only problem is that once that is publicly proclaimed, the only place they will be able to raise capital will be from—you guessed it—the government. The poorer a firm fares in the stress test, the less likely it is they can raise the needed cash privately.
The only way they will then be able to stay afloat is by converting the government's preferred shares into common stock, which would leave the government as the banks' largest shareholder.
That, by definition, is nationalization. And the government gets to determine which firms it wants merely by issuing poor ratings. Pretty good deal, right? For government, that is.
For everyone else whose savings, investments, loans, and everything else are being seized by the central government, they are left only to hope that the intentions of their new deposit-holding dictators are benevolent.
More likely, however, the hideous Leviathan—with de facto control of the entire financial system—will use it to engage in massive wealth redistribution to create a new favored political class.
And that should have everyone scared—from Wall Street to the Dockland's, from Shanghai's Bund to Dubai's bourse, from the largest conglomerate to Ma & Pa's green grocery, and all points in-between. After all, a government that cannot balance its own budget should probably not control the world's financial future.
Robert Romano is the Senior Editor of ALG News Bureau.