Wall Street and Washngton

A day after Michael Lewis pointed out the advantages High Frequency Traders have in the market, Pam Martens uses a new book by Nomi Prins, “All the Presidents’ Bankers: The Hidden Alliances that Drive American Power”, to inveigh against the TBTF banks.

As Martens sees it, Prins' book shows how the banks have controlled the government from Teddy Roosevelt's time to today. The fundamental reason for the banks' receiving this support is that they are considered an essential financial component of the U.S. war arsenal.

Some quotes from the book sound a lot like today's problems:

• “…home prices had softened in 1926, car sales dropped in 1927, and construction would level off in 1928. Inequality had increased dramatically, threatening economic stability. The whole system was buckling.”
• "In November 1923, the Federal Reserve began increasing its holdings in government securities (such as Treasury bonds) by a factor of six, from $73 million to $477 million, in what could be considered the first instance of ‘quantitative easing.’ This keeps rates low, not by setting them explicitly but by forcing the price of bonds up, which has the net effect of driving rates down.”
• the Fed, “ kept rates relatively low on loans to banks during the speculative period and required little in the way of reserves, or collateral, to be set aside for stormy days.”
• “By the fall of 1929 Chase had acquired six major New York banks, making it the second largest private bank in the world, next to Mitchell’s National City.”
• "The money that was being funneled into the market to fuel financial speculation (rather than productive or social capitalism) provided the illusion of stability and prosperity, but it was not the kind of long-term capital upon which true economic growth could be sustained.”
• “Beginning in 1934 the financiers used the more stable banking system that had been engineered by the New Deal as a platform upon which to drive up the volume of stock speculation, and with it stock prices. The confidence this exuded and the media attention paid to it combined with New Deal stimulus to make the country appear to be exiting the Depression. This rise proved unsustainable and the market and the overall economy would dip again in 1937 and 1938, until it became more substantively elevated by war financing efforts and related employment opportunities for those not in combat overseas.”