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Wednesday, July 29, 2009

Record Bank Profits During a Depression

I liked this article on MSN. This story was also mentioned on the Communism Channel. Goldman Sachs recently announced huge quarterly profits.

I also liked this article on MSN. Executives at Goldman Sachs sold $700 million in stock between September and April, at the same time the Federal government was bailing out the financial industry.

On the Communism Channel, a comedian said "If you're jealous of Goldman Sachs' success, then there's an easy way to join them. Buy their stock!" This is false. The financial industry makes huge profits, paid by the rest of society as inflation. However, the vast majority of this profit goes to insiders. Executives use this stolen property to pay themselves huge salaries and bonuses, either directly in cash or indirectly via option/equity grants. If you buy a bank stock, you should get the same returns as the overall stock market, which is less than true inflation. You can't prevent the bank executives from lining their pockets at the expense of small shareholders.

Even though Citigroup and Bank of America received humongous bailouts, individual shareholders still lost out. The vast majority of the stolen property winds up in the pockets of insiders. In a year or two, they will be claiming huge profits and the executives will be paying themselves huge salaries. In the meantime, individual shareholders will have had returns that underperformed true inflation.

Goldman Sachs and other financial industry insiders receive massive direct and indirect State bailouts. There was the explicit TARP bailout program. The bailouts of AIG, Bear Stearns, GM, Chrysler, and FRE/FNM were really bailouts for their creditors. For example, executives at Goldman Sachs purchased billions of dollars of credit default swap insurance from AIG; this made the AIG bailout essentially a Goldman Sachs bailout. AIG used its bailout money to pay off Goldman Sachs and other creditors. Whenever the Federal Reserve cuts interest rates, that's a bailout for the banksters. When interest rates fall, outstanding bonds paying a higher interest rate become worth more.

Currently, the Fed Funds Rate is 0%-0.25%, while loans are issued at 6% or more. The banksters profit by borrowing at the Fed Funds Rate and loaning at 6%+. They profit the spread of 6%+ times their leverage ratio of 100x or more. This leads to lucrative profits.

Negative real interest rates, plus the principle of "too big to fail", encourage insiders to load up on as much debt as they can.

The financial industry profits from their perk of printing and spending new money. This enables the financial industry to have record profits, while the rest of the economy is still stuck in a recession/depression. During the second half of the Great Depression, insiders made huge profits while everyone else was still suffering.

The profits of the financial industry aren't free. They're paid by the rest of society as inflation. Pretty soon, you'll be spending $10+/gallon for gasoline. When you wonder where the purchasing power of your money went, that's the answer. Your wealth disappeared into the pockets of the banksters.

Over time, the rate of looting and pillaging is increasing. The net effect is the destruction of the economy, as lobbying the State for favors is more profitable than doing something useful. Insiders demand an ever-increasing slice of a shrinking pie.

The leaders of the financial industry are not brilliant businessmen. They are parasites. They have no skills that would be useful in a true free market. They excel at crony capitalism and lobbying the State for favors. They excel at navigating a State communist bureaucracy. They provide no useful goods and services. They don't manage risk, because they get a bailout even when they're wrong. Financial industry insiders essentially get a veto over what businesses succeed and fail. They can print new money and use the profits to finance any business they choose. They can print new money and buyout anyone who refuses to cater to their wishes.

Via bankster financing with money printed out of thin air, control of the mainstream media is concentrated in a handful of people. These insiders were picked by the banksters. The mainstream media cannot accurately report on the abuses of the financial industry.

If you want to avoid subsidizing financial industry excess, your only option is to boycott the Federal Reserve and income tax. If you do on-the-books productive work, you are subsidizing the excesses of the banksters and State agents. Agorism is the best option for someone who desires freedom.

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