As a part 2 to the post on inflation, this would be an attempt to explain how the politicians and bankers destroy lives. Over and over again.
All countries would have experienced varying degrees of the following process. However, the process itself does not differ significantly.
The process is complex. Which is why it has been repeated over and over. The average you and I, can only see a certain extent of the process. So, only understanding a portion of the cycle.
To understand the process, we need to understand the motive. So first, a politician or political party who need money to gain control (a common enough starting point - the ambitions of arseholes). To get the money, they have to make the bankers happy. So, they make the banking industry less controlled. To enable the bankers to earn money from the people. In return, they get the financial support for their political campaigns, to stay in power.
Next the bankers. With the deregulation, they take more risks with their customers' money - for example, giving loans/ credit cards to people who cannot afford to have loans and credit cards. Then they developed new financial instruments. Higher risk financial instruments. And they "invest" their customers' money in these financial instruments, disclosing in the fine prints that these investments carries risks. So, if the customers loses money, they did so knowing the risks. By giving these loans and selling these "investments", they have brought in business for the bank and they would then pay themselves a bonus. And knowing that the loans they sold and investments they made were risky, they would proceed to sell the loans to a third party or hedge the investments (selling the investments to unsuspecting people, then putting a bet that the investment will fail).
When the bubble created by the bankers explode, ie when money is "created" by the bankers and politicians without real increase in productivity, then inflation happens. Price of goods increase. Effectively, the hardworking people who have not invested their money in something that can grow and produce, would be robbed. What they have in hand can now buy significantly less than what they thought they would be able to. Retirees would be in jeopardy. So honest hardworking people would be poor again.
But what happens to the bankers? Nothing. Time and time again, the bankers have denied accountability. The people invested knowing the risks. What happens to the banks? Oh, they would have merged. Why? Because the bigger they are, the less likely they would be allowed to fail. So, what happens? The politicians would then say, they have to bail the banks out so that the financial system would not collapse. So, this time, the taxpayers' money would be used to get the bankers out of trouble. Unfortunately, the bigger the banks, the bigger the mess they can create. The bigger the resulting crisis. But nothing happens to the bankers and the money that they have effectively stolen, stays with them.
Wouldn't the politicians need to answer for the inflation? Oh, they would make the rich happy. How, somebody asked, did the housing prices increase so significantly after a financial crisis? Well, the housing prices increased due to inflation. Is it a good thing? Well, the people who are able to hold on to their property post crisis would be "richer". Meaning the price of their "asset" (or rather liability) would have increased. Yea, the tenant they had may be less likely to be able to afford the rent, but on paper, their "wealth" would have increased. Not only that, they would report and increase in GDP - economic "recovery" because the overall "productivity" would have growth vs prior year. It simple means the prices of everything has increased. And if you calculate the money that would have traded hands to purchase the same things, you would have an increase. So, they report inflation as economic recovery. And life goes on. Until the next crisis. Perpetuated by the same people.
Aren't there laws in place? Watchdogs to monitor such fraudulent activities? There can be. But if the bankers require any laws to be overturned, they would just have to tell their politician puppets to get it done. And watchdogs? Well, if you have heard of credit rating agencies, you would just have to find out what were the credit ratings of the companies that has failed, just prior to them failing, to figure out if these agencies were of any use. Academicians? Well, some of them would lend credibility to any crooks and scams provided they are paid handsomely. Those who are good at their jobs would be offered a job and brought over to the dark side. Those who would not participate would be destroyed.
So, what is happening today? In the last major crisis, the investment banks fueled the dotcom bubble. Everything dotcom was a good investment, until it wasn't. And then the subprime loans - another way to have the property prices increase for no good reason. Today, the most recent things that come to mind, would be the startups. The investments that went into start ups. Start ups that may be true unicorn or perhaps just plain junk. So, know that you are buying into. The money that has gone into these investments would also have been used to paid those who encourage the instruments. The "investment bankers" today may be disguised as start up accelerators. There would be some people in the industry that would have gained as long as money is coming in to fund start ups - regardless if the start ups succeed or fail in the very end. And as these start ups show themselves to be what they truly are - a unicorn or nothing at all, whichever the case may be - they would have effected a transfer of wealth. It may be that the start up founders have gain. In some cases, the start ups would have been mere vehicle for the transfer of wealth to those who promoted the start ups. Banks would have the create the money to fund these as the investors take out loans to fund these ventures. Banks would created money out of thin air and paid themselves handsomely. When would the bubble burst? Perhaps when enough start ups fail. When the accelerators have funded enough junk. Well, whenever it happens, the above would repeat itself and would returned disguised in another form.
Not saying that all start ups fail. Perhaps all instruments started with the genuine intention to fulfill a need. Then the very human need for more would kick in. Structures would be set up to multiply and create more. And when it reaches a stage where the "productivity" is not real, when the start ups that are being funded are no longer of any real value nor potential, then the bubble will grow. If you are speaking to the people in the industry and the people promoting something in public is telling you privately that they don't truly believe in the value of what they are promoting...
So politicians and bankers at the expense of the people. Always.
At the end of the day, the poorest, as always, pay the most - Dominique Strauss-Kahn
Credit: Thank you, Inside Job and MT for recommending it.
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