Let Them Eat Losses

Gerald Celente Daily Reckoning July 28, 2010

By Gerald Celente

07/26/10 Rhinebeck, New York — This had nothing to do with the so-called "Trickle Down" theory. This was "Gush Up." In Bush/Obama economics, the richest and biggest that had lost billions through bad investments, or were in danger of going bust, had to be rescued. If the Ã?ber-Rich weren't saved, there would be nothing left to trickle down to the population below. By government decree, those taxpayers who had never felt any trickle to begin with, now had to finance the failed financiers.

If taxpayers found themselves unable to understand the thinking behind "Gush Up", it was not surprising. Why should it make sense? Nothing else did. The entire financial system had been hijacked by bandits. It was criminal from beginning to end.

For example, in a 2008 interview, hedge fund executive Kyle Bass, who runs Hayman Advisors, described the deceit that was camouflaged by its own complexity as a billion-dollar fraud, ""¦ so complex that The [Wall Street] Journal couldn't even write about it. That's how complex it is. It would take teams of lawyers reading indentures, complex flow charts. And then people would look at you with cross-eyes, even if you understood it all. They'd go like, "?Yeah, well, I don't see it.'"

The experts engineering the schemes were baffled by the complexity of their creations, and yet insisted upon being bailed out of something that they themselves didn't understand.

The implicit rationale was that only those Harvard, Princeton and Yale MBAs, Ph.Ds. and LL.Ds. were qualified to pull the levers of power on Wall Street and in Washington. Only they "” who had devised the derivative, and conjured up the synthetic credit default swap, and invented the enhanced structured investment vehicle "“ were equipped to deal with the complexities of contemporary business and finance. Thus, those who didn't know nevertheless insisted they knew best. The Bigs had to be saved.

In the dying American Empire, there was no longer a place for the small:

* The Mom & Pop shop was as passé as the corner candy store.

* The family farm "” penalized by big government's "Get Big or Get Out" policies that subsidized factory farms "” had become a quaint curiosity.

* The village hardware store was hammered by Lowe's and Home Depot; Staples and Office Depot stomped out the stationery store.

* Across the spectrum"¦ finance, defense, insurance, health, news and entertainment"¦ virtually every business sector had been commandeered by the Bigs.

And the bigger they got, the more untouchable they became. TV Money Honeys, fast-talking finance finaglers, Nightly News anchors, Sunday Morning Beltway Blowhards, and Talk Show Tough Guys genuflected, scraped, kissed up and bowed down before those magnificent men in their money machines.

When these kings, queens and aristocrats of 21st century commerce spoke, their ex cathedra judgments went unquestioned. Thus, when they warned that if the "too big to fail" were allowed to fail the world financial system would collapse, their conclusions went unchallenged. No evidence was provided, no proof was needed, and no explanation was tendered. Harvard, Princeton, Yale"¦ the White Shoe Boyz had spoken. They who invented the "too big to fail" were "too big to question."

Yet note, as economic conditions declined worldwide, many blamed the crisis on the intrinsic nature of capitalism. But it wasn't capitalism that failed "” it was human nature that was flawed. Capitalism had been corrupted and perverted by the Bigs who, in collusion with the government and faced with the consequences of their own criminal greed, betrayed the system that had enriched them.

The very essence of functioning capitalism that by definition is ""¦the distribution of goods that are determined mainly by competition in a free market," was violated and destroyed.

Not only was there no hard evidence demonstrating that saving the "too big to fails" was necessary to save the economy, the rescue plans themselves violated the most cherished tenets of capitalism, which hold that:

* Failures should be allowed to fail.

* The best will succeed.

* Competition is healthy.

* Market voids created by failures will be filled by competitors.

No individual, business, institution, nation or empire is too-big-to-fail. Had true capitalism been allowed to function unimpeded, the bloated, over-extended, inefficient and gluttonous firms and industries would have failed. There would have been hardships and losses but, finally rid of its financial tapeworms, the purged system could be restored to health.

No "ism" or "ology" "” regardless of purity of intent or moral foundation "” is immune to corruption and abuse. While capitalism itself is being blamed for the excesses that brought on financial chaos, prior to the most recent gambling binge, in tandem with the blanket dismantling of safeguards and the overt takeover of Washington by Wall Street, capitalism was responsible for creating one of the world's most successful and universally admired societies.

Regards,

Gerald Celente for The Daily Reckoning

[Editor's Note: The above essay is excerpted from The Trends Journal, which is published by Gerald Celente. The Trends Journal distills the ongoing research of The Trends Research Institute into a concise, readily accessible form. Click here to learn more about and subscribe to The Trends Journal.]

Gerald Celente is founder and director of The Trends Research Institute, author of Trends 2000 and Trend Tracking (Warner Books), and publisher of The Trends Journal. He has been forecasting trends since 1980, and recently called "The Collapse of '09." Also a Close Combat practitioner and black belt trainer, Celente has made many media appearances including Oprah, CNN, The Today Show, Good Morning America, NBC Nightly News, C-Span, and CNBC. He has been cited in the Economist, Chicago Tribune, LA Times, Entrepreneur, USA Today, and many other publications.

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Gerald,

Well put…….the hallowed beauty of what this country had established will forever be tarnished by the repulsive corruption that has systematically been allowed to perpetuate.

on July 26, 2010. zimtran said

A truly excellent article which hit that nail on the head again as Gerald Celente always does. Honest, Intellegent, Perfect.

on July 26, 2010. sierra said

Excellent! I would only like to modify the “competition” part in the last segment for “good capitalism”. A small toy truck is no match for a D-9 behemoth track layer when it comes to “competition.” Great article!

on July 26, 2010. Model T said

Yes, and a thousand men with spoons are no match for a steam shovel.

on July 26, 2010. a devils advocate said

Agreed. A very, very good article. The only point I do not agree with entirely is the concept of capitalism. It does do a lot of good and it brings out the best in many people but it also brings out the worst in people also.

on July 26, 2010. Mac said

I must take exception to the ongoing assumption that the derivatives and other financial instruments were vast mysterious things that were simply too complex for mere mortals to comprehend.

First and foremost, neither journalists nor government employees make very good yardsticks of critical thinking. It is in the nature of liberal arts types to assure you of the contrary, but it is frankly difficult to imagine a lower baseline in the white collar world.

Second, the fact remains that subprime borrowers were actually the root failure here — unless you wish to be brutally honest and skewer the anti-redlining politics which opened the coffers to those who were clearly not qualified to borrow. But to do this one must go back 30 or 40 years to begin assigning blame, and neither of our baseline groups can find much traction in that level of honesty.

I do agree with the rest. “Too big to fail” should have never happened and has only dragged out the problem. But please stop pretending the problem was “too big to grasp,” because that’s every bit as silly.

on July 26, 2010. Tedwa said

During the “Great Depression” prices on everything fell 40%. That hasn’t happened. Very good article. I agree 100%. Systemic corruption was and is being totally ignored when that was the biggest crime of all. Financial terrorists is what they are.

on July 26, 2010. Stelios Theoharidis said

“But it wasn't capitalism that failed "” it was human nature that was flawed.”

I think it is our understanding of wealth dynamics and how they structure the economic system that is flawed. How is it difficult to understand that there is an advantage to accumulations of human, financial, and social capital. That social structures amongst powerful groups and people are self reinforcing, and over time those advantages lead to greater accumulation of wealth and power amongst a more concentrated group of individuals.

But, that isn’t a characteristic exclusive to capitalism, or economic systems in general. Our failure is, however, a reflection of the application of old views concerning nature as paradigms for economic theories. Science has developed since then, but our theories of economics have not made the same leaps and bounds.

Mac,

There was definitely a much documented. forcing mechanism on the side of capital that was increasingly pushing for lax lending standards and collusion from individuals that value property as well as ratings agencies. Furthermore our media was reinforcing the flip your house meme. It takes two to tango and many people to drink the coolaid.

on July 27, 2010. rufusmcbufus said

Can anyone tell me what’s wrong with failure? There should have been failure all around. Failure for all counterparties of AIG, failure for individuals who took loans they couldn’t pay, failure for municipalities chasing yield. What’s that you say? There’d be riots? Ok, then failure for our civilization. I’m game, I’ll take my chances. I just do not see the problem here. Other better civilizations can flourish in this failure. -rufus

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