An Exploration of What it Means to be a “Big Bank”

I want to talk politics a little bit.  I had a revelation the other night when I was up too late and I had one of those serious conversations with and old friend.

As a liberal, one of the things that you wouldn’t expect from me is a defense of the bank bailouts.  And you aren’t likely to either.  My parents (very conservative folks, mind you) raised me to accept the consequences of my actions.  Of course, like any good American, I say that I believe in accepting consequences, but often resent it when I screw up and someone calls me on it.  Usually, afterward, I can acknowledge the justice of the situation, but I still have that good old American sense of entitlement.

That said, let’s look at the bailouts in as objective a light as possible.  Bear in mind that most of this is based on information that I got from a friend who is far more informed about things like this than I am.  I am not an economist.  He is.  I don’t trade on the stock market.  He does.  I asked him what he thought of the bank bailouts because, let’s face it, like many Americans, I am all too aware of my lack of true understanding of the nature of this issue.  I will talk a big talk about how “too big to fail” is bullshit and people should accept consequences.

The first thing he told me–and my fact-checking seems to support this claim–is that the vast majority of the bailout loans have actually been repaid.  The big banks and the big auto companies in particular have already paid off their bailout loans and, indeed, the government seems to have made money on the deal.  This was a shock to me.  I thought we, as the taxpayers, had just given them a bunch of money without expecting anything in return.  Weird.  I think this is a crucial point that neither Obama nor anyone else has really brought up yet.  In fact, I don’t understand why Obama hasn’t stressed this fact.  An often very potent defense of a questionable action is to say, “See?  Look how it all turned out!  It’s like we didn’t spend that money at all!”

Let’s keep this point in mind as we continue here.  I think next we want to look at the very idea of “too big to fail.”  What exactly does that mean?  A lot of people called bullshit on this phrase, but just how big are these companies?  Well, a quick web search might tell us that Goldman Sachs, one of the biggest investment banks in the world has 33,000 employees (that’s 33,000 people who likely would have lost their jobs had they been allowed to buckle under).  They have $923 billion in assets.  And they’re nothing compared to the size of a behemoth like JP Morgan Chase, with total assets of $2.3 trillion and 260,000 employees.

Note: To be fair, JP Morgan did not need TARP money and was the first bank to pay back the bailout dollars.  In fact, they were browbeaten into accepting the $25 billion that they did receive–honestly, this makes me wonder where they’d be as a corporation had the TARP never happened.  But still, plenty of other banks did need TARP money to stay afloat.

Let’s ignore for the moment the question of whether these banks deserved the money–we’ll return to it shortly.  And let’s just consider the possible consequences of one or more of them failing.  Entertain with me the question of what would happen if a huge Wall Street bank just up and vanished.  First and foremost, thousands of people would lose their jobs.  Possibly hundreds of thousands.  Those are, for the most part, just working Americans.  Bank tellers, check processors, maintenance workers, janitors.  Not to mention the small businesses like restaurants that would all fail when a huge chunk of their clientelle (bank employees often go out to lunch at local nearby restaurants–I know this from personal experience).  Lots of smaller businesses depend on those banks being around for their well being, a fact that is not often considered.

But there’s more to this than just that.  Consider, my friends, what these banks actually do.  In the big scheme of things, what does a financial services/investment bank do for America?  The most important piece of information that people seem to neglect to take into account is the fact that the US is not an insular country.  It’s not just the American economy that would be affected.  Goldman Sachs is a global bank.  It’s based in New York, sure, but it’s got assets and works on a global scale.  The economy isn’t just the American economy (and this is something that is very important to think about whenever you talk about the economy).  America can do everything right, but if the world economy falters, there isn’t much we can do.  The fact of the matter is, these banks facilitate the flow of money world-wide.  For good or ill.

And not only that, but you remember the ongoing housing crisis?  All those people losing their homes because they lost their jobs and the housing market sucks?  Consider the phenomenon of  toxic assets.  Your small town bank couldn’t afford your loan so they sold it to a bigger bank.  This was happening for years before the bubble popped–this happened because for all of human history, American real estate never did anything but go up, so that shit was worth lots of money.  If huge banks started failing, the question of who owned your house would become very complex very quickly.  The housing bubble pop might just have been even more violent had those stable–if mind-bogglingly corrupt–banks hadn’t been there to facilitate all those foreclosures.

If Goldman Sachs or JP Morgan Chase or Wells Fargo ceased to exist, or indeed collapsed violently, the entire world economy would be upset.  These entities are very integral to the way the global economy works.  If the Obama administration had allowed those banks to die, if the Fed hadn’t infused them with trillions of dollars–and honestly this was a WAY bigger deal than TARP anyway–just think of what might have happened.  Objectively.  The idea might very well appeal to you.  You might say, “Fuck ’em.  I say take the consequences.”  But really consider what that would mean.  I don’t think anyone knows exactly what would happen, but I think we can make some educated guesses.  If our big banks were allowed to fail, like dominoes, so would many other banks in Europe.  The global economy would grind to a halt.  Unprecedented unemployment rates would likely be seen.  For several years, the entire world would be…just fucked.  There would literally be NO economy.  Perhaps it would bounce back.  Maybe.  But how many people would suffer as a result?  China’s economy is doing just fine, so they would likely become the super power, and the US would flop around like a dying fish for a while, still trying to convince itself that it’s number one, when sadly that’s no longer (and never again will be) the case.

How many might just die as a result?  Unrest, unemployment, starvation, riots.  Maybe I’m being alarmist here, but isn’t it feasible?

So okay, the global economy–as it’s currently structured!–does, in fact, depend on these organizations to a certain extent.  Let’s concede that fact.  Maybe they do have too much power.  But I ask you, who controls that bulk?  Who steers the inertia that these corporations have?  Are these just a few bloated, wealthy individuals?  Or is there something else going on here?

Okay, let’s put together a picture, shall we, of corporate life at a huge investment bank.  Of the major officeholders at Goldman Sachs, only 3 men have had their jobs for more than like six years (since 1999, actually).  Like half of their top-tier executives have been there since barely 2008.  Several have only been there for a year.  Think about that for a moment and ask yourself who controls Goldman Sachs.  The turnover rate for top-tier executives is very high.  This is an absolutely vital fact to consider.

The career of your typical Wall Street bank executive is a constant Darwinian struggle to the top.  Any individual executive will take any and every opportunity to rise through the ranks.  They will throw anyone under the bus.  The person who makes it to CEO or CFO or President or Chairman of the Board is a person who is ruthless, intelligent, and has not the slightest amount of empathy for other people.  And the thing we all have to realize is that Goldman Sachs is kind of like a factory producing an endless stream of sociopaths.  Does the CEO of G-S have any real power to direct the corporation?  Nope.  If the board put him in that office and he showed even the slightest inclination toward morality, toward doing “the right thing,” you can bet your ass that he would be gone quicker than you can say, “corporate responsibility.”  The only reason this never happens is the fact that the corporate ladder is really a corporate filter, destroying the humanity of the people that rise to its peak.  By the time you hit the board of directors of a huge investment bank, you either have no humanity left or there was none in you to begin with.

A few people with morals sometimes manage to slip through the cracks, get fairly high in the hierarchy, and then become disgraced and write a book about corporate greed and corruption, but selling a few books is really just a consolation prize as you try to make your millions as quickly as possible before retiring at 40.

The simple fact of the matter is, however, that no one controls these companies.  An executive’s lifespan, if he’s really, super lucky, is to rise through the ranks, display a ruthless efficiency, make it as far as possible, socking away as much money as possible in the meantime, and eventually getting booted out the other side, hopefully with a fat severance package to retire on.  These companies aren’t family businesses.  They are uncontrollable entities of such massive bulk that they cannot be steered.  They have their own inertia and it is enormous.

Many executives talk big, but have no more control over the future direction of the corporation than a snail.  Their only hope is to perform adequately and efficiently and make a whole lot of money before being replaced.  That’s the simple fact of the matter.  Goldman Sachs doesn’t have an identity as a company.  It’s  a…thing.  A force.  It doesn’t have a face or a conscience.  It’s like a hurricane.  It cannot be controlled by anyone.

The take-away lesson here: global banking companies are very large and very powerful, but ultimately completely uncontrolled and uncontrollable.

Also, I would like to point out that these companies wield their power very differently than privately own corporations like Koch Industries and their ilk.  I think they are beyond the scope of this particular essay.

And this situation is never going to change either.  At least, not from within the system.  The government can’t break up these banking monopolies because unlike Ma Bell, these are global companies.  It’s almost impossible to regulate a global corporation.  How would you do it?  One of the reasons the governments of the world don’t do anything about these monopolies is the fact that they literally don’t know what can be done.  The other reason is much more obvious, however: corruption.

People talk about big government and how much they hate it.  Nobody likes the government, but think for just a second about what a government–or at least a democratic one–is supposed to be.  “Of the People, by the People, and for the People.”  It’s the social contract.  We are going to give up some of our freedoms in exchange for security and stability.  The government is supposed to represent the will of the people.  The government is supposed to be us.  That’s an important thing to consider when one thinks about governments.

But what does it take to become a major political player in one of the only two potent political parties in America?  What does it take to be the CEO of Goldman Sachs?

The same sort of sociopaths are the people who manage to rise through the ranks of political parties as corporations.  And let’s face it, political parties are where the real government lies.  These compromised entities, these monopolizers of politics, control this country.  I’m not sure what their eventual goals are, but I really don’t believe that Republicans and Democrats actually have different goals.  They both exist to create a false conflict in American politics.  They exist to give us the illusion of choice.  If we look back far enough, it wouldn’t surprise me in the least to discover that it’s the same sorts of people pulling the strings of both parties, profiting on the fact that half of America hates the other half and vice versa.

We do have to consider that some politicians are actually decent.  But this is only because government is not nearly as efficient a filter for ruthless sociopathic tendencies as corporate culture is.

So let’s put it all together.  The too big to fail companies were bailed out because if they hadn’t been, the consequences may very well have been disastrous.  I don’t like it, but Obama just might have had no other option when it came to the TARP.  Those same companies ARE immoral and sadistic forces of nature, entities of uncontrollable power but there’s neither the will nor the ability on the part of US government to do anything about it.

We are stuck in a very tricky situation here, folks.  It’s almost an unsolvable problem.  You might be inclined to say, “Revolution!” as I was when I was talking to my friend.  But always remember: we live in a global society.  If the people of the US did manage to rise up, overthrow its government, and dismantle Goldman Sachs and the other bloated, malignant, cancerous entities that call themselves banks, what would happen next?  Once you take it all apart, you’ve got to put something useful back together again.  A new social contract needs to be established.  Who’s going to take responsibility for that?  When America had its first revolution, it was the rich people who did that (granted they were almost all romantics at heart and many were philosophers themselves).  It’s safe to say that whoever has the resources to do so is going to be in charge of that whole process.

And then remember one other thing:  if the US government falls, its military will likely dismantle itself (if no one’s paying them, they’re probably going to go home).  We will have no military power and if the US dollar is backed by anything, it’s back by missiles and drones and bullets.  If the US dollar ceases to have value, consider what other countries will do.  We owe a lot of countries a lot of money.  Are they going to idly sit there while we figure out how to rebuild our country?  Are they going to sit there and watch us, defenseless, and let us get back on our feet?

Will China?

It’s a very tricky situation.

“Macht ist sie, diese neue Tugend; ein herrschender Gedanke ist sie und um ihn eine kluge Seele: eine goldene Sonne und um sie die Schlange der Erkenntniss.”
                -Friedrich Nietszche

Bearish Sentiment on the USD

PowerShares DB US Dollar Index Bearish

PowerShares DB US Dollar Index Bearish

With global confidence returning to the market we should see a pullback on the USD. Not to metion any effect Buffet’s recent remark on the inevitability of inflation in the comming years will have.

Cinco De Mayo: A Credit Default Party?

Cinco De Mayo garners it’s roots from a credit crisis occuring in Mexico the year of 1861. President Benito Juarez stops credit payments to the English, Spanish, and French. Ensuing conflict between the nations arose, and while the Spanish and English’s attempts were quickly thwarted, the French however had differnt plans. Mexico’s rag-tag army of 4000 proved to be too much for a the 8000 man amry of French Dragoon’s and renegade Mexican milita.

So why not gather a bit of extra holiday cheer this year? Who can’t forget about our nations own economic woes in a fog of tequilla dancing the Cha-cha?

CDE Coeur D Alen Mines Corp

Busting out of resistance and out and up to the 2 dollar range.

Busting out of resistance and out and up to the 2 dollar range.

Coeur D Alen right now is fire. I’m looking to hold into the next resistance level around 2 dollars. The symmetrical triangle is no more, and bollinger bands have be been breached to the upside.

With China buying up precious metals, and the dollar looking weaker and weaker as we speak, I’m turning bullish on the PM mines and metals in general. CDE happens to have the best technicals right now.