The Fed has its empty say

18 DECEMBER 2015

I am not a fan of New York City.
Don't get me wrong, I love the vibrancy of the youthful energy, I soak in the sounds of music that emanate from the subways and at various street corners but, on every visit - and this recent one was no exception - I feel that New York is infected by a strong negative energy.

New York is the capital of capitalism, much as London would like to claim that spot.
But New York is actually the capital of a certain kind of cronyism: a symbiotic relationship between those who are willing to sell their power and those that milk the system.

The Wall Street firms legendary in their malpractices - which are well-documented in articles, books, documentaries and movies - thrive because they have influence over money: the one raw material which can dominate every other in economic activity.
Production is a combination of capital (money), land, and labour.
But money is the most powerful of those ingredients in the crony model.
If you have access to loads of money, you can buy any amount of land or any amount of labour (manual or intellectual).

New York controls the money.
And it's not of the clean kind.
It may be green - but it's not like the 'green energy' the mind associates with 'clean'.
Wall Street survives because it has the ability to fund politicians, lobby governments, hire retired Prime Ministers and Presidents as advisors give fabulous paying jobs to retired regulators - and basically roll over anyone who comes in the way. The mafia got rid of their enemies by tying them to concrete blocks and throwing them into the ocean. Wall Street can bamboozle any obstacle by opening a floodgate of money and casting that sucker into a life of celebrity sin: who would decline the invitation to be on the Board of a global financial firm?

A senior investment professional had this to say: In Silicon Valley, they create real tangible output. But in Wall Street, they add no value to the economy - they are parasites. They live off others. They create nothing.


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Of course, not everyone is bad.
Just as every follower of Islam is not a terrorist.
Or every member of Congress is not a corrupt person.
Or every member of the BJP is not a radical right-winger.
Or every member of the Christian faith is not a crusader.
But, the many - or few in the case of Wall Street - get tainted by association.

Wall Street reigns since 1982.
Since the Reagan years in 1982 and the abolishment of the Glass-Steagall Act, the parasites have been let loose. And they have been feeding off the system.
Many have suggested that their partner in crime has been the Federal Reserve, the central bank of the USA.

When bad bets were made and speculation led to a collapsed stock market in October 1987, the Fed stepped in and bailed out the system.
In August, 1998, Long Term Capital Management - a nest of Nobel Laureates - made bad bets on the markets the Fed stepped in and rescued the large financial firms who were counterparties to these soured bets.
The Fed was stripped off its 'moral suasion': the ability to call any financial chieftain and say, "Hi, this is the Fed. I am watching you. Be careful."
Instead, the Fed created the famous 'Greenspan Put': the ability of the financial firms to call the Fed and say, "I have a problem. I need you to bail me out".

In 2007 when Bear Stearns went bust and in 2008 when Lehman went bust, the Fed stepped in again to save the world from economic collapse. The Greenspan Put is now part of the financial dictionary.

The theory that the Fed - and the economic schools funded by the financial firms - put out is that by saving a collapse, one is saving the economy. The poor little fella in small town America should head to church and pray for the good acts of the Fed.

The fact is that every save is actually a rescue of a way of life.
The gamblers gamble knowing that if the bets go bad, the Fed will step in.
They know because they own the system: they own the gatekeepers of the vault.

New York symbolises the state of the financial world which - rather than serve the world - needs to be serviced.
A person working in a typical Wall Street firm does not wake up every morning and ask the question: "What can I do to make my clients happy?"
The dominant question is: "What can I do today to milk the system? And if my client gets $%&^# in the process, so be it."

In capitalism, people work for their self-interest and, theoretically, are creating a product or a market which results in the profit that they deserve.
In crony capitalism, people are provided the tools to work for their self-interest.
Their contribution to society may be zero - or even negative - but their contribution to their private stash of wealth may be a lot.

The Fed is the fixer.
In a world where central banks outpace each other to help give the fix of cheap money to the financial parasites, the Fed is the uncrowned king.
It claims it is working for "full employment" and balancing that with "inflation targets".
That is all a fairy tale.
The Fed works for the interest of the financial firms.

And, so, on December 16th the world was waiting with bated breath for the predictable event that the Fed would raise interest rates by 0.25%.
It did.
Ho-hum.
It makes no difference.

Data from Pew shows that the number of poor in the USA has increased since the Lehman bankruptcy. Data from the housing costs of the rich show areas that prices are at record highs.
The Great Financial Theft has sealed the fate of the poor and the middle class and enriched the wealthy.

For those enthralled by the energy in New York, recognise that much of it is bad energy.
For those with friends and family who work in these financial firms - and many of their clones in India - recognise the sins they have committed and continue to commit.
It is not going to change in a hurry.
Or it may never change.
Either way, it does not make it right.

Tap me on my shoulder when you read that the Fed has let Wall Street go bust - and used its powers of money creation to create full employment on Main Street and high wage growth on Main Street.
Until then, we will focus on building a series of financial firms (Quantum Mutual Fund, Equitymaster, and PersonalFN) where we wake up every morning and ask the question: "What good can we do for our clients today"?
We will make errors of judgement; our advice may not always give the outcome we intended - but we will never build a business that is parasitic and sucks your wealth away.

Meanwhile, recognise that when the Fed speaks, it is the white man - or woman - speaking with a forked tongue.


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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is Founder of Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site.

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3 Responses to "The Fed has its empty say"

Shadiq

Jan 13, 2016

Expecting more article From Mr.Ajit, I like his way of telling truth in simple manner the way everyone understands. Last year there was less number of articles. Very less people consistently maintain honest it always reflects in his articles. Expecting more this year.

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Rama

Dec 18, 2015

"For those with friends and family who work in these financial firms - and many of their clones in India - recognise the sins they have committed and continue to commit". Lord Krishna calls Duryodhan and explains to him his wrongdoings.. Duryodhan says that he is aware of the sins commited by him but he does nt have the courage of not repeating it.... Pandavas on the other hand had the will power to desist frm the wrong doing. In todays world esp financial world people know they are doing the wrong thing and but they do not have the courage to desist from it..The financial rewards and consequential lifestyle are too tantalizing to desist looting. Love of God and fear of sin and righteousness is the only solution..

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Ramu Kennedy

Dec 18, 2015

Straight and to the point. No ambiguity. No confusion. Keep up the good work.

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