It's all the Fed's fault, right? They sat on their hands while everybody borrowed and lent up a storm. Neither Mr Greenspan nor Mr Bernanke ever acknowledged that there were any investment "bubbles" being created by their interest rate manipulation or their benign neglect of the commercial banks' shenanegans.
It's all the Office of Federal Housing Enterprise Oversight's (OFHEO) fault, right? They never said a word when Fannie and Freddie started to exceed their "brief" by buying mortgage backed paper issued by other financial entities in the late 1990s, or took huge positions in the derivatives markets to "insure" this paper, or let their "accounting practices" go to hell in a handbasket.
It's all the Office of Thrift Supervision's fault, right? They looked on with blind unconcern when IndyMac out in California started to wax fat on the Alt-A loans they were pushing out in huge dollops. The fact that these loans came to be called "liars loans" years ago didn't register with them, did it?
It's all the Federal Deposit Insurance Commission's (FDIC) fault, right? They stand in the "breach" with about $US 58 Billion in "insurance" to reassure Americans that the money they have deposited in the US banking system (up to $100,000 of it anyway) is safe. They don't care what the banks actually do with these deposits. Nor do they care that they have been laughably undercapitalised ever since their inception.
It's all the fault of the Congress, right? They went happily along with all the new economic and financial "paradigms" of the last 20 years. Deregulation? No problem. Globalisation? Sure, why not. And all the while they were watching all the regulatory agencies watching them with neither lifting a finger to put it anywhere near the gaping holes in the dike.
Or maybe it's the SEC's fault? Or the Treasury's fault. Nope, it's definitely the fault of the Ratings Agencies who gave out "AAA" ratings like green stamps and never met a subprime mortgage lender they didn't like. Until very recently, that is.
Obviously, there's nothing wrong with the SYSTEM. The only problem is that the people who were - and still are - in charge of the asylum were asleep at the switch. THEY NEED MORE POWERS AND THEY NEED TO USE ALL OF THEM!!
To quote a recent article in the New York Times - echoing a theme which has been running rampant through the US financial press for weeks - "...but whatever the number (the amount of losses chalked up by the credit crisis) is, it will also represent, in stunning red ink, the cost to society of financiers who are shortsighted and greedy and regulators who don't regulate."
It was the great lament of the people who ruled the USSR and the old Warsaw Pact nations in their declining years that their people simply refused to make Communism "work". What nobody dared mention, and what few dare mention to this day, is the simple fact that Communism CAN'T work and there is no way to make it work no matter how many May Day parades are held and no matter how many people are shipped off to the Gulags for "re-education".
Not much is necessary for a genuinely properous nation. Private property must be sacrosanct. Then you need free exchange, for which you need sound money first and foremost. After that you need a set of inviolable and unchanging LAWS designed specifically to protect individuals against force and/or fraud perpetrated by anyone - INCLUDING THE GOVERNMENT. For the latter, a well thought out Constitution is also necessary, a constitution laying down the laws which the GOVERNMENT must obey. That's about it.
The Communist nations never had any of these things, of course. The US once had all of them, to a degree which, while it was by no means perfect, was unequalled in history in its approach to genuine political liberty and economic freedom.
Sadly, today, the US and its citizens have nothing left of that glorious legacy. Private property is at the mercy of almost any government official at any time. There has been no genuine sound money in circulation for three generations. No law remains inviolable. For the latest example of this, please see the Mid July issue of The Privateer (Number 608 - Published on July 20). The Constitution has been trampled on to the point where it is starting be what it was before it was first composed, a mere piece of paper.
Whenever LAW is pushed aside, an avalanche of rules and "regulations" rushes in to fill the breach. These are by their nature arbitrary, malleable and can be changed/augmented/nullified at the whim of those who write them. They solve nothing. They are a "vital sign" of political, financial and ethical disintegration. Their purpose is to convince the credulous that the situation is "under control" because the regulators are busy regulating.
The recent outburst of righteous indignation directed against the US regulatory agencies is just another sign of the times. They are doing now just what they did when all the lovely investment bubbles were being blown up and everybody was getting rich on paper. The practices they are being condemned for now are the same practices they were being praised for then. The only difference is that these agencies have now hit the wall, they are no longer able to convince us that they are on top of the situation.
The simple problem is that no amount of "regulation" can preserve an economy or a financial system which has waxed fat on the creation of credit out of thin air once its ability to go on doing that no longer exists. And no amount of new rules or augmented powers can restore prosperity to a system which has long since abandoned all the necessary underpinnings for that prosperity to exist.
A regulatory agency cannot preserve individual freedom and liberty. Nor can it protect property. Nor can it be the defender of a sound money. That is not its function. A regulatory agency is set up to pretend that none of these things matter. It is set up as a smokescreen which is designed to reassure us while all the things necessary to preserve a prosperous and free economy are stripped away.
Pushing the blame at the regulatory agencies is merely the latest ploy in a desperate attempt to stave off any discussion of the issues that REALLY matter. It will not last any longer than any of the other ploys thus far employed in this task. The one genuinely encouraging sign is that there are not too many more "red herrings" left to be produced after this one.
We are closing in on the dawning of a debate on the REAL issues - the necessity of freedom and liberty, the protection of property, and the requirement of sound money in any economy that professes to function by means of genuine markets. Let us hope that this discussion is not delayed for too much longer. The longer it IS delayed, the more damage the "regulators" - at all levels right up to the Oval Office - are going to do.
(Chart appears here in original analysis.)
We have extended the table below into 2008, even though Gold in all four currencies in the table is now well above its 2006 highs. Gold breaking out to new all time highs in $US terms at the end of January led to bull market highs in all four currencies. And as you can see, in March, Gold improved upon those January levels in all four currencies as spot future Gold closed above the $US 1000 level for the first time ever in the middle of March.
This week, we have a new entry on the table for the first time since Gold topped the $US 1000 level in March. On July 17, Gold rose to 103233 Yen. That's a new 2008 high for the metal in terms of the Japanese currency.
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