Team
Obama pulled a cute one last week nominating Blythe Masters, JP Morgan’s
commodity chief, to an advisory committee of the Commodity Futures Trading
Commission (CFTC) which supposedly regulates activities on the paper trades
in corn, pork bellies, cocoa, coffee, wheat, corn — oh, and gold, too, by the
way, in which JP Morgan has been suspected of massive gold (and silver)
market manipulations and other misconduct lately. That would include the 2011
MF Global Fiasco in which nearly a billion dollars from “segregated” customer
accounts somehow ended up parked over at JP Morgan as a result of bad
derivative bets on tanking Eurozone bonds. MF Global, primarily a commodities
trading brokerage, was liquidated in 2011. The CFTC never issued referrals
for prosecution to the Department of Justice in the matter and, of course, MF
Global’s notorious CEO, Jon Corzine remains at large, enjoying caramel flan
lattes in the Hamptons to this day. Such are the Teflon transactions of the
Obama years: nothing sticks.
There
was such a Twitter storm over Blythe Masters that she withdrew from consideration
for the committee before the day was out.
JP
Morgan is one of the specially privileged “primary dealer” banks said to be
systemically indispensible to world finance. Supposedly, if one of them is
allowed to flop, the whole global matrix of global debt obligations — and,
hence, global money — would dissolve in a misty cloud of broken promises.
They are primary dealers to their shadow partner, the Federal Reserve, and
their main job in that relationship is buying treasury bonds, bills, and notes
from the US government and then “selling” them to the Fed (earning
commissions on the sales, of course). The Fed, in turn, “lends” billions of
dollars at zero interest back to the primary dealers who then park the
“borrowed” money in accounts at the Fed at a higher interest rate. This is,
of course, money for nothing, and even small interest rate differentials add
up to tidy profits when the volumes on deposit are so massive.
This “carry trade” was started because the primary dealer banks were functionally
insolvent after 2008 and needed to build “reserves” up to some level that
would putatively render them sound. But that was a sketchy concept anyway
since accounting standards had been officially abandoned in 2009 when the
Financial Accounting Standards Board (FASB) declared that banks could report
the stuff on their books at any value they felt like. In short, the soundness
of the biggest banks in the USA could no longer be determined, period. They
were beyond accounting as they were beyond the law. At the same time, the
banks began the operations of shifting all the janky debt paper, mostly
mortgages and derivative instruments (i.e. made-up shit like “CDOs squared”),
value unknown, from their vaults to the a vaults of the Federal Reserve,
where it resides to this day, rotting away like so much forgotten ground
round in the sub-basement of an abandoned warehouse of a bankrupt burger
chain.
All of these nearly incomprehensible shenanigans have been going on because
debt all over the world can’t be repaid. The world’s economy, as constructed
emergently over the decades, can’t function without repayable debt, which is
the essence of “credit” — the fundamental trust implicit in banking. You have
“credit” because other persons or parties believe in your ability to repay.
After a while, this becomes a mere convention in millions of transactions.
What’s happened is that the conventions remain in place but the trust is
gone. It’s gone in particular among the parties deemed too big to fail.
Everybody knows this now and everybody is trying desperately to work around
it, led by the Federal Reserve. Trust is gone and credit is going and debt is
sitting between a rock and a hard place with its grubby hands pressed
together, praying that it will be forgiven, forgotten, or overlooked a little
while longer. By the way, the reason trust and credit are gone is because oil
is no longer cheap and world economies can’t grow anymore. They can’t afford
to run the day-to-day operations of a techno-industrial society. They can
only pretend to afford it. The stock markets are mere scorecards for players
who can only lie and cheat now to keep the game going. Somewhere beyond all
the legerdemain and fraud, however, there remains a real world that is not going
away. We just don’t know what it will look like when the smog of fraud
clears."
