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Financial Elite’s Behaviour Has Opened Floodgates for Gold

Commodities / Gold and Silver 2010 Jan 26, 2010 - 05:06 AM GMT

By: Lorimer_Wilson

Commodities

Best Financial Markets Analysis ArticleIn spite of philosophical differences in many areas of politics and economics, Ron Paul and Simon Johnson agree that the cosiness that exists between the U. S. Congress and the financial elite has not worked, and is not working, in the best interest of the average American. They both suggest that major changes must be made in that relationship to strengthen the American economy. Is it too late, however, to avoid the repercussions of an even weaker greenback, rising inflation and the opening of the floodgates in the price of all investments related to gold and silver?


"When Treasury Secretary Tim Geithner was Chairman of the New York Federal Reserve, he urged AIG officials not to disclose to the

Securities Exchange Commission relevant details of agreements with banks to bail out Goldman Sachs. Apparently he felt at the time that regulators and the public would be angry that taxpayer money was used to fully compensate bankers who made some horrifically bad investment decisions. These banks should have suffered the consequences of the huge risks they were taking. After all, they kept plenty of rewards when times were good. Instead, the Fed found a way to socialize these major losses so these banks could survive and continue making more bad decisions, at the expense of the American people and the value of the dollar." So says Dr. Ron Paul in a recent article entitled 'Why the Fed Likes Independence'.

Paul's comments are a perfect follow-up to earlier comments by Simon Johnson in his article entitled "The Quiet Coup" in which he said that the finance industry had effectively captured our government going on to say:

Financial Oligarchy Remains Unchallenged

"America is in financial crisis but instead of the financial oligarchy being broken up to permit essential reform they are continuing to use their influence to prevent precisely the sorts of reforms that are needed. Unfortunately, our legislators seem unwilling to act against these powerful financiers opting instead to succumb to their power and influence and continue to give them what they deem to be in their best interest instead of that of the taxpayers’.

All this is happening because of the false belief by all concerned that large financial institutions and free-flowing capital markets are crucial to America’s position in the world and that whatever the banks say is true, and what they want is necessary. The government’s velvet-glove approach with the banks is deeply troubling, for one simple reason: it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change. There is no better time to take such action than now but it is evident that reform is but a pipe dream. America’s financial oligarchy is still in control and, as such, the long-term consequences will be dire!"

Powerful Elite Protecting Their Own

Paul reports that "Geithner claims he had to take such politically unpopular actions to save the economy from collapse. Half of that is right - it was politically unpopular, but it is extremely premature at best, to claim the economy has been saved...It is hard to argue that this sort of government waste has done anything but harm to our economy. Raiding Main Street to bail out Wall Street is a foolish idea."

Johnson goes further saying that "typically countries in crisis are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks. That certainly is the case with the powerful elites - the financial oligarchy - in America...they (the American financial industry) gained political power over the years by amassing a kind of cultural capital, a belief system in which Washington insiders believe that large financial institutions and free-flowing capital markets are crucial to America’s position in the world … and always and utterly convinced that whatever the banks said was true."

Lack of Transparency Troubling

Paul makes the point that Geithner's revelation shows the need for Fed transparency and that "their claim that they should have "independence" is a canard. They very much enjoy their comfortable pattern of bailing out friends and devaluing the currency with no oversight and no accountability. Geithner specifically asked officials at AIG not to disclose to the SEC or to the public particulars about this special deal for his friends. We only know these details now because AIG was eventually forthcoming when Congress demanded some answers."

Paul's views only confirm Johnson's who put forth that "When the crisis first began the government was slow to react and then did so with a lack of transparency, and an unwillingness to upset the financial sector. The response so far is perhaps best described as “policy by deal” in that when a major financial institution got into trouble, the Treasury Department and the Federal Reserve engineered a one-of bailout and then announced that everything is fine without stating what combination of interests were being served, and how. This was late-night, backroom dealing, pure and simple."

Congress Should be More Responsible

Paul concludes that "We should be getting information on all such dealings straight from the Fed. The Fed should be accountable to Congress because it is a creature of Congress. The Constitution gives Congress the authority to oversee the integrity of the monetary unit.

We have unwisely and unconstitutionally delegated this authority to the Federal Reserve, which has in turn devalued our dollar by 95 percent and counting. When the Federal Reserve engages in harmful policies, Congress is still ultimately responsible. If the Fed is not made accountable through a GAO audit at least, it will continue to be accountable to no one, and that is unacceptable."

Unfortunately, as Johnson sees it "Regulators, legislators, and academics almost all assumed that the managers of these banks knew what they were doing. In retrospect, they didn’t. As more and more of the rich made their money in finance, the cult of finance seeped into the culture at large. In a society that celebrates the idea of making money, it was easy to infer that the interests of the financial sector were the same as the interests of the country and that the winners in the financial sector knew better what was good for America than did the career civil servants in Washington. Faith in free financial markets grew into conventional wisdom—trumpeted on the editorial pages of The

Wall Street Journal and on the floor of Congress.

Throughout the crisis, the government has taken extreme care not to upset the interests of the financial institutions, or to question the basic outlines of the system that got us here. This velvet-glove approach is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change."

What Will Financial Elite's Behaviour Mean for Your Investments?

The major bailouts to the banks and the following major stimulus spending will further destroy the strength of the U. S. dollar and cause significant inflation. That in turn will be favorable for the future price of gold and silver, more favorable for those companies that mine such precious metals, even more so for the few gold and silver royalty companies that exist and, in particular, those that have long term warrants.

We may not like what has happened, and still is happening, with the behavior of our politicians and the country's financial elite but we can, and should, prepare now for the financial rewards their actions (and inaction) will bring our way. Just prepare for the inevitable, be patient as it unfolds and then enjoy your new found prosperity.

Lorimer Wilson is Editor of www.FinancialArticleSummariesToday.com (F.A.S.T.) and www.MunKnee.com (Money, Monnee, Munknee!) and an economic analyst and financial writer. He is also a frequent contributor to this site and can be reached at editor@munknee.com."

© 2010 Copyright Lorimer Wilson- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Lorimer Wilson Archive

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