Lies, The New Foundation of the Financial System

By: Bill_Bonner

Lies, lies, lies…

The days are dwindling down fast now. There are only a precious few left in 2010. The Dow rose 40 points on Friday. Gold fell off $7.

But let’s forget the market action for a little while…most of it is noise anyway.

It is time to relax a little. Time to think.

“Everybody is so busy now,” said a colleague in Australia. “No one has time to think. Instead, we’re busy answering our email or checking our Blackberries. It’s amazing. You get in an elevator and everyone pulls out a phone. No one talks anymore. Or looks at anyone. Or has a thought.

“I don’t even think we writers bother to think anymore. We’re too busy. We have to produce too much material. We don’t really have anything to say…but we say a lot.”

Of course, that’s been true at The Daily Reckoning for years. We were always ahead of the trend. We write every day, whether we have something to say or not.

Do we have something to say today? To tell you the truth, we don’t know yet. But let’s begin by thinking about this…a quote from The Daily Bell we passed along on Friday:

“The problem with where America is now is that the country has been built on one lie after another for the past decade and the lies show no signs of slowing down.”

And then, there’s this from Charles Hugh Smith via Marc Faber:

“…the status quo would collapse were systemic fraud and complicity banished. Rather than the acts of evil conspirators, they have become the foundation of the US economy and financial system…”

You will recall how Goldman Sachs wowed the whole world with its dazzling trading. Day in, day out…the traders at Goldman made money. The firm turned in “perfect” trading quarters, with not a single day showing a loss.

Surely, one of the junior traders would have miscalculated at least once? Or a seasoned old pro, after a well-irrigated lunch, take his fat finger and hit the wrong button? Nope. Not once did Goldman’s trading machine err. It was uncanny. Almost unnatural.

Who was on the other side of those trades, we wondered? Trading is a zero sum game. One side wins. The other loses. So some poor schmuck must have taken a loss for every gain earned by Goldman’s geniuses. Imagine him taking his lumps day after day…and still coming back for more. How could anyone stand so many losses? What kind of fighter could take that kind of beating and still be on his feet? And yet, there were no major new bankruptcies announced during that period. How was it possible? Who was losing all that money?

We don’t know. But we know who the schmuck was …the poor sap was us! Had it not been for Senator Bernie Sanders from the Green Mountain State, who was curious enough to insist, we would never have known what had happened to the Fed’s $1.3 trillion in bailout cash. Now we know. Goldman helped itself 212 times – roughly every business day – during the 12-month period beginning in March ’09, all the while telling the world that it needed no bailout.

Lies, lies, lies…

The first lie was the biggest whopper of all – that you could get rich by spending money rather than saving it.

The second was that the stock market would make you rich. All you had to do was to buy a well-balanced portfolio and hold for the long run.

When that one ran into a wall, along came the lie that you couldn’t lose money in real estate.

There was also the lie that the free market would make people rich…and if it didn’t, the authorities would force it to do so!

Then there was the lie that an economy saturated in debt could be stimulated to heights of prosperity by splashing on more debt.

And then there was the lie that you didn’t need real money in the system; the authorities could manage a flexible, paper money system so as to help maintain full employment.

And then, after half a century of adding cash and credit, when the Wall Street speculators cried and moaned, we were told that they were “too big to fail.” They needed to be saved.

Then came the lie that monetary and fiscal stimulus would lead to “recovery.”

When recovery didn’t come, we were told that QEI would do the trick – so they pumped hundreds of billions of dollars into Wall Street’s failed institutions. When it didn’t work, we got QEII.

And now, the federal government is headed to bankruptcy. We are told not to worry. No need to change course. Tax. Spend. Overspend. Stimulate.

The same goofballs, liars and incompetents who have brought us this far say they’ll take care of us.

Which is what we’re worried about.

Bill Bonner
The Daily Reckoning

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).

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