PrintJune 8, 2009
A Revised Government Economic Glossary
Can we all agree to add these alternate usages to our government's economic glossary?
help vt : hurt
stimulus n : suppression
jumpstart vt : jinx (syn see jolt)
But how about bank n : black hole ?
Old-timers among us may have a dim memory of what the word "bank" used to mean. A bank was essentially a guardian of its depositors' money, and it also served as an intermediary, lending depositor's savings out to borrowers. A bank considered it vital to do two basic things: (1) stay solvent (by controlling costs and not making many bad loans) and (2) avoid a "bank run" (by always being able to pay its current obligations). The bank unable to do both these things could and did fail, its customers fleeing, or wishing they had fled, to more competent competitors. On the other hand, banks that always did both these things stayed in business and never needed government "help." A salutary fear of failure necessarily haunted every bank and guided the behavior of most. Even a hint of vulnerability might require a bank to fight for its life like a food processing plant suspected of selling a contaminated product.
In pre-New Deal days, depositors would have viewed a government guarantee of a bank's deposits as alarming. "Why do they need a guarantee?" A guarantee might itself have started a run in those benighted times. Of course, in today's context of hilariously low fractional reserve requirements, virtually every bank is a potential bankrupt -- a collapse waiting to happen. It desperately needs deposit guarantees and without them would vanish in an instant. Our Federal government is in charge of "soundness."
In days of yore, banks proudly safeguarded deposits. Bank buildings used to look like enormous vaults, their architects consciously projecting a concern for security. Nowadays, safety is supposed to be a non-issue and, for that matter, what need is there to safeguard an "asset" that is virtually costless to replace? For many decades, far from worrying how to protect depositors, banks instead have put depositor money at risk in a colossal scheme of credit expansion and currency depreciation under the direction of the Federal Reserve Board.
Modern "banks" are little more than expenditure facilitators and loan retailers who process paperwork in compliance with "Fed policy." Their most important role, certainly in the eyes of a modern Treasury Secretary or Fed Chairman, is as government-guided money creators and disseminators-- front-line implementers of the "macroeconomy." Each bank has only to do its part in creating a politically appealing appearance of prosperity, in perfecting a pervasive illusion of profits, and, not least, in securing a significant stream of tax revenues.
Modern "banks" are little more than expenditure facilitators and loan retailers who process paperwork in compliance with "Fed policy." Their most important role, certainly in the eyes of a modern Treasury Secretary or Fed Chairman, is as government-guided money creators and disseminators-- front-line implementers of the "macroeconomy." Each bank has only to do its part in creating a politically appealing appearance of prosperity, in perfecting a pervasive illusion of profits, and, not least, in securing a significant stream of tax revenues.
The irony is that decades of government bank regulation, bailouts, guarantees and loans of last resort -- all billed as support and protection -- actually have sabotaged the health of banks qua banks. They have turned what could have remained independent, sound financial intermediaries into creatures of government-bureaucratic appendages. In effect, they have destroyed real banks, leaving only pathetic purveyors of fiat money.
As he answered questions after his recent congressional testimony, Fed Chairman Ben Bernanke, our Minister of Liquidity, repeated the line that seems to leave congressmen (and financial journalists) in silent awe, namely, that in reaction to the current crisis, the government chose "not to stand aside and let the system collapse." This "system" is no longer, of course, one of independent financial intermediaries dealing honorably with their own solvency and reputations, but instead is a network of obedient, dependent cogs in a vast machine of credit expansion serving political goals. He also noted, quite routinely, that the Fed's "Term Asset-Backed Loan Facility" (TALF) is "a market backstop" or, to translate:
market backstop n : a bailout of financial institutions who are horrified at the prospect of dealing with actual market prices for their assets, and whose depositors have long since expected never to be subject to the judgment of markets
Finally, he reminded us that the aim of the 2009 "American Recovery and Reinvestment Act" is to strengthen "economic activity." An objective reader of that law will interpret this as meaning the Federal Reserve Chairman considers economic activity thusly:
economic activity n : welfare payments and pork-barrel projects in the midst of private sector economic stagnation
So get ready, healthcare industry! Prepare yourselves, baby boom retirees! Beware, consumers of fuel! Fear the government whether it uses the tactics of the Mafia (R.I.P., General Motors) or the social worker (TARP banks). And one more entry:
American economy n : a large aquarium whose water, having become heavily poisoned during the 20th century, finds its temperature dropping sharply at the start of the 21st.
Mikiel de Bary works in the financial services industry and is a freelance observer of macroeconomics in contemporary society.
