The Financial Takeover of America

Peter St.Onge of The Brownstone Institute has recently discussed the financial crisis that has gripped the United States. He draws attention to a warning given by Simon Johnson, former chief economist of the IMF, following the 2008 Financial Crisis. Johnson had pointed out that the same policies causing economic instability in less developed countries were now prevalent in the US. He predicted a "Quiet Coup" where the American financial system would take control of the government, continuously bailing itself out until the country was out of money.

The Deteriorating Financial System

St.Onge highlights the trillions of dollars of distress in the financial system, with taxpayers expected to foot the bill for bailouts, as seen in the 2023 bank bailouts. With the national debt currently at $35 trillion, the country can't afford these bailouts, but they will be paid nonetheless, pushing the national debt to over $50 trillion according to the Congressional Budget Office. The options are either a hard default, where interest payments are halted, or a soft default, where inflation is allowed to skyrocket, eroding the national debt and people's life savings. This scenario would also lead to the exploitation of the middle and working classes who depend on these institutions for employment.

Disregarded Warnings

St.Onge refers back to the warning given by Simon Johnson. Although critical of the IMF's role in supporting dictatorial regimes at the expense of taxpayers, St.Onge acknowledges that the IMF is well-versed in identifying dysfunctional governments. Johnson had outlined the usual pattern when countries reach the point of economic collapse and seek help from the IMF. A small, powerful elite group, often the financial elite or large corporations, takes over policy. Knowing they will be bailed out, these elites take excessive risks, expecting high rewards.

The Silent Takeover

St.Onge quotes Johnson's figures: from 1973 to 1985, the financial sector in America never earned more than 16% of the domestic corporate product. However, by the early 2000s, it had increased to 41%. A significant portion of these profits was used for lobbying, resulting in the repeal of regulations that separated banking and investment banking. This allowed banks to gamble with taxpayer-guaranteed funds. The financial sector also lobbied to increase leverage, allowing them to make larger bets with less money, again backed by taxpayers. This led to the 2008 crisis, where banks made risky loans to individuals with no income, assets, or credit. When the situation deteriorated, lobbyists were deployed to secure bailouts, using the real economy as a bargaining chip to secure more favors.

The Washington-Wall Street Scheme

In return for their support, politicians and their staff were offered lucrative positions or even bribes. For example, Ben Bernanke received $250,000 for a single speech at a financial conference. Janet Yellen was paid $7 million in speaking fees by Goldman Sachs and other Wall Street banks. Johnson concludes that the American financial system is critically ill, surviving only through a series of bailouts. He suggests the only solution is to force banks to recognize their losses, which would bankrupt them, and then sell them to new management without access to bailouts.

What Lies Ahead

Given the lobbying power of the banks, it is unlikely that America's megabanks will be broken up. Unless Washington takes action to control the banks, the country can expect more financial crises, bailouts, and national debt, leading to a financial catastrophe. The opportunity to take action was missed in 2008, and it will probably take a more significant crisis before politicians turn against their lobbyists and the financial takeover of the republic.

Bottom Line

This analysis paints a grim picture of the American financial system, suggesting that it is on the brink of a major crisis. The power of financial elites and their influence on policy, combined with a lack of regulation and accountability, could lead to a financial catastrophe. What do you think about this situation? Is it time for drastic action to be taken to prevent a financial meltdown? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, available every day at 6pm.