Big Banks | timiacono.com

The IMF’s latest report on slowing growth in the global economy makes it easy for a skeptical reader to connect a few dots regarding the latest round of central bank sponsored malinvestment in general (a word that clearly doesn’t exist in the modern economists’ lexicon) and the shale oil boom/bust cycle in particular.

From this Reuters story we get the following summary about what’s ailing the world::

“New factors supporting growth, lower oil prices, but also depreciation of euro and yen, are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries,” Olivier Blanchard, the IMF’s chief economist, said in a statement.

The IMF advised advanced economies to maintain accommodative monetary policies to avoid increasing real interest rates as cheaper oil heightens the risk of deflation.

If policy rates could not be reduced further, the IMF recommended pursuing an accommodative policy “through other means”.

Left unsaid was that cheap money gushing from the Federal Reserve in Washington and big banks on Wall Street was a major factor driving the shale oil boom that played a key role in recently plunging energy prices that, now, are raising the specter of world wide deflation that – you guessed it – should be countered by even more cheap money.

Vicious cycle anyone?

It seems former Bank of England governor Mervyn King is on to something in this report at the Telegraph when he notes the following:

We have had the biggest monetary stimulus that the world has ever seen … The idea that monetary stimulus after six years is the answer doesn’t seem (right) to me.

Why is it that central bankers suddenly seem to make much more sense when they are no longer central bankers? King joins suddenly lucid former Fed Chief Alan Greenspan who has recently been famously fond of a barbarous relic and makes you wonder where the heck central bankers still employed by central banks are steering the ship.

History Doesn’t Repeat, But it Often Rhymes

Via this item at Dealbook comes the graphic below that goes a long way in explaining how cheap money from the Fed and reckless lending by big Wall Street banks has teed up another asset bubble that now appears to be in the early stages of bursting.

Then again, this bubble may prove resilient and it might be a completely different asset bubble that ends up bursting (that’s the thing about asset bubbles – you can’t really spot them in real time). But, one thing seems certain – it won’t be too much longer until we’re in the bust phase of the boom-bust cycle and we’re lamenting how we got there.

A more sanguine view can be found in the Dealbook story:

Tumbling oil prices are dimming one of the few big bright spots that banks have enjoyed since the financial crisis.

Banks have been lending hand over fist to companies in the nation’s energy industry, underwriting bonds, advising on mergers…

At least this time around, we’ll probably be spared of any references to “the Fed’s mopping up strategy” as that early-2000’s characterization of the central bank’s handling of asset bubbles (popularized by former Fed Chief Alan Greenspan) seems to have fallen out of favor.

And … the Big Banks Win Again

Senator Elizabeth Warren (D-MA) details the ongoing, outsized influence that big Wall Street banks have on the Washington D.C. sausage factory as another last-minute provision favoring said big banks is inserted into a “must-pass” spending bill last week.

Also see Matt Taibbi’s take on the further dilution of the Dodd-Frank financial market reform (a.k.a. the “Citigroup provision”) and Ms. Warren at Rolling Stone.

Elizabeth Warren on Banks and Student Loans

From just last week, watch Senator Elizabeth Warren (D-MA) grill Consumer Bankers Association CEO Richard Hunt on the slow progress being made by commercial banks to allow the discharge of student loan debt that was co-signed by parents or grandparents of children or grandchildren whose lives were cut short.

You have to wonder how long it will take for the culture and practices of Washington D.C. to wear down Ms. Warren. Most of what she advocates is simply common sense, however, most of this common sense runs counter to the vested interests of powerful forces that remain firmly in control of what goes on in the nation’s capital.

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