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The Twilight of Casino Capitalism

Comes now news from across the pond that executives at one of the world’s most respected banks, Barclays, rigged Libor. Even the venerable Bank of England is apparently being investigated.

For sports fans, this is like fixing the Super Bowl or doping a horse in the Derby. But it is rather more serious. For the London Interbank Offered Rate is the benchmark interest rate for trillions in loans around the world.

Manipulate Libor a small fraction of a point, and lenders reap millions more in interest income on hundreds of billions in loans. How many more such blows to their credibility can the financial elites sustain before people turn on the capitalist system itself?

Recall. Three years into the Great Depression, the Republican Party–America’s Party since Abraham Lincoln’s time–was crushed by FDR. Socialist Norman Thomas won 900,000 votes in 1932. Communist William Z. Foster won more than 100,000. Charging “money-changers in the temple of our civilization” with moral culpability, FDR became the century’s most successful politician. Demagogic, perhaps, but in 1936 FDR would carry every state but Maine and Vermont.

In recent decades, a series of shocks has fertilized the ground for a populist assault on global capitalism. In Europe, radical parties of the right and left are rising–to overthrow the establishment center.

Manifest incompetence is but one cause of the sinking confidence in our financial elite. In the Latin American debt crisis of the 1980s, our idiot-bankers had to be bailed out with Brady bonds.

In 1995, one year after NAFTA passed, Mexico threatened to default. Goldman Sachs was bailed out of its huge Mexican exposure by a loyal alumnus, Treasury’s Robert Rubin, who dipped into the U.S. Exchange Stabilization Fund. Mexico devalued and began dumping winter vegetables into the United States, wiping out Florida producers, as U.S. plants moved south to exploit the newly cheapened Mexican labor.

In the Asian debt crisis of the 1990s, Rubin and Alan Greenspan led the bailouts. Asia’s nations devalued and began exporting heavily to the United States to earn the dollars to pay back their loans.

Who paid for that bailout?

U.S. workers who lost manufacturing jobs when cheap Asian goods poured into the U.S. market, forcing the closure of U.S. Factories. The Great Recession of 2008-2012, too, is the creation of a financial elite and political class who have largely escaped its consequences.

George W. Bush and Congress pushed banks to make home loans to individuals who were credit risks. Fannie Mae and Freddie Mac bought up the subprime mortgages and bundled them together into securities.

Big banks traded them like gilt-edged bonds. When the whole house of paper collapsed in 2008, the banks screamed: “We’re too big to fail. If we go down, the country goes down.” They were rescued. The Fed bought up the bad paper, tripled the money supply, and lent at near zero interest to the banks. Profits soared.

But Middle America was not rescued. Middle America has gone through four years of deprivation without precedent since the 1930s. But now something beyond the incompetence of the financial elite and the big banks may be putting capitalism in peril–an unmistakable odor of amorality, sleaziness and corruption.

With the “Robber Barons,” one could see a connection between the wealth of the Rockefellers, Harrimans, Carnegies and Henry Ford, and their contributions. Railroads were tying America together. Oil was fueling industry. America was surpassing Britain in steel production. Ford was putting the nation on wheels. When J.P. Morgan took to the floor of the New York Stock Exchange in 1907 to issue a buy order, he stopped a panic.

There was perceived to be a connection between the wealth of these men and their achievements. They were helping make America the most awesome industrial nation known to man. But as scholar William Quirk writes in his essay “Saving the Big Casino,” our big banks now seem to rise and fall on profits and losses from the trading of “derivatives,” “credit default swaps,” and “exotic securities” that not one man in a thousand understands.

Fortunes are lost and made overnight. Names appear on the list of richest Americans no one has ever heard of. Cheating and corner-cutting are constantly being unearthed. Broker- and banker-gamblers in their 30s amass and flaunt nine-figure fortunes.

Were the rest of America doing well, this might not matter. But America is not doing well. And Americans are coming to believe that a system where high-rollers rake in tens of millions playing Monopoly while workers who build things and make things never see a pay raise is rigged and wrong.

Few begrudge a Bill Gates his fortune. But where vast wealth accrues to people whose actions seem unrelated to any contribution to society or country, and to have come simply from rigging the system for their own benefit, that system will not endure. Our casino capitalists are playing with fire.

Patrick J. Buchanan is a founding editor of TAC and the author of “Suicide of a Superpower: Will America Survive to 2025? [1]” Copyright 2012 Creators.com [2]

11 Comments (Open | Close)

11 Comments To "The Twilight of Casino Capitalism"

#1 Comment By scott On July 10, 2012 @ 1:43 am

Excellent article Pat! As usual your right on the “money”.

#2 Comment By David Peterson On July 10, 2012 @ 8:51 am

As usual, Pat has an excellent write up on the LIBOR scandal, showing that the American and British economies have become a type of “Ponzi scheme.” An insiders clique in London and on Wall St. devises schemes to LOOT the wealth of the productive parts of the economy. This is the unfortunate legacy of adopting F. A. Hayek’s economic theories over the last 30 years. The Hayek or Austrian model openly adopts the social theory of Ayn Rand — the ideal society is based on “the virtue of selfishness” or what Plato calls the rule of the strong over the weak and humble.

#3 Comment By daddysteve On July 10, 2012 @ 2:18 pm

There is NOTHING “Austrian” about “too big to fail” or “crony-capitalism”.

#4 Comment By Owlishish On July 10, 2012 @ 3:07 pm

Won’t put up with it? What can people possibly do it stop it?

#5 Comment By Keith J. Kelly On July 10, 2012 @ 9:27 pm

Interesting article, but I have to go now and watch “Dancing with the Has-beens” and listen to Howard Stearn and Rush Limbaugh, and see if I have enough time left over to watch Nancy Grace’s show. If there’s nothing on TV on election day, I may even go out and vote, especially if it doesn’t rain.

#6 Comment By Jim Evans On July 11, 2012 @ 2:33 am

What can people do to stop it?

Elect state attorney generals who will indict for a crime (if evidence exists for the crime) and go to trial and if there is a conviction recommend sending them to jail for a long time.

Call your congressmen and senators and urge the represenitive to hold hearings and seek prosecution for crimes.

Elect a president who will appoint an attorney general who will prosecute and convict and recommend prison time.

Remember, these are abuses of the free enterprise system or capitalism.

Anybody who wants to throw the baby out with the bathwater is wrong. Socialism doesn’t work.

But abuses must be prosecuted and punished.

It’s called crime and punishment.

Abuses make people susceptible to socialist clap-trap.

Also, Mr. Buchanan is right: The overt financialization of the American economy is not working for the bulk of the American People (if you include declining wages as well as unemployment).

Also, keep in mind the innocent that are among the guilty.

Not all bankers are greedy… just most of them at the “too big to fail” banks and investment houses.

Maybe, if these bankers see one of their own swinging from a tree, dancing on air, they will get the message.

(That last statement is a political exageration, I don’t support vigilantism, but if there is anybody who deserves “rough justice”, it is the corrupt bankers — you know who you are… and so do we…)

#7 Comment By John Engelman On July 11, 2012 @ 9:37 am

America needs a second Roosevelt. Instead, we have our first affirmative action president. Good intentions are not good enough. Competence matters.

#8 Comment By O.L. Johnson On July 11, 2012 @ 9:56 am

Not to worry. We’re about to elect a Casino Capitalist to the highest office in the land, who will keep the spigots open for a few more years.

#9 Comment By Raymond Billy On July 11, 2012 @ 11:22 am

Right on!

#10 Comment By KXB On July 11, 2012 @ 2:58 pm

“Instead, we have our first affirmative action president. ”

I thought that was Dubya – the cheerleader, C-student who got into Harvard B-school despite a number of DUIs?

#11 Comment By Ben, Okla. City On July 11, 2012 @ 3:36 pm

They don’t call it the London Fix for nothing.