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On Rick Santelli’s Misguided Anger

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Rick Santelli, in a recent “Santelli Exchange” on CNBC (link to video by way of Zerohedge: http://www.zerohedge.com/news/epic-santelli-rant-un-american-federal-reservetreasury-incompetence) offers his outrage over the recent LIBOR scandal and the possibility that The Federal Reserve Bank and The Bank of England had some foreknowledge that there were problems and possible skulduggery in the setting of one of the most important interest rates on the planet.


For the uninitiated, LIBOR stands for the London Interbank Offered Rate. It's a benchmark rate that is determined by several major banks in London which is, in turn, used to establish the level of interest that they would be charged if they were borrowing money from other banks. It has a dramatic impact on the global economy in that it can affect how much you pay in interest on everyday things like mortgages, car loans, credit cards, etc.


Mr. Santelli goes on to tell us of his outrage (righteously so) over the lack of due diligence on the part of the Fed regarding the handling of the $1 trillion in TARP (Troubled Asset Relief Program) funding that was used to bail out Wall Street.


While this is all well and good, there are a few things that Mr. Santelli is either unaware of or neglecting to tell us.


The first is that the Federal Reserve Bank of the United States is a private bank. It is not part of the Federal Government. As the old joke goes, it’s as Federal as FedEx.


The second is that Mr. Jamie Dimon, CEO of JP Morgan Chase, sits on the board of directors of the NY branch of the Fed. Mr. Dimon’s bank has received billions of dollars in virtually free taxpayer money, money that he was free to do anything he wanted with (how this is not a conflict of interest defies human comprehension). It has become obvious that the thing that Mr. Dimon wanted to do with this money was to continue speculating (i.e. gambling) in the unregulated and opaque $700 trillion global derivatives market. JP Morgan Chase, a FDIC (i.e. taxpayer) guaranteed institution, has reportedly lost almost $6 billion dollars gambling, sorry, I mean “speculating” in the derivatives market.


The third concern with Mr. Santelli’s discourse is his sums. The Fed has not given $1 trillion to Wall Street. It has given $16 trillion to Wall Street.  It has been estimated that every sub-prime mortgage in America could have been bought and retired for $1.4 trillion. But that would have been “Socialism.” Much better to give over 11 times as much money to Wall Street – the very people who engineered this crisis - free and no questions asked to do as they like. Or as it’s better known in America, “Capitalism.”


The fact that Mr. Santelli, who works for a financial news network, would be shocked that the Fed, a private bank that has Jamie Dimon as one of its Board of Directors, would carelessly give an almost infinite amount of money unconditionally to other private banks is pretty galling.

 

Mr. Santelli then goes on to wonder why the media is not doing its job and is not more upset over all of this “injustice.” This is pretty rich even for someone who works at CNBC.


 He complains how the press is more concerned with trivial matters and not the big stories. He laments how the main stream media covered stories on Mitt Romney’s jet skiing on a recent holiday and his record of off-shoring and outsourcing American jobs while at Bain Capital, and how the media reported these activities as “un-American.”  Mr. Santelli, in Mitt Romney’s defense, screamed, “Like hell it’s un-American!”


I agree with you Mr. Santelli. Nothing says “I love America” more than destroying the Middle Class by permanently sending good high paying jobs overseas.


Mr. Santelli then goes on to tell us exactly what he does think is “un-American.” Bank regulation, primarily in the form of the Dodd-Frank Act.

 

So are we to believe that the reason we are in this crisis is because we didn’t deregulate banks fast enough? Did Mr. Santelli forget that under the Glass- Steagall act, the U.S. went almost 60 years without a major banking crisis?

 

There is an incoherence to Mr. Santelli’s arguments in that on the one hand he is crying about how the Government didn’t do a good job of oversight (even though it was the Fed, a private bank which is not part of the Government, that gave all that money no questions asked to Wall Street). On the other hand he is crying about how it’s wrong that the Government is trying to do its job of oversight by regulating the banks.


And what’s worse, by many accounts, Dodd-Frank does nothing to get to the heart of the problem. Banks, which are insured by the FDIC,  have become far too big for their own good, and they are engaging in far too much speculation in the unregulated derivatives market.


It is only a matter of time before financial markets will collapse again. It is, by their very nature, what financial markets do. Mr. Santelli is right to be angry. But he should be directing his anger where it is warranted.

 

Sources

http://www.newyorkfed.org/aboutthefed/org_nydirectors.html

http://en.wikipedia.org/wiki/Libor

http://www.guardian.co.uk/business/2012/jul/13/jp-morgan-doubles-reported-loss

http://www.sanders.senate.gov/newsroom/news/?id=9e2a4ea8-6e73-4be2-a753-62060dcbb3c3

http://www.rollingstone.com/politics/blogs/taibblog/one-last-note-on-michael-bloomberg-20111105

Discussion 2 Comments

  • Gregory VanGaya 19th Jul 2012

    Are you something of a financial markets junky too? I saw this as well. I just roll my eyes. I can hardly be bothered anymore, especially when these guys have no idea the real definitions of socialism, libertarian, or even Austrian, which they bandy about like they're the only ones who have any right to bestow light upon the topics.
    I've been thinking, that there is a significant potential opportunity. To start a financial blog that takes an earnest look at how to invest but from a marxist analytical position... Then use the readership to start a parecon (Federated Par Co-ops) investment fund. Baby boomers are roiling wondering what to do for their retirement. If we built significant on the ground productivity, especially networked productivity where we could become our own bond clearing house (credit union perhaps, the elections are fairly easy to win) then we could offer competitive (%5 - %8 return), but truly feel good investing. We could potentially pay out investors in the Participatory Federation's products as well, so that we are creating velocity of exchange in our own network, without drowning Remuneration on Effort and Sacrifice in the expectations of capital.
    Whadya think? Would your write for such a blog?

    • Tom McNamara 19th Jul 2012

      Dear Gregory,

      I have to be honest. I’m more of a “truth” junky than a financial junky, in that whenever I hear the same tired narrative or false left / right paradigm nonsense, I feel the need to speak up. That said, I am interested in any and all things that have to do with politics and economics.

      I appreciate the invitation but I’m not sure if I’m qualified, or competent, to blog from a “Marxist analytical position.” I find that the older I get the less comfortable I am with ideologies, schools of thought, points of view, power systems and power structures. Again, I just like to talk about what I think feels “true” to me (and can be backed up by verifiable facts and data). But I love to engage people in an informed debate / discussion over their thoughts, ideas and opinions.

      I think your ideas are intriguing and sound like they could be realized (with enough time, effort and support, like everything else in life).

      It’s obvious to any rational human being that the system that we have now isn’t working (well, it’s working for the top 0.01% of society but that’s about it). Your ideas sound like they would be a vast improvement over what we have now.

      If I can be of help please let me know.

      Cheers

      Tom