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Thursday, June 14, 2012

Institutionalized Stupidity

How do you solve an economic problem with two intractable and institutionally stupid political parties?

Not one word of financial sense has come out of the mouths of either Obama or Romney this entire election season.

Not one word.

All you hear from Obama is spending proposals, all you hear from Romney is tax cuts for the wealthy.

We get exactly what we deserve.

What should they say?

Well, until we re-enact Glass Steagall, wherein the banking industry and the hedge fund/gambling industry are separated, we are indeed just arguing about the color of the cushions on the deck chairs of the Titanic.


Because the Banks have to return to the business of business lending.  Currently they have no incentive to engage in this business that only returns 4-5 percent on capital if done properly.

Right now, why should they commit any capital to such a small return, when they can try to make 40 or 50 percent or 400-500 percent by sheer gambling?  And when they lose, they know they will be bailed out by the Fed anyway.

Until they return to the business of business lending from the business of sheer gambling, they will continue to suck capital out of the economy, instead of directing capital to productive purposes.

Until this happens, nothing we do will make any difference at all.  Not tax cuts, not spending, not investment in infrastructure, not smarter regulations, not investment in energy, not nothing.

Not even at the edges.

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