Capital is being allocated to failed, insolvent, and poorly run businesses on Wall Street because they are politically connected in Washington and at the Federal Reserve.... the real Axis of Evil threatening our freedoms is right here in America!


The Real Axis of Evil: Washington, the Fed, and Wall Street

by Christopher Grey

As Washington extends its reach farther into our lives and limits our freedoms, the Fed destroys the value of the dollar and our savings, and Wall Street continues to make billions of dollars using taxpayer money without creating any sustainable growth for the economy, Americans should begin to ask ourselves who our enemies really are. Sure, Iran, Syria, and North Korea are evil. I would love to see their regimes destroyed, but they haven’t really done anything to interfere with my life as far as I know. On the other hand, I can identify exactly the many ways that Washington, the Fed, and Wall Street are destroying our freedoms and our economy and stealing our and our children’s future.


Let’s begin with Washington. They want to take a broken health care system and make it worse by further injecting government. They’re going to raise taxes even though people are struggling with the worst economy in decades. They’ve started a job-killing trade war with China–our largest trading partner and our largest lender–to pacify Big Labor. They’ve given hundreds of billions of dollars of taxpayer money to insolvent and poorly managed, but politically connected, Wall Street banks and Detroit car companies in the name of saving our economy. We’ve continued to lose millions of jobs anyway. They’ve spent additional hundreds of billions of taxpayer dollars on a stimulus that was supposed to create jobs. Treasury Secretary Tim Geithner says there will be jobs some day, but should we really believe him? This is the same guy who thought subprime lending wasn’t a problem. The same guy who thought it made sense to give billions to lender CIT. How did that work? Oh, right, they’re bankrupt now.

Small businesses create most of the new jobs in our economy, but the agenda in Washington has been hostile to small businesses, with increased regulations and threats of new taxes. They have provided no incentives for small businesses to invest and grow. The banks and Wall Street, despite all the taxpayer bailout money, are not lending to small businesses. They’re hoarding capital for themselves or using it to speculate on commodities and short the dollar. Private equity capital is scared to invest because the government has kept asset values inflated to protect their friends at the banks. No wonder we still don’t have any new jobs even after opening the federal spigot to banks, auto companies and various recipients of ’stimulus’ dollars. We and our children will be paying that money back to the Chinese for decades, and we have nothing to show for it. Some people might call that indentured servitude. At a minimum, it is taxation without real representation because the politicians in Washington are obviously working for the lobbyists and not the voters.

Adding insult to injury, the new cap and trade rules will further destroy jobs and punish American corporations in the name of environmental purity. All these regulations will really do is transfer more billions of dollars from consumers and productive American companies to Wall Street banks that will make profits and fees trading carbon credits. (The only thing you have to know about cap-and-trade is that Enron was and early and ardent advocate of the scheme.) It’s just one more lie from Washington. They claim to be helping to save the environment, but they’re really just selling out consumers and jobs to help their friends on Wall Street.

The Fed has an even better set-up. Bernanke and his fellow governors can print and redirect as much of our money as they want and never have to face voters. They just need to convince the political class that they’re doing a good job. There were good reasons for the Fed to be set up independent of the political system. But, what happens when it becomes a hand-maiden to the system?

The most reasonable explanation for why this continues is to look at who benefits. Wall Street banks enormously benefit from this system. In fact, without this crazy system they would all be out of business because they’re insolvent. The only reason the big Wall Street banks still exist is because Washington and the Fed (i.e. taxpayers) bailed them out. Wall Street banks have hijacked the Fed and Washington because it was necessary for them to survive.  As former Fed Chairman Paul Volcker and others have said, banks are supposed to exist to serve the public. However, we now have a system in which the public and taxpayers serve the banks. This is not capitalism.

As CNBC editor Charlie Gasparino’s recent book, The Sellout, explains in great detail, the past several decades have transformed Wall Street from the greatest instrument of American capitalism to something that is now the greatest obstacle to American capitalism. Wall Street now exists simply to perpetuate itself and to pay its insiders as much as possible, even if that means sacrificing the rest of the American economy. In that sense, Wall Street is now very similar to the old state owned enterprises in the former Soviet Union. The main reason that the Soviet Union, a country rich in natural resources and educated workers, failed economically is because capital allocation decisions were made based on politics rather than economics. This is now what is happening in America. Capital is being allocated to failed, insolvent, and poorly run businesses on Wall Street because they are politically connected in Washington and at the Federal Reserve. Instead of allowing capital to flow through market mechanisms towards productive businesses in technology, services, manufacturing, or entertainment as just a few examples, too much capital is being directed by Washington and the Fed into unproductive Wall Street banks that are just using it to support their own bad investments and speculating to create short term profits without making long term investments that will create jobs or sustainable growth.

This is the real reason that despite all of the stimulus and bailouts from Washington, zero interest rates and money printing by the Fed, we are still losing millions of jobs in America, the unemployment rate is at a 27 year high, and our economy is not moving towards a real recovery.  The surging stock market and commodity prices are a slap in the face to all of us, demonstrating that there is plenty of money on Wall Street for speculation even as Main Street businesses and workers are struggling. While politicians beat their chests about terrorists or rogue states threatening us, the real Axis of Evil threatening our freedoms is right here in America. Washington, the Fed, and Wall Street have conspired together to hijack our economy and the future of this country. America was built on freedom, democracy, and market capitalism. If we want to get our country back on track, people need to stop complacently sitting around while Washington lies to us, the Fed steals from us, and Wall Street uses our own money to make huge profits at our expense. We need to stand up and demand accountability, honesty, the rule of law, and market based solutions to our economic problems. If we don’t do this, then we have nobody but ourselves to blame for economic misery and servitude.

In my next column, I will put forth a few simple policy changes that could be made immediately to start moving things in the right direction again.