Power and Ponzi Schemes

Via Bazz

Money Morning

The pat answer from the Fed is that propping up failed banks long enough to be taken over by "healthy" institutions is better for the system than letting them fail. On the surface that's true, but it's what's under the surface that's destroying America's free market foundation.

Here's what's come as a result of the Fed's actions: The "Super-Six" – JPMorgan, Bank of America, Citigroup Inc. (NYSE: C), Wells Fargo, Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) – which held $6.8 trillion, or about half the industry's assets in 2006, had increased their holdings by 39% to $9.5 trillion as of September 2011.

So what's really going on is that the country's biggest banks, which weren't healthy when their CEOs lied to us (as they still do), have gotten even bigger.

With size comes power – the power to pay lobbyists, the power to pay for legislators, and the power to change regulations.

These banks don't always get what they want exactly when they want it, but they do eventually get what they need to make money hand over fist.

The whole thing reminds me of a Ponzi scheme.

The Federal Reserve might as well be Bernie Madoff and the banks "feeder funds" in this nationalized scheme to perpetuate the channeling of depositor money into banks and investor money into bank stocks and debt securities.

For the chain to be broken the Federal Reserve is going to have to be overhauled – seriously overhauled – and big banks are going to have to be broken up, once and for all.