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  • October 27, 2008 11:47 AM EDT by Cody Willard

    The Financial System Won't Fail; It's Already Been Destroyed

    I keep hearing people justify the New Socialism of our entire financial system by saying that it "took systemic failure off the table".   Wall Street brokerage firms don't exist anymore.  Our entire big banking system is backstopped by taxpayers.  Big corporations with too much debt for the market to support anymore get to borrow from taxpayers at below market rates, horribly skewing the playing field in their favor.

    Doesn't all this intervention and changing on the rules and destruction of our system as we know it mean that rather than taking systemic failure off the table that it rather means the system has indeed been destroyed by the socialists running our financial systems, the politicians in power and their cronies?

    The "systemic failure" is exactly what we've created by trying to prevent systemic failure.  And it won't get better since our capital systems are now completely centrally-controlled.   Talk about going "all in".  With a gun to my head from Uncle Sam too!  That's not what I signed up for.

    See, isn't it all this central control that enabled all these concentrated bets by Wall Street and those who cater to it to bet made in the same direction?   I mean, if any bank in any town could manage his businesses in just about any way he wanted -- and the trust in his bank dependent upon the bank's history and practices...I bet transparency would quickly become a competitive advantage in attracting capital -- wouldn't we likely have thousands of competing business models rather than just thousands of competing banks all gaming the same centrally-controlled system.  Instead every bank on the planet seems to have decided to follow the exact same business model of securitizing any investment ever created with ever bigger sums of levered up capital around and selling off as much as they can while betting on the assets and the derivatives of those assets with lots of borrowed money from people who are also borrowing lots of money making the same bets.

    You mean that didn't work out in the end?  (Think more consolidation of capital and allocation will work out better this time?)

    Yeah, that was BEFORE we just explicitly socialized our entire financial system.

    Wall Street and the financial system are simply supposed to grease the wheels of production and enable effective deployment of capital.  Do we really need trillions of dollars being siphoned out of the system every year by firms colluding to game the system and then leverage the game up as much as possible to siphon ever more out of the economy?  Does every company who comes public need to be charged 6% on any IPO?

    And yeah, Main Street's definitely gonna feel the impact of these guys changing our system in their own favor in the middle of the game.   I mean, I am shocked by how shocked everybody seems to be whenever I say that China's GDP growth could go negative next year.   I'm not convinced that'll happen, but I do think it's likely.   Did I mention that that financial system of the West just failed?  That won't be good for China.

    We're gonna have to put through some painful policies to get there -- and that'll require putting some new people on Capitol Hill.   We'll make that happen too.  Maybe not with a full sweep of all incumbents next week.  But in the next four years, you and I have a lot of work to do to get our rights back.  And to rebuild a system of capital deployment that those in power have destroyed.  And this time we won't let them siphon nearly as much off as they move the money around as they used to.  And we'll punish those who lie about how much risk they're actually taking.   Yeah, private property laws.  Sounds good to me.

    Things will be okay.  We're gonna have to stop this corruption and collusion though.  And oh, do I have a lot of ideas about how we can do that over the next couple years.  Stay tuned -- and watch out.

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Mark

We're coming to the end of the largest paper-money experiment the world has ever seen.

October 28, 2008 at 3:55 pm

Rick

Cody, I'm right there with you on this. Let them all fail and we'll pick up the pieces afterward and move on.

October 28, 2008 at 2:37 pm

Scott

Hi Cody, Well said. They only prolong the agony. Here's a humourous column. It's a different take on the futile government attempts to "stabilize" housing prices and a great suggestion on how to quickly bring prices back up. It's called "Government Cannot Stop Housing Price Decline" It's ridiculous - but true. http://www.tableofwisdom.com/Daily__Quick_Thoughts.html

October 28, 2008 at 12:13 pm

Billy V

Keep up the good work Cody. Maybe enough of us can stop the country from sliding into communism. It's time to abolish that corrupt cartel known as the Federal Reserve and return to free markets and sound money. "The United States Government is a Spendaholic and the Federal Reserve is the Liquor Store down the street."

October 28, 2008 at 10:41 am

Ron B

And we call the Chinese communists? Well, my my, it looks like centrally-driven, communist-style state intervention in markets is the US is a reality. What's next; a five year plan? It's too late to panic, and waaay too late to complain. You do have a vote. Here's an idea; vote against every single incumbent, then vote third party for President. I hate to say this, but, the only thing that may save us long term is for the whole thing to collapse to the point where the Fed is completely lost...oh wait, we are there already. Never mind.

October 28, 2008 at 1:51 am

freedom

Only business show I watch with any regularity. The only place where I think I'm getting fast paced, straight skinny. Love it when Cody peeves off some multibillion dollar bigwig or overhyped "Dr. of Economics" so much that they launch ad-hominem attacks, but Cody shakes it off, hangs in there. And generally, I wind up aligning with Cody's view... Eric, stoically representing his side of the table, EXCELLENT JOB bringing the details to us economy newbs about how existing old money got in trouble, and why he thinks the bailout is critical. Dunno if I agree, but at least I think I get the broad brush strokes now... Can't wait until Reb comes back. Anyway, thanks guys and gals.

October 27, 2008 at 4:57 pm

truxrule5

Right on. But the Moral Hazard is already happening! Noticed how Detroit / Big Auto is now coming to the table and asking for the government to underwrite their shared losses? In fact, on 9-28-08 the president signed on to a $25B way-below-market loan for automakers already! Dems tacked it onto the 2009 defense spending bill. Oink, oink, oink! The Dems purchased Michigan for this election!

October 27, 2008 at 4:52 pm

Scott

Cody, You might look and sound like a hippie, but you make more sense than anyone else out there. Keep up the good work.

October 27, 2008 at 3:57 pm

TJF

The Fed is a corrupt enterprise.

October 27, 2008 at 3:16 pm

Ross

STOP THE TREASURY NOW! Look, the government is now giving 3.5 Billion to Capital One! This kind of junk people are afraid of in this stupid bailout! These guys are the “ARM PIT” of the credit card world. They have lied to and cheated more people then lawyers and politicians combined. They should give their 3.5 Billion to all of the people that have been screwed by Capital One and other credit card comapnies by jacking up peoples rates and fees. frocing bankruptcy How do the Treasury give 3.5 Billion to companies that violate credit card collection laws! Stop this NOW. Where is the regulation for giving money to criminals!

October 27, 2008 at 2:58 pm

Kevin Rea

You are right on Cody. I am shocked by the people I see on television that keep saying that they are for capitalism, while at the same time they have their hands out for more government money. I really believe that the economy is in for a long cycle of very poor economic growth. We will probably have negative GDP for some time. It seems the so called experts think that just fixing the banks capital will get us out of this mess. I would like to know who are they going to loan this new "money" too. The small businesses that need the loans to stay competitive aren't going to receive any of this. It is time to to elect a whole new Senate and Congress.

October 27, 2008 at 2:17 pm

David Paullin

Cody As always your right on the money or should I say the small working people is without. Do you really think wall street drives the economy or just play with it on paper?? It seems the US is going the way of Mexico where it takes every family member working in the fields so they can buy beans while a few very rich control a lost economy. Did anyone with a brain watch American jobs exported to China as a world economy or the fleecing of America? In a true econmy we take care of our own first and then share with those that have less. David

October 27, 2008 at 12:47 pm

about this blog

  • Cody Willard is an anchor on the FOX Business Network. Willard is also the principal of an investment management company. He was a long-time featured columnist for the Financial Times and TheStreet.com as well as a regular featured economist and stock picker on CNBC's ''Kudlow & Company."

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