Permanent Distortion
How the Financial Markets Abandoned the Real Economy Forever
Let the record show that reading the “Books and Arts” section of a newspaper can actually be worth your time. Not that arts and books aren’t important. I love books. I love art. But, who has the time? If I hadn’t read the recommendation for Nomi Prins’ book in the Nation, I would have been worse off for it. And quite honestly, financial markets are a topic I have a hard time grasping (with my puny brain) so I always welcome a protracted analysis.
The first thing that stands out is that Prins herself is a former Wall Street executive. She also has a Ph.D. in political economy. What made her see the light and start writing books on the evils of Wall Street is anyone’s guess. But maybe she’s the right person to do it, because I suspect she’s as guilty of these infractions as the banks she’s accusing. But no matter.
The point Prins tries to make in Permanent Distortion is “simple.” Whenever a financial crisis strikes, the default reaction of governments is to give the large banks huge amounts of money so that they have they’re able to lend it to smaller businesses on main street. They do this by lowering the rates on money that banks can borrow (making it “cheap” money) in the form of bonds. Governments make these bond available by a process called QE, which seems like just making it up out of thin air. Kind of like going on a computer and adding extra zeros to your bank account. This adds to the inflation and makes things harder on regular folks because their dollars aren’t worth as much. Oh, and the money they make available to large banks comes with no strings attached. There is no oversight and no obligation of the banks to make the money available to anyone. What they do is make sure their stock goes up by buying it themselves (at least that’s the impression I’m getting and I wish Prins would expound on this phenomenon a little more, with some examples). This leads to surges in the stock market and little effect to the actual economy or GDP as it stagnantes. This is just a continuous cycle as banks go in search of cheap money anywhere they can find it (in their own country, or abroad) in order to maintain their dominance. If there are no consequences and no repercussions for their actions, this behavior will continue “forever.” At least, I’m hoping I understood all that correctly.
It’s all fascinating stuff, and I have to highly recommend Permanent Distortion. I would have liked this book to be twice the size with a closer examination of where the money goes from the fed to the banks and how it’s split between the financial markets and GDP. As much as I enjoyed it, there are still questions that linger in my brain, or maybe the reality is just too outrageous to grasp. It’s scary stuff, that’s for sure.
