(By Karl Denninger) William Cohen, where is your intellectual honesty?
Is there any fairness in a system where a group of people can borrow a bunch of money to buy a company and pay themselves millions of dollars in dividends and fees, while the company itself ends up bankrupt and its employees lose their jobs, health insurance and pensions?
Can you imagine the owners then being celebrated in fancy society while the unfortunate workers are left to fend for themselves as the collateral damage of the system?
Who did they borrow that money from? And did it ever actually exist?
Isn't that the question to be asked? I know it's impolite among the bankster class, but it really is the question, isn't it?
Most people think that banks lend their deposits. They're wrong. Banksters even teach kids this; I witnessed it during a school field trip a few years ago where a local bank was one of the stops. The implication left with the young people was that the bank "safely kept" the deposits, and from this they made loans.
This is a lie, incidentally. Banks do no such thing. They first lend the money and then balance their reserves with the deposit that the merchant comes in with after you spend the lent money. Note that this means they basically created money, which is a right reserved to Congress under the Constitution.
Damn the law to Hell; laws are for little people, not the all-powerful banksters.
The only real lending market where capital is actually lent out is the "hard money" market. That's where angel investors and similar lend out their own accumulated capital -- money they actually have. They tend to charge a metric crapload for that privilege too, and with good reason -- it's their money, and if you don't pay it back (with the interest) they lose actual funds they have first spent the time and effort to accumulate.
But Bain, and the rest of these guys, don't work under that model. Instead they tap the bankster credit facilities, which are nothing other than counterfeited funds -- albeit legally counterfeited. This is a predatory system that is guaranteed to screw more people than it helps -- it simply must, because every dollar of unbacked credit that is emitted dilutes the value of every other dollar in the system. At the same time the interest charged must be generated -- with those devalued dollars.
This scheme appears to work for a while; like all pyramid schemes the first people who get involved make out well. And who are the "first people"? The banks, of course, who are the ones that created the funds with the push of a button. The late-comers, in this case the companies, their employees and the follow-on activity that must pay the debts are another matter. Sure, sometimes the gambit works but only if the leverage game continues to pyramid.
Unfortunately the mathematical law of exponents says that any two (or more) compound functions, where one exponent (growth rate) is larger than the other, must always run away from one another. When the debt taken on grows faster than economic output disaster must always come. There is nothing mystical or difficult to understand about this fact, and it is why "hard money" lending always comes with extremely high interest rates or major equity stakes on the table, because it's the only way that the transaction makes sense for the lender.
We deceive ourselves when we allow banksters to tell us that we "should" be able to "borrow" $40,000 to buy a car at 1.9% for six years. We're not borrowing anything that was already earned; we are instead using an institution with the legal permission to counterfeit the nation's currency to obtain that dramatically-below-market rate. We then kid ourselves into believing that this is a "good price" for the money allegedly "borrowed."
The truth is that no borrowing actually took place at all. What happened was that we diluted our own standard of living when that credit was created by increasing the denominator of credit and currency in the system. In effect we stole all of the value we "borrowed" from ourselves and everyone else in the economy at the time of the origination of the "loan" and then we foolishly agreed to pay even more to the shark who we granted the legal privilege of destroying our wealth.
Bain was just a manifestation of a corrupt system that nobody wants to actually talk about, for if we did talk about it there would be a revolt by the taxpaying population the next morning.
After all, how else can you explain this chart?
Where did that credit come from? Remember, every dollar of that credit spends just like a real, earned dollar, and every dollar emitted as credit debases every other dollar already in the system.
So again: Bain was loaned what, exactly?
Let's have some intellectual rigor, shall we?
And by the way, for those politicians who claim they're for "sound money" -- until and unless you actually get into the meat of this issue and explain what you're going to do about it,you're lying.