Bernanke’s Biggest Beneficiaries

In a few more days, Federal Reserve Chairman, Ben Bernanke, retires. During the last eight years under his tutelage the Fed performed its primary function and bailed out the banking system, injecting between $15 and $20 trillion in the process.  Most of that injection flowed offshore, into emerging market economies like China, Brazil, Indonesia, Turkey, and elsewhere—as well as into financial asset markets worldwide (stocks, bonds, real estate assets, foreign exchange, emerging market funds, derivatives of all kinds, and so on).  Little ‘trickled down’ into the US economy to create real output and therefore jobs.

The business press, politicians, the media have begun to heap their mountains of praise on Bernanke for his ‘bailout job well done’. He’ll likely go back to Princeton University, where he is a professor, and then receive countless offers to sit on corporate boards at $50k a year or more for each, and give speeches to business conferences worldwide at several times that amount for each address. He’ll be well rewarded, as such economists often are as they ‘cross over’ from pure academia to the halls of corporate America—transitioning from doing a good job for the latter in some government position.

It’s not quite accurate, however, to say Bernanke ‘bailed out the bankers’ and to stop there. The banks and financial institutions that were bailed are but the ‘institutional conduits’ for the real beneficiaries—the big money investors who provide the financial means for the banks, who invest on their behalf as well as themselves institutionally.  Bernanke’s Fed provides the institutions’ virtually free, no cost money in the course of bailout. The commercial banks then lend the free money to the shadow banks and institutions where the super rich and mega rich keep their investments. The shadow banks then lend it to the investors, who add some of their own assets as they borrow from the shadow banks as well (it’s called ‘leverage’).  The investment then flows into emerging markets and financial asset securities worldwide, stoking those emerging markets’ growth (while the US, Europe, and elsewhere languishes in stop-go weak recoveries) and causing financial asset bubbles globally as well.  Additionally, the Fed goes right to the mega wealthy investors and buys up their ‘bad financial assets’ (subprime mortgage bonds and the like), no doubt paying more for those bad assets than their current market value. That’s called ‘Quantitative Easing’, or QE.

So in the final analysis, it’s not simply that the ‘banks are bailed out’.  It’s their mega wealthy investors who are the ultimate recipients of the multi-trillion dollar Bernanke Bailout since 2008.  So who are these big investors—i.e. the de facto elite of the Finance Capitalist class, whose wealth and power continues to grow almost exponentially in recent years?

(The following remainder of this commentary is an excerpt from this writer’s just published feature article, ‘Bernanke’s Bank: An Assessment’, which appears in the February 2014 issue of ‘Z’ Magazine.  It is also available for download at the writer’s website..)

Economists and the business-dominated media like to talk about crises by using terms like the markets. The markets say this or say that, as if they were actual persons. This de-personified choice of concepts serves to hide the fact that there is no such thing as the markets, per se. The markets are not some objectified thing, they are comprised of people, financial investors, dominated by finance capitalists worth more than $100 million in investable assets. Elsewhere this writer has called this group of investors, their show banking institutions, and the proliferating global highly liquid financial markets in which they speculate, the ‘Global Money Parade’ (see the book, Epic Recession: Prelude to Global Depression, Pluto Books, 2010)

The investors that constitute the markets are the elite core of finance capitalists today. They are sometimes referred to as ‘very high net worth’ investors, or even ‘ultra high net worth’ investors. The arbitrary distinction between the two—very high and ultra—who together represent the elite layer of finance capitalists as a group is typically a cut off of $5-$30 million in readily available, i.e. liquid) investable assets (VHNWs) vs. more than $30 million (UHNWs).

According to a study in 2013 by Capgemini, a global business consultancy, VHNWs globally increased their investable wealth in 2012 alone by more than $4 trillion, to $46.2 trillion. Another report in 2013 by the big Euro bank, UBS, indicated the total wealth held by the UHNW wealthiest 200,000 investors in the world amounted to $28 trillion. About 70,500 of the 200,000 are located in the U.S., according to the UBS study with another 58,000 in Europe, and 44,500 in Asia. Growth of this group’s assets is projected to continue, at a minimum, $4 trillion more every year.

Wall Street Journal and Financial Times analysts in the business press, commenting on the above reports, have remarked that “the flood of central bank money is behind most of this growth in wealth, rather than fresh entrepreneurial success or economic growth.”

In other words, it is the Fed and other central banks worldwide to a lesser extent that together are responsible to a significant extent for the massive increase in investable financial assets that has taken place through the bail out of financial institutions—commercial and shadow alike—and their VHNW and UHNW investors. The tens of trillions of dollars that have pumped into these elite investors and their financial institutions since 2008 ends up being reinvested, not in businesses that produce real goods and services (and therefore jobs and incomes), but  primarily in financial markets once again—i.e. into global stock markets, junk bond markets, into derivative markets of all kinds, into foreign exchange trading, emerging market funds, select real estate markets like China, U.S. farmland prices, leveraged buyouts, mergers & acquisitions, into buying up Eurozone . sovereign debt, and so on. The Fed provides the free money, which the very wealthy and their institutions then use to speculate even further in various financial asset markets worldwide.  They do so because the profitability from financial asset investment is far greater, turns over faster, and is often less risky than investing long term in real, ‘mom and pop’ businesses.

The money flows from the Fed (and other central banks in Europe, Japan and elsewhere), to the high net worth investors and their financial institutions, and eventually into these global financial markets. The outcome since 2008 has been accelerating financial asset prices—i.e. re-emerging today once again of financial bubbles—in stocks, bonds, real estate, etc. Meanwhile, all this is taking place as the U.S. and world economy have been experiencing crisis and historic slowing of real investment and sub-par economic recovery.

In other words, the Global Money Parade is at the heart of the problem of growing financial bubbles and, indirectly as well, the slowing of real investment, job creation, incomes for the many, and economic recovery.

Jack Rasmus is the author of the book, ‘Obama’s Economy: Recovery for the Few’, Pluto press, 2012 and ‘Epic Recession: Prelude to Global Depression’, Pluto, 2010. He is the host of the weekly radio show, ‘Alternative Visions’, on the Progressive Radio Network. His website is www.kyklosproductions.com, his blog, jackrasmus.com, and twitter handle, @drjackrasmus.

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Jack Rasmus is the author of  ‘Systemic Fragility in the Global Economy’, Clarity Press, 2015. He blogs at jackrasmus.com. His website is www.kyklosproductions.com and twitter handle, @drjackrasmus.

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