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This is a stellar interview with Matt Taibbi and Yves Smith worth watching from start to finish. They cover a lot of ground in a short time including the shredding of the social fabric by Wall Street malfeasance and the fact that your grandmother’s life is more endangered by a high-finance businessman in a suit and tie rather than the local purse snatcher on the street corner. Remember when Lloyd Blankfein admitted that some of their financial instruments were of no benefit to society?

Excerpt on the comparisons with Wall Street and the Mafia Dons:

BILL MOYERS: You’re describing a corrupt financial and political system. And both of you in recent writings, your current article in “Rolling Stone,” which is devastating on the scam that the “Wall Street learned from the Mafia,” and a recent column you wrote about the mafia state, you’re both using that metaphor to apply to our financial and political system. When I read your pieces, you’re not playing with words there. You mean it.


BILL MOYERS: Why do you mean it?

YVES SMITH: Well, the mafia, when it gets to be big enough, first thing it has services that people feel they need if they’re in a difficult situation. So, for example, loan sharking. If you really need money, they do have the money. And people enter into these loan shark deals even though they know it’s going to be very difficult to pay 20 percent or more interest and they’ll have their legs broken if they don’t pay back.

And the banks actually behave very much in that manner when they find people who really need money. So you see this with credit cards, you know, that, or, and with mortgages. That if you hit– it’s not this if you hit any tripwire, that, you know, become in arrears, the banks basically act in this very extortionate manner and don’t cut any breaks.

MATT TAIBBI: And I think that there’s also this, they are the mafia because of their vast criminality in Wall Street now is that it’s bribery, theft, fraud, bid rigging, price fixing, gambling, loan sharking. All of these things, it’s all organized.

I mean, the story I just wrote about, which was about the systematic rigging of municipal bond auctions, which affected every community in every state in the country and all of the major banks were involved, including Chase.

They were rigging the auctions that were designed to create a fair rate of return on the investments that towns were getting on their– the money they borrowed for municipal bonds. And this is not like something that the mafia does. This is what the mafia does. The mafia has historically, it’s one of their staple businesses, is bid rigging for construction or garbage or, you know, street cleaning services, whatever it is.

They’re doing exactly the same thing. The only thing that’s different is there’s no violence involved. But what their method of control is that they’re ubiquitous. They have this incredible political power that the mafia never had.

YVES SMITH: And they also have what amounts to an oligopoly. I mean, for many of these services, you have a great deal of difficulty going beyond the five biggest banks, you know? This is– it’s the consequence of too big to fail is that when, you know, some of the smaller players, again, you know, like– JPMorgan buying Bear Stearns.

In the crisis, when the smaller players got sick, they were merged into the bigger players. So now if you want– for a lot of these services, there aren’t that many players for you to go to. You really have no choice in– other than to deal with the big banks.

BILL MOYERS: Congress is paid to be informed and to hold these guys accountable. Why don’t they ask the kind of questions you’re dealing with here?

MATT TAIBBI: People refuse to look at these banks and think of them as organized crime organizations.

They in their eyes, organized crime is always either the Italian mafia or the Irish mafia. This isn’t what it looks like. But that is who they are. And I think that they’re treated with a kind of deference and respect, because traditionally that’s not who they were. They were these icons of finance who helped build this country.

But that’s not who they are anymore. And I think, it’s hard for people to wrap their heads around that and treat them the way they should be treated.

YVES SMITH: Well, I think people don’t want to think that there’s something wrong with leaders. And CEOs are leaders of the business community. If you really believe that CEOs of businesses that are really fundamental to the economy are corrupt, you have to think of a very serious restructuring of the business and financial system.

And even if people kind of intellectually might be willing to contemplate that, they don’t really want to go to what the implications are. So it’s much easier for them to block out that thought.

Critical to remember is that the key cause of the short-term, predatory behavior discussed above is what is called the ‘financialization’ of capitalism over the last several decades. In other words, the productive aspect of the economy, such as manufacturing and research and development, were replaced by manipulation of the economy with financial instruments and creating wealth-extracting bubbles. An example of a corporation becoming financialized is GE:

Since over half of GE’s revenue is derived from financial services, it is arguably a financial company with a manufacturing arm.

Examples of financial bubbles in our economy are the dot-com bubble, the commodities bubble, the housing bubble, the student loan debt bubble, the credit card debt bubble, or even more recently the gas fracking bubble:

…Chesapeake and its lesser competitors resemble a Ponzi scheme, overhyping the promise of shale gas in an effort to recoup their huge investments in leases and drilling. When the wells don’t pay off, the firms wind up scrambling to mask their financial troubles with convoluted off-book accounting methods. “This is an industry that is caught in the grip of magical thinking,” Berman says. “In fact, when you look at the level of debt some of these companies are carrying, and the questionable value of their gas reserves, there is a lot in common with the subprime mortgage market just before it melted down.” Like generations of energy kingpins before him, it would seem, McClendon’s primary goal is not to solve America’s energy problems, but to build a pipeline directly from your wallet into his.

The numbers vary slightly on the internet as to the finance industry’s take of the total profits of the economy, but the overall trend has been an ever-increasing slice of the economic pie. Just before the financial meltdown of 2008, finance accounted for more than a third of total profit in the economy and it has come roaring back since then. The Free Market Economy has evolved from a supposed model of efficient use of capital for the benefit of production to the efficient funneling upwards of capital to the elite 1%. And of course there is the revolving door between the government and finance industry. The graph below shows the growth of the finance industry as a percentage of the total corporate profits since 1948:

American companies are now run by money men who have different priorities than those business leaders of the past. David Bollier explains:

We all know the story of enclosure as it applies to the commons. The lesser-known story is that businesses are enclosing themselves – aggressively cannibalizing their own internal productive capacities in order to maximize short-term profits.

Harvard business guru Clayton Christensen argues in Forbes magazine that business executives are so habituated to seeing the world through a scrim of financial abstractions that they are blindly undercutting their own long-term productive capacities. The problem is so pervasive, says Christensen, that “whole sectors of the economy are dying…”

Financialization could be called the degenerate, end-stage of capitalism where making money from money is the be-all and end-all of corporate decision-making.

Professor Wolff discusses with William Tabb this financialization of the economy in more detail here. Our economy has become a giant Ponzi scheme. This won’t end well.