by Charles Hugh Smith, Of Two Minds:

LENDING is now the sucker’s game.

Editor’s note: This is a guest post by my friend and colleague Zeus Yiamouyiannis, Ph.D., who has contributed essays to Of Two Minds since 2009.

So this is the program: Devalue or deflate everything owned by the “little people”, buy it up for pennies on the dollars with unlimited free money, and attempt to use this massive financial asymmetry between the super-wealthy and the ordinary to manipulate markets back upward through artificially goosed “demand” backed by empty, cheap-money purchasing power.

Big banks only care about low interest rates so it can be gentleman-“lent” (i.e. given) to big corporations with huge fees attached (a major source of profit). Won’t that make lending impossible and unworkable to mom-and-pop businesses, etc.? Isn’t lending a big part of Big Bank business?

Answer: Less and less! Credit unions and smaller banks make lending a big part of THEIR business, but now less than half of Big Bank business and profit comes from lending money to the little people.

Big banks make more and more of their big money through manipulation of assets and gambling in the market and in investment and insurance scams confirmed and accelerated from 2008 onward. And why wouldn’t they? They can afford to gamble on higher return risks indefinitely (they think) because they will always be backstopped, no matter how immoral or even criminal their behavior. Too big to fail, too big to jail has become not just a mantra but a business plan.

The real world has been severed from the minds and wallets of the elites for some time, at least since 2008, and arguably since Reagan in the early 1980’s… and they’ve gotten away with it now for four decades. Have they used up stores of wealth or extracted them in a predatory, unbalanced manner? You bet! Have they gotten away with it, and continue to be rewarded more richly with each audacious theft and transfer of wealth? You bet!

It is simple psychology and blindness created by self-interest over and against a collective interest. These so-called cheating “elites” no longer think they have to pay attention to the vast majority of the world’s population (even though they should, and this will eventually come to bite them).

I predict this plays like a Sylvester and Tweety cartoon. Think of Sylvester teasing and ridiculing the brutish bulldog on the chain (much like the traders who called honest investors they took advantage of “muppets”– recall that?).

This works until the bulldog is no longer chained, and then there is hell to pay. This chain comes off when the rip-offs are so ridiculous and arrogant that you get a full-on revolt.

Big banks and global elites will continue to extrapolate and chase ever more gaudy returns by manipulating asset prices (esp. stocks) upward, in a way that is disconnected completely from the markets and in a way that savages the stores of wealth of ordinary people. Zero to negative interest only add grease to the rails and fuel to the fire.

What can you look toward as a ‘canary in the coal mine’ indicator of when things will go south in the equities market? My bet: Junk bonds and junk bond ETFs may well serve as the internal black swan to this teetering mafia-like financial enterprise. Junk bond markets are a special kind of crazy right now, but they follow an oddly transparent logic of manipulation when you look at them closely.

Evidence #1? On April 9, 2020 for the “first time in its 107 year history” (Counterpunch) the Fed changed its terms and bought junk bonds, bailing out at the trashiest level yet, the deceits of the big players, particularly private equity firms.

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