This is looking awfully like Steinbeck’s Grapes of Wrath.

The Fed has a licence to print money. Sometimes... when it can get away with it... it prints a lot of money. And it makes a lot of money.

What’s the news? The Dow fell a little – off 36 points. The oil price traded at $80. And the gold price dropped $22, to close at $1,129. Nothing unusual.

But poor Mr Obama... He seemed like a nice enough fellow. More and more people seem to be mad at him.

What went wrong? It looks to us that he has been completely captured by America’s two most special interests – Wall Street and the Pentagon. Maybe he was their man from the get-go; we don’t know.

Yesterday, he announced that he was going to squeeze $120 billion out of the banks over the next 10 years.

Don’t worry about the bankers; it’s all for show.

The feds pretend to punish the bankers and the bankers pretend to suffer.

They’ll whimper and whine... all the way to the bank!

How tough is it to make money when you can borrow money for nothing and lend it back to the lender at 400 basis points more interest?

Even bankers can make money under those circumstances.

And that’s not all. Don’t forget that the feds are authorised to buy up Wall Street’s mistakes... and to make sure that the bankers don’t have to suffer from their own dumb mistakes.

Yesterday came news that the Fed had a very profitable year. It made more money even than Goldman Sachs – $45 billion. How did it make so much money?
The papers report that the Fed cleverly bought up debt that no one wanted... Wall Street’s mistakes. And then, lo and behold... it turned the dross into gold. No kidding. Bad debt became good debt. And then it became great debt... as it became clear that the US government stood behind almost ALL DEBT issued by Wall Street’s major players.

The financial press will spend a few days telling readers how smart the Fed is. Ben Bernanke will stress how the Fed saved the economy. Pundits such as Martin Wolf will claim they saved civilisation.

But what is really going on? The Fed has a licence to print money. Sometimes... when it can get away with it... it prints a lot of money. And it makes a lot of money. How cool is that?

And so, we turn to the story of Freddie Mac and Fannie Mae. The twins are double trouble, as far as we can tell. They lent (or guaranteed the loans) to people who couldn’t pay the money back.

Then, when the inevitable came to pass they told the feds that if they didn’t help them out America’s entire financial structure would melt down... and almost every family in the country would find itself underwater.

In 2006, Fannie Mae set aside $519 million just in case things went bad. Things did go bad. And guess what? The half a billion Fannie had set aside turned out to be laughably inadequate.

Today it has had to come up with ten times that amount... which is still not enough to cover the implied losses at today’s market prices. It needs about twice that amount. So, along come the feds again... in a surprise move on Christmas Eve... with billions more.

We try to imagine members of Congress working hard to understand the complications of mortgage finance... giving the matter the solemn attention and fair-minded deliberation it deserves.

After all, hundreds of billions of dollar were at stake. But try as we may, we just can’t imagine it.

The pols didn’t really try to figure it out. They didn’t have to.

“You have no idea,” said a source we won’t divulge, “how much control the bankers – especially Goldman Sachs – have on government.

“They have their men in the key positions. And every politician and bureaucrat knows that if he goes along with the game he could one day get a job at Goldman and make millions.

“And I’m not just talking about the US. It’s true of many other countries too. Goldman is international. And they’ve got their men in decisive posts in many countries.”

One source of the bankers’ power is money.

The other is ignorance.

They have money to throw around.

When it comes to money, they seem to know what they are talking about. So, on Christmas Eve, 2009, rather than actually debate and deliberate, Members of Congress deferred to the bankers’ lobbyists.

Who’s going to argue with the bankers? They know how money works, don’t they?

What politician has the courage... or the knowledge... to stand against them?

If they hadn’t gone along with the bailouts, the whole shebang might have gone down the tubes, right?

*** The depression continues. The broadest measure of unemployment – U6 – now stands at more than 17%.

The bad labour news last week didn’t seem to bother investors. They’re all monetarists, optimists, or delusionists. They figure that the jobs picture will keep the Fed from raising rates... and that the low interest rates will keep stocks moving up.

They are wrong.

Well, they are right about the first part and wrong about the second. The Fed will not raise rates anytime soon. But it takes more than low rates to create a durable boom on Wall Street. It takes earnings growth.

Today’s prices imply strong earnings growth in the next 12- 24 months. But it’s not likely to happen. Ambrose Evans-Pritchard:

“Realtytrac says defaults and repossessions have been running at over 300,000 a month since February. One million American families lost their homes in the fourth quarter. Moody’s Economy.com expects another 2.4 million homes to go this year.

Taken together, this looks awfully like Steinbeck’s Grapes of Wrath
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“Judges are finding ways to block evictions. One magistrate in Minnesota halted a case calling the creditor “harsh, repugnant, shocking and repulsive”.

We are not far from a de facto moratorium in some areas.

“This is how it ended between 1932 and 1934, when half the US states declared moratoria or ‘Farm Holidays’.

Such flexibility inoculated America’s democracy against the appeal of Red Unions and Coughlin Fascists. The home seizures are occurring despite frantic efforts by the Obama administration to delay the process.

“... It takes heroic naivety to think the US housing market has turned the corner (apologies to Goldman Sachs, as always). The fuse has yet to detonate on the next mortgage bomb, $134bn of ‘option ARM’ contracts due to reset violently upwards this year and next.

“ US house prices have eked out five months of gains on the Case-Shiller index, but momentum stalled in October in half the cities even before the latest surge of 40 basis points in mortgage rates. Karl Case (of the index) says prices may sink another 15pc. ‘If the 2008 and 2009 loans go bad, then we’re back where we were before – in a nightmare.’

“David Rosenberg from Gluskin Sheff said it is remarkable how little traction has been achieved by zero rates and the greatest fiscal blitz of all time.

The US economy grew at a 2.2pc rate in the third quarter (entirely due to Obama stimulus).

This compares to an average of 7.3pc in the first quarter of every recovery since the Second World War.”