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The Real Confrontation Is Yet To Come

There has been a spate of articles recently on the ten year anniversary of the financial collapse. We wrote about this anniversary two weeks ago, describing the cause of the collapse and the reasons why we are still at risk for another one. Now, we look at how the aftermath of the collapse is shaping current politics, people’s views on the economic system and the conflict that lies ahead to create an economy for the 21st Century.

The Aftershocks Of The Collapse Are Still Being Felt

Jerome Roos of ROAR Magazine writes that the response to the 2008 crash – bailing out the banks but not the people – led to unrest across the globe, beginning with the Arab Spring, and a growing anti-capitalist sentiment. He goes on to say, “It has recently begun to consolidate itself in the form of vibrant grassroots movements, progressive political formations and explicitly socialist candidacies that collectively seek to challenge the untrammeled power and privileges of the ‘1 percent’ from below.”

The stagnant economy, austerity measures and resulting increased debt have opened a space for people to search for and try out alternative economic structures that are more democratic. They have also created conditions for a rise of nationalism on the right. Roos concludes that the “real confrontation is yet to come.”

In the United States, the economic conditions have revived populist movements on both the right and the left. Gareth Porter explains the Democratic and Republican parties are aware of the great dissatisfaction with their failed policies and know they need to try to appease the public by trying new policies, but they don’t know how.

…click on the above link to read the rest of the article…

The Bank Bailout of 2008 was Unnecessa

September 17, 2018

The Bank Bailout of 2008 was Unnecessary

Photo Source Xavier | CC BY 2.0

This week marked 10 years since the harrowing descent into the financial crisis — when the huge investment bank Lehman Bros. went into bankruptcy, with the country’s largest insurer, AIG, about to follow. No one was sure which financial institution might be next to fall.

The banking system started to freeze up. Banks typically extend short-term credit to one another for a few hundredths of a percentage point more than the cost of borrowing from the federal government. This gap exploded to 4 or 5 percentage points after Lehman collapsed. Federal Reserve Chair Ben Bernanke — along with Treasury Secretary Henry Paulson and Federal Reserve Bank of New York President Timothy Geithner — rushed to Congress to get $700 billion to bail out the banks. “If we don’t do this today we won’t have an economy on Monday,” is the line famously attributed to Bernanke.

The trio argued to lawmakers that without the bailout, the United States faced a catastrophic collapse of the financial system and a second Great Depression.

Neither part of that story was true.

Still, news reports on the crisis raised the prospect of empty ATMs and checks uncashed. There were stories in major media outlets about the bank runs of 1929.

No such scenario was in the cards in 2008. Unlike 1929, we have the Federal Deposit Insurance Corporation. The FDIC was created precisely to prevent the sort of bank runs that were common during the Great Depression and earlier financial panics. The FDIC is very good at taking over a failed bank to ensure that checks are honored and ATMs keep working. In fact, the FDIC took over several major banks and many minor ones during the Great Recession. Business carried on as normal and most customers — unless they were following the news closely — remained unaware.

…click on the above link to read the rest of the article…

The Bailouts for the Rich Are Why America Is So Screwed Right Now

September 15, 2018

The Bailouts for the Rich Are Why America Is So Screwed Right Now

Did they prevent a full-scale collapse? Yes. Was it necessary to do it the way we did? Not at all.

These guys got off pretty easy. (Photo by Scott J. Ferrell/Congressional Quarterly/Getty Images)

In 1948, the architect of the post-war American suburb, William Levitt, explained the point of the housing finance system. “No man who owns his own house and lot can be a Communist,” he said. “He has too much to do.”

It’s worth reflecting on this quote on the ten-year anniversary of the financial crisis, because it speaks to how the architects of the bailouts shaped our culture. Tim Geithner, Ben Bernanke, and Hank Paulson, the three key men in charge, basically argue that the bailouts they executed between 2007 and 2009 were unfair, but necessary to preserve stability. It’s time to ask, though: just what stability did they preserve?

These three men paint the financial crisis largely as a technical one. But let’s not get lost in the fancy terms they use, like “normalization of credit flows,” in discussing what happened and why. The excessively wonky tone is intentional—it’s intended to hide the politics of what happened. So let’s look at what the bailouts actually were, in normal human language.

The official response to the financial crisis ended a 75-year-old American policy of pursuing broad homeownership as a social goal. Since at least Franklin Delano Roosevelt, American leaders had deliberately organized the financial system to put more people in their own homes. In 2011, the Obama administration changed this policy, pushing renting over owning. The CEO of Bank of America, Brian Moynihan, echoed this view shortly thereafter. There are many reasons for the change, and not all of them were bad. But what’s important to understand is that the financial crisis was a full-scale assault on the longstanding social contract linking Americans with the financial system through their house.

…click on the above link to read the rest of the article…

The Coming Banking Crisis & The End of Bailouts

February 22, 2018

The Coming Banking Crisis & The End of Bailouts

Behind the curtain, there is a growing concern about a serious banking crisis beginning once again in Europe. Many governments are talking about the crisis behind-the-curtain and we are now beginning to see steps that are being taken to end the TO-BIG-TO-FAIL policies that dominated the 2007-2009 Crash.

The United States is looking at a new radical bank rescue policy where the government is proposing to revise a central pillar of the idea of bailing out banks creating new financial regulation with a new Chapter 14 bankruptcy procedure. They are looking at eliminating the risk of taxpayers’ costs to bail out banks. They are investigating the means for an orderly resolution so that the taxpayers do not have to bail out the banks. This development is causing some concern among the high-flying Wall Street banks, for if that is the case, then another crisis as 2007-2009 will result in even Goldman Sachs closing. The proposal looks to shift the burden to the shareholders and creditors of that bank. This means depositors who are thus creditors.

In Australia, we see similar legislation being proposed. This is the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017. This also authorizes bail-ins bringing an end to the bailout.

Banks Are Evil

March 19, 2017

Barandash Karandashich/Shutterstock

Banks Are Evil

It’s time to get painfully honest about this

I don’t talk to my classmates from business school anymore, many of whom went to work in the financial industry.

Why?

Because, through the lens we use here at PeakProsperity.com to look at the world, I’ve increasingly come to see the financial industry — with the big banks at its core — as the root cause of injustice in today’s society. I can no longer separate any personal affections I might have for my fellow alumni from the evil that their companies perpetrate.

And I’m choosing that word deliberately: Evil.

In my opinion, it’s long past time we be brutally honest about the banks. Their influence and reach has metastasized to the point where we now live under a captive system. From our retirement accounts, to our homes, to the laws we live under — the banks control it all. And they run the system for their benefit, not ours.

While the banks spent much of the past century consolidating their power, the repeal of the Glass-Steagall Actin 1999 emboldened them to accelerate their efforts. Since then, the key trends in the financial industry have been to dismantle regulation and defang those responsible for enforcing it, to manipulate market prices (an ambition tremendously helped by the rise of high-frequency trading algorithms), and to push downside risk onto “muppets” and taxpayers.

Oh, and of course, this hasn’t hurt either: having the ability to print up trillions in thin-air money and then get first-at-the-trough access to it. Don’t forget, the Federal Reserve is made up of and run by — drum roll, please — the banks.

…click on the above link to read the rest of the article…

Control What You Can

September 10, 2016

Control What You Can

Our society does not make it easy to control what you can control.

One of the aphorisms to live by here at Of Two Minds is control what you can.We don’t control the erosion of our money from inflation, the state’s vast criminalization machinery, the nation’s foreign policies or the central bank’s free money for financierspolicies.

So what do we control? Amazingly enough, we still control a few things. We control what we eat (at least those of us who aren’t institutionalized do), what fitness/ stretching/ bodywork routine we do or don’t do, and we still control what we do with our surplus money: we can salt it away as savings rather than spend it, and we control where to invest our savings.

Here’s a couple of thoughts on productively controlling what we can control.

1. Don’t count on bailouts, debt forgiveness, debt jubilees, guaranteed minimum income or any other form of free money. The Federal Reserve, the Treasury and the Justice Department have made it very clear: free money is for financiers, banks and corporations, and bailouts are for too-big-to-fail banks and financial institutions.

As for debt forgiveness and debt jubilees: every $1 of debt that’s forgiven (i.e. written off) is $1 that’s removed from some investor’s balance sheet. If we jubilee $1 trillion in debt, that’s $1 trillion in assets that are destroyed.

As the saying goes, there’s no free lunch (except for friends of the Fed), and since every dollar of debt is someone else’s asset, don’t expect bailouts or debt forgiveness. If it happens, great, but there will will be catches–including Catch 22, 23 and 24.

2. It’s tough not to self-destruct in Our Impoverished, Pathological Society. We all know extra weight is hard on our bodies and health, even if we’re fit, and so the fact that 70.7% of Americans 20 and older are overweight or obese indicates just how difficult it is to remain healthy in our “salty, sugary, fatty treats are temptingly everywhere” culture.

…click on the above link to read the rest of the article…

The Big-Oil Bailouts Begin

January 31, 2016

The Big-Oil Bailouts Begin

The hundred-billion-dollar question.

Despite a bounce this week, low oil prices continue to sow fear, uncertainty, and mayhem across the emerging market complex. On Wednesday, it was leaked that the IMF and World Bank would dispatch a team to oil and gas-dependent Azerbaijan to negotiatea possible $4 billion emergency loan package in what threatens to become the first of a series of global bailouts stemming from the tumbling oil price.

In Latin America’s largest economy, Brazil, the government has refused to rule out bailing out Petrobras, once the jewel of the nation’s crown but now a scandal-mired shadow of its former self, weighed down by $127 billion in debt, most of it denominated in dollars and euros.

If it is unable to sell the $15 billion in assets it has targeted by the end of this year – a big IF given how the prices of oil and gas assets have deteriorated – Petrobras might need some serious help from Brazil’s Treasury. According to Citi, that help could reach $21 billion – just enough to plug the company’s cash hole and fix the capital structure on a sustainable basis. That’s a big payment for a government that has on its hands a widening budget gap, a 4% economic contraction, and double-digit inflation.

Brazil is not the only Latin American economy entertaining a bailout of its national oil company. The government of Mexico just announced that it quietly injected 50 billion pesos ($2.7 billion) of public funds into the coffers of state-owned oil company Pemex.

The timing of the announcement could not have been more convenient, coming just a day before Pemex was due to launch a $5-billion bond issue, which was predictably gobbled up by investors. In all likelihood, it will be the first installment of what could end up being a very large, very costly bailout of Mexico’s oil sector. Pemex is the world’s second largest non-publicly listed company, with $416 billion in assets. But things are looking decidedly grim.

…click on the above link to read the rest of the article…

America Disregarded 4,000 Years of History In Responding to the Great Recession

November 15, 2015

America Disregarded 4,000 Years of History In Responding to the Great Recession

We’ve known for over 4,000 years that debts need to be periodically written down, or the entire economy will collapse.

After all, debt grows exponentially … while economies only grow in an s-curve.

The ancient Sumerians and Babylonians, the early Jews and Christians, the Founding Fathers of the United States and others throughout history knew that private debts had to be periodically forgiven.

Debt jubilees are a vital part of the Christian and Jewish faiths. And the first recorded word for “freedom” anywhere in the world meant “debt-freedom”.

Two prominent economists – Professor of economics and director of the Julis-Rabinowitz Center for Public Policy and Finance at Princeton University (Atif Mian), and Chicago Board of Trade Professor of Finance at the University of Chicago Booth School of Business and co-director of the Initiative on Global Markets (Amir Sufi) – wrote last year:

Debt forgiveness makes a lot of sense when the economy experiences a large-scale negative shock that is beyond the control of any one individual.

History seems to understand this lesson well. The 48th provision of the Code of Hammurabi, written more than 3,500 years ago in Mesopotamia, states that: “If any one owe a debt for a loan, and a storm prostrates the grain, or the harvest fail, or the grain does not growth for lack of water, in that year he need not give his creditor any grain, he washes his debt-tablet in water and pays no rent for this year.” The main threat to economic activity in ancient Mesopotamia was a drought, and one of the first legal codes understood that debt should be forgiven if such a negative shock occurred.

In 1819 when agricultural prices in the United States plummeted leaving farmers overly indebted and unable to pay their mortgages, politicians ran to their defense. Many state governments immediately imposed moratoria on debt payments and foreclosures.

…click on the above link to read the rest of the article…

How Fascist Capitalism Functions: The Case of Greece

July 12, 2015

How Fascist Capitalism Functions: The Case of Greece

There is democratic capitalism, and there is fascist capitalism. What we have today is fascist capitalism; and the following will explain how it works, using as an example the case of Greece.

Mark Whitehouse at Bloomberg headlined on 27 June 2015, “If Greece Defaults, Europe’s Taxpayers Lose,” and presented his ‘news’ report, which simply assumed that, perhaps someday, Greece will be able to get out of debt without defaulting on it. Other than his unfounded assumption there (which assumption is even in his headline), his report was accurate. Here is what he reported that’s accurate:

He presented two graphs, the first of which shows Greece’s governmental debt to private investors (bondholders) as of, first, December 2009; and, then, five years later, December 2014. This graph shows that, in almost all countries, private investors either eliminated or steeply reduced their holdings of Greek government bonds during that 5-year period. (Overall, it was reduced by 83%; but, in countries such as France, Portugal, Ireland, Austria, and Belgium, it was reduced closer to 100% — all of it.) In other words: by the time of December 2009, word was out, amongst the aristocracy, that only suckers would want to buy it from them, so they needed suckers and took advantage of the system that the aristocracy had set up for governments to buy aristocrats’ bad bets — for governments to be suckers when private individuals won’t. Not all of it was sold directly to governments; much of it went instead indirectly, to agencies that the aristocracy has set up as basically transfer-agencies for passing junk to governments; in other words, as middlemen, to transfer unpayable debt-obligations to various governments’ taxpayers.

…click on the above link to read the rest of the article…

Government: Looking Into the Future to Prevent it From Happening

April 16, 2015

Government: Looking Into the Future to Prevent it From Happening

Fantastic Progress

We ended last week wondering what had gone wrong: How come the 21st century has turned out to be such a dud?

Where are the jaw-dropping new inventions? Where are the rising incomes? Where is the dynamic, sizzling economy we expected?

Back in about 1963, we recall trying to picture ourselves in the 21st century. The rate of progress then was so fantastic we had to stretch to imagine it.

Every year, Chevrolet, Ford and Chrysler put out a new and better automobile. In 50 more years, surely cars would be regularly flying through the air!

In 1969, Neil Armstrong walked on the moon. It was just a matter of time before we had a colony there… from which we could explore the solar system.

Then in 1970, the pocket electronic calculator appeared. Half a century later, imagine the condensed knowledge and computing power we would be able to carry around.

Aging Economies

The only one of those things that realized its apparent potential was the increase in computing power. That has changed life on planet Earth. Now, instead of talking to your neighbors in the elevator, you can keep your head down and focus on your smartphone.

We’ve seen couples in restaurants who never talk among themselves – each fiddled with their iPhone through the whole meal. Is that progress or what?

Since the 21st century began, the average US household has lost income. Bummer. Why has this happened?

One answer we proposed to readers of our new monthly publication, The Bill Bonner Letter, was that three of the leading economic zones – the US, Europe and Japan – have come to be dominated by old people.

But that explains only a part of it… and probably not the major part.

…click on the above link to read the rest of the article…

BREAKING BAD (DEBT) – EPISODE TWO

March 3, 2015

BREAKING BAD (DEBT) – EPISODE TWO

‘If you’re committed enough, you can make any story work. I once told a woman I was Kevin Costner, and it worked because I believed it’ – Saul Goodman – Breaking Bad

“As calamitous as the sub-prime blowup seems, it is only the beginning. The credit bubble spawned abuses throughout the system. Sub-prime lending just happened to be the most egregious of the lot, and thus the first to have the cockroaches scurrying out in plain view. The housing market will collapse. New-home construction will collapse. Consumer pocketbooks will be pinched. The consumer spending binge will be over. The U.S. economy will enter a recession.” – Eric Sprott – 2007

In Part One of this article I provided the background of how our current debt saturated economy got to this point of ludicrousness. The “crazy” bloggers, prophets of doom, and analysts who could do basic math were warning of an impending financial crisis in 2006 and 2007, which would be caused by the issuance of hundreds of billions in subprime slime by the Too Big To Trust Wall Street shysters. Subprime mortgages, auto loans, and credit card lines provided the kindling for the 2008 conflagration.

Under normal circumstances we wouldn’t have seen such irrational, reckless, greedy behavior from Wall Street for another generation. But, Wall Street didn’t have to accept the consequences of their actions. They were bailed out and further enriched by their puppets at the Federal Reserve, the lackey politicians they installed in Washington D.C., and on the backs of honest, hard-working, tax paying Americans. The lesson they learned was they could continue to take excessive, reckless, unregulated risks without concern for losses, downside, or consequences.

…click on the above link to read the rest of the article…

Nomi Prins: The Sinister Evolution Of Our Modern Banking System Because we’re all about those banks, ’bout those banks…

February 1, 2015

Nomi Prins: The Sinister Evolution Of Our Modern Banking System

Because we’re all about those banks, ’bout those banks…

I quit Wall Street and decided that it was time to talk more about what was going on inside it, as it had changed. It had become far more sinister and far more dangerous.

~ Nomi Prins

Today, the ‘revolving door’ connecting our political and financial systems is evident to anyone with eyes. But this entwined relationship between Washington DC and Wall Street is nothing new, predating even the formation of the Federal Reserve.

To chronicle the evolution to where we find ourselves today, we welcome Nomi Prins, Wall Street veteran turned financial industry reformist, and author of the excellent expose All The Presidents Bankers.

In this well-detailed interview, Nomi goes into depth of the rationale and process behind the creation of the Federal Reserve, and more important, how its mandate — and the behavior of the banking system overall — metastasized into the every-banker-for-himself regime of sanctioned theft we now live with.

Chris Martenson: To me, it couldn’t have been more obviously obscene then in 2010, and I believe maybe 2009, right after the big banks had been handed just vast, huge, very favorable handouts and bailouts during the Great Recession — and then they handed themselves record bonuses. I thought optically that was just horrible. As somebody who was inside the banking system: Are they that tone deaf? What’s behind that sort of behavior?

Nomi Prins: Indeed, they have become very isolated.

It began with the period before the 1970s when different people were rising to leadership in banks, and worsened in the 80s when we started seeing people who had more sociopathic tendencies or less ability to appreciate the idea of the public’s economic stability being beneficial to growing their institutions. They no longer viewed it as necessary.

…click on the above link to read the rest of the article…

Anti-austerity Syriza sweeps Greece parliamentary poll

January 26, 2015

Anti-austerity Syriza sweeps Greece parliamentary poll

Party’s leader Alexis Tsipras, who wants to renegotiate EU and IMF bailout terms, set to become next prime minister.

Syriza, a radical left party, has swept to power in Greece promising to end years of painful austerity policies, in an election victory that puts the country on a collision course with the EU and international creditors.

In a result that exceeded analysts’ expectations, Syriza and its 40-year-old leader Alexis Tsipras won 149 seats in the 300-seat Greek parliament, just two short of an absolute majority, with most of the votes counted on Sunday.

Antonis Samaras’ New Democracy, the former party of government, was routed and reduced to around 76 seats.

Syriza, which says it does not want to leave the euro, will become the first anti-austerity party to take power in Europe and Tsipras will be Greece’s youngest prime minister in 150 years.

Tsipras, a former Communist youth activist, told thousands of flag-waving supporters in Athens: “Greece is leaving behind disastrous austerity.”

Tsipras repeated his pledge to renegotiate the terms of Greece’s $269bn bailout with the EU and the International Monetary Fund, but struck a more conciliatory tone than during his fiery campaign.

…click on the above link to read the rest of the article…

Oh, Greece!

January 21, 2015

Oh, Greece!

Greece’s bailout program is not working. After receiving hundreds of billions of Euros in new loans to stave off a sovereign default, Greeks are on the verge of electing a new government that may throw Eurozone politics into turmoil.

From the outset, this was always going to be a tricky one for European bureaucrats and lenders. Restoring the solvency of a state which historically had great difficulties in collecting taxes from its citizens was not going to be easy. Moreover, the crash exposed fundamental flaws in the Greek economy, which at the time turned out to be a leading indicator for other Southern Eurozone countries.

With the world still reeling from the Great Recession, in 2010 Greece applied for a rescue program as its funding costs soared once the fragility of its finances could no longer remain hidden.

It can be argued that if debt balances had been restructured there and then to levels where they could actually be paid off over an extended period of time, together with unpleasant but sensible fiscal policies – as we shall see, taking into account important differentiators of the Greek economy – the cost of the bailout could have been much more manageable.

…click on the above link to read the rest of the article…

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