"The Federal Reserve is a key mechanism for perpetuating this whole filthy system, in which "Wall Street rules."
WHO CAUSED THE GREAT RECESSION OF 2008?
"It was caused by reckless lending practices, Wall Street greed, outright fraud, lax government oversight in the George W. Bush years, and deregulation of the financial sector in the Bill Clinton years. The deepest source, going back decades, was rising inequality. In good times and bad, no matter which party held power, the squeezed middle class sank ever further into debt...
Banks don’t control interest rates today as they did in the past. That’s the Federal Reserve’s job. The Fed generally reduces interest rates or expands the money supply through “quantitative easing,” or buying bonds from banks, in order to force an economy in the ditch to climb out. The recovery from the Great Recession remained on its feet for so long because the Fed’s policy of paying interest on reserves at banks soaked up much of the new money it created out of thin air. Also, much of the money went overseas to buy imports or as investments.
Wall Street rules... but then you knew this!
5 January 2019
The Federal Reserve sent a clear message to Wall Street on Friday: It will not allow the longest bull market in American history to end. The message was received loud and clear, and the Dow rose by more than 700 points.
Hundreds of thousands of federal workers remain furloughed or forced to work without pay as the partial government shutdown enters its third week, but the US central bank is making clear that all of the resources of the state are at the disposal of the financial oligarchy.
Responding to Thursday’s market selloff following a dismal report from Apple and signs of a manufacturing slowdown in both China and the US, the Fed declared it was “listening” to the markets and would scrap its plans to raise interest rates.
Speaking at a conference in Atlanta, where he was flanked by his predecessors Ben Bernanke and Janet Yellen, both of whom had worked to reflate the stock market bubble after the 2008 financial crash, Chairman Jerome Powell signaled that the Fed would back off from its two projected rate increases for 2019.
“We’re listening sensitively to the messages markets are sending,” he said, adding that the central bank would be “patient” in imposing further rate increases. To underline the point, he declared, “If we ever came to the conclusion that any aspect of our plans” was causing a problem, “we wouldn’t hesitate to change it.”
This extraordinary pledge to Wall Street followed the 660 point plunge in the Dow Jones Industrial Average on Thursday, capping off the worst two-day start for a new trading year since the collapse of the dot.com bubble.
William McChesney Martin, the Fed chairman from 1951 to 1970, famously said that his job was “to take away the punch bowl just as the party gets going.” Now the task of the Fed chairman is to ply the wealthy revelers with tequila shots as soon as they start to sober up.
Powell’s remarks were particularly striking given that they followed the release Friday of the most upbeat jobs report in over a year, with figures, including the highest year-on-year wage growth since the 2008 crisis, universally lauded as “stellar.”
While US financial markets have endured the
worst December since the Great Depression,
amid mounting fears of a looming recession
and a new financial crisis, analysts have been
quick to point out that there are no “hard”
signs of a recession in the United States.
Both the Dow and the S&P 500 indexes have fallen more than 15 percent from their recent highs, while the tech-heavy NASDAQ has entered bear market territory, usually defined as a drop of 20 percent from recent highs.
The markets, Powell admitted, are “well ahead of the data.” But it is the markets, not the “data,” that Powell is listening to.
Since World War II, bear markets have occurred, on average, every five-and-a-half years. But if the present trend continues, the Dow will reach 10 years without a bear market in March, despite the recent losses.
Now the Fed has stepped in effectively to pledge that it will
allocate whatever resources are needed to ensure that no
substantial market correction takes place. But this means
only that when the correction does come, as it inevitably
must, it will be all the more severe and the Fed will have
all the less power to stop it.
From the standpoint of the history of the institution, the Fed’s current more or less explicit role as backstop for the stock market is a relatively new development. Founded in 1913, the Federal Reserve legally has had the “dual mandate” of ensuring both maximum employment and price stability since the late 1970s. Fed officials have traditionally denied being influenced in policy decisions by a desire to drive up the stock market.
Federal Reserve Chairman Paul Volcker, appointed by Democratic President Jimmy Carter in 1979, deliberately engineered an economic recession by driving the benchmark federal funds interest rate above 20 percent. His highly conscious aim, in the name of combating inflation, was to quash a wages movement of US workers by triggering plant closures and driving up unemployment.
The actions of the Fed under Volcker set the stage for a vast upward redistribution of wealth, facilitated on one hand by the trade unions’ suppression of the class struggle and on the other by a relentless and dizzying rise on the stock market.
Volcker’s recession, together with the Reagan administration’s crushing of the 1981 PATCO air traffic controllers’ strike, ushered in decades of mass layoffs, deindustrialization and wage and benefit concessions, leading labor’s share of total national income to fall year after year.
These were also decades of financial deregulation, leading to the savings and loan crisis of the late 1980s, the dot.com bubble of 1999-2000, and, worst of all, the 2008 financial crisis.
In each of these crises, the Federal Reserve carried out what became known as the “Greenspan put,” (later the “Bernanke put”)—an implicit guarantee to backstop the financial markets, prompting investors to take ever greater risks.
In 2008, this resulted in the most sweeping and systemic financial crisis since the Great Depression, prompting Fed Chairman Bernanke, New York Fed President Tim Geithner and Treasury Secretary Henry Paulson (the former CEO of Goldman Sachs) to orchestrate the largest bank bailout in human history.
Since that time, the Federal Reserve has carried out its most accommodative monetary policy ever, keeping interest rates at or near zero percent for six years. It supplemented this boondoggle for the financial elite with its multi-trillion-dollar “quantitative easing” money-printing program.
The effect can be seen in the ever more staggering wealth of the financial oligarchy, which has consistently enjoyed investment returns of between 10 and 20 percent every year since the financial crisis, even as the incomes of workers have stagnated or fallen.
American capitalist society is hooked on the toxic growth of social inequality created by the stock market bubble. This, in turn, fosters the political framework not just for the decadent lifestyles of the financial oligarchs, each of whom owns, on average, a half-dozen mansions around the world, a private jet and a super-yacht, but also for the broader periphery of the affluent upper-middle class, which provides the oligarchs with political legitimacy and support. These elite social layers determine American political life, from which the broad mass of working people is effectively excluded.
The Federal Reserve is a key mechanism for
perpetuating this whole filthy system, in
which “Wall Street rules.” But its services in behalf of
the rich and the super-rich only compound the fundamental and
insoluble contradictions of capitalism, plunging the system into
ever deeper debt and ensuring that the next crisis will be that
much more violent and explosive.
In this intensifying crisis, the working class must assert its independent interests with the same determination and ruthlessness as evinced by the ruling class. It must answer the bourgeoisie’s social counterrevolution with the program of socialist revolution.
the depression is already here for most of us below the super-rich!
Trump and
the GOP created a fake economic boom on our collective credit card:
The equivalent of maxing out your credit cards and saying look how
good I'm doing right now.
Trump criticized Dimon in
2013 for supposedly contributing to the country’s economic
downturn. “I’m not Jamie Dimon, who pays $13 billion to settle a case
and then pays $11 billion to settle a case and who I think is the worst
banker in the United States,” he told reporters.
"One
of the premier institutions of big business, JP Morgan Chase, issued
an internal report on the eve of the 10th anniversary of the 2008
crash, which warned that another “great liquidity crisis”
was possible, and that a government bailout on the scale of that
effected by Bush and Obama will produce social unrest, “in light of
the potential impact of central bank actions in driving
inequality between asset owners and labor."
"Overall,
the reaction to the decision points to the underlying fragility of
financial markets, which have become a house of cards as a result of the
massive inflows of money from the Fed and other central banks, and are now
extremely susceptible to even a small tightening in financial
conditions."
"It is significant that what the Financial Times described
as a “tsunami of money”—estimated to reach $1 trillion for the year—has failed
to prevent what could be the worst year for stock markets since the global
financial crisis."
"A
decade ago, as the financial crisis raged, America’s banks were in
ruins. Lehman Brothers, the storied 158-year-old investment house,
collapsed into bankruptcy in mid-September 2008. Six months earlier, Bear
Stearns, its competitor, had required a government-engineered rescue to
avert the same outcome. By October, two of the nation’s largest commercial
banks, Citigroup and Bank of America, needed their own government-tailored
bailouts to escape failure. Smaller but still-sizable banks, such as
Washington Mutual and IndyMac, died."
The GOP said the "Tax Cuts and Jobs Act"
would reduce deficits and supercharge the
economy (and stocks and wages). The
White House says things are working as
planned, but one year on--the numbers
mostly suggest otherwise.
would reduce deficits and supercharge the
economy (and stocks and wages). The
White House says things are working as
planned, but one year on--the numbers
mostly suggest otherwise.
Economy, finance, and
budgets
CITY JOURNAL
A decade ago, as the financial crisis raged, America’s banks were in ruins. Lehman Brothers, the storied 158-year-old investment house, collapsed into bankruptcy in mid-September 2008. Six months earlier, Bear Stearns, its competitor, had required a government-engineered rescue to avert the same outcome. By October, two of the nation’s largest commercial banks, Citigroup and Bank of America, needed their own government-tailored bailouts to escape failure. Smaller but still-sizable banks, such as Washington Mutual and IndyMac, died.
After the
crisis, the goal was to make banks safer. The 2010 Dodd-Frank law, coupled with
independent regulatory initiatives led by the Federal Reserve and other bank
overseers, severely tightened banks’ ability to engage in speculative ventures,
such as investing directly in hedge funds or buying and selling securities for
short-term gain. The new regime made them hold more reserves, too, to backstop
lending.
Yet the
financial system isn’t just banks. Over the last ten years, a plethora of
“nonbank” lenders, or “shadow banks”—ranging from publicly traded investment
funds that purchase debt to private-equity firms loaning to companies for
mergers or expansions—have expanded their presence in the financial system, and
thus in the U.S. and global economies. Banks may have tighter lending standards
today, but many of these other entities loosened them up. One consequence:
despite a supposed crackdown on risky finance, American and global debt has
climbed to an all-time high.
Banks
remain hugely important, of course, but the potential for a sudden, 2008-like
seizure in global credit markets increasingly lies beyond traditional banking.
In 2008, government officials at least knew which institutions to rescue to
avoid global economic paralysis. Next time, they may be chasing shadows.
The 2008 financial crisis vaporized 8.8 million American jobs,
triggered 8 million house foreclosures, and still roils global politics. Many
commentators blamed a proliferation of complex financial instruments as the
primary reason for the meltdown. Notoriously, financiers had taken subprime
“teaser”-rate mortgages and other low-quality loans and bundled them into
opaque financial securities, such as “collateralized debt obligations,” which
proved exceedingly hard for even sophisticated investors, such as the overseas
banks that purchased many of them, to understand. When it turned out that some
of the securities contained lots of defaulting loans—as Americans who never
were financially secure enough to purchase homes struggled to pay housing
debt—no one could figure out where, exactly, the bad debt was buried (many
places, it turned out). Global panic ensued.
The
“shadow-financing” industry played a role in the crisis, too. Many nonbank
mortgage lenders had sold these bundled loans to banks, so as to make yet more
bundled loans. But the locus of the 2008 crisis was traditional banks. Firms
such as Citibank and Lehman had kept tens of billions of dollars of such debt
and related derivative instruments on their books, and investors feared
(correctly, in Lehman’s case) that future losses from these soured loans would
force the institutions themselves into default, wiping out shareholders and
costing bondholders money.
The
ultimate cause of the crisis, however, wasn’t complex at all: a massive
increase in debt, with too little capital behind it. Recall how a bank works.
Like people, banks have assets and liabilities. For a person, a house or
retirement account is an asset and the money he owes is a liability. A bank’s
assets include the loans that it has made to customers—whether directly, in a
mortgage, or indirectly, in purchasing a mortgage-backed bond. Loans and bonds
are bank assets because, when all goes well, the bank collects money from them:
the interest and principal that borrowers pay monthly on their mortgage, for
example. A bank’s liabilities, by contrast, include the money it has borrowed
from outside investors and depositors. When a customer keeps his money in the
bank for safekeeping, he effectively lends it money; global investors who
purchase a bank’s bonds are also lending to it. The goal, for firms as well as
people, is for the worth of assets to exceed liabilities. A bank charges higher
interest rates on the loans that it makes than the rates it pays to depositors
and investors, so that it can turn a profit—again, when all goes well.
When the
economy tanks, this system runs into two problems. First, a bank’s asset values
start to fall as more people find themselves unable to pay off their mortgage
or credit-card debt. Yet the bank still must repay its own debt. If the value
of a bank’s assets sinks below its liabilities, the bank is effectively
insolvent. To lessen this risk, regulators demand that banks hold some money in
reserve: capital. Theoretically, a bank with capital equal to 10 percent of its
assets could watch those assets decline in value by 10 percent without
insolvency looming.
Yet
investors would frown on such a thin margin, and that highlights the second
problem: illiquidity. A bank might have sufficient capital to cover its losses,
but if depositors and other lenders don’t agree, they may rush to take their
money out—money that the bank can’t immediately provide because it has locked
up the funds in long-term loans, including mortgages. During a liquidity “run,”
solvent banks can turn to the Federal Reserve for emergency funding.
By 2008,
bank capital levels had sunk to an all-time low; bank managers and their
regulators, believing that risk could be perfectly monitored and controlled,
were comfortable with the trend. By 2007, banks’ “leverage ratio”—the percentage
of quality capital relative to their assets—was just 6 percent, well below the
nearly 8 percent of a decade earlier. Since then, thanks to tougher rules, the
leverage ratio has risen above 9 percent. Global capital ratios have risen, as
well. Many analysts believe that capital requirements should be higher still,
but the shift has made banks somewhat safer.
The
government doesn’t mandate capital levels with the goal of keeping any
particular bank safe. After all, private companies go out of business all the
time, and investors in any private venture should be prepared to take that
risk. The capital requirements are about keeping the economy safe. Banks tend to hold similar assets—various types of
loans to people, businesses, or government. So when one bank gets into trouble,
chances are that many others are suffering as well. A higher capital reserve
lessens the chance of several banks veering toward insolvency simultaneously,
which would drain the economy of credit. It was that threat—an abrupt shutdown
of markets for all lending, to good borrowers and bad—that led Washington to
bail out the financial industry (mostly the banks) in 2008.
But what if the financial industry, in creating credit, bypasses
the banks? According to the global central banks and regulators who make up the
international Financial Stability Board, this type of lending constitutes
“shadow banking.” That’s an imprecise, overly ominous term, evoking Mafia dons
writing loans to gamblers on betting slips and then kneecapping debtors who
don’t pay the money back on time, but the practice is nothing so Tony
Soprano-ish. The accountancy and consultancy firm Deloitte defines shadow
banking, wonkily, as “a market-funded credit intermediation system involving
maturity and/or liquidity transformation through securitization and
secured-funding mechanisms. It exists at least partly outside of the
traditional banking system and does not have government guarantees in the form
of insurance or access to the central bank.”
“Shadow banking is nothing new, encompassing everything from
corporate bond markets to payday lending.”
In plain
English, “maturity and/or liquidity transformation” is exactly what a bank
does: making a long-term loan, such as a mortgage, but funding it with
short-term deposits or short-term bonds. Outside of a bank, the activity
involves taking a mortgage or other kind of longer-term loan, bundling it with
other loans, and selling it to investors—including pension funds, insurers, or
corporations with large amounts of idle cash, like Apple—as securities that
mature far more quickly than the loans they contain. The risks here are the
same as at the banks, but with a twist: if people and companies can’t pay off
the loans on the schedule that the lenders anticipated, all the investors risk
losing money. Unlike small depositors at banks, shadow banks don’t have
recourse to government deposit insurance. Nor can shadow-financing participants
go to the Federal Reserve for emergency funding during a crisis—though, in many
cases, they wouldn’t have to: pensioners and insurance policyholders generally
don’t have the right to remove their money from pension funds and insurers
overnight, as many bank investors do.
Understood
broadly, shadow banking is nothing new, encompassing everything from corporate
bond markets to payday lending. And much of it isn’t very shadowy; as a recent
U.S. Treasury report noted, the government “prefers to transition to a
different term, ‘market-based finance,’ ” because applying the term “shadow
banking” to entities like insurance companies could “imply insufficient
regulatory oversight,” when some such sectors (though not all) are highly
regulated. It isn’t always easy to separate real banks from shadow banks,
moreover.
Just as before the financial crisis, banks continue to offer shadow investments, such as mortgage-backed securities or bundled corporate loans, and, conversely, banks also lend money to private-equity funds and other shadow lenders, so that they, in turn, can lend to companies.
Just as before the financial crisis, banks continue to offer shadow investments, such as mortgage-backed securities or bundled corporate loans, and, conversely, banks also lend money to private-equity funds and other shadow lenders, so that they, in turn, can lend to companies.
Such
market-based finance has its merits; sound reasons exist for why a pension-fund
administrator doesn’t just deposit tens of billions of dollars at the bank,
withdrawing the money over time to meet retirees’ needs. For people and
institutions willing, and able, to take on more risk, market-based finance can
offer higher interest rates—an especially important consideration when the
government keeps official interest rates close to zero, as it did from 2008 to
2016. Shadow finance also offers competition for companies, people, and
governments unable to borrow from banks cheaply, or whose needs—say, a
multi-hundred-billion-dollar bond to buy another company—would be beyond the
prudent coverage capacity of a single bank or even a group of banks.
Theoretically,
bond markets and other market-based finance instruments make the financial
system safer by diversifying risk. A bank holding a large concentration of
loans to one company faces a major default risk. Dispersing that risk to dozens
or hundreds of buyers in the global marketplace means—again, in theory—that in
a default, lots of people and institutions will suffer a little pain, rather
than one bank suffering a lot of pain.
But too much of a good thing is sometimes not so good, and, in this
case, the extension of shadow banking threatens to reintroduce the risks that
innovation was supposed to reduce. Recent growth in shadow banking isn’t
serving to disperse risk or to tailor innovative products to meet borrowers’
needs. Two less promising reasons explain its expansion. One is to enable
borrowers and lenders to skirt the rules—capital cushions—that constrain
lending at banks. The other—after a decade of record-low, near-zero interest
rates as Federal Reserve policy—is to allow borrowers and lenders to find
investments that pay higher returns.
The world
of market-based finance has indeed grown. Between 2002 and 2007, the eve of the
financial crisis, the world’s nonbank financial assets increased from $30
trillion to $60 trillion, or 124 percent of GDP. Now these assets, at $160
trillion, constitute 148 percent of GDP. Back then, such assets made up about a
quarter of the world’s financial assets; today, they account for nearly half
(48 percent), reports the Financial Stability Board (FSB).
Within
this pool of nonbank assets, the FSB has devised a “narrower” measure of shadow
banking that identifies the types of companies likely to pose the most systemic
risk to the economy—those most susceptible, that is, to sudden, bank-like
liquidity or solvency panics. The FSB believes that pension funds and insurance
companies could largely withstand short-term market downturns, so it doesn’t
include them in this riskier category. That leaves $45 trillion in narrow
shadow institutions and investments, a full 72 percent of it held in
instruments “with features that make them susceptible to runs.” That’s up from
$28 trillion in 2010—or from 66 percent to 73 percent of GDP.
Of that
$45 trillion market, the U.S. has the largest portion: $14 trillion. (Though,
as the FSB explains, separation by jurisdiction may be misleading; Chinese
investment vehicles, for example, have sold hundreds of billions of dollars in
credit products to local investors to spend on property abroad, affecting
Western asset prices.) Compared with this $14 trillion figure, American
commercial banks’ assets are worth just shy of $17 trillion, up from about $12
trillion right before the financial crisis. Banks as well as nonbank lenders
have grown, in other words, but the banks have done so under far stricter
oversight.
An analysis of one particular area of shadow financing shows the
potential for a new type of chaos. A decade ago, an “exchange-traded fund,” or
ETF, was mostly a vehicle to help people and institutions invest in stocks. An
investor wanting to invest in a stock portfolio but without enough resources to
buy, say, 100 shares apiece in several different companies, could purchase
shares in an ETF that made such investments. These stock-backed ETFs carried
risk, of course: if the stock market went down, the value of the ETF tracking
the stocks would go down, too. But an investor likely could sell the fund
quickly; the ETF was liquid because the underlying stocks were liquid.
Over the
past decade, though, a new creature has emerged: bond-based ETFs. A bond ETF
works the same way as a stock ETF: an investor interested in purchasing debt
securities but without the financial resources to buy individual bonds—usually
requiring several thousand dollars of outlay at once—can purchase shares in a
fund that invests in these bonds. Since 2005, bond ETFs have grown from
negligible to a market just shy of $800 billion—nearly 10 percent of the value
of the U.S. corporate bond market.
These
bond ETFs are riskier, in at least one way, than stock ETFs. Some bond ETFs, of
course, invest solely in high-quality federal, municipal, and corporate
debt—bonds highly unlikely to default in droves. Default, though, isn’t the
only risk: suddenly higher global interest rates could cause bond funds to lose
value (as new bonds, with the higher interest rates, would be more attractive).
And with the exception of federal-government debt, even the highest-quality
bonds aren’t as liquid as stocks; they have maturities ranging anywhere from
hours remaining to 100 years.
Investors
in bond-based ETFs, then, face a much bigger “liquidity” and “maturity”
mismatch risk. If the investors want to sell their ETF shares in a hurry, the
fund managers might not be able to sell the underlying bonds quickly to repay
them, particularly in a tense market. That’s especially true, since bond
markets are even less liquid than they were pre–financial crisis. Because of
new regulations on “market making,” banks will be highly unlikely to buy bonds
in a declining market to make a buck later, after the panic subsides.
Alook at a related type of debt-based ETF raises even bigger
mismatch concerns. “In 2017, investors poured $11.5 billion into U.S. mutual
funds and exchange-traded funds that invest in high-yield bank loans,” notes
Douglas J. Peebles, chief investment officer of fixed-income—bonds—at the
AllianceBernstein investment outfit. A high-yield bank loan is one that carries
particular risk, such as a loan to a company with a poor credit rating or to a
company borrowing money to merge with another firm or to expand; the “yield”
refers to the higher interest rate required to compensate for this risk. Rather
than keep this loan on its books, the bank is selling it, in these cases, to
the exchange-traded funds that are a rising component of shadow banking.
This new
demand has induced lending that otherwise wouldn’t exist—in many cases, for
good reason. “The quality of today’s bank loans has declined,” Peebles
observes, because “strong demand has been promoting lax lending and sketchy
supply. . . . Companies know that high demand means they can borrow at
favorable rates.” Further, says Peebles, “first-time, lower-rated
issuers”—companies without a good track record of repaying debt—are responsible
for the recent boom in loan borrowers, from fewer than 300 institutions in 2007
to closer to 900 today. The number of bank-loan ETFs (and similar “open-ended”
funds) expanded from just two in 1992 to 250 in June 2018.
Peebles
worries as well about the extra risk that this financing mechanism poses to
investors. “In the past, banks viewed the loans as investments that would stay
on their balance sheets,” he explains, but now that banks sell them to ETFs,
“most investors today own high-yield bank loans through mutual funds or ETFs,
highly liquid instruments. . . . But the underlying bank loan market is less
liquid than the high-yield bond market,” with trades “tak[ing] weeks to
settle.” He warns: “When the tide turns, strategies like these are bound to run
into trouble.”
The peril to the economy isn’t just that current investors could
lose money in a crisis, though big drops in asset markets typically lead people
to curtail consumer spending, deepening a recession. The bigger danger is a
repeat of 2008: fear of losses on existing investments might lead shadow-market
lenders to cut off credit to all potential new borrowers, even worthy ones.
Banks, because they’re dependent on shadow banks to buy their loans, would be
unlikely to fill the vacuum. “Although non-bank credit can act as a substitute
for bank credit when banks curtail the extension of credit, non-bank and bank
credit can also move in lockstep, potentially amplifying credit booms and
busts,” says the FSB. The porous borders between the supposedly riskier parts
of the nonbank financial markets—ETFs—and the less risky ones also could work
against a fast recovery in a crisis. Thanks to recent regulatory changes,
insurance companies, for example, are set to become big purchasers of bond ETF
shares.
Worsening
this hazard, just as with the collateralized debt securities of the financial
meltdown, many bond-based ETFs contain similar securities. Such duplication
could eradicate the diversification benefit that the economy supposedly gets
from dispersing risk. Contagion would be accelerated by the fact that
debt-based ETFs, like stock-based ETFs, must “price” themselves continuously
during the day, according to perceived future losses; this, in effect,
introduces the risk of stock-market-style volatility into long-term bond
markets. (Bond-based mutual funds, of course, have existed for decades, but
they did not trade like stocks and thus did not feature this particular risk.)
Via the plunging price of collateralized debt obligations, we saw, in 2008,
what happened to the availability of long-term credit when exposed to the
pricing signals of an equity-style crash, but those collateralized debt
obligations traded far less frequently than bond ETFs do today. Bond ETFs may
be more efficient, yes, in reflecting any given day’s value; that supposed
benefit could also allow a panic to spread more rapidly.
During
the last global panic, the answer to getting credit flowing again—so that
companies could perform critical tasks, such as meeting payrolls, before
revenue from sales came in—was to provide extraordinary government support to
the large banks. But even if one believes that such bailouts are a sensible
approach to financial crises—a highly tenuous position—how would the government
provide longer-term support to hundreds of individual funds, to ensure that the
broader market keeps functioning for credit-card and longer-term corporate
debt? This would greatly expand the government safety net over supposedly
risk-embracing financial markets—by even more than it was expanded a decade
ago.
“When both regular banks and shadow banks are tapped out, we may
need shadow-shadow finance to take up the slack.”
Unwise lending also harms borrowers. Private-equity firms, too, are
increasingly lending companies money, instead of just buying those firms
outright, their older model. As the Financial Times recently reported,
private-equity funds—or, more accurately, their related private-credit
funds—have more than $150 billion in money available for investment. They make
loans that banks won’t, or can’t, make, though this is leading banks to take
greater risks to compete. “It’s been great for borrowers,” says Richard Farley,
chair of law firm Kramer Levin’s leveraged-finance group, as “there are deals
that would not be financed,” or would not be financed on such favorable terms.
Competition
is usually healthy, and risky finance can spark innovation that otherwise
wouldn’t have happened. But easy lending can also make economic cycles more
violent. Even in boom years, excess debt can plunge firms that otherwise might
muddle through a recession deep into crisis, or even cause them to fail, adding
to layoffs and consumer-spending cutbacks. We can see this happening already,
as the Financial Times reports, with bankrupt
firms like Charming Charlie, an accessories store that expanded too fast; Six
Month Smiles, an orthodontic concern; and Southern Technical Institute, a
for-profit technical college.
The
numbers are troubling. The expansion of shadow banking has unquestionably
brought a pileup of debt. The Securities Industry and Financial Markets
Association, a trade group, estimates that U.S. bond markets, overall, have
swollen from $31 trillion to nearly $42 trillion since 2008. Federal government
borrowing accounts for a lot of that, but not close to all of it. The
corporate-bond market, for example, went from $5.5 trillion to $9.1 trillion
over the same decade. Corporations, in other words, owe almost twice as much
today in bond obligations as they did a decade ago. That’s sure to make it
harder for some, at least, to recover from any future downturn.
There are policy approaches to resolving these debt issues. An
unpopular idea would be to treat markets that act like banks, as banks—requiring
ETFs, say, to hold the same capital cushions and adhere to the same prudence
standards as banks. In the end, though, the bigger problem is cultural and
political. What we’re seeing, more than a decade after the financial crisis,
results from the government’s mixed signals about financial markets. On the one
hand, the U.S.
government, along with its global counterparts, realized in 2008 that debt had reached unsustainable levels; that’s partly why it sharply raised bank capital requirements. On the other hand, the government recognized that the economy is critically dependent on debt. Absent large increases in workers’ pay, consumer and corporate debt slowdowns would stall the economy’s until-recently modest growth. That’s why the U.S. and other Western governments have kept interest rates so low, for so long.
government, along with its global counterparts, realized in 2008 that debt had reached unsustainable levels; that’s partly why it sharply raised bank capital requirements. On the other hand, the government recognized that the economy is critically dependent on debt. Absent large increases in workers’ pay, consumer and corporate debt slowdowns would stall the economy’s until-recently modest growth. That’s why the U.S. and other Western governments have kept interest rates so low, for so long.
Thus, we
find ourselves with safer banks but scarier shadows. Global debt levels are now
$247 trillion, or 318 percent, of world GDP, according to the Institute of
International Finance, up from $142 trillion owed in 2007, or 269 percent of
GDP. When both regular banks and shadow banks are tapped out, we may have to
invent shadow-shadow finance to take up the slack.
Nicole Gelinas is a City Journal contributing editor, a senior
fellow at the Manhattan Institute, and the author of After the Fall: Saving Capitalism from Wall Street—and Washington.
BANKS ABOVE THE LAW
You should be
able to file class-action suits against banks, watchdog group says
Richard
Cordray, director of the Consumer Financial Protection Bureau, testifies at a
Senate hearing last month. Class-action bans deny “consumers the right to seek
justice and relief for wrongdoing,” he says. (Alex Wong / Getty Images)
Contracts that
prevent consumers from filing class-action lawsuits against banks could soon be
illegal under new rules to be proposed Thursday by the Consumer Financial
Protection Bureau.
The
centerpiece of the proposal — more than a year in the making and fiercely
opposed by the finance industry — would prevent banks, credit card companies
and other financial-service firms from including class-action bans within
contracts that consumers sign when they open accounts.
Those bans
have become a common part of contract language that also requires consumers to
go to private arbitration rather than to court to settle disputes with banks
and other companies. The proposed rules could end up also discouraging banks
from including those arbitration clauses in their contracts.
Although
industry groups argue consumers are better served by arbitration than by
class-action lawsuits that can pay individual account holders little, consumer
advocates and consumer bureau Director Richard Cordray say class-action bans
prevent consumers from keeping banks accountable.
"Signing
up for a credit card or opening a bank account can often mean signing away your
right to take the company to court if things go wrong," Cordray said in a
statement, calling the practice a "contract gotcha that effectively denies
groups of consumers the right to seek justice and relief for wrongdoing."
The rules, an
initial draft of which were first disclosed in October, are being released
before a public hearing in Albuquerque.
The bureau is
asking for public comments on the rules, which could take effect in about a
year, though banks and industry groups will probably try to block the rules in
court.
The bureau's
proposal would not specifically ban arbitration clauses, which have become
common in consumer contracts. Rather, it would prevent those arbitration
clauses from including language that bans consumers from joining class-action
cases.
Such bans are
common, and they've become more widely enforced after a 2011 Supreme Court
ruling that said federal law requires state courts to honor bans, even if state
laws prohibit them.
Arbitration
clauses and related class-action bans have since become a hot topic among
consumer advocates, who argue consumers are prevented from joining together to
take on big companies in lawsuits that can result in millions of dollars in
damages — payouts large enough to prompt changes in practices harmful to consumers.
For instance,
a Santa Barbara attorney last year filed a class-action case against Wells
Fargo on behalf of customers who say the bank created fake accounts in their
names. But a federal judge ruled that arbitration clauses signed by customers
prohibited the case from moving forward.
Alan
Kaplinsky, a partner at the law firm Ballard Spahr who will testify at
Thursday's hearing on the industry's behalf, acknowledged the main attraction
of arbitration clauses was that they prevented class actions and their
potentially multimillion-dollar judgments.
"What
made arbitration clauses attractive was their impact on class-action
litigation," he said. "Most banks and companies using it now will
conclude it's no longer worth it."
That will
mean, he said, consumers have no option but to take banks to court if they
believe they've been wronged. And in court, Kaplinsky said, consumers can
easily be outgunned.
"Companies,
in general, believe they have an advantage over consumers in court," he
said. "If a consumer wants to go to court, they have to take time out from
work. Cases last longer [than in arbitration]. That's good. Companies like to
drag things out."
Travis Norton,
executive director of the U.S.
Chamber of Commerce's Center for Capital
Markets Competitiveness, called the proposed
rules "a backdoor ban" on arbitration clauses,
which he said can provide individual
consumers the chance for more financial
relief than a class-action suit.
Chamber of Commerce's Center for Capital
Markets Competitiveness, called the proposed
rules "a backdoor ban" on arbitration clauses,
which he said can provide individual
consumers the chance for more financial
relief than a class-action suit.
Thaddeus King,
an officer with the nonprofit Pew Charitable Trusts' consumer banking project,
said it's probably true that banks will ditch arbitration clauses if the CFPB's
rules take effect. But he said consumers will probably be just fine.
"That
wouldn't mean a consumer and a bank can't go to arbitration. They're always
free to choose that option," he said, noting that some banks and credit
unions without arbitration clauses still resolve consumer disputes through
arbitration.
King added
that some consumers who might have preferred arbitration could be forced into
court instead and might opt against the hassle and expense of filing a case. But
he said more consumers will be helped by being able to participate in
class-action cases.
Class actions
allow many consumers, all with relatively small claims, to band together and
file cases that it would otherwise make no sense to pursue.
Mark Greenstone,
a partner at L.A. class-action law firm Glancy Prongay & Murray, said that
if a bank charged an illegal fee of $10 a month, no individual consumer would
hire a lawyer to sue the bank — nor would any lawyer handle the case.
"The
consumer's cost of hiring an attorney and litigating that is going to quickly
exceed the value of the claim," he said. "Only a zealot doing it for
a moral purpose would do that."
But if the
bank has charged the same fee to hundreds or thousands of consumers, a class
action can make sense.
"Class
actions are able to be brought by large numbers of consumers who have been
harmed a very small amount individually," King said.
Kaplinsky said
in cases where bank practices cause small amounts of harm to many consumers,
the Consumer Financial Protection Bureau, federal prosecutors and state
regulators should intervene rather than letting class-action cases set the
agenda.
"That's
where the CFPB and the government steps in. They're very good at dealing with
that kind of wrongdoing," he said.
Decade after financial crisis
JPMorgan predicts next one’s
coming soon
Published
time: 13 Sep, 2018 14:00
With the 10th anniversary
approaching of the catalyst for the last major global stock market crash – the Lehman
Brothers’ collapse – strategists from JPMorgan are predicting the next
financial crisis to strike in 2020.
Wall Street’s largest
investment bank analyzed the causes of the crash and measures taken by
governments and central banks across the world to stop the crisis in 2008, and
found that the economy remains propped up by those extraordinary steps.
According to the bank’s
analysis, the next crisis will probably be less painful, however, diminished
financial market liquidity since the 2008 implosion is a “wildcard” that’s
tough to game out.
“The main attribute of
the next crisis will be severe liquidity disruptions resulting from these
market developments since the last crisis,” the reports says.
Changes to central bank
policy are seen by JPMorgan analysts as a risk to stocks, which by one measure
have been in the longest bull market in history since the bottom of the crisis.
JPMorgan’s Marko
Kolanovic has previously concluded that the big shift away from actively
managed investing has escalated the danger of market disruptions.
“The shift from active to
passive asset management, and specifically the decline of active value investors,
reduces the ability of the market to prevent and recover from large drawdowns,” said JPMorgan’s
Joyce Chang and Jan Loeys.
The bank estimates that
actively managed accounts make up only about one-third of equity assets under
management, with active single-name trading responsible for just 10 percent or
so of trading volume.
JPMorgan referred to its
hypothetical scenario as the “great liquidity crisis,” claiming
that the timing of when it could occur “will largely be determined by
the pace of central bank normalization, business cycle dynamics, and various
idiosyncratic events such as escalation of trade war waged by the current US
administration.”
World’s top 5
‘most evil’ corporations
Published time: 3 Mar, 2018 05:55Edited time: 3
Mar, 2018 13:04
Jeff Bezos, founder and chief executive officer of Amazon, poses
as he stands atop a supply truck during a photo opportunity at the premises of
a shopping mall in the southern Indian city of Bangalore © Abhishek N.
Chinnappa / Reuters
Most companies become successful thanks to their stellar
reputations. But not always. RT Business scraped the bottom of the barrel to
find the most hated companies trending on the internet.
Monsanto
The company that needs no introduction, creator of DDT and Agent
Orange, Monsanto is one the world’s largest pesticide and GMO seed
manufacturers. It is known for being the first company to genetically modify a
seed to make it resistant to pesticides and herbicides. Monsanto’s herbicides
have been blamed for killing millions of crop acres, while its chemicals were
added to blacklists of products causing cancer and many other health problems.
Apple
Once the darling of Microsoft-hating gadget lovers, Apple more
recently has been accused of mistreating or underpaying their employees, hiding
money offshore, and not paying taxes. It has also been accused of violating
health or environmental legislation, and misusing its position where they have
a monopoly in the market. And, oh yes, deliberately slowing older iPhones and
overcharging for its products to boot.
Apple sued for
deliberately slowing down older iPhones — RT Business News
Nestle
The world's largest food and beverage company Nestle says it is
committed to enhancing quality of life and contributing to a healthier future.
However, it has been dragged through numerous scandals involving slave labor.
The multinational is one of the most boycotted corporations in the world, as
violations of labor rights have been reported at its factories in different
countries.
Philip Morris
The products of the American multinational cigarette and tobacco manufacturing
company are sold in over 180 countries outside the United States. Philip Morris
owns Marlboro, one of the world's biggest brands. Back in 1999, Philip Morris
courted officials of the Czech Republic by explaining how smoking would in fact
help their economy, due to the reduced healthcare costs from its citizens dying
early.
McDonald's
American fast-food company McDonald's was founded in 1940. The
company serves more customers each day than the entire population of Great
Britain, but has a long history of terrible labor practices. It has been
constantly under fire for serving unhealthy junk food, which contributes health
problems. Researchers have found that McDonald’s burgers cannot decompose on
their own.
McDonald’s becomes
weed users’ highest-ranking fast food joint — RT US News
Notable mentions of corporations not quite evil enough to make the
top list:
Goldman Sachs TRUMP CRONIESJPMorgan Chase OBAMA CRONIES
ExxonMobil
Halliburton
British American Tobacco
Dow Chemical
DuPont
Bayer
Microsoft
Google
Facebook
Amazon
Walmart
Ten years since the collapse of Lehman Brothers
15 September 2018
Ten years ago on this
day, the global capitalist system entered its most far-reaching and devastating
crisis since the Great Depression of the 1930s. A decade later none of the
contradictions which produced the financial crisis has been alleviated, much
less overcome. Moreover, the very policies carried out to prevent a total
meltdown of the financial system, involving the outlay of trillions of dollars
by the US Federal Reserve and other major central banks, have only created the
conditions for an even bigger disaster.
The immediate trigger
for the onset of the crisis was the decision by US financial authorities not to
bail out the 158-year-old investment bank Lehman Brothers and prevent its
bankruptcy. There is considerable evidence to suggest that this was a
deliberate decision by the Federal Reserve to create the necessary conditions
for what they knew would have to be a massive bailout, not just of a series of
banks but the entire financial system.
The previous March, the
Fed had organised a $30 billion rescue of Bear Stearns when it was taken over
by JP Morgan. But as the Fed’s own minutes from that time make clear the Bear
Stearns crisis was just the tip of a huge financial iceberg. The Fed noted that
“given the fragile conditions of the financial markets at the time” and the
“expected contagion” that would result from its demise it was necessary to
organise a bailout. As Fed chairman Ben Bernanke later testified, a sudden
failure would have led to a “chaotic unwinding” of positions in financial
markets. The bailout of Bear Stearns was not a solution but a holding operation
to try to buy time and prepare for what was coming.
While the demise of
Lehman was the initial trigger, the most significant event was the impending
bankruptcy, revealed just two days later, of the American insurance firm AIG,
which was at the centre of a system of complex financial products running into
trillions of dollars.
Due to the
interconnections of the global financial system, the crisis rapidly extended to
financial markets around the world, above all across the Atlantic to Europe where
the banks had been major investors in the arcane financial instruments that had
been developed around the US sub-prime home mortgage market, the collapse of
which provided the immediate trigger for the crisis.
The value of every
crisis, it has been rightly said, is that it reveals and starkly lays bare the
underlying socio-economic and political relations that are concealed in
“normal” times. The collapse of 2008 is no exception.
In the twenty years and
more preceding the crisis, particularly in the aftermath of the liquidation of
the Soviet Union in 1991, the bourgeoisie and its ideologists had proclaimed
not only the superiority of the capitalist “free market” but that it was the
only possible socio-economic form of organisation. Basing themselves on the
false identification of the Stalinist regime with socialism, they maintained
that its liquidation signified that Marxism was forever dead and buried. In
particular, Marx’s analysis of the fundamental and irresolvable contradictions
of the capitalist mode of production had proved to be false. According to the
central foundation for what passed for theoretical analysis, the so-called
“efficient markets hypothesis,” a financial meltdown was impossible because
with the development of advanced technologies all information had been priced
into decision making and so a financial collapse was impossible.
Rarely have the
nostrums of the bourgeoisie and its ideologists been so graphically exposed.
Two days after the
crisis erupted, President George W. Bush declared “this sucker’s going down.”
Later, the high priest of capitalism and its “free market,” the now bewildered
former head of the US Federal Reserve Alan Greenspan, testified to the US
Congress that he had been completely confounded because markets had failed to
behave according to his “model” and its assumptions.
The crisis also exposed
in full glare another of the central myths of the capitalist order—that the
state is somehow a neutral or independent organisation committed to regulating
social and economic affairs in the interests of society as a whole.
It confirmed another
central tenet of Marxism, expounded more than 170 years ago, that “the
executive of the modern state is but a committee for managing the common
affairs of the bourgeoisie.”
This was exemplified in
the naked class response to the financial meltdown. The plans, already
developed by the Fed and other authorities to cover the losses of the financial
elite, whose speculative and in many cases outright criminal activities had
sparked the crisis, were put into operation.
In the lead-up to the
presidential election of November 4, Wall Street swung its support behind
Obama—with the media promoting him as the candidate of “hope” and “change you
can believe in”—over McCain. The Democrats had committed themselves to the
bailout, securing the passage of the $700 billion TARP asset-purchasing program
through Congress. This massive increase in the national debt of the United
States was authorised with virtually no debate.
Of course, a new political
fiction was immediately advanced. It was necessary to bail out Wall Street
first, the public was told, in order to assist Main Street. However, this lie
was rapidly exposed. The crisis was the starting point for a massive assault on
the working class. While bankers and financial speculators continued to receive
their bonuses, millions of American families lost their homes. Tens of millions
were made unemployed.
In the following year,
the rescue operation organised by the Obama administration of Chrysler and
General Motors, with the active and full collaboration of the United Auto
Workers union, resulted in the development of new forms of exploitation, above
all through the two-tier wages system, paving the way for even more brutal
systems such as those pioneered by Amazon.
This was the other side
of a Wall Street bailout—a massive restructuring of class relations in line
with the edict of Obama’s one-time chief of staff Rahm Emanuel to “never let a
serious crisis go to waste” because it provides “an opportunity to do things
you think you could not do before.”
The same class response
was in evidence elsewhere. After the initial effects of the crisis had been
overcome, the European bourgeoisie initiated an austerity drive forcing up
youth unemployment to record levels. In Britain workers have endured a
sustained decline in real wages not seen in more than a century.
The most egregious
expression of this class logic has been seen in Greece with the imposition of
poverty levels last seen in the Great Depression of the 1930s. The numerous
bailout operations were never aimed at “rescuing” the Greek economy and its
population but directed to extracting the resources to repay the major banks
and financial institutions.
The crisis revealed the
real nature of bourgeois democracy. The euro zone and the European Union were
exposed as nothing more than a mechanism for the dictatorship of European
finance capital. As one of the chief enforcers of its diktats, the former
German finance minister Wolfgang Schäuble, declared, in the face of popular
opposition, “elections cannot be allowed to change economic policy.”
As the working class in
every country confronts stagnant and declining wages, falling living standards,
the scrapping of secure employment and attacks on social services, leading to
mounting health and other problems, innumerable reports and data chart the
development of a global system in which wealth is siphoned up the income scale.
According to the latest
Wealth-X World Ultra Wealth Report some 255,810 “ultra-high net worth”
individuals, with a minimum of $30 million in wealth, now collectively own
$31.5 trillion, more than the bottom 80 percent of the world’s
population—comprising 5.6 billion people. Overall the wealth of this cohort
increased by 16.3 percent in 2016–17, rising by 13.1 percent in North America,
13.5 percent in Europe and 26.7 percent in Asia.
The full significance
of the bailouts of the financial system and the subsequent provision of
trillions of dollars is clear. It has brought about the institutionalisation of
a process, developing over the preceding decades, where the financial system,
with the stock market at its centre, functions as a mechanism for the transfer
of wealth to the heights of society.
In its analysis of the
financial crisis, the World Socialist Web Site insisted from
the outset that this was not a conjunctural development, from which there would
be a “recovery,” but a breakdown of the entire capitalist mode of production.
That analysis has been
completely confirmed. While a total financial meltdown was prevented, the
diseases of the profit system that gave rise to the crisis have not been
overcome. Rather, they have metastasised and mutated into new and even more
malignant forms.
The actions of the US
Federal Reserve and other major central banks in pumping trillions of dollars
into the financial system in order to “rescue” it, and to enable the
continuation of the very forms of speculation that led to the crisis, have only
created the conditions for a new disaster in which the central banks themselves
will be directly involved.
This fact of economic
and financial life can even be seen in the comments by bourgeois analysts and
pundits on the occasion of the upcoming anniversary. While they generally
maintain that the financial system has been “strengthened” since 2008—a
completely worthless assertion given that it was held to be strong in the lead
up to the crash and any warnings of growing risks were dismissed as “Luddite”
by such luminaries as former US Treasury Secretary Lawrence Summers—no one
dares to proclaim that the underlying problems have been resolved.
Rather, taking heed
from the warning of JP Morgan chief Jamie Dimon that while the trigger for the
next crisis will not be the same as the last but “there will be another
crisis”, they nervously scan the horizon for signs of where it might strike.
Some analysts point to
the rise in global debt, which is now running at 217 percent of gross domestic
product, an increase of 40 percentage points since 2007, contrary to all expectations
that, since debt was a major cause of the 2008 crisis, some deleveraging would
have occurred.
Others single out the
mounting problems in so-called emerging markets facing repayments on
dollar-denominated loans, a source of speculation when interest rates were at
record lows but which now present major refinancing problems as interest rates
have started to rise.
The seemingly
unstoppable rise of stock markets, fuelled by the provision of ultra-cheap
money by the Fed and other central banks, is also an issue of concern. The
increased use of passive investment funds tied to global indexes via computer
trading systems tends to reinforce downswings as has been seen in a series of
“flash crashes” such as that of last February when Wall Street fell by as much
as 1,600 points in intraday trading.
The greatest source of
anxiety, although it is not mentioned so much publicly, is the resurgence of
the working class and the push for increased wages. To the extent it is
discussed publicly, this fear, manifested in stock market falls generated by
news of relatively small wage increases, is generally couched in terms of
“political tensions” caused by increased social inequality.
A further expression of
the ongoing and deepening breakdown of the capitalist order is the
disintegration of all the geo-political structures and relationships that have
constituted the framework within which the movements of capitalist economy and
finance have flowed throughout the post-war period.
In the wake of the 2008
crisis, the leaders of the G20 gathered in April 2009, in the midst of a
collapse in world trade taking place at a faster rate than in 1930. They
pledged to never again go down the road of the protectionist tariff policies
that had played such a disastrous role in the Great Depression and had worked
to create the conditions for the outbreak of World War II, just ten years after
the Wall Street crash of October 1929.
That commitment lies in
tatters as the Trump administration, seeking to counter the economic decline of
the US so graphically revealed in the 2008 collapse, embarks on ever widening
trade war measures.
The principal target,
at least to this point, is China. But the Trump administration has designated
the European Union as an economic “foe,” and has already implemented trade war
measures against it, with more in the pipeline.
The G7, the grouping of
major capitalist powers set up in the wake of the world recession of 1974–75
and the end of the post-war boom to try to regulate the affairs of world
capitalism, exists in name only following the acrimonious split at its meeting
last June with the US decision to impose tariffs against its nominal “strategic
allies.”
World war has not yet
broken out. But there are innumerable flashpoints—in the Middle East, in
Eastern Europe, in North East Asia and in the South China Sea to cite just some
examples—where a conflict could erupt between nuclear-armed powers. The impetus
for a new global conflagration is the drive by US imperialism to counter its
economic decline by asserting its dominance over the Eurasian landmass at the
expense of its enemies and allies alike.
It is of enormous
significance that the civil war that has erupted in the American state
apparatus between the state and military-intelligence apparatus, whose
mouthpiece is the Democratic Party, and the Trump administration is over how
this objective should be accomplished; that is, whether the American drive
should be directed in the first instance against Russia or China. At the same
time, all the major powers are boosting their military budgets in preparation
for the escalation of military conflicts.
The political system in
every country is beset by deep crisis. The very rapidity of the crisis is
accentuating the contradictions between the objective dangers and the level of
class consciousness. The chief obstacle to achieving the necessary alignment of
working class consciousness with the objective reality of capitalist crisis on
a world scale remains the reactionary political role of the old bureaucratised
labour and trade union organisations, abetted by the various pseudo-left
tendencies, in suppressing the class struggle. But the conditions are
developing for these shackles to be broken.
In the founding program
of the Fourth International, Leon Trotsky wrote: “The orientation of the mass
is determined first by the objective conditions of decaying capitalism, and
second, by the treacherous policies of the old workers’ organisations. Of these
factors, the first, of course, is the decisive one: the laws of history are
stronger than the bureaucratic apparatus.”
That perspective is now
being confirmed in the resurgence of the class struggle internationally, above
all in the centre of world capitalism, the United States.
Conscious of their
profound weakness in the face of such a movement, and fully aware of its
revolutionary implications, the ruling classes in every country have been
developing ever-more authoritarian forms of rule.
Their greatest fear is
the development of political consciousness, that is, the understanding in wider
sections of the working class, and above all the youth, of its real situation, that
its enemy is the entire capitalist system. Above all, the ruling elites fear
the development of a revolutionary socialist movement, based on the principles
and program of the Fourth International. This is why the World
Socialist Web Site is the central target of internet censorship. It
is also the reason for the escalation of attacks by the German coalition
government on the Sozialistische Gleichheitspartei, the German section of the
International Committee of the Fourth International (ICFI).
But the efforts to
suppress the work of the International Committee will fail. The renewal of
class struggle will provide new forces for the development of the working of
the ICFI throughout the world.
The meltdown of 2008
demonstrated above all that the working class confronts a global crisis. The
crisis can therefore be resolved only on a global scale through the unification
of the working class across national borders and barriers on the basis of an
international socialist program for the reconstruction of society to meet human
need and not profit.
Nick Beams
Who Can We Blame For The Great Recession?
|
This year
marks the tenth anniversary of the “Great Recession” and the media are trying
to determine if we have learned anything from it. The Queen visited the London
School of Economics after the “Great Recession” to ask her chief economists why
they hadn’t seen this disaster coming. They told her they would get back to her
with an answer. Later, they wrote her a letter saying that the best
economic theory asserts that recessions are random events and they had
successfully predicted that no one can predict recessions.
Still,
George Packer, a staff writer at the New Yorker magazine since 2003, thinks he
knows more than the LSE academics. He wrote the following in the August 27 print issue:
"It was caused by reckless lending practices, Wall Street greed,
outright fraud, lax government oversight in the George W. Bush years, and
deregulation of the financial sector in the Bill Clinton years. The deepest
source, going back decades, was rising inequality. In good times and bad, no
matter which party held power, the squeezed middle class sank ever further into
debt...
"In February, 2009, with the
economy losing seven hundred thousand jobs a month, Congress passed a stimulus
bill—a nearly trillion-dollar package of tax cuts, aid to states, and
infrastructure spending, considered essential by economists of every
persuasion—with the support of just three Republican senators and not a single
Republican member of the House."
Typically,
journalists will defer to an expert on matters in which they aren’t trained,
which is most subjects. But Packer didn’t bother to ask an economist as the
Queen did. Had he done so, he would have received the same answer from
mainstream economists – recessions are random events and can’t be predicted. If
economists knew the causes of recessions they could predict them when they see
the causes present.
So where
did Packer get his “causes” for the latest recession? In the classic movie
Casablanca, the corrupt and lazy policeman Renault is “shocked” to find
gambling going on at Rick’s place and orders the others to round up the “usual
suspects.” That’s what Packer does. People have blamed greedy businessmen and
bankers for crises for centuries. Since the rise of socialism they added capitalism
and the politicians who support it. The only new suspect in the socialist line
up is inequality, even though inequality has varied little since 1900 and is
near its record low since then.
Had
Packer consulted the University of Chicago Booth School of Business, he
wouldn’t have received much help. Keep in mind that mainstream economists think
recessions are random events. After the storm subsides, they can identify
likely contributors for the latest disaster, but those differ with each
recession. Recently Chicago Booth queried experts for the top contributing
factors of the latest recession. The top answer was flawed
regulations, followed by underestimating risk
and mortgage fraud.
regulations, followed by underestimating risk
and mortgage fraud.
The
“flawed regulations” excuse assumes that bitter bureaucrats who write the regulations
are wiser than the actual bankers and ignores the fact that banking is one of
the most regulated industries. One analyst described the recent recession as
the perfect storm of regulations so massive no one group could understand them
all and many of them working against other regulations.
Blaming
“underestimated risk” is good Monday morning quarterbacking. Everyone has 20/20
hindsight, or 50/50 as quarterback Cam Newton said. The same economists don’t
explain why banks that took similar risks didn’t fail or why what seems risky
now didn’t seem so risky in 2007. As for fraud, the amount was negligible and
is always there; why did it contribute to a recession this time? Sadly, the
correct answer to what caused the Great Recession– “Loose monetary policy” –
came in next to last among Chicago Booth’s experts.
Perspective
is vital. A magnifying glass can make a lady bug look terrifying. Let’s pull
back and put the latest recession in a broader context. There have been 47
recessions/depressions since the birth of the nation. Before the Great
Depression economists called crises “depressions” and since then they are
“recessions.” They’re the same thing; economists thought “recession” was less
scary.
Recessions
before the Great Depression were mild compared to it. It took the Federal
Reserve and the US government working together trying to “rescue” us to plunge
the country into history’s worst economic disaster. Journalists like Packer
have convinced people that the Great Recession of 2008 was second only to the
Great Depression, but if we combine the recessions of 1981 and 1982, separated
only by a technicality and six months, that recession would have been worse.
The Fed did not reduce interest rates after that recession because it was still
battling the inflation it has caused in the 1970s, yet the economy bounced back
and recovery lasted almost a decade.
I want to
drive home the fact that the three worst recessions in our history assaulted us
after the creation of the Federal Reserve in 1913.
The best
explanation of the causes of recessions, because it enjoys the greatest
empirical support, is the Austrian business-cycle theory, or ABCT. Ludwig von
Mises and Friedrich Hayek are most famous for refining and expounding it, but
the English economists of the Manchester school were the first to write about
it. They discovered that expansions of the money supply through low interest
rates motivated businesses to borrow and invest at a rapid rate. That launches
an unsustainable boom because businesses are trying to deploy more capital
goods than exist. Banks raise rates to rein in galloping inflation and the boom
turns to dust.
Banks
don’t control interest rates today as they did in the past. That’s the Federal
Reserve’s job. The Fed generally reduces interest rates or expands the money
supply through “quantitative easing,” or buying bonds from banks, in order to
force an economy in the ditch to climb out. The recovery from the Great Recession remained on its feet for so long
because the Fed’s policy of paying interest on reserves at banks soaked up much
of the new money it created out of thin air. Also, much of the money went
overseas to buy imports or as investments.
The
lesson – don’t ask medical advice from your plumber or economics from a
journalist. And if you ask an economist, make sure he follows the Austrian
school.
NO PRESIDENT IN HISTORY SUCKED IN MORE BRIBES FROM CRIMINAL BANKSTERS
THAN BARACK OBAMA!
“Records show that four out of Obama's top
five contributors are employees of
financial
industry giants - Goldman Sachs
($571,330),
UBS AG ($364,806), JPMorgan Chase
($362,207) and Citigroup ($358,054).”
OBAMA and HIS BANKS: THEIR PROFITS, CRIMES and LOOTING
SOAR
This
was not because of difficulties in securing indictments or convictions. On the
contrary, Attorney General Eric Holder told a Senate committee in March of 2013
that the Obama administration chose not to prosecute the big banks or their
CEOs because to do so might “have a negative impact on the national economy.”
BANKSTERS’ RENT BOY FORMER ATTORNEY GEN ERIC HOLDER POSES WITH HITLER
PRAISING LEADER OF RACIST, HOMOPHOBIC,
ANTI-SEMITIC HATE MONGER LOUIS Farrakhan.
“Attorney General Eric Holder's
tenure was a low point even within the disgraceful scandal-ridden Obama years.”
DANIEL GREENFIELD / FRONTPAGE MAG
Why the swamp has little to fear
By Rick Hayes
The midterm elections will either
halt or hasten the current soft coup whose aim is to overthrow a legally
elected President now being conducted by the swamp. And if the
history of Washington, D.C. corruption is any indication of what will happen
after the midterms, the swamp will survive regardless of its coup's success or
failure. But the efforts to expose the treasonous plot will fade
away into the dustbin of political history after being seen as just another
waste of time and taxpayer money. The seemingly endless parade of
corruption scandals and mind-numbing criminal activity will go on unabated and
continue to escalate to unimaginable heights because of an inescapable fact of
human nature.
In a Forbes 2015
article entitled "The Big Bank Bailout," author Mike Collins mentions
several ways to prevent another housing bubble crisis from destroying the world
economy when he writes, "But perhaps the best solution is to make the CEOs
and top managers of the banks criminally liable for breaking these rules so
that they fear going to jail. These people are not afraid to do it
again so if you can’t put some real fear in their heads, they will do it
again."
What Collins has honed
in on is accountability and punishment, the very things lacking in today's
dealings with the swamp. Just as the major banking institutions will
soon, if not already, re-enter into risky, corrupt, and illegal lending
practices because there was not a "smidgen" of accountability for the
trillions of dollars they lost in the housing bubble catastrophe, so too will
the past and presently unknown criminals within the IRS, FBI, and DOJ continue
to thumb their noses at the law.
What the American people have been
subjected to over the past 18 months since President Trump took office is a
series of crimes that have been painstakingly unearthed but little
else. "Earth-shattering," "bombshell," and "constitutional
crisis" are just some of the words and phrases used by media outlets to
describe the newest update regarding the many ongoing
investigations. These words are meant to shock the audience but no
longer have the impact they once did because of their overuse and because of
the likely lack of any substantive outcome. What Americans have seen
are trials without consequences, clear proof of guilt with no
punishment. Draining the swamp without
any repercussions to the swamp creatures inside is like going on a diet but
eating the same foods.
Americans witnessed no accountability
regarding exhaustive investigations into the deadly circumstances surrounding
the swamp's gun-walking campaign named Fast and Furious, a program where U.S.
Border Patrol agent Brian Terry and hundreds of innocent Mexican citizens were
killed with guns the government sold to criminals. The swamp
continued on its power mission and attempted the deceitful confiscation of
America's health care with Obamacare, whose real aim was a redistribution of
the nation's wealth. After little pushback and the passage of
Obamacare, Americans witnessed Benghazi in 2012, and when nothing
was accomplished over the investigations of that tragedy, the swamp trampled on
the rights of conservatives in what became known as the IRS scandal of
2013. Nothing was done about that. And on and on, with
the swamp committing one bigger and bolder crime after the next with
impunity.
So we have arrived at the doorstep of
the Russian collusion investigation farce by first traveling through the swamp
of unsolved crimes perpetrated inside the Obama administration. With
the passage of time, swamp-dwellers like Eric Holder and Lois Lerner,
knee-deep in the mud with congressional contempt charges, continue to be
financially enriched and will slowly be forgotten, while more recognizable
swamp royalty like Hillary Clinton get to run for president.
Until Americans see
guilty members within the United States government wearing orange jumpsuits and
serving time, the investigations and congressional hearings are mere sideshow
spectacles to appease the masses.
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