Thursday, August 22, 2019

BANKS AND THE POLITICIANS THEY OWN

BANKS RAN THIS COUNTRY AND RAN IT INTO THE GROUND FOR MORE THAN A CENTURY.

 

“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.”

“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.”

“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.” 
NICOLE GELINAS


 

Bank Money: ‘The Root of All Evil’

Waste and corruption are the result of banks' privilege to create money out of nothing


The one force that causes the most harm in our economy also happens to be the least well-known and understood.
While the left blames greedy corporations and individuals, and the right blames the government, it is in fact the collusion between the government and private banks that leads to problems like environmental degradation, unemployment, income inequality, and many more.
In the United States and most other countries, the government grants private banks the right to create money out of nothing and forces individuals to accept said money as legal tender and to use it to pay their taxes.
The Coinage Act of 1965 states, “United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.”
Today, the “notes” are mostly electronic credits in the form of bank deposits, but the same law applies. So much for legal tender—what about creating money out of nothing? Don’t banks take savers’ deposits and then loan them out to borrowers?
The short answer is no. Instead of taking in savings from companies and individuals, then waiting for a suitable borrower, banks use a simple accounting trick to create new money whenever someone applies for a loan.
Let’s assume you apply for a mortgage of $450,000. Once it’s approved, the bank simply credits your account with $450,000 in the form of a deposit, which you can then use to spend on your house. This is the bank’s liability. On the bank’s asset side, it credits itself with a loan of $450,000 to you, which you will pay back over the course of 30 or so years, plus interest.
For this process, no savings are necessary. The only thing the bank has to do from a regulatory perspective is keep a very low fraction of its assets in cash or balances at the Federal Reserve (Fed), so it can pay out some cash on demand if needed. This is often not more than 1 percent of its assets, hence the term “fractional reserve” banking.

The Root

The popular saying has it that money is the root of all evil. However, the original quote from the Bible would be more accurately applied to the process described above, wherein banks are allowed to create money out of nothing and charge you interest for the trouble: “for the love of money is the root of all evil.”

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Money itself, of course, cannot be evil. It merely measures the value of goods and services produced and the value of capital saved. However, under the bank money monopoly, the new money created doesn’t measure production and savings, but actually changes them.
The creation of “money,” in the form of the loan and deposit, required nothing to be produced and nothing to be saved. The production only begins later, when the contractors start building the house—although even that is not guaranteed, given that many mortgages or other loans are used to buy up existing assets, which drives up prices.
Even loans that finance new construction alter the economy in unnatural ways: bankers’ prejudice directs production instead of consumer demand from their own savings. And the bank, which can repossess the collateral unless the loan is repaid, gets something for nothing.
The principle at work here is pure love of money—nothing more. The bank does not need to expend any effort but can “earn” the interest on the loan, which is the same as a private tax on the money supply. It is the equivalent of a few designated individuals being allowed to keep a money press at home, which they could then use to print cash, make loans, and charge interest against. Meanwhile, everyone else is forced to use those printed loans to make investments. Clearly, this is not fair.

The Problem

The ease with which banks can create money explains the recurring colossal blunders in risk management and loan creation, of which the subprime crisis is only the most recent manifestation. Because money is free, it makes sense for banks to loan out as much as possible. After all, they don’t have to do anything to source the funds, but get to reap the interest payments as the loans are repaid.
If the market for money were not completely cartelized by the government for the banks, even this perverse mechanism would have its limit, and would ultimately lead to the demise of the participating banks—just as what played out in the 2008 crisis.
However, because banks, regarded as too big to fail, collude with the government and sponsor politicians with campaign contributions, they can always rely on the government to bail them out when the house of cards collapses. This is not a problem of too little regulation, but instead of the wrong kind of regulations, perpetrating a systematic theft of public resources.
Banks can always rely on the government to bail them out when the house of cards collapses.
Even this is just the tip of the iceberg. Because the capital allocation process in this system is so flawed, the private sector is encouraged to spend funds on inefficient and unnecessary vanity projects—real estate is the most obvious, along with massive industrial overcapacity.
Because big corporations have better access to big banks, they have better access to this artificial “capital,” and they can therefore crowd out smaller players that may be able to service their communities better. Too much real estate development and industrial overcapacity also put the most strain on environmental resources.



The process leads to the centralization and bureaucratization of everything, not just the government. Big corporations, paying lower interest charges than their smaller competitors, end up providing the majority of goods and services. This is why we see the same brands and chains everywhere.
Because the money supply “tax” needs to be paid to private banks, corporations are constantly looking for ways to cut costs, which often means firing people and replacing them with robots.
Workers and ordinary consumers, on the other hand, get trapped. They have no choice but to meet high interest payments on credit card loans and mortgages, while the prices of goods, and anything they might invest in, shoot through the roof.

The Solution

Of course, it doesn’t have to be this way. If banks did not have the privilege of creating money out of nothing, and instead had to source their loans from real savings, their incentives would change immediately. It would also help if there were no government bailouts.
In that case, investment would equal real savings and would by definition be limited, because savings require a reduction in consumption. This is harder to achieve than simply printing money. Resources would, therefore, be economized. Opportunities for accumulating extravagant wealth, while still present, would also be reduced, and there would be a natural tendency toward a more even wealth distribution—not one engineered by a centralized bureaucracy.
Honest banking and honest money have existed before in history. 
If banks and borrowers had skin in the game, capital allocation decisions would be examined not according to the “love for money” principle, but rather according to how productive the investment would be.
More productivity means producing more with less, thus saving natural resources. Less capital investment would mean more room for humans to participate in the economic process. Prices for capital and goods would be more stable.
This is not a dream, nor a vision of Utopia. Honest banking and honest money have existed before in history. The first step to solving this problem is to become aware of the problem.
This article is part of a special Epoch Times series on the Federal Reserve. Click here to see all articles.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.



$2,198,468,000,000: Federal Spending Hit 10-Year High Through March; Taxes Hit 5-Year Low

By Terence P. Jeffrey | April 10, 2019 | 5:09 PM EDT
(Getty Images/Ron Sachs-Pool)
(CNSNews.com) - The federal government spent $2,198,468,000,000 in the first six months of fiscal 2019 (October through March), which is the most it has spent in the first six months of any fiscal year in the last decade, according to the Monthly Treasury Statements.
The last time the government spent more in the October-through-March period was in fiscal 2009, when it spent $2,326,360,180,000 in constant March 2019 dollars.
Fiscal 2009 was the fiscal year that began with President George W. Bush signing a $700-billion law to bailout the banking industry in October 2008 and then saw President Barack Obama sign a $787-billion stimulus law in February 2009.
At the same time that the Treasury was spending the most it has spent in ten years, it was also taking in less in tax revenue than it has in the past five years.
In the October-through-March period, the Treasury collected $1,507,293,000,000 in total taxes. The last time it collected less than that in the first six months of any fiscal year was fiscal 2014, when it collected $1,420,897,880,000 in constant March 2019 dollars.
The difference in the federal taxes taken in and the spending going out resulted in a federal deficit of $691,174,000,000 for the first six months of the fiscal year.
During those six months, the Department of Health and Human Services spent the most money of any federal agency with outlays of $583.491 billion. The Social Security Administration was second, spending $540.426 billion. The Department of Defense was third, spending $325.518 billion. Interest on Treasury securities was third, coming in at $259.687 for the six-month period.
Both individual and corporation income taxes were down in the first six months of this fiscal year compared to last year. In the first six months of fiscal 2018, the Treasury collected $736,274,000,000 in individual income taxes (in constant March 2019 dollars). In the first six months of this fiscal year, it collected $723,828,000,000.
In the first six months of fiscal 2018, the Treasury collected $80,071,070,000 in corporation income taxes (in constant March 2019 dollars). In the first six months of this fiscal year, it collected $67,987,000,000.
(Historical budget numbers in this story were adjusted to March 2019 dollars using the Bureau of Labor Statistics inflation calculator.)
(Table 3 from the Monthly Treasury Statement, seen below, summarizing federal receipts and outlaws for the past month and for the fiscal year to date and compares it to the previous fiscal year.)

 

 

 

 

 

After Lehman's Collapse: A Decade of Delay



Now that the 2018 midterms are over, folks can address the elephant in the room. If one tuned into Fox Business midday on January 7, one heard legendary corporate raider Carl Icahn dilate on the dimensions of the pachyderm, which he pegged at $250 trillion. That’s the size of worldwide debt. But can that be right -- it’s more than eleven times the official U.S. federal government’s debt? And in case you didn’t notice, it is a quarter of one quadrillion bucks. Pretty soon we’ll be talking real money.
Icahn’s $250T quotation for worldwide debt came out last year. On September 13, Bloomberg ran “$250 Trillion in Debt: the World’s Post-Lehman Legacy” by Brian Chappatta, who draws off data from the Institute of International Finance’s July 9 “Global Debt Monitor,” (to read IIF reports, one must sign up). Chappatta wonders how the world’s central bankers can “even pretend to know how to reverse what they’ve done over the past decade”:
[Central banks] kept interest rates at or below zero for an extended period […] and used bond-buying programs to further suppress sovereign yields, punishing savers and promoting consumption and risk-taking. Global debt has ballooned over the past two decades: from $84 trillion at the turn of the century, to $173 trillion at the time of the 2008 financial crisis, to $250 trillion a decade after Lehman Brothers Holdings Inc.’s collapse.
Chappatta breaks global debt down into four categories: financial corporations, nonfinancial corporations, households, and governments. In every category, global nominal debt rose from 2008 to 2018, with the debt of governments hitting $67T. In the important debt-as-a-percentage-of-gross-domestic-product measurement, three of the categories rose while only financial corporations fell, “leaving their debt-to-GDP ratio as low as it has been in recent memory.” Global banks seem to be “healthier and more resilient to another shock.” After reporting on worldwide debt, Chappatta then looks at U.S. debt.
What’s interesting about debt in America is that as a percentage of GDP, households and financial corporations have sharply reduced their debt. It is only government in America that has seen a sharp debt-to-GDP uptick, and it was quoted at more than 100 percent of GDP. That’s rather higher than for all government debt worldwide.
Besides the massive racking up of debt over the last decade there’s something else that should concern us: the massive creation of new money. One of the ways money is created is when central banks engage in the “bond-buying programs” that Chappatta refers to. We call such programs “quantitative easing.” When the Federal Reserve buys assets, like treasuries and mortgage-backed securities, it needs money. So the Fed just creates the money ex nihilo.
Since the U.S. isn’t the only nation that has been busy buying bonds and creating money, one might wonder just how much money there is in the world. In June of 2017,HowMuch put out “Putting the World’s Money into Perspective,” which is a nice little graphic that puts the category “All Money” at $83.6T.
In November of 2017, MarketWatch ran “Here’s all the money in the world, in one chart” by Sue Chang, who in her short intro to the chart has some interesting things to say about global money, including cryptocurrencies. She writes of “narrow money” and “broad money” and pegs the latter at $90.4T, (or what Sen. Everett Dirksen would call “real money”.) If you want to examine Chang’s chart more closely, I’ve “excised” it here for your convenience; don’t miss the notes on the right margin. (Because its depth is 13,895 pixels, you might want to just save the chart to your computer rather than print it off.)
So, in addition to an historic run-up in debt, there’s been a monster amount of new money created. Chappatta calls it the “grandest central-bank experiment in history.” His use of “experiment” is apropos, as one wonders whether the world’s central bankers and their economists really know what they’ve been doing.
One ray of hope might just be President Trump’s choice of Jerome Powell as Chairman of the Federal Reserve, (Trump has such good instincts about people). One can get a sense of the man from his January talk with David Rubenstein at the Economic Club of Washington, D.C. (video and transcript). It’s refreshing that Mr. Powell disdains the “Fed speak” used by his predecessors.
Chappatta’s article is quite worth reading, and it’s not very long. The charts are user-friendly, although animated ones are a bit “creative.” The last section, “China Charges Forward,” is especially worthwhile.
This is the post-Lehman legacy. To pull the global economy back from the brink, governments borrowed heavily from the future. That either portends pain ahead, through austerity measures or tax increases, or it signals that central-bank meddling will become a permanent fixture of 21st century financial markets.
Given those alternatives, let’s try a little austerity. But austerity would entail spending cuts, and Congress has a poor history in that regard. In fact, since fiscal 2007, the year before the financial crisis, total federal spending has gone from $2.72T a year to more than $4T. While austere citizens deleverage and get their fiscal affairs in order, Congress shamefully borrows and spends like never before.
Congress’ solutions are to bail out, prop up, and do whatever it takes to avoid reforming what it has created. So they farm out their responsibilities to the Federal Reserve. Indeed, in the July 17, 2012 meeting of the Senate Banking Committee (go to the 53:50 point of this C-SPAN video), Chuck Schumer told Federal Reserve Chairman Ben Bernanke the following:
So given the political realities, Mr. Chairman, particularly in this election year, I'm afraid the Fed is the only game in town. And I would urge you to take whatever actions you think would be most helpful in supporting a stronger economic recovery… So get to work, Mr. Chairman. (Chuckles.)
So the Fed is “the only game in town” because there are only monetary solutions for the economy, right? There aren’t any fiscal solutions, as they would involve Congress, and Congress is busy running for re-election, right? Sounds like you’re abdicating your responsibilities, Chuck.
Jon N. Hall of ULTRACON OPINION is a programmer from Kansas City.

 

 

 

 

 

"The Federal Reserve is a key mechanism for perpetuating this whole filthy system, in which "Wall Street rules."


Wall Street rules

 
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.
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.
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.
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.

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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.
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"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."  
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"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."

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"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."
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"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."
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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. 

FROM THE MAGAZINE

Finance’s Lengthening Shadow

The growth of nonbank lending poses an increasing risk.
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.
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.
(ALBERTO MENA)
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.
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.

Decade after financial crisis JPMorgan predicts next one’s coming soon


Published time: 13 Sep, 2018 14:00

© Ole Spata / Global Look Press
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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.”
For more stories on economy & finance visit RT's business section

As US banks report record profits

Regulators, Congress move to end all restraints on Wall Street speculation

On Tuesday, the US House of Representatives passed a bill to exempt the vast majority of financial firms from the Dodd-Frank bank regulations passed after the 2008 Wall Street crash. This coincided with press reports that the Federal Reserve Board and other bank regulators will announce as soon as next week proposals to gut the provision of Dodd-Frank most hated by Wall Street—the so-called “Volcker Rule.”
The accelerating offensive against even the most minimal restrictions on financial speculation takes place in the context of surging bank profits and CEO pay. On Tuesday, the Federal Deposit Insurance Corporation, one of the agencies that is preparing to eviscerate the Volcker Rule, reported that US banks recorded record profits of $56 billion in the first quarter of 2018, a 28 percent increase over the same period last year.
As the tenth anniversary of the September 2008 Wall Street crash approaches, the token restrictions on the banks that were passed during the Obama administration are being dismantled. These minimal measures, including increased capital reserve requirements, annual “stress tests” and limited restrictions on risky derivative trading, were mainly enacted to provide political cover for the administration’s multi-trillion-dollar bailout of the financial institutions responsible for the wholesale destruction of jobs, millions of home foreclosures and the wiping out of retirement savings.
After eight years of the Dodd-Frank bank “reform,” the American financial oligarchy exercises its dictatorship over society and the government more firmly than ever. This unaccountable elite will not tolerate even the most minimal limits on its ability to plunder the economy for its own personal gain.
The Volcker Rule, named after the former chairman of the Federal Reserve Board Paul Volcker, was included in the 2010 Dodd-Frank act but not drafted and approved by the regulatory agencies until 2013. It took effect only in 2015.
The rule ostensibly bars commercial banks, which benefit from federally guaranteed retail deposits and other government backstops, from speculating with bank funds, including customers’ deposits, on their own account—a practice known as proprietary trading. However, the rule incorporates huge loopholes allowing banks to speculate with their own funds under cover of hedging their investments and providing liquidity to the financial markets.
At the time of its adoption, the Wall Street Journal cynically but accurately wrote: “Rest assured banks will find loopholes. And rest assured some of the Volcker rule-writers will find private job opportunities to help with that loophole search once they decide to lay down the burdens of government service.”
No banks have been cited for violating the rule since it took effect.
Nevertheless, top Wall Street CEOs such as JPMorgan’s Jamie Dimon and Goldman Sachs’ Lloyd Blankfein have campaigned ferociously against the measure, denouncing it as an arbitrary restriction on the financial markets and an impediment to economic growth. Wall Street lobbyists have spent many millions of dollars bribing politicians of both parties to weaken the rule to the point of complete irrelevance.
In a speech to international bankers in March, Randal Quarles, the Fed’s new vice chairman for supervision, said, “We want banks to be able to engage in market making and provide liquidity to financial markets with less fasting and prayer about their compliance with the Volcker Rule.”
The plan is to make the rule a dead letter through administrative changes in the language of the regulation rather than by means of legislation. At the behest of the major banks, federal regulators are preparing to widen even further the existing loopholes, allowing the banks to carry out short-term trades with their own funds and amass more speculative assets in the name of “market-making.” They will also end requirements that the banks provide documentation to prove that their activities comply with the rule, relying instead on assurances from the bankers.
The banking bill passed by the House on Tuesday increases the Dodd-Frank asset threshold for financial firms to be considered “systemically important financial institutions,” and thus subject to tighter regulatory oversight, from $50 billion to $250 billion. This is being presented by Democratic as well as Republican backers as a matter of fairness to small and midsize banks. In fact, the exemption covers such giant companies as American Express, SunTrust Banks and Fifth Third Bank.
These companies will no longer be subject to yearly Federal Reserve “stress tests” or higher capital reserve requirements. The bill also exempts banks with less than $10 billion in assets from the Volcker Rule and exempts banks that have granted fewer than 500 mortgages from reporting requirements.
Thirty-five House Democrats joined all but one of the House Republicans to pass the measure, which now goes to President Trump, who has pledged to sign it. The Senate version was passed in March with broad Democratic support, including 11 Democratic co-sponsors. A total of 17 Senate Democrats voted for the bill.
Another aspect of the attack on Dodd-Frank is the strangulation of the Consumer Financial Protection Bureau (CFPB). This agency, lacking any serious enforcement powers and fully subordinate to the Federal Reserve, was set up under Obama-era legislation to give the impression of government support for consumers victimized by illegal or fraudulent banking practices. Despite its toothless character, it was immediately targeted by Wall Street for destruction.
Under Trump, this process is now well underway. The White House pressured the Obama holdover Richard Cordray to resign as director of the CFPB and installed Mick Mulvaney, Trump’s budget director, as acting head of the bureau to oversee its dismantling. Mulvaney has halted investigations, imposed a hiring freeze, stopped the agency from collecting certain data from banks and proposed cutting off public access to a database of consumer complaints.
Despite for-the-record verbal protests by Democratic politicians over the gutting of bank regulations, the removal of restrictions on financial institutions is a bipartisan policy. Trump’s scorched earth approach is an intensification of the basic line of the Obama administration rather than a departure from it.
In 2011, the Senate Permanent Subcommittee on Investigations produced a 650-page report on the financial crisis documenting in detail the fraudulent and illegal activities of the major Wall Street banks, aided by corrupt and compliant federal regulatory agencies and credit rating firms that had a vested interest in promoting the banks’ subprime mortgage fraud and other swindles. At the time, the chairman of the subcommittee, Michigan Senator Carl Levin, gave a press conference at which he said the investigation had found “a financial snake pit rife with greed, conflicts of interest and wrongdoing.”
Nevertheless, Obama pursued a deliberate policy of shielding the big banks and their top executives from criminal prosecution. Financial speculation and fraud continued unabated, subsidized by the government’s policy of supplying the banks with virtually free credit by means of near-zero interest rates and the Fed’s money-printing “quantitative easing” program.
Despite a wave of scandals, including the manipulation of the key Libor interest rate, JPMorgan’s $6.2 billion “London Whale” derivative loss, money-laundering cases involving some of the world’s biggest banks, and the forging of documents to facilitate home foreclosures, not a single leading banker was criminally charged, let alone jailed during the Obama years.
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.”
Meanwhile, government policies favored the further consolidation of financial institutions, including JPMorgan’s subsidized takeover of Bear Stearns and Washington Mutual, Bank of America’s acquisition of Merrill Lynch, and Wells Fargo’s absorption of Wachovia. As a result, the stranglehold of a handful of megabanks over economic and social life in America is tighter than ever.

Who Can We Blame For The Great Recession?


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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. 
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.”

 

“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


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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