With a collapsing Chinese Stock Market and New York suddenly throwing a wobbly yesterday, in a piece a little longer than usual, I offer my observations on how greedy banks, aided and abetted by inept politicians, are causing another global collapse they will then watch from their ivory towers, as we flounder in the sea of financial devastation they have created. JTC
After 2008 interest rates were reduced to nearly zero “To get money circulating and grow the economy again” we were told. What sheer unadulterated rubbish . . . Banks earn their living by charging interest!
Low interest means they won’t lend to you and me, or small and medium businesses, which could have kick started the economy, because there’s no money in it (except for our credit cards)! This has resulted in banks seeking alternative avenues of profit that are causing the growing gap between the rich and the poor, as well as destabilising the global financial system?
Currently they are making money from vast amounts of cheap loans, printed out of thin air*, which they lend to mega corporations. These then use it to buy back their own shares or other companies, keeping their share price up and thereby enabling them to pay huge bonuses at a time when their profits are going down!
This creates a financial ‘bubble’, because the value of the shares is greater than the actual value of the company. As most of the global corporations are playing this game we now have a bubble the size of this Planet . . . and we know bubbles burst!
So what else are they doing? Loans that are risky demand higher interest rates and so ‘sub-prime’ lending is good. Lending to countries is even better because the loans are vast. But we already know these loans can’t be repaid, as Greece and a growing number of other countries are now declaring and the IMF is admitting to.
“Wait a minute” I hear you say, “Won’t the banks go bust, as they did in 2008”? I’ll return to this in a minute.
They have also focussed on financial gambling, (sorry Derivatives trading!) rather than traditional banking. Derivatives are just pieces of paper and lack any transparency as to their content, so you have no idea of what you are buying or selling. With the sub-prime mortgages the banks knew they were making loans that would quickly go bad and so they parcelled them together with good loans and sold this toxic combination off in bundles to each other.
Of course the bad loans in each bundle went bust, immediately destroying the declared value of the whole bundle (Derivative) and the bubble between their supposed value and actual worth burst, creating distrust and crashing the markets overnight.
It’s like a horse race in which, unknown by you, several of the horses have been doped. When the news gets out you raid the housekeeping to make up your losses and then stay away . . . for a while. Gambling is addictive and so eventually you return to the track and start betting again.
This is exactly what the banks did after 2008, with the collusion of politicians. And the bubble will collapse again but this time it will be devastating. To give you some idea of the extent of the problem, last year’s revenue in the world’s gambling capital, Las Vegas, was $6.4 billion. The last time I looked the value placed upon global derivatives, including currency, interest rate and sovereign debt gambling, was $724 TRILLION!
The 2013 Credit Suisse Global Wealth Report stated that global wealth had then reached a new all-time high of $241 trillion, confirming that another financial bubble of elephantine proportions has now been created.
Real wealth comes from making and selling tangible items that cannot evaporate overnight. Paper wealth, as sub-prime mortgage derivatives and the collapse of Lehman Bros demonstrated, not only disappear overnight through loss of trust but bring the whole world crashing down with them.
So why are the banks playing such a dangerous game again? Easy. They can’t lose again because they have a new source of ‘housekeeping’ money!
When the bad debts, like the Greek bubble finally bursts (because the value of their debt is way in excess of their worth as a country), the domino effect upon other similar situations and countries will crash the banks. Hence the unprecedented brutal pressure on Greece by Brussels and the Troika to keep playing, because they know what is at risk! When it happens, however, they will simply close their doors and lock in all of the cash they are holding.
The wages you have earned, or the money you have saved, or the pension you have contributed to will become an ‘asset’ of the bank into which they have been paid. As an ‘asset’ the bank can then use it to cover its indebtedness. Not only will they lock the doors and switch off the ATM’s but hold a piece of paper at the window, from our politicians, telling us that what they are doing is quite legal and to go away and annoy someone else.
A directive has come out from the European Commission that all EU countries must comply with so-called bank and resolution recovery directives (BRRD), mandating that all the money banks are holding become part of their capital structure and no longer money belonging to savers!
“But that’s theft” I hear you say. NO . . . it’s legalised theft, like the taxpayer bail-out, because it comes with the full collusion of our politicians!
To add insult to injury in the UK, the Financial Services Compensation Scheme is reducing the amount of compensation from £85,000 to £75,000 when a bank goes bust, instead of increasing it. (Does Osborne know something, do you think?!)
Between them the banks and politicians screwed us as ‘taxpayers’ last time and will screw us again this time as ‘account holders and savers’ with a bail-in instead of a bail-out!
As Mario Draghi, President of the ECB, stated in a press meeting last month, “The sub-prime crisis is mostly due to lack of supervision”. . . and this type of ineptness is exactly what the politicians do so very well in their support of a wholly distorted financial system.
As a global Society it is taking us nowhere. We need to exercise our growing power in this internet age and put people into power who have the same mind-set as Alex Tsipras. He is not frightened by his adversaries and his type of tenacity and integrity will end this corrupt form of Capitalism, turning us away from an Economy and back into a Society again . . . if we are willing to stand up and be counted.
Until the next time
*P.S. For a perfect description of how money is printed out of thin air I can do no better than refer you to this piece by my friend Sky Wanderer @glopol_analysis: https://globalpoliticalanalysis.wordpress.com/2014/06/18/the-short-story-of-how-we-are-kept-in-odious-debt-deficit-crisis-and-austerity/?blogsub=confirming#blog_subscription-3
Thinking from his Book: Global Magna Carta. Returning Power to the 99% . . . If They Want It! By J T Coombes