I’m sure you really enjoyed The Republican Depression of 2008. Hell, there’s an excellent chance you are STILL enjoying it, as you’ve seen your buying power erode, while corporate and financial profits go through the roof. After all, none other than Jamie Dimon dismissed a 2 BILLION (+) dollar loss as a fly-fleck, didn’t he?
But that was last week. Next week, Jamie may come to you in tears, full of sorrow and promising to do better. The thing is, he won’t. THEY won’t. Only STRONG Governmental regulation of the financial sector can prevent their greed from turning into stupidity, and destroying us all yet AGAIN.
Sadly, it looks like it may be too late to keep them from destroying us all over again. And it ain’t public debt that’s going to do it, no matter what your local Rushpubliscum keeps telling you.
Nearly four years after the 2008 banking crash, and more than $11 trillion in liquidity injections in the US and Eurozone-UK-Japan, the global banking system is again showing clear signs of growing unstable. Notwithstanding several rounds of bank ‘stress tests’ on both sides of the Atlantic since 2009, what has been improperly identified as a sovereign debt crisis in Europe is revealing itself with each passing week, as a more fundamental banking crisis as well.
This past week registered a series of reports and events that strongly suggest below the surface the global banking system is not in particularly good shape, and is getting worse.
The most recent indication was yesterday’s, June 21 announcement by the rating agency, Moody’s Inc., downgrading 15 banks across the globe. Included were the two big US banks, Bank of America and Citigroup, which have been in effect technically insolvent since the 2008 bank crash but which have been kept afloat by various measures supported by the US Federal Reserve. Under pressure by the US government, both have been selling off their best assets at near-firesale prices in order to raise capital. Not much better has been the US investment bank, Morgan Stanley, which recently hosted the bungled Facebook initial public offering. French and UK banks fared no better, however. HSBC, Royal Bank of Scotland, Societe General, and even the Swiss, Credit Suisse bank, were all downgraded. This kind of widespread, global downgrading does not occur randomly. It is reflective of something systemically at work weakening the global banking system.
A day before the Moody bank downgrades, the U.S. Federal Reserve announced a further $267 billion liquidity injection into the US system, in an extension of its ‘Quantitative Easing 2.5’ program called ‘Operation Twist’ announced last fall. That $267 billion was in addition to the original ‘Twist’ QE 2.5 of $400 billion, which followed a prior QE 2 of $600 billion in 2010 and a QE1 of $1.75 trillion in 2009. The ‘markets’ in the US—which means banks, various financial institutions, and very high net worth individual investors—responded to the Fed’s latest extension of QE 2.5 announcement with a thud. Stock markets in the US the following day had their worst decline in months. Expect more of the same soon to come. Investors expected on Wednesday that the Fed would introduce a bona fide QE3. Translated that means expectations of hundreds of billions more of Fed direct liquidity injection into the markets, buying up not only US treasuries but mortgages and other bonds and securities. After all, QE 2.5 was coming to an end this month, and the Fed for the past four years has always followed the concluding of a QE program with still another QE liquidity injection. Indeed, a good argument can be made that the ‘markets’ in the US are becoming increasingly dependent upon—even addicted to—continuing massive Fed liquidity injections.
The correlation between announcements and anticipations of new QE programs and the take off of stock markets, and the declining of stock market indices as QE reach the end of their course, has been very high.
Dow-Jones Industrials Average & QE Correlation
QE Program Dow Low & Date QE Intro Date QE Conclusion Date Dow High & Date
QE 1 7,062 March 3, 2009 April 4, 2010 11,204
(February 27, 2009) (April 23, 2010)
QE2 9,686 November 4, 2010 June 30, 2010 12,657
(July 2, 2010) (July 8, 2010)
QE 2.5 10,992 September 21, 2011 June 30, 2012 12,837
(September 9, 2011) (June 19, 2012)
Source: Dow-Jones Industrial Average (DJIA) History, online at nyse/tv/dow-jones-industrial-average-history-djia.htm.
While QEs have been a boon to stocks and other speculators, QEs to date as a group have accomplished very little in terms of helping generate a sustained economic recovery in the U.S. In that respect they have done no more than the additional trillions of dollars in liquidity injections by the Fed in the form of near zero interest rates for almost four years now. Like QEs, near zero interest rates were supposed to provide virtually ‘free money’ to financial institutions that were, in turn, supposed to lend to stimulate investment and jobs. But that didn’t happen. Following QE1 and zero rates in after the official end of the recession in June 2009, bank lending fell for 15 consecutive months. To whatever extent bank lending rose in 2010 it went mostly to hedge funds and the largest corporations. Small and medium sized companies continued to starve for bank loans. And now, in recent months, lending is in retreat once again. So if anything is proven by the past four years, it is that monetary and Fed policies (QE, zero rates, etc) have had little to no effect on the real economy and economic recovery in the U.S. What they have achieved is a return to speculative lending practices by banks (called euphemistically ‘trading’)—i.e. banks lending to hedge funds and other institutional investors that then speculate in foreign currencies, commodities, oil futures, stocks, junk bonds, and, of course, derivatives of various sorts including CDS on Greek sovereign bond debt.
That’s right. You bailed them out after their last gambling spree, hoping they’d come back to you reformed, and become a part of your community again. But what happened instead? They gave you the middle finger, and went right back to the casino.
As distasteful as it was to bail them out last time, I do understand the reasoning behind it, even though I think it may have been better, in the longer term, to have gotten the collapse over with in 2008 and started fresh, since the lack of collapse led directly to watered-down regulations that did nothing at all to prevent them from doing EXACTLY what they did to cause the last crisis. After seeing that arrogant, lying punk Dimon on television (and the Senators getting out their kneepads to assume the correct position in front of him,) I am convinced that this time, they cannot be rescued. We have to do what Iceland has done, which is put them in jail, and take every asset they have. Nothing else will do.
Unfortunately, there will be a great deal of pain, before we get to that point. And that’s sad. We should ALREADY have done these things.