Trouble in Bank Land

Tens of trillions, perhaps even quadrillions of dollars in parasitic capitalist financial claptrap is at risk of being wiped out. Canadian William Krehm describes deregulated finance and banking as governed by mathematics of the atomic bomb, so to speak. Every month there are reports that the system is turning the corner, and losses have bottomed out. How many bubbles can they inflate and collapse before too big to fail banks end up owning everything?

This was, perhaps not surprisingly hidden away at the very bottom of the article on this:

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Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850-billion in assets could close by next July. That's out of 8,400 federally insured institutions, he said, which together hold $13-trillion in assets.

Individual customers are starting to get nervous about the financial health of their banks for the first time in generations, he said. Whalen's firm analyzes the safety and soundness of banks for business clients, but began receiving inquiries from individuals in the past two months for the first time, he said.

“If we don't get ahead of this, we are going to face a run on the retail banks by [the American] election day,” he said.

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[url=http://www.reportonbusiness.com/servlet/story/RTGAM.20080914.wlehmanwrap... Street in turmoil[/url]

If this doesn't develop into a full blown depression, I think a few years from now most will be startled to find out, as the truth leaks, just how close we came to a full blown depression.

Banks and such may want to foreclose at first, but after they are stuck with vacant and deterioating houses that no one wants at any price, they may rethink that strategy.

Yeah. Gordon Thiessen and Paulie Pockets kept blabbering on about the fundamentals even as the Canadian dollar just kept sagging downward and downward till it finally bottomed out at around 60 some cents US.

I guess by then the speculators figured Thiessen and Martin had had enough fun damaging the Canadian economy with downloading of cutbacks onto provinces and jumping all over any sign of inflation with "pre-emptive" interest rate increases. [img]rolleyes.gif" border="0[/img]

Anyway, that was off-topic. The damage to the US economy wrought by the likes of Volcker, Greenspan, Reagan, Bush I, the Repubs who didn't mind trashing Clinton, Clinton when he was trying to appease right-wing sentiment, and Bush II, has finally come home to roost. The agricultural sector in the USA is dominated by large businesses with monopoly pricing power and the manufacturing sector is limping along, unable to take up any slack in the economy because nobody knows how, or has the equipment, to actually [i]make stuff[/i] anymore.

The service sector, bifurcated into crap jobs like McDonald's and what-have-you at the bottom, and financial stuff at the top, is now taking its own hits as financial sector jobs become shaky, and rising unemployment has already struck at the McJobs in any case.

According to Shadow Government Statistics the help-wanted indexes tend to be a good indicator of recessions or expansions, and for the last five years the HW index has been the lowest ever for a long time while their adjusted GDP deflator shows the US to be in the fourth or fifth consecutive year of an inflationary recession.

[ 15 September 2008: Message edited by: DrConway ]

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The damage to the US economy wrought by the likes of Volcker, Greenspan, Reagan, Bush I, the Repubs who didn't mind trashing Clinton, Clinton when he was trying to appease right-wing sentiment, and Bush II, has finally come home to roost.

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And were not the Conseratives and Republicans in power in Canada and the U.S. repectively during the 1920's?

It seems that the economic mission of right wing administrations is to bankrupt the government. Governments with money, you see, might be tempted to spend it on people, otherwise. And then there's all the tory fun of spreading misery through cuts and general economic turmoil.

One way to make yourself rich is to make everyone else poor. It's all relative.

Now how it is that these tories have the reputation of being fiscally responsible, even though the shear tonnage of evidence demands the opposite understanding, is a tribute to the unabashed liars in the media, and a gullible public made so by cut backs to education.....

Banks stopped caring about little people by the time Reagan deregulated interest rates in the 1980s. So it's no surprise to me that a failing bank's first attempt to restore solvency is to idiotically call some of its loans. Never mind that most people can't afford to umpty-up a couple hundred grand right off.

Greed and stupidity go hand in hand, and the US government in particular has been enabling this sad state of affairs for way too long now.

The rich folks have all probably already bought gold and are just waiting for the US government to print all the money needed to wipe out the debts their corporations ran up over the last decade or so.

[img]frown.gif" border="0[/img]

It may sound like a conspiracy theory, but when one considers just how many rich people there are now in the USA and how much wealth they control, [i]and[/i] how few of them actually care for anyone else but themselves... well, they'll do what's best for them. And get the government to back it up.

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Originally posted by N.Beltov:
[b]Over 100 years ago Karl Marx predicted that capitalism would be unable to take care of those impoverished by it, and would, therefore, collapse. What we see now is that those enriched by capitalism - those at the "tippy top" to use Thomas Frank's expression - have to be continually bailed out to preserve the system. If we don't keep the rich rich, then capitalism might collapse. It's a mad, mad, mad, mad world we live in. And this has become a general condition - planned even (as SwimmingLee suggests).

The only thing that's missing to turn the whole rotten apple cart over is the understanding that such mischief is totally necessary.[/b]

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The only of Marx's most well-known predictions that have failed to come true is that of a revolution.

American Lyndon Larouche claims he was predicting this would happen since the 1960's. Larouche says the thundering nit wits in plunge protection are committing treason today. The entire financial system needs to be put through bankruptcy proceedings, and a new Bretton Woods agreement is needed, but this time with China, Russia, and India playing key roles. Currently, neither presidential candidate realizes the depth of the problem, according to Larouche. He says that U.S. conservatives claimed for years that FDR saved them from socialism. Larouche says correctly though that FDR saved them from fascism. Today, America is battling fascism from within, and it doesn't look promising.

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Originally posted by Doug:
[b]

Not due to inadequate sales of white sheets? That makes about as much sense, especially considering that the laws against not providing mortgages to black neighbourhoods have been in place for decades.[/b]

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It doesn't matter if it "makes sense", it will take some very aggressive efforts to sway the public on what happened here, regardless of how obvious it may seem. A depression is a fertile time for sociopolitical change and I think that might be the most dangerous outcome... I'm somewhat afraid as a lot of people I know are predicting war.

Back in the 1990s, Warren Kinsella, in writing about right-wing extremists, noted a very telling comment by one of their leaders; they were simply waiting for the next round of economic hard times, because that's when they'd get more members and stage a resurgence.

Human beings have a tendency to prefer simple, uncomplicated answers over harder ones. This, for the most part, was probably an evolutionary survival advantage when making a snap decision about whether to attack the big bear about to eat you was a good idea, and if you survived, what to tell someone else, which probably was, "If you see a bear, run away and very fast, or if you have a big spear, kill it fast."

As opposed to something like "depending on whether the bear is actually hungry, et cetera, for another thousand words, and in conclusion your behavior towards the bear should ideally depend on a dozen factors you can't possibly analyze in the time allotted but yes, it's good to know anyway even if you eat eaten trying to figure it out."

In today's modern society, however, sometimes the complicated explanation [i]is[/i] the right explanation, not the ubersimple one, but people are human. It's far easier to use coded racist rhetoric and blame black people than it is to understand that rich people purposely rig the rules for their own benefit in ways you can't always see clearly.

This just in - the United States government has effectively nationalized AIG Insurance. From the NY Times ([url=http://www.nytimes.com/2008/09/17/business/17insure.html?hp]link[/url]):

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In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan.

The decision, only two weeks after the Treasury took over the quasi-government mortgage finance companies Fannie Mae and Freddie Mac, is the most radical intervention in private business in the central bank’s history.

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But the bailout is likely to prove controversial, because it effectively puts taxpayer money at risk while protecting bad investments made by A.I.G. and other institutions does business with.

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Not surprisingly, Barney Frank hits the nail on the head:

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Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, said Mr. Paulson had not requested, and did not appear to need, any new legislative authority for the bailout.

“The secretary and the chairman of the Fed, two Bush appointees, came down here and said, ‘We’re from the government, we’re here to help them,’ ” Mr. Frank said. “I mean this is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it.”

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So much for the 'invisible hand' of the market and 'rugged individualism', eh? [img]rolleyes.gif" border="0[/img]

[ 16 September 2008: Message edited by: ghoris ]

Michael Helinka a devotee at the alter of friedman was on the CBC today stating "how the magic of the invisible hand of the market will set things right" "some of you will want to beat my face to a bloody pulp" We all know that magic is nothing but charlatans so that about makes sense, but somehow he read my mind on the second sentence...so I am to ponder if magic does exist.

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Actually the only people I can find saying that it's not a mess is the Feds, plus a few pundits. Most all others are saying, okay it's bad, but today wasn't as bad as was feared, but yeah it's bad.

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People tend to read people saying "its not a catastrophe in the making" as saying "its not a mess." The two are implicitly equated.

Even Paul Krugman thinks a catastrophe is not the most likely outcome. But the very fact it is a possibility is alarming enough, and at a minimum, has a very material effect on how long it takes to get to the other end of spreading the consequences of the mess around to nearly everyone.

IE, some of us lose our jobs, some of us have our retirement incomes substantially effected, all of us pay more for less... regardless of whether we had anything to do with the mess.

And from that position we teeter on the possibility of a real economic train wreck. Nice.

The fact that Stephen Harper even has to tell us the Canadian economy is in real good shape honest to god (you can almost see the earnest boy scout salute) is indicative of the fact that he knows what a pile of quicksand he's been standing on and how lucky he is there's an election, so whoever gets the most seats in October has to deal with this mess.

Or, if the Cons win again, he can quickly rush to hide all the embarrassing information (such as did he know in advance there were going to be some severe problems in the US), and grin and wave while giving more tax cuts to rich people.

[url=http://theautomaticearth.blogspot.com/2008/09/debt-rattle-september-16-2... wonderful blog I found out about.[/url] Go read it. [img]smile.gif" border="0[/img]

How about the [url=http://en.wikipedia.org/wiki/Glass-Steagall_Act]Glass-Steagall Act[/url]? Y'know, the law whose repeal led directly to exactly this sort of crisis because investment banks and commercial banks were allowed to commingle funds and personnel?

C'mon, Jacko, get on the ball!

[ 17 September 2008: Message edited by: DrConway ]

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Originally posted by Doug:
[b]

Financial reform proposals that don't relate directly to banking would be in provincial jurisdiction here.[/b]

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Our big six banks were arguing for mergers so they could gamble in the casino economy on a more equal footing with their American counterparts. The NDP has protested bank mergers for years saying that banks need to stick to banking. According to former Liberal Party member Mel Hurtig, Canadian banks have, and using Canadians' money, financed about 60 percent of the foreign takeovers of of corporate Canada and crown assets since 1985, and mostly by rich Americans.

Canada doesn't even have a federal securities and exchange commission. Canadians have been ripped off by investment scandals and stock fraud to the tune of tens of millions of dollars over the last few years.

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Originally posted by Doug:
[b]Not due to inadequate sales of white sheets? That makes about as much sense, especially considering that the laws against not providing mortgages to black neighbourhoods have been in place for decades.[/b]

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Speaking of white sheets, the real estate bubble was just as big in Idaho, Montana and Wyoming as anywhere else. Not too many blacks in those places are there?

The "equal lending to blacks created the housing bubble" line was created by the neocon propagandists and is being distributed through the usual channels.

I don't think the general public in the US is buying it though, almost all whites live in all-white neighbourhoods and they know damn well that their own friends and family were playing the RE speculation game.

As for the NDP, what we should be saying, and haven't said as far as I know, is that the US crisis was caused by loose and excessive mortgage lending, and that CMHC should be demanding higher down payments and stricter qualifications for mortgages that it guarantees, and banks should be required to do the same. As far as I know the NDP did not even object to the absurd 0/40 mortgage insurance brought in by the Cons and recently dropped when they saw the SHTF.

Loose lending practices do not make housing more affordable, they make it less affordable.

[ 17 September 2008: Message edited by: brookmere ]

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Originally posted by brookmere:
[b]Of course not. The guy is full of it.[/b]

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Are you calling my friend a liar? I happen to have good reason to vouch for his truthfulness.

And incidentally, you might want to re-investigate your "of course not". Back in the 1940s, banks purposely foreclosed on farms in Saskatchewan in order to pressure the NDP government.