Bloomberg News had a very stupid editorial today which a number of readers attacked because it was so pathetically brainless. That is, ‘boring banking’ is bad while ‘risky banking’ is not the cause of the credit bubble. This is patently ridiculous and is just part of what is going wrong with our political/financial/social systems: people who are quite capable of understanding what is going on, actively refuse to do this. They are the victims of wishful thinking, hoping that the games being played by the very rich will work out in the end rather than lead us into WWIII or a violent revolution or worse, rotting away to destruction.
There are armies of people out that simultaneously telling us we need to change nothing while at the same time, claiming we are all doomed due to various causes big and small. One of the most irritating is the freaking out over CO2 pollution while Japan pours tons of gallons of highly polluted radioactive wastes in the Pacific, for example.
Just as we were supposed to fear Vietnamese peasants while the US and Russia menaced the entire planet with total annihilation of all living things in a massive nuclear war, misdirecting people is normal. That is, we are supposed to fear stupid things while ignoring the true monsters lurking in the dark. And one monster that irritates the hell out of me and, like so many such monsters, was entirely created by human beings, is the Derivatives Beast.
This monster was concocted by greedy bankers who didn’t like ‘boring banking’ and loved ‘risky banking’. The ideal situation for them is to make loans and then dump them into the derivatives markets as ‘assets’ while these loans never have a chance in hell of being paid off, ever. Here is the editorial: Making Banking Boring Is the Wrong Way to Make It Safer – Bloomberg
Forget about it. The notion that dull-equals-safe springs from a misconception about what banks do. Banking, by its nature, is a risky endeavor. Even the most plain-vanilla banks extend credit and hope to get repaid in the unknowable future. It’s a dicey business and always has been.
What’s more, to re-create the banking industry of the postwar age is a nonstarter. Banks grew along with American corporations as they diversified, spanned the nation, branched out overseas and turned to arcane financial tools to manage their affairs. U.S. banks kept pace, culminating in the lifting in 1999 of the Depression-era restrictions of the Glass-Steagall Act, which had separated commercial banks from their securities businesses.
I remember when banks in New York operated totally differently in the sixties and seventies. Getting loans was hard due to usury laws. Citibank moved out to the wild west where there were no restrictions. Mastercard moved south. These and others ended up evading rules, regulations and controls, one by one, bit by bit. The rise of the offshore banks was due to the bankers and looters bribing our government to let them do these things. All over the world, this was done. This created a GLOBAL borrowing binge of tremendous, historic, perhaps the ONLY time in history EVERYONE goes simultaneously deeper and deeper into debt and no one can escape and there are no limits to debt, no controls, nothing except bankruptcy as a solution. Back to Mayor Bloomberg’s insane editorial:
They went bust the same way banks have since time immemorial. Bankers, like almost everyone else, got caught up in what turned out to be a gigantic credit bubble. When it went bust, losses from bad loans overwhelmed bank capital.
This should be of no surprise to anyone. The other major postwar banking fiascos were also caused by bad loans, whether to Latin America in the 1970s or the Texas oil patch and commercial real estate developers in southern California in the 1980s. Not to mention the savings and loan industry, which was buried by an avalanche of soured loans.
I recall when no sane government wanted to imitate Spain or its colonies. Britain, France and Germany all were effectively bankrupted by WWI and ended up owing money to Uncle Sam which was one of few major countries on earth not deep in debt even after a major war. We were the Creditor Nation. This allowed our bankers to go crazy and they produced a housing and speculative bubble that blew up hugely when Europe was unable to pay back these loans.
The California/Texas lending bubbles were created by Republicans such as dear old Ronnie Reagan. They were stupid bubbles and due to careless borrowing. Instead of heeding these bubbles as warnings, the US decided this was NORMAL and we should always have bubbles rise and pop which takes us back to the 1909 crash: the Fed was launched because of that and was supposed to control interest rates so they would not create bubbles.
This never worked (within 20 years, there was another huge bubble pop!). Anyways, Bloomberg News has another bubble article today: Bond Bubble Dismissed as Low Yields Echo Pimco’s New Normal – Bloomberg
Pimco officials point to Japan, which has been in and out of recession since the mid-1990s, as what the new normal would look like. Even though it has the world’s largest debt load at more than $11 trillion, Japan has some of the world’s lowest bond yields because of years of below-average growth.
Japanese 10-year yields fell to 2 percent in late 1997 from about 5.7 percent eight years earlier when the country’s stock and real estate markets collapsed. They haven’t closed at or above 2 percent since 2006. The U.S. 10-year yield tumbled below that level about four years after rising to 5.29 percent in June 2007.
Global “bond markets are turning Japanese,” Bill Gross, who manages the world’s biggest bond fund as co-chief investment officer with El-Erian at Newport Beach, California-based Pimco, said in a June 4 Twitter posting.
“In many ways, we are replicating the Japanese experience,” George Magnus, senior economic adviser in London at UBS AG, said in a June 5 telephone interview. “Banks and households have become overextended, and now we know governments have also become overextended. The problem is that the deleveraging means people are saving more. There is no sufficient spending and lending to boost the economy.”
No kidding! I wrote about this danger long ago. Many years ago, I pointed out that the Japanese bubble/pop leading to perpetual ZIRP lending would be a TRAP one can’t escape, ever. It is a perpetual depression. Japan has a long, horrible history of government engineered depressions. The Tokugawa regime imposed this in the past. These photos are from 1860. The people were third-world poor, as poor as modern Africans in the hinterlands.
Japan doesn’t have homeless children living under bridges today but has a huge number of homeless adult males who commit suicide or live marginal lives of desperation. Robots have replaced many human workers and due to the strong yen, the remaining jobs are being exported quite rapidly. Meanwhile, the government debt soars while taxes on the rich are non-existent and the population has given up even reproducing themselves, bit by bit and people are now predicting there will be no Japanese alive in 100 years at this rate.
What a catastrophe! Limitless government spending didn’t mean good spending. Much of it was wasted. The productivity factor in Japan is vanishing even faster than the population. Right now, thanks to robots, the remains of the trade surplus finances and previous labor of the people, Japan doesn’t look like central Africa…for now. But eventually, it will revert to exactly the same conditions that greeted the American invaders in 1860.
The US has been imitating Japan more and more in negative ways. The GOP leadership has backed a Wall Street speculator who is an offshore pirate and the Ron Paul supporters, fighting much harder than their own leader, have been shaking up the GOP by actually showing up at meetings and taking over from within. So in virtually every state this last two months, the leaders in DC have conspired to kill the state conventions one by one: Quorum shortfall shows deep rift in Alaska GOP | Juneau Empire – Alaska’s Capital City Online Newspaper
Many who showed up Saturday traveled to Anchorage from across the state, spending money on plane tickets and other travel costs, Cutler said. Like others, he denounced Ruedrich’s strategy of telling people outright not to come.
“That’s a gross violation of his duties as a chair,” Cutler said, adding he believes the old leadership is desperately trying to hold on to power it doesn’t deserve anymore.
Paul Dawson was among a group of Paul supporters who traveled to Anchorage from the southeast Alaska town of Craig for both the April convention and for Saturday’s gathering.
“It’s a crying shame that the original convention we spent all our money to come here and it was cut off like it was,” Dawson said. “So we come back with more money, and no show.”
Bravo for trying! Too bad it is a failure. The Paul family has chosen to side with the GOP leadership and old Ron is going to finish his betrayal in August. He isn’t fighting for his own delegates, is he? Otherwise he would be threatening to take them out of the convention along with at least 30% of the independent vote next fall. Instead, he is silent. As if this all has nothing to do with him.
Meanwhile, the futile anti-Muslim wars continue: Obama drone strikes: The president ordered more than George W. Bush – Slate Magazine
With Panetta in Afghanistan, Karzai condemns new airstrike while in Syria, some European reporters are Set up to be shot in Syria’s no man’s land? | Alex Thomson’s View: they were deliberately led into a cul-de-sac to be shot by crossfire. The uprising there has the fingerprints of the Bilderberg gang all over it. This is a naked aggression stirring up people deliberately.
Something that will definitely come home here to roost. We are always on the knife’s edge of self-immolation with race and religious riots right around the neighborhood corner. I was in the middle of one once, they happen without ANY warning, anywhere and are amazingly violent and above all, mindless. And drones will fly our skies from all over the planet as various powers seek to eliminate or destroy Americans. And our government will do the same since it has already decided the Constitution is stupid and wants this power to do what we are doing in Pakistan here in the USA itself.
All of this with debt! The Pentagon sucks our economy dry and jobs are exported to China and today, the US news worries that China will export its way out of a recession. Well, duh! All nations do this! This is why the floating fiat currency system makes trade wars WORSE, not better. Again: duh! But not one candidate for President and this includes Ron Paul, will talk about trade and how we need controls, limits and protection from foreign trade. Not a peep.
P.O. BOX 483
BERLIN, NY 12022
Make checks out to ‘Elaine Supkis’
Click on the Pegasus icon on the right sidebar to donate via Paypal.