A. Six Reasons Another Financial Crisis Is Inevitable
15 Sep 2013, Posted by David Callahan and Wallace Turbeville
Pasted from: http://www.demos.org/policyshop
Five years after the fall of Lehman Brothers and the worst financial crisis since 1929, one thing seems certain: another meltdown of the financial system seems inevitable. Why? Because we still haven’t fixed many of the problems that led to the last crisis.
Here are six reasons another financial disaster is so likely:
- The Shadow Banking System is Still Gigantic A systemic cause of the financial crisis was the dramatic rise of an array of lightly regulated financial entities with huge and complex balance sheets composed of volatile assets and risky debt—from insurance companies like AIG to hedge funds to private equity firms. Much of this system remains intact five years after the crisis, and is still relatively unregulated. According to Deloitte’s Shadow Banking Index, some $9 trillion was pumping through the Shadow Banking System last year in form of repurchase agreements, money market mutual funds, mortgage-backed securities, and collateralized debt obligations. That’s way down from the Wild West days of 2007, but still much greater than a decade ago.
- Banks Are Bigger Than Ever Another reason for the crisis was the sheer size of banks, a scale greatly amplified by risky leverage, and the concentration of the banking sector. When the huge bets made by these banks went bad, the entire financial system was put at risk. Yet today, as a result of banking consolidation during the crisis and a lack of regulation, the surviving banks are even bigger than before: JP Morgan, Bank of America, and Wells Fargo are all larger than they were before the crisis. Proposals to break up large banks, and re-institute Glass-Steagall, have gone nowhere—despite even being embraced by the likes of former Citigroup chair Sanford Weill.
- Banks Are Still Reckless Think the financial crisis cured banks of their appetite for risk? Think again. JP Morgan’s multi-billion losses in the London Whale episode show that the appetite for big risks in search of big profits remains alive and well on Wall Street. And risk management, constantly touted by Jamie Dimon as the crowning achievement of JP Morgan, remains wholly inadequate given the size and complexity of trading operations. The meltdown of MF Global is an equally telling episode: Jon Corzine put that entire firm and all its shareholders at risk through bets on overseas currencies that could have yielded massive profits, but instead brought total disaster. Meanwhile, the Volcker Rule—which would limit certain risky investments by banks—languishes as multiple federal agencies try to agree on a common draft and rules that should force banks to keep adequate capital reserves and avoid becoming over-leveraged do not go far enough.
- Derivatives Remain Under-Regulated Risky derivatives were centrally implicated in the financial crisis and Dodd-Frank has imposed new rules around what Warren Buffett famously called “financial weapons of mass destruction.” Starting in June, the Commodity Futures Trading Commission has required many U.S. derivatives transactions to be conducted through centralized clearinghouses, but so far the rules have only been implemented for interest rate and credit derivatives. And it’s not clear how much these clearinghouses will stop outsized risk taking and U.S. firms can still engage in plenty of hijinks with derivatives overseas, outside the purview of U.S. regulators. Rules for transparent trading have not yet gone into effect and they include loopholes that could weaken their effects on the markets. Finally, while data on derivatives transactions are being collected, it is unclear when it will be made consistent and meaningfully available so that the regulators can monitor derivatives markets properly.
- Nobody Was Punished for the Last Crisis Despite a vast array of financial abuses and trillions of dollars in lost wealth, not a single high-level executive of any financial firm faced accountability in the form of criminal charges and prison time. At least after the last meltdown, involving Enron and Worldcom, some of the top miscreants actually went to jail. Not this time. And that reduces deterrence of future wrongdoing.
- Government Regulators Are Still Outgunned Regulating some of the wealthiest and most powerful business entities in the world is not easy under any circumstances. But it’s especially hard when government oversight agencies don’t have the resources they need to do their job. The Securities and Exchange Commission and the Commodities Futures Trading Commission have faced a multi-pronged assault over recent years. The powers of these agencies have been battered by budget cuts in Congress (and now through the sequester), legal challenges to new rules, and a blizzard of lobbying—often by ex-officials from these very same agencies. The fact that so many rules required by Dodd-Frank remain un-implemented is telling evidence of the weakness of these agencies and the pushback they have faced to financial reform.
To be sure, some good things have happened over the past five years, particularly the creation the Consumer Financial Protection Bureau. Yet many of the most dangerous features of a casino-like financial system remain in place.
B. 25 Fast Facts About The Federal Reserve
15 Sep 2013, The Economic Collapse.com, by Michael Snyder
Pasted from: http://theeconomiccollapseblog.com/archives/25-fast-facts-about-the-federal-reserve-please-share-with-everyone-you-know
As we approach the 100 year anniversary of the creation of the Federal Reserve, it is absolutely imperative that we get the American people to understand that the Fed is at the very heart of our economic problems. It is a system of money that was created by the bankers and that operates for the benefit of the bankers. The American people like to think that we have a “democratic system”, but there is nothing “democratic” about the Federal Reserve. Unelected, unaccountable central planners from a private central bank run our financial system and manage our economy. There is a reason why financial markets respond with a yawn when Barack Obama says something about the economy, but they swing wildly whenever Federal Reserve Chairman Ben Bernanke opens his mouth. The Federal Reserve has far more power over the U.S. economy than anyone else does by a huge margin. The Fed is the biggest Ponzi scheme in the history of the world, and if the American people truly understood how it really works, they would be screaming for it to be abolished immediately. The following are 25 fast facts about the Federal Reserve that everyone should know…
#1 The greatest period of economic growth in U.S. history was when there was no central bank.
#2 The United States never had a persistent, ongoing problem with inflation until the Federal Reserve was created. In the century before the Federal Reserve was created, the average annual rate of inflation was about half a percent. In the century since the Federal Reserve was created, the average annual rate of inflation has been about 3.5 percent, and it would be even higher than that if the inflation numbers were not being so grossly manipulated.
#3 Even using the official numbers, the value of the U.S. dollar has declined by more than 95 percent since the Federal Reserve was created nearly 100 years ago.
#4 The secret November 1910 gathering at Jekyll Island, Georgia during which the plan for the Federal Reserve was hatched was attended by U.S. Senator Nelson W. Aldrich, Assistant Secretary of the Treasury Department A.P. Andrews and a whole host of representatives from the upper crust of the Wall Street banking establishment.
#5 In 1913, Congress was promised that if the Federal Reserve Act was passed that it would eliminate the business cycle.
#6 The following comes directly from the Fed’s official mission statement: “To provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded.”
#7 It was not an accident that a permanent income tax was also introduced the same year when the Federal Reserve system was established. The whole idea was to transfer wealth from our pockets to the federal government and from the federal government to the bankers.
#8 Within 20 years of the creation of the Federal Reserve, the U.S. economy was plunged into the Great Depression.
#9 If you can believe it, there have been 10 different economic recessions since 1950. The Federal Reserve created the “dotcom bubble”, the Federal Reserve created the “housing bubble” and now it has created the largest bond bubble in the history of the planet.
#10 According to an official government report, the Federal Reserve made 16.1 trillion dollars in secret loans to the big banks during the last financial crisis. The following is a list of loan recipients that was taken directly from page 131 of the report…
Citigroup – $2.513 trillion
Morgan Stanley – $2.041 trillion
Merrill Lynch – $1.949 trillion
Bank of America – $1.344 trillion
Barclays PLC – $868 billion
Bear Sterns – $853 billion
Goldman Sachs – $814 billion
Royal Bank of Scotland – $541 billion
JP Morgan Chase – $391 billion
Deutsche Bank – $354 billion
UBS – $287 billion
Credit Suisse – $262 billion
Lehman Brothers – $183 billion
Bank of Scotland – $181 billion
BNP Paribas – $175 billion
Wells Fargo – $159 billion
Dexia – $159 billion
Wachovia – $142 billion
Dresdner Bank – $135 billion
Societe Generale – $124 billion
“All Other Borrowers” – $2.639 trillion
#11 The Federal Reserve also paid those big banks $659.4 million in fees to help “administer” those secret loans.
#12 The Federal Reserve has created approximately 2.75 trillion dollars out of thin air and injected it into the financial system over the past five years. This has allowed the stock market to soar to unprecedented heights, but it has also caused our financial system to become extremely unstable.
#13 We were told that the purpose of quantitative easing is to help “stimulate the economy”, but today the Federal Reserve is actually paying the big banks not to lend out 1.8 trillion dollars in “excess reserves” that they have parked at the Fed.
#14 Quantitative easing overwhelming benefits those that own stocks and other financial investments. In other words, quantitative easing overwhelmingly favors the very wealthy. Even Barack Obama has admitted that 95 percent of the income gains since he has been president have gone to the top one percent of income earners.
#15 The gap between the top one percent and the rest of the country is now the greatest that it has been since the 1920s.
#16 The Federal Reserve has argued vehemently in federal court that it is “not an agency” of the federal government and therefore not subject to the Freedom of Information Act.
#17 The Federal Reserve openly admits that the 12 regional Federal Reserve banks are organized “much like private corporations”.
#18 The regional Federal Reserve banks issue shares of stock to the “member banks” that own them.
#19 The Federal Reserve system greatly favors the biggest banks. Back in 1970, the five largest U.S. banks held 17 percent of all U.S. banking industry assets. Today, the five largest U.S. banks hold 52 percent of all U.S. banking industry assets.
#20 The Federal Reserve is supposed to “regulate” the big banks, but it has done nothing to stop a 441 trillion dollar interest rate derivatives bubble from inflating which could absolutely devastate our entire financial system.
#21 The Federal Reserve was designed to be a perpetual debt machine. The bankers that designed it intended to trap the U.S. government in a perpetual debt spiral from which it could never possibly escape. Since the Federal Reserve was established nearly 100 years ago, the U.S. national debt has gotten more than 5000 times larger.
#22 The U.S. government will spend more than 400 billion dollars just on interest on the national debt this year.
#23 If the average rate of interest on U.S. government debt rises to just 6 percent (and it has been much higher than that in the past), we will be paying out more than a trillion dollars a year just in interest on the national debt.
#24 According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is the one that is supposed to have the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”. So exactly why is the Federal Reserve doing it?
#25 There are plenty of possible alternative financial systems, but at this point all 187 nations that belong to the IMF have a central bank. Are we supposed to believe that this is just some sort of a bizarre coincidence?
As pointed out in article, Bernanke Inserts Gun In Mouth: “…raise cash now. Let me be succinct – it has been my considered belief that you need enough in liquid cash – not credit access in the form of credit card available balances or anything similar – for at least six to twelve months. I’m upping that here and now to twelve to twenty-four months – that’s right – one to two full years of “minimum necessary to make it” expenses…”
( News & Editorial/ Raise cash now)