Looking at the BIG Picture
Welcome to the March Spring Equinox 2009 Global News Flash edition of the SatyaCenter newsletter, entitled “Welcome to the Decade of Global Transformation and the New American Evolution”. Warm greetings from your Editor, Curtis Lang.
As you may know, although Jane and I spend full time running Satya Center, teaching Reiki, giving Reiki sessions, counseling as InterFaith Ministers, and writing about spiritual matters, I have over thirty years experience as a financial writer and editor and investigative journalist at The Village Voice, WORTH Magazine, and Ameritrade, where I was editor of the OnMoney.com financial portal.
I was one of the first to predict the depth and scope of the S&L Crisis in 1987 in The Texas Observer, and wrote many articles investigating the fraud and abuse in that industry.
In this newsletter, using research compiled over the last two years from honest and reliable financial experts, environmentalists, independent journalists and famous astrologers, I will give you a bird’s eye view of the current global financial crisis, provide you with a clear outline of its scope, depth and probable duration, and together we will take a look at the BIG picture – the cultural, political, economic, social and environmental changes set to totally transform human civilization during the next decade.
I maintain a steady focus on the financial, social, environmental, political and astrological factors that are most likely to shape America’s next decade. All point toward a massive awakening, a political confrontation, and a revolutionary change in the entire American way of life.
I recommend some major reforms of the current banking bailout, including a call for financial democracy and for public ownership and public control of the current Federal Reserve System, which is unduly influenced by private banks for their own profit and to the detriment of the public interest.
You may recall that a little over a year ago, last February, we predicted the coming collapse of the current global economic system in our Chinese New Year newsletter.
Since that time, a series of financial panics erupted in global markets. The crisis engulfed the last months of the Bush administration, which was widely seen as utterly incompetent in its handling of a devastating global financial catastrophe.
The conditions that led to the financial meltdown had developed on Bush’s watch, in large part because of radical Clinton-Bush bank deregulation and an extremely lax Federal Reserve Board. The public perceived the crisis as the result of 8 years of Republican dominance and unpopular Bush policies, but the roots of the crisis go back even further in history.
Over the last ten years, both the Clinton and Bush administrations deregulated the nations’ largest banks and allowed the merger of Wall Street investment banks and Main Street banks.
Such mergers had not been allowed since reforms following the Great Depression created impenetrable firewalls between investment banks and depository institutions. These firewalls had been placed between Wall Street and Main Street because big banks which had engaged in stock market speculation fueled the financial meltdown that caused the Great Depression.
By the late 1990s this crucial lesson of American history had been forgotten by a generation of policy makers in both Democratic and Republican parties who had drunk the Utopian laissez-faire capitalist Kool-Aid and considered such “firewalls” as quaint remnants of quasi-Socialist pre-Reagan America.
The financial mandarins at the Federal Reserve Board also contributed to our current crisis. It is always important to recall that the day to day operations of the Federal Reserve System are controlled by the Board of Governors in Washington and also by regional Federal reserve banks, and that those regional banks are in turn owned by member banks in the private sector.
American monetary policy and the direction of interest rates, is voted upon by a group called the Federal Open Market Committee, composed of the seven members of the Board of Governors, nominated by the President, and also five members from the regional Federal Reserve banks.
Thus the Fed has what may be termed a built-in bias toward the banking industry, and especially the big banks which dominate the financial landscape.
During the Clinton era, the Federal Reserve Board under Chairman Alan Greenspan lobbied for deregulation of banks, and presided over the dot-com bubble, allowing highly leveraged stock market speculation to spread unchecked until the dot-com market bubble collapsed.
Deregulation and speculation allowed Main Street bankers to enter the lucrative world of Wall Street securitization, packaging mortgages and credit card loans into totally complex financial instruments known as “derivatives”, featuring such well-known varieties as mortgage backed securities composed of bits and pieces of “liar loans”, “Tony Soprano” loans and other types of loans made without much concern for proof of ability to repay.
Main Street bankers saw themselves a newly minted Masters of the Universe, massively increasing the compensation to their own management while stockholders profited from the generally bullish marketplace for financial stocks of all kinds.
During the Bush administration, the Fed under Greenspan kept interest rates extremely low to help markets and banks recover from the damage caused by the dot-com collapse, served as cheerleader for the deregulation of finance, and allowed investors to use maximum leverage in the global stock casino, refusing to put limits on the amount of borrowing institutions and individuals could use to speculate in global markets.
Other countries mimicked Washington’s actions, and the end result was a truly global, largely deregulated financial marketplace.
The immediate result of this neo-liberal financial globalization and deregulation has been to create social conditions eerily similar to the super-rich Roaring Twenties, when global finance also reigned supreme. Superficial celebrity culture and reverence for the super-rich permeate the entire American media nexus and the collective American consciousness.
The end result has also been similar to America’s last experiment with deregulated finance and adulation of the super-rich.
A total financial implosion is devastating the entire global economy. It began in the last 100 days of 2008, beginning just prior to the Presidential election, and to a great extent determining the outcome of that contest, delivering the White House to Barack Obama.
The chart below, borrowed from Dr. Marc Faber's Market Commentary website, from December 1, 2008, shows a loss of $30 trillion in stock markets around the world. By some estimates, combined losses in commodities, stocks, bonds, and real estate during the Bush Meltdown were at that moment already greater than $60 trillion.
To give some sense of scale to these mind-boggling numbers, the CIA estimates that the US Gross Domestic Product in 2008 was some $14.58 trillion. America spends more than one trillion every year on military and defense operations worldwide. The entire US banking system contains about $10 trillion in assets.
And this was just the beginning of the beginning.
So far in 2009 we have seen a series of crises that have undermined faith in financial markets and governments around the world.
The press and the Pentagon are monitoring the financial and political pulses of dozens of countries considered to be in danger of financial destabilization followed by unpredictable, sudden and radical changes in political leadership and foreign policy. America’s military leaders believe these are places where American interests are at stake -- and where American intervention in markets or politics might eventually be required.
“. . .Hang a world map on your wall and start inserting red pins where violent episodes have already occurred. Athens (Greece), Longnan (China), Port-au-Prince (Haiti), Riga (Latvia), Santa Cruz (Bolivia), Sofia (Bulgaria), Vilnius (Lithuania), and Vladivostok (Russia) would be a start,” suggests Professor Michael Klare, a well-known author and expert in geostrategic analysis. “Many other cities from Reykjavik, Paris, Rome, and Zaragoza to Moscow and Dublin have witnessed huge protests over rising unemployment and falling wages that remained orderly thanks in part to the presence of vast numbers of riot police. If you inserted orange pins at these locations -- none as yet in the United States -- your map would already look aflame with activity. And if you're a gambling man or woman, it's a safe bet that this map will soon be far better populated with red and orange pins.”
America’s election of President Barack Obama triggered a brilliant ray of hope that was welcomed by billions of Earthlings, offering a tangible sign that the dominant energy in America’s collective consciousness supports positive social change, peace, environmentalism, feminism, financial democracy, human rights, and racial and religious tolerance.
But so far the global financial meltdown has continued to outpace the efforts of both Presidents Bush and Obama, and there is no sign of a bright dawn beyond the dark abyss stretching before global markets and stock exchanges.
The two month period from January 1-February 27, 2009 represented the worst start to a year in the history of the S&P 500, which recorded a drop in value of 18.62%. By March 2, the Dow Jones Industrial Average Index had dropped more than 50% from its summer 2008 peak. The decline has been compared to that of the 1929 Great Depression, which was 53% between September 1929 and March 1931. The DJIA ultimately dropped 89 percent from its 1929 high before beginning to recover in mid-1932.
America’s credit markets are still frozen. GM, Chrysler and Ford are on the verge of bankruptcy, despite a government bailout and more government action expected by many observers. Housing prices continue to fall and experts predict 8 million more foreclosures likely in the next couple of years. In California, tent cities are springing up around Sacramento and San Diego and people sleep in their cars in the Central Valley as local unemployment rates spiral above 25% with no end in sight.
Professor Nouriel Roubini, who predicted the global financial collapse long before most other observers, says that, “In 2008's fourth quarter, gross domestic product fell by about 6% in the U.S., 6% in the euro zone, 8% in Germany, 12% in Japan, 16% in Singapore and 20% in South Korea. So things are even more awful in Europe and Asia than in the U.S.,” says.
Dr. Roubini has a new article out in Forbes magazine, in which he says that America’s entire banking system is bankrupt. Roubini says that “The scale and speed of synchronized global economic contraction is really unprecedented (at least since the Great Depression), with a free fall of GDP, income, consumption, industrial production, employment, exports, imports, residential investment and, more ominously, capital expenditures around the world. And now many emerging-market economies are on the verge of a fully fledged financial crisis, starting with emerging Europe.”
“In the meantime, the massacre in financial markets and among financial firms is continuing,” Dr. Roubini continues. “The debate on ‘bank nationalization’ is borderline surreal, with the U.S. government having already committed--between guarantees, investment, recapitalization and liquidity provision--about $9 trillion of government financial resources to the financial system (and having already spent $2 trillion of this staggering $9 trillion figure).
Thus, the U.S. financial system is de facto nationalized, as the Federal Reserve has become the lender of first and only resort rather than the lender of last resort, and the U.S. Treasury is the spender and guarantor of first and only resort. The only issue is whether banks and financial institutions should also be nationalized de jure.”
In other, simpler words, America has spent $9 trillion to bail out our biggest banks, while allowing the present owners, managers and stockholders to retain their power over policies in those banks – and their memberships in the Federal Reserve System. This gives the private bankers continued leverage over American monetary policy and the entire Federal Reserve System.
The biggest American banks are not retreating from their deregulated business models combining Wall Street and Mains Street banking in one giant global financial supermarket. In fact they are using the taxpayers’ money to go shopping for smaller banks around the world, attempting to seize market share overseas rather than providing Americans with affordable financial services.
The biggest banks who received the bailout funds are not lending to Americans at low, low interest rates. They are lending at rates that are high relative to the zero-interest bailout monies they receive. Terms on credit cards are becoming more complex, more onerous and rates are rising for most of us. Bank fees for ATMs, late fees and other types of fees are multiplying and rising simultaneously. . .And the trillion dollar bailout has not been enough.
The bailout has not been enough because these big banks are zombie banks!
The McClatchy newspaper reported (03/08/2009) bad news affecting the banks:
"America's five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.
"Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their "current" net loss risks from derivatives — insurance-like bets tied to a loan or other underlying asset — surged to $587 billion as of Dec. 31. Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.
"The disclosures underscore the challenges that the banks face as they struggle to navigate through a deepening recession in which all types of loan defaults are soaring.
"The government has since committed $182 billion to rescue AIG and, indirectly, investors on the other end of the firm's swap contracts. AIG posted a fourth quarter 2008 loss last week of more than $61 billion, the worst quarterly performance in U.S. corporate history.
"The five major banks, which account for more than 95 percent of U.S. banks' trading in this array of complex derivatives, declined to say how much of the AIG bailout money flowed to them to make good on these contracts.
"The banks' quarterly financial reports show that as of Dec. 31:
— J.P. Morgan had potential current derivatives losses of $241.2 billion, outstripping its $144 billion in reserves, and future exposure of $299 billion.
— Citibank had potential current losses of $140.3 billion, exceeding its $108 billion in reserves, and future losses of $161.2 billion.
— Bank of America reported $80.4 billion in current exposure, below its $122.4 billion reserve, but $218 billion in total exposure.
— HSBC Bank USA had current potential losses of $62 billion, more than triple its reserves, and potential total exposure of $95 billion.
— San Francisco-based Wells Fargo, which agreed to take over Charlotte-based Wachovia in October, reported current potential losses totaling nearly $64 billion, below the banks' combined reserves of $104 billion, but total future risks of about $109 billion.
"Kopff, the bank shareholders' expert, said that several of the big banks' risks are so large that they are "dead men walking."
“. . .Even with the $2 trillion of government support, most of these financial institutions are insolvent, as delinquency and charge-off rates are now rising at a rate--given the macro outlook--that means expected credit losses for U.S. financial firms will peak at $3.6 trillion. So, in simple words, the U.S. financial system is effectively insolvent,” concludes Dr. Roubini.
So now the taxpayers have bought these banks. Why aren’t they being run as public utilities, for the benefit of taxpayers? Why aren’t mortgages easy to get at 3%? Why can’t we refinance credit card debt at 5%? Why don’t banks renegotiate lower mortgages, reducing the principal on all houses in America by 35% or the amount comparable properties have dropped in the last two years?
By continuing to bail out big banks without requiring the bankers to implement policies that would promote economic growth, create jobs and provide debt relief to homeowners and workers, President Obama has followed in President Bush’s footsteps by continuing to socialize losses at financial institutions while privatizing profits for a chosen few. This is simply unacceptable morally and bad public policy besides.
The government has already paid for the big banks. Now the government will have to manage them. Their current managers have already proven their total incompetence and their imprudent actions have destabilized the entire global financial system, largely because of the creation of a massive and opaque market in financial derivatives.
Only by taking over the biggest troubled banks can bank regulators understand the full extent of the derivatives mess. There are tens of trillions of dollars worth of derivatives in the banking system in America, and $600 trillion dollars worth of derivatives worldwide! Famous global investor Warren Buffet calls derivatives “financial weapons of mass destruction”.
Now, post-financial meltdown, we know that such powerful financial instruments can’t be left in the hands of the Wall Street warlords who created and hoarded them. They have to be defused.
Financial experts say that the derivatives market is a lot like a casino. Most of these financial contracts called derivatives could be cancelled by experts without doing the real economy any harm. Speculators might be left with losses or minuscule gains, but the rest of us would definitely be better off.
Global investors in every country have gone on strike because they can’t tell which banks and financial markets are broke and which ones aren’t. They suspect that if the biggest banks in the world are all bankrupt, then most of the rest of them probably are also broke. That’s not an unreasonable assumption after all.
Berkshire Hathaway Chairman, Warren Buffett is so livid by the sheer magnitude of the financial mess that he said: "These instruments [derivatives] have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks . . . When I read the pages of 'disclosure' in (annual reports) of companies that are entangled with these instruments, all I end up knowing is that I don't know what is going on in their portfolios. And then I reach for some aspirin."
Until bank regulators go into the banks they won’t be able to clearly enumerate all the derivatives and their face value, or calculate a present day value. They will most likely find that trillions of dollars worth of derivative contracts exist between these few big banks and every other big bank in America, Europe and Asia, and most every investment bank in every major world market.
If those assets were to be scrutinized, enumerated and marked to market, then the world would see that all these financial institutions are insolvent on a present day value basis. Not just a few big banks.
On the plus side, such scrutiny would restore market confidence while providing a good foundation for a workable government policy to unwind excessive speculation in our markets, cancel trillions of dollars worth of purely speculative derivatives contracts, and provide transparency to our banking and financial system. This transparency would be what markets most desire.
Banks would then be able to clearly see the value of their assets, and thus they could separate out the “toxic” assets from those that should be retained. Then, as in the case of the S&L crisis, a government entity would have to take charge of the toxic assets with the goal of selling them to the private market.
The governments of the world would have to cancel most of the derivatives contracts, reducing the losses to a manageable size worldwide.
So the end result of the exercise would be that the banks are cleansed and properly valued, and at that time, the taxpayers would own two amazingly valuable assets. The newly resurrected banks! And the huge number of foreclosures and other real estate and other properties owned by the banks as a result of default by borrowers!
Yet we taxpayers are to get nothing in return for our bailout bucks.
Why is that? We own the banks and also the “toxic” assets. Couldn’t some of those “toxic” assets be turned into affordable housing? Couldn’t the government’s stimulus strategy be to spend some money to hire people to fix up foreclosed houses and make them available at far below market rates and prices to people who need affordable housing?
There must be hundreds of ways the government could utilize these amazing assets – an entire financial system, after all, if slightly banged up, but it could be repaired. My new Honda Civic got totaled and after being completely reconstructed with Honda factory parts it’s impossible to tell it’s been in an accident.
I expect to drive it happily for quite a few years. I get 34 miles/gallon on the highway and I live in a rural area so I don’t do much stop and go driving.
I recommend that the taxpayers demand that the financial system they have just bought be used to promote the general welfare, not the interests of a small oligopoly.
The financial system must be brought under the control of Congress, and thus under the control of the American people. That means the Federal Reserve Board must also be brought under the control of the American people.
Congress now has the responsibility for the privately owned Banks that dominate the Federal Reserve Banking System, because the American government is now the largest shareholder in these banks.
Thus the banks must be managed to secure the best interests of the American people as a whole, not the interests of the few who own the banks.
And by the way, shouldn’t the Federal Reserve Bank System be overseen by the Congress? Shouldn’t power tilt a little now toward the “public” part of the “public/private partnership” known as the Federal Reserve Banking System? Maybe the taxpayers should own a larger share of that system than private bankers? What do you think?
Maybe the people of America should own and control the financial machine that creates the American dollar? What do you think?
We can call this a world-historical moment – a time when it’s necessary to demand financial democracy. It’s time for individuals and groups to assert our rights as citizens and taxpayers and to demand that our financial system serve the needs of all the people. We are disappointed in our present financial system, where all the people serve the interests of the few owners of financial assets. We are disappointed in our present political system, where the people serve the needs of the best connected friends of our public servants, rather than having public servants who serve the needs of we, the people.
Banks, including the Federal Reserve Banks, must be treated as publicly owned utilities for the moment, until we can determine the best financial model in a lengthy, open and deep conversation about the nature of a 21st century banking system, a system that is accountable to the public, transparent to investors, and governed by a clearly defined mandate to provide affordable financial services and products to people of all income levels.
It is clear that those banks, and the investment banks and insurance companies intertwined with them in financial interchanges of the most intimate kind, must begin to work with the government to provide financing on extremely favorable terms for all Americans: for small businesses in the Green Economy – such as those who insulate houses or install solar power systems for homeowners; for organic farmers; for community garden projects; for small communities to install their own wind power or large scale geothermal or water-based power projects or open shared community green space.
It’s time for our financial system to provide interest-free start-up capital for Green Economy innovators, structured so that if the start-up enterprise succeeds, the taxpayers receive a return after becoming stockholders. Community sponsored agriculture projects should be eligible for such financing.
Where are the tax credits and low interest long-term government guaranteed loans for promising college students and post-graduate students working on innovative research projects in the sciences and in private sector projects incubating new businesses to grow the Green Economy?
Where are the new tax credits and direct funding for art and cultural and educational projects to help put creative people in distressed communities to work – projects such as we had during the New Deal?
Where are tax credits and direct funding and land and housing at fire sale prices for “mini-farmers” who would like to create small scale community based vegetable gardens in urban, suburban and rural settings that could provide neighborhoods with expertise and demonstrate best organic practices for that area simultaneously, receiving membership fees in exchange for vegetables in addition to grants from government and tax-exempt donations from individuals?
What about redistributing foreclosed rural properties to young farmers who agree to create Green organic community sponsored agriculture projects, and then provide legal protections for that land so that it will remain fertile organic farmland in perpetuity?
What about agricultural & multifaceted grants & work projects which can begin & implement land recovery & toxic spill cleanup with organic soil & water remediation projects?
The American economy can’t recover until we succeed in creating many millions of new jobs to replace the tens of millions of jobs lost over the last thirty or forty years during globalization.
Even if the banks are all made healthy, and credit is again easy, Americans can’t resume their free-spending ways.
Americans have lost the savings they had in their house, the savings they had in the stock market, and their job security. Meanwhile, the cost of college and health insurance is totally off the charts.
We all remember the recent oil price spike, and people in the Northeast wonder what will happen during severe winters when another spike forces people to choose between food and heat. And the next oil price spike will occur as soon as an economic recovery begins to bloom, stifling the recovery and muting its upward trajectory.
Professor Roubini and other Wall Street sources of a bearish persuasion agree that we are increasingly likely to face a situation of stagnation and possibly worse, for several years, perhaps an entire decade.
Some commentators take an even more dismal view.
“Let's today step out of the normal boundaries of analysis of our economic crisis and ask a radical question: What if the crisis of 2008 represents something much more fundamental than a deep recession?” asks New York Times columnist Tom Friedman, who has been an ardent prop