Lessons not learnt from the global financial meltdown

Ten years ago, on September 15, 2008, Lehman Brothers filed for chapter 11 bankruptcy. The mayhem that followed led to the worst global financial crisis after the Great Depression. Like the latter, the 2008 financial crisis has been a matter of much discussion – from Congressional testimonies to saucy Hollywood productions leave alone the academic garbage that it generated.

The Greatest Heist of All Time

An article from 2009 that couldn’t be more relevant today:

 

 

Germany is conquering Europe without firing a shot.

Nov. 9, 1989, was a momentous day. It was the day the Berlin Wall came crashing down. The Soviet empire began to retreat from Europe, releasing the Continent from the clutch of communism.

Nineteen years later, another—possibly even greater—event shook the world, one that had a similar emboldening effect on Europe. The sudden collapse of America’s banking system in September 2008 opened the way for the emergence of a European economic superpower—and for the nation hijacking it.

Last fall, America stood in stunned silence as it witnessed the largest corporate bankruptcy in history (Lehman Brothers), the largest insurance company failure in history (American International Group) and the largest corporate seizure in the history of finance (Fannie Mae and Freddie Mac).

Russia ‘planned Wall Street bear raid’

For anyone who, or knows someone who, naively thinks Russia doesn’t have both the capability and the guts to pull the trigger, this is a must-read. It also goes to show you that the Cold War had never died, but had simply gone into a new phase. The phase of which America is going through, and is almost finalized. The US is now stuck with a leader who draws a new line in the sand, or makes a concession, every time another is breached. The Russians smell blood and they, along with the Chinese, won’t stop capitalizing on the opportunities until America is reduced to a third world country. They, who know America lives by an honor system, do not, which makes it even more easier to keep hammering away.

There is a cynicism in the relationship between Russia and the US, being played out in the Crimean crisis, which is deep, rooted in history and shows that the triumph of capitalism over communism wasn’t the end of the power game between these two nations.

The depth of mistrust between the two was highlighted in the interview given by Hank Paulson, the former US treasury secretary, for my recent BBC Two documentary, How China Fooled The World.

The excerpts I am about to quote never made it into the film, because they weren’t relevant to it. But they give a fascinating understanding of the complex relationship between Washington and Moscow.

Risk of 1937 relapse as Fed gives up fight against deflation

The US Federal Reserve has jumped the gun. It has mishandled its exit strategy from quantitative easing, triggering a global bond rout that it did not anticipate, and is struggling to control.

It has set off an emerging market shock and risks “blowback” from a fresh spasm of the eurozone debt crisis, and it is letting all this happen at the same time, before the US economy is safely out of the woods.

It has violated its own counter-deflation strategy, tightening monetary policy even though core PCE inflation has fallen to the lowest levels in living memory and below levels deemed dangerous enough in the past to warrant a blast of emergency stimulus. It is doing so even though the revival of bank lending has faded.

The entire pivot by the Federal Open Market Committee is mystifying, almost amateurish, and risks repeating the errors made by the Bank of Japan a decade ago, and perhaps repeating a mini-1937 when the Fed lost its nerve and tipped the US economy into a second leg of the Great Depression. “It’s all about tighter policy,” was the lonely lament by St Louis Fed chief James Bullard.

Counterfeit Money, Counterfeit Policy

What is the difference between printing money and counterfeiting? There is none.

Counterfeiting is illegal because it is the false creation of value. The counterfeiter takes low-value paper and turns it into high-value money, which is fundamentally a claim on the real productive value of the economy that issues the currency and recognizes it as a proxy means of exchanging that productive value.

Counterfeiting is illegal because the counterfeiter creates no additional value–he creates only the proxy for value. Creating real value–adding meaningful goods or services to the economy–is tedious, hard work. How much easier to simply transform near-worthless paper into a claim on actual goods and services.

If this is illegal, then would somebody please arrest the Board of the Federal Reserve for counterfeiting? The Fed has blatantly printed money without creating any real value to back up their added claims on productive value. Hence they are counterfeiting, pure and simple. A government based on rule of law would arrest these fraudsters and cons at the earliest possible convenience.

And while you’re drawing up the indictment, can you also charge them with counterfeiting competence and policy, as they have demonstrated the Peter Principle par excellence: the Board has risen to its highest level of incompetence. Their counterfeit policies have wreaked incomparable damage on the real productive economy.

The essence of counterfeit policy–a fake policy that claims to be something it is not–is “extend and pretend.” And the sole goal of “extend and pretend” is self-preservation and the preservation of the Financial Elite which has tightened its grip on the nation’s throat as a direct consequence of Federal Reserve policies–notably “extend and pretend.”

Full article: Counterfeit Money, Counterfeit Policy (Financial Sense)