09 June 2013
GFC
17 April 2012 |
COMMENTARY ON THE GFC
|
The official story
of the GFC
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It
has passed into accepted wisdom that the GFC was an unforeseeable sequence of
events brought on by a failure in the US
housing markets leading to a global collapse in equity and financial markets and
with subsequent downturns in domestic economies.
It
has been argued by mainstream media (and never seriously questioned) that any
criminal behaviour that did occur was at the margins, and the necessary and
prudent responses to the GFC failures should involve further deregulation of
financial and labour markets, cutbacks in national government domestic
spending programs and sell offs of national assets.
Following
the bailouts of the financial markets from 2008 onwards running into
trillions of dollars we have been lead to believe that (a) the worst is
behind us, and (b) adequate risk controls have been put in place to ensure a
return to stable economic growth.
All
of these claims are false.
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The truth on the
GFC
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There
is overwhelming evidence from credible sources that:
·
The GFC, as triggered by a
collapse in the US
housing market, was foreseeable and US regulators ignored the
warnings.
·
The GFC involved systemic, wall
to wall instances of criminal behaviour in the financial markets with
almost all of the culprits getting off free.
·
Attempts to address regulatory
failures within the US
financial markets subsequent to the GFC have been essentially window dressing
and new financially dangerous practices have been allowed which
promise further market breakdowns even more catastrophic than what we have
seen to date.
·
Domestic populations globally
have been ‘sold out’ to pay for the crimes of a financial elite.
·
Global financial markets are
more unstable than ever.
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Background to the
GFC
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Very
briefly, From the 1970s till now key economic changes have taken place in the
US
and globally:
·
Financial markets have grown
from 8% of the US
economy to over 25%
·
Manufacturing has seen a
matching decline with the advent of container shipping, the internet and the
off-shoring of labour.
·
US
wages have not kept pace with productivity gains. Profits have been
transferred to an elite.
·
Instead, employees were
encouraged to participate in the share and property markets as the keys to
their prosperity.
·
These markets were boosted by
low interest rates from the US Federal Reserve, encouraging property and
markets speculation.
·
The result was a series of boom
and bust episodes in shares such as
the Savings and Loans Crisis under Reagan, and the DotCom bubble later. The
GFC is just the latest and most devastating.
·
Privatisation of government
assets, notably energy utilities, took place globally with further scams
arising (eg the California Energy Crisis manufactured by Texas
based energy companies)
·
From the 1980s through till the
present there were persistent pressures on Congress -- and globally -- to
deregulate business, notably in the financial markets.
·
The chief legislative change
that gave rise to the GFC was the repeal in the US
of the Glass Steagall Act in the late 1990s which had maintained a division
between ordinary banking services and more risky investment banking, a law put
in place to stop any repeat of the dangerous practices that caused the 1929
Depression.
·
This legislative change was not
surprising given that big business and major finance companies had
contributed so much to the electoral coffers of legislators that they
effectively owned them (a practice that continues to this day).
·
Following the repeal of the
Glass Steagall Act (passed by Clinton
under protest in the face of a Republican veto-proof majority in Congress)
major US
banks moved into the shady lending and securitisation practices that gave us
the GFC,
·
Over the last twenty years there
has also been an explosion of complex derivatives (geared) financial
products, often backed by no assets at all, reportedly today valued at $600 trillion
in a real world global economy of only $80 trillion annually. Clearly,
financial markets have become something of a casino.
·
George Bush came to the US
Presidency in 2000 by a stolen election, a fact that would not have been lost
on financial insiders who were aware that the new President would be
‘business friendly’ and keen on deregulation. They would also be aware that
Bush’s own brother, Neil Bush, was a major participant in a $1billion scam
run during the Savings and Loans Crisis. The signal was in that regulatory
controls were ‘off’ for markets of all kinds.
·
The Bush administration’s top
20 cabinet and executive posts were filled by Texas
oil company executives. This was pro-business on steroids with an open
contempt for government oversight.
It was in this
historical context that financial markets, notably half a dozen leading US
banks, took it upon themselves to ramp up property and share markets by
straightforwardly illegal practices under well established law, charge
exorbitant fees, and gamble that in any subsequent fallout they could con the
US
government, and taxpayer, into picking up the bill. They were right, and they
did it.
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The GFC, as
triggered by a collapse in the US
housing market, was foreseeable and US regulators ignored the warnings
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"In mid-2006, I discovered
that over 60 percent of these mortgages purchased and sold were defective [ie
the applicants did not meet creditworthy standards and the bank had every
reason to believe they would default at some stage] " Bowen testified on
April 7 before the Financial Crisis Inquiry Commission created by Congress.
"Defective mortgages increased during 2007 to over 80 percent of
production."
Citibank knew home borrowers were
unlikely to pay after two years of low teaser rates that morphed into killer
rates yet they lent the money anyway – knowing they, or subsequent owners of
the mortgage, would foreclose and get the house and the share market
investors would lose their shirts.
They promoted and accepted these
loans because there was so much profit to be made in moving the risk off
their books and onto the pooled investment fund recipients.
It was the same Citibank that in 2010
sought to bail out Greece with loans and then went out and
bet the derivatives market that those loans would fail. That's inherently
fraudulent behaviour.
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The US
regulatory framework had been dismantled in favour of corporate interests
|
.
|
The GFC involved
systemic, wall to wall instances of criminal behaviour
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·
This is the view of many
credible economic commentators.
·
William Black was the chief US
prosecutor for criminal charges arising out of the Reagan era Savings and
Loans crisis in which he prosecuted hundreds of corrupt finance officials.
Black
claimed that the GFC was a hundred times worse than the S&L crisis and
few have been prosecuted. Moreover, he identified the behaviour of leading US
banks involved as “control fraud”, a system whereby corporate officers
knowingly run the company into the ground in order to obtain exorbitant
executive bonuses or to engage in profitable trades based on insider
knowledge. In the case of the biggest US
banks they relied on the “too big to fail” argument, that the US
government, and taxpayer, would bail them out in the event of market collapse
– which is exactly what happened.
Control
Fraud:
–
Extreme growth by making (or
purchasing)
–
Loans of extremely poor quality
at a premium yield
–
While employing extreme
leverage, and
–
Providing grossly inadequate
allowances for loan and lease losses
http://tinyurl.com/controlfraud555
Globalresearch.ca/index.php?context=va&aid=26602
·
As previously mentioned, Citibank’s
Richard Bowen gave evidence before Congress that Citibank was issuing home
loans they knew would fail and on-sold these loans to unsuspecting investors.
Nearly all of their home loans issued by them were known to be defective.
MERS
A
handful of leading US banks that dominated the home loan market set up a
system called MERS in the early 2000’s.
They
initially created a market by pooling and on-selling mortgages to
institutional investors like pension and hedge funds in a process called
"securitization". This appeared to get financial risk off their
books but they used several sleights of hand in the process.
They
paid ratings agencies to rate these funds as AAA when they knew they
contained sub-prime mortgages, ones almost guaranteed to fail.
They
assigned the transfer of mortgages to a private company set up by them --
MERS (Mortgage Electronic Registration Systems). This way, the regular trading
of the underlying mortgages in these pooled securities could be tracked
electronically.
Unfortunately,
in every state in the US
property transfers need to be recorded at the state level and various stamp
duties paid in order for those transfers to be legal. MERS failed to do
this, by design.
In
particular, Mers failed to properly register properties at the state level in
their initial securitization process, failing to legally transfer those
properties to the pooled funds. Consequently, those massive funds were in
many instances never trading anything more than worthless paper! They
discovered the problem when they tried to foreclose on failed mortgages and
found they didn't legally own the homes. Those pooled funds then set about
fraudulently recreating missing documents and presenting them to the courts.
It
gets worse. MERS, and many of the big banks, not only failed to properly
transfer ownership title, they often destroyed the mortgage paperwork and
loan agreements! They did so because they wanted to believed they could
do so (in defiance of state laws) and, more importantly, because any
examination of the original loan applications would show that the big banks
were selling worthless loans to the pooled investors. The big banks were even
"shorting" these pooled offerings, selling them to the public while
betting they would fail through the derivatives market.
The
entire system of property registration in the US
is in disarray. Legal title of ownership is uncertain. The pooled funds are
coming after the originating banks (one claim is for $47 billion), as are
thousands of homeowners who have been wrongfully evicted from their homes and
defrauded of ownership.
How
much money is at stake here in this legal mess: on some estimates, $1.5
trillion. That is seriously systemic criminal behaviour.
Update:
On Feb 12 2012
Pres. Obama signed off on a deal brokered between all 50 US
states, the Federal Government, and the 5 leading US banks largely
responsible for the mortgages fiasco.
The
companies will be released from any legal liability in relation to their
rorting of the US
mortgage market. In return they will pay $25 billion into a trust fund to
assist those harmed by their criminal behaviour. Over 4 million families lost
their homes to foreclosure yet just 750,000 of them will receive a one-time
check for just $1,800 to $2,000, which for many will barely cover the cost of
moving to new homes.
The
big US
banks stole like bandits and got away free.
·
Simon Johnson, a former chief
economist of the International Monetary Fund, characterizes the process we
have been through in the last two years as a "quiet coup," and
notes that all the ensuing financial "reforms" have been designed
to serve the interests of a financial elite and not the public. He claims
there is little difference between the current collapse and previous ones in Indonesia,
South Korea
and Russia
where financial elites have captured government and used it to their own
advantage. The public has been forced to extend the protections of the
conservative banking system to shysters and gambling sharks. This is the same
process that has been occurring in Europe
with the bailout of bankers there.
·
The final stage of this global
scam by financial markets is to utilise government bailouts to buy up
national assets at fire sale prices. This what is happening in Greece
with European bankers insisting on asset sales. It is what is happening in
the US with chosen banks being invited by the US government to receive low
interest (or no interest) loans to buy up tranches of distressed properties
from Freddie Mac and Fannie May at cheap prices, the very same properties
those banks offload to those agencies at full price following the GFC!
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New financially
dangerous practices
have been allowed which promise further market
breakdowns even more catastrophic than what we have seen to date.
|
There
are many instances but I provide here some particularly significant items from
the US
economy:
·
New US accounting rules endorse
corporate fraud. Following the GFC US share markets
tracked down until 10
March 2009 when they mysteriously zoomed up.
Why? Because on that day the US Federal Accounting Standards Board (FASB)
succumbed to financial markets pressure and installed new accounting
standards: big banks would be allowed to value trillions of dollars of bad
loan book debts not at current market values but at notional values. A
mortgage would be kept on the books as an asset at a value of $300,000 when
it had no chance of selling then, or now following the GFC, at anything over
$180,000. FASB had got the message from a Congress owned by the finance
markets: either allow financial firms to lie about the market prices of their
alleged assets or Congress would legislate into effect that which FASB
refused. Subsequently, listed US
companies have gone into receivership showing only 50% of their asset worth
stated only days previously.
·
Computer generated trades in
equity markets have occurred post-GFC and are evidence of serious fraud.
On May 6 2010
the Dow dropped 1000 points in computer driven trading. Nothing has been
changed to protect the public.
http://tinyurl.com/1000selloff
http://market-ticker.org/akcs-www?post=164768
·
High frequency computer trading
scams are run regularly on US markets. US
brokers use high frequency trading to intentionally probe the market with
tiny orders that are immediately cancelled in a scheme to gain an illegal
view into the other side's willingness to pay.
http://market-ticker.org/akcs-www?post=163801
·
Off balance sheet accounting is
still permitted in the US
and continues to threaten market stability. Wells Fargo
has $10 billion of risk-weighted assets. It has in $2 trillion of off-balance
sheet assets.
·
The OTC (over the counter)
derivatives market still remains almost entirely unregulated, with no end-of-day
reconciliations. It dwarfs the regulated securities markets.
·
Further legislative approval
for wholesale corporate fraud. The Jumpstart Our
Business Startups Act or JOBS Act, is a law intended to encourage funding of US
small businesses by easing various securities regulations. It passed with
bipartisan support, and was signed into law by Pres.Obama on April 5, 2012.
The bill eliminates SEC
reporting requirements for enterprises with annual revenues up to $1 billion.
It is a virtual blueprint for financial scams. Consumers will need to do
their own due diligence on companies they intend to invest in.
http://tinyurl.com/jobsact555
·
Improper use of savings bank
status threatens the US
government ability to bail out ordinary depositors in the event of a crisis. The Federal Deposit Insurance Corporation
(FDIC) guarantees these funds but has limited assets and would have to rely
on the US
government sale of Treasury notes to handle any large collapse of US banks.
In Oct 2011 Bank of America Corporation, hit by a credit downgrade, moved derivatives from its Merrill Lynch
unit to a subsidiary flush with insured deposits, according to people with
direct knowledge of the situation. The exact figures are unknown but are
believed to be in the trillions. BAC
has $75 trillion worth of derivatives trades. Any calls upon the FDIC to bail
out derivatives trades of trillions of dollars would be simply unsustainable.
If this merging of derivatives trades with ordinary bank cash deposits were
to be non-transparent or repeated by other banks then the entire viability of
the US
banking system would be called into question in any future crisis.
http://problembanklist.com/fdic-to-cover-losses-on-trillion-bank-of-america-derivative-bets-0419/
·
The US
middle class is being wiped out and the statistics prove it.
http://tinyurl.com/middleclass555
·
US debt levels are
unsustainable. On a per capita basis they are
higher than that of Greece.
A collapse of markets is more likely than not.
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Domestic
populations globally have been ‘sold out’ to pay for the crimes of a
financial elite
|
One
only has to look at the bailouts in Iceland,
Ireland
and Greece
to see this. Neither the governments nor the people are being bailed out in
these instances; instead, the IMF, World Bank, European Central Bank and the
finance markets are bailing out greedy bankers who made bad loans, imposing
draconian measures on national economies that will gut real economic activity
for decades – and all because those banks made loans without undertaking due
diligence on the ability of the borrowers to repay, or knowingly mislead
them.
The
matter is compounded by the fact that those banks have leveraged their
lendings through the derivatives markets, a casino of ‘funny money’ that
mostly has no asset backing. Those gearing arrangements (sometimes as much as
100:1) have left major US and European banks especially vulnerable to
non-repayment by individuals or national governments.
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Global financial
markets are more unstable than ever
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See
the instances I referred to previously concerning dangerous new regulatory
practices in the US
financial markets. Read any of these commentators for more details:
Karl
Denninger
Mike
Whitney
Paul
Craig Roberts
Matt
Taibbi
Pam
Martens
Nouriel
Roubini
Janet
Tavakoli
Henry
Liu
William
Black
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Implications for HR
professionals
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HR
professionals are not expected to know everything, but they must move beyond
superficial political and social analysis if they expect to conduct
reasonable contingency planning, especially in larger organisations with
longer project lead times.
How
many HRM managers know, for instance, that Mitt Romney’s three key foreign
policy advisors are board members of the same Right wing think tank (Foreign
Policy Initiative) which, following a baseless Iranian terrorist scare in Nov
2011, called for immediate US
military attacks upon Iran?
The
consequences of such an action would likely be a massive oil price hike
(think fuel at $3.00/litre) with major cutbacks in the transport industry and
foodstuff price hikes.
This is certainly
something for the HR professional to ponder upon.
There at least has
to be an awareness beyond the news headlines.
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# posted by kenj @ 17:10 
