“The more things change, the more they stay the same.” That old cliché certainly applies to to the financial system of Western nations, and the banking cabal which pulls the strings of our puppet-governments.
Bloomberg and other U.S. propaganda outlets are trumpeting the news that Western bankers and (so-called) ‘regulators’ have reached a deal on new capital requirements for these fraud-factories. According to ECB-chief Jean Claude Trichet, lead banking-shill on the far side of the Atlantic, the new rules bring stability to the Western banking system and “address moral hazard”. Quite obviously these anemic new rules do neither.
First a look at the numbers. Some Western banks will be forced to raise their capital requirements by “up to 2.5%”. In fact, some of these banking oligopolies will only have to raise their capital by a mere 1%, while some of these fraud-factories won’t be required to raise any additional capital at all. To understand how recklessly inadequate these new rules actually are requires some context.
To begin with, the current capital requirement for these big-banks (who have placed bets totaling roughly $1.5 quadrillion in the derivatives market alone) is a microscopic 2% of “assets”. Let me repeat this: the same insanely reckless, pathologically greedy bankers who have placed bets amounting to 20 times the size of the entire global economy are currently able to “back” only 2% of those bets (and the actual value of that “2% in assets” is highly suspect).
Bankster apologists will argue that with increased capital requirements of “up to 2.5%”, that this would more than double capital levels for the (minority of) banks which have the maximum reserve-levels imposed upon them – and thus this “fixes” that problem. To rebut such nonsense requires some additional context. In that respect, China’s banking system is the perfect example.
First of all we should note that the tiny increase in Western capital requirements is to be phased in over seven years. There is zero probability of the Western banking system even surviving that long. However, for the sake of argument, let’s assume that the full increase in capital requirements was imposed tomorrow. And let’s assume that all of these fraud-factories have the highest capital levels imposed upon them – when in reality most of those banks will be able to lie, cheat and bully their way to much lower levels.
Even after these Western banks were “recapitalized”, at 4.5% total reserves Western banks would have less than ¼ of the capital reserves of China’s banks – and (unlike Western banks) Chinese banks have not placed more than $1 quadrillion in highly-leveraged bets in the banksters’ derivatives casino.
What does the Western media think of China’s bank reserve levels? Certainly if these propagandists believe that Western banks will (eventually) be “well-capitalized” with bank reserves at 4.5%, then these same pundits must believe that China’s banks are over-capitalized, given that their current capital requirements (at 21.5%) are more than 10 times higher than Western fraud-factories? Hardly.
In 2009, the Western propaganda-machine was telling us that China’s banking system was “an accident waiting to happen”: a “bubble” which was the result of “a massive lending spree” of approximately $1 trillion. Another way of describing this would be say that Chinese banks “expanded their balance sheets” by $1 trillion. In fact, in “QE1” alone, the Federal Reserve expanded its balance sheet by $1.25 trillion – while allowing the Wall Street fraud-factories to maintain 30:1 leverage on their own balance sheets. And China’s banks had already been forced to raise reserve requirements five times before the first of this “China bank bubble” nonsense was published. But the propaganda-machine was just getting warmed up.
All through 2010, the same propagandists were still telling us that China’s banks faced “a big bubble risk”. And once again, in 2011 we are being subjected to even more “China bank-bubble” nonsense. So, with U.S. banks having 1/10th the capital reserves and roughly triple the leverage of China’s banks, what was the propaganda-machine saying about U.S. banks while it accused China’s banking system of being a “bubble” again and again and again?
In 2009, even before the totally farcical U.S. “bank stress tests”, the same propagandists told us that U.S. banks were “well-capitalized”. Naturally, after virtually all of the U.S. big-banks “passed” the test we were subjected to much more of this “well-capitalized” propaganda. And as recently as two weeks ago (but still before the new “Basel” banking rules were agreed upon), we have the U.S. propaganda-machine telling us again that U.S. banks were “well-capitalized”.
The ridiculous lies and hypocrisy from Western big-banks and the propaganda-machine doesn’t end with all of their “bubble” hyperbole. As I mentioned at the beginning of this piece, the bankers and propagandists are telling us that this new deal also “helps address” the moral hazard of allowing these Oligarchs to place bets amounting to more than 20 times the global economy – and then blackmail our governments for $trillions when they inevitably bankrupt themselves (as they did in 2008). In fact, this deal does absolutely nothing in that respect.
The key here is that nothing has been done to force the Wall Street fraud-factories (in particular) to reduce their self-destructive 30:1 leverage. Unless/until that insanity is permanently ended, Wall Street banks are nothing but “suicide bombers” with multi-trillion-dollar “vests” of financial explosives strapped to each one of them.
At 30:1 leverage, it only takes a fall in the prices of the assets underlying those bets by a mere 3% to bankrupt the entire U.S. banking sector. In fact, U.S. home prices (which remain the #1 asset upon which Wall Street’s bets are based) have already fallen that far just since the start of this year. This means that even if we adopt the highly dubious assumption that Wall Street banks were solvent on January 1st, as a matter of simple arithmetic they must have bankrupted themselves since that time. Of course, in the magical world of the U.S.’s “mark-to-fantasy” accounting system we are forced to speculate on such subjects, since the balance sheets of Wall Street banks don’t even qualify as plausible “fiction”.
Let’s put this another way. The “extra capital” which (some) U.S. banks will be forced to implement over a period of seven years under the new “Basel II” accord would all be 100% consumed (plus much more) if U.S. housing prices fall even 1% more. In other words, by the end of this summer all of the additional capital which U.S. banks will be required to raise over the next seven years will all be more-than-100% consumed.
Exactly how has “moral hazard” been eliminated from the U.S. banking system when these Oligarchs are (again) insolvent, and their new “capital cushion” will be gone in a matter of weeks? In fact, it is a matter of the most elementary logic that this “moral hazard” must continue as long as these bank-oligopolies are allowed to exist in their present size.
As I wrote in a previous commentary, “too big to fail” (by definition) means “too big to exist”. As long as individual banks are allowed to exist on a scale where they can (literally) blackmail entire governments for trillions of dollars, then “moral hazard” hasn’t been eliminated – it has been maximized. Obviously it is impossible to construct a hypothetical scenario which implies any more moral hazard than the current reality.
It has always been 100% obvious (and 100% necessary) that the only way to bring these greedy Oligarchs back under control was to smash all of their oligopolies into little pieces. This is entirely in accordance with the fundamental principles of capitalism. For 400 years we have known that the “ultimate evil” in any/every capitalist economy are monopolies and oligopolies. The choice of our cowardly/corrupt governments to ignore 400 years of capitalist theory and allow these bank-oligopolies grow to such an extreme size is the real-life validation of those 400 years of economic theory – and conclusive evidence that all of these banking oligopolies must be scoured from the face of the Earth.
As if all of these lies and hypocrisy from the bankers (and their propagandists) wasn’t odious enough already, it gets even worse. The same Wall Street banks which demanded a $15-trillion blackmail “bail-out” in 2008 because they deemed themselves “too big [i.e. too important] to fail” are “vigorously lobbying” the spineless regulators to have themselves classified as not “systemically important” (the bankster euphemism for “too big to fail”).
We now arrive at Wall Street’s “Golden Rule”: when the world’s most-reckless gamblers bankrupt themselves, then they are all “too big fail” (and thus deserving of $trillions in banker-welfare). However when it comes to imposing regulations on these fraud-factories (i.e. responsibility, accountability, and sanity) then suddenly none of these Oligarchs are “too big to fail”.
This sort of “heads I win, tails you lose” hypocrisy which Wall Street bankers live and breath every day of their lives is, by itself, conclusive proof that these Oligarchs have been allowed to grow too large, too arrogant, and simply too dangerous to be allowed to exist. The “Basel II” rules have been a total failure in imposing even minimal levels of solvency and accountability on the worst fraud-factories to have ever preyed upon our species. Indeed, these farcical negotiations have only (and inadvertently) produced one tiny benefit for the citizens of Western nations: they have conclusively demonstrated that the entire Western financial system is both corrupt and bankrupt beyond any possible redemption (with the possible exception of Canada’s banks).
Once that reality is acknowledged, “bank policy” becomes much simpler to articulate and implement.
1) Capital requirements for Western banks should be raised to a level similar to China’s banks, unless/until “systemic risk” has actually been reduced – rather than just pretending to do so. Obviously this necessarily requires the derivatives market to be wound-down, and eventually eradicated – since by itself the derivatives market represents over 90% of all “systemic risk”.
2) Not one more bail-out/hand-out dollar goes to any Banker Oligarch, again. Ever.
Obviously such requirements would bankrupt each and every Wall Street bank, and most if not all of Europe’s banking oligopolies – in other words, “success” would be 100% certain.
Bankster apologists will naturally assume full “Chicken Little” mode at this point, and wail that “the sky will fall” if we allow all these banksters to drown in their own financial sewage. In fact, as I’ve written on several occasions, the $15 trillion in hand-outs, tax-breaks, and loan-guarantees bestowed upon Wall Street alone after they engineered the “Crash of ‘08” was at least three times what would have been necessary to create a brand-new, solvent (i.e. debt-free) U.S. banking system.
Better still, we have already seen that we can live without these banksters with no trouble at all. Wall Street has already been cutting its lending to U.S. businesses steadily and relentlessly since they accepted all that banker-welfare – despite promising to increase their borrowing. And with more than 90% of the U.S. mortgage market now directly guaranteed by the U.S. government, Wall Street’s only role in that market is a totally parasitic one: pocketing the profits on any/all mortgages where the borrowers are still making payments – while standing behind none of this debt.
The conclusion here is incontrovertible. We have a long list of reasons why it is imperative for all of the banking oligopolies to be smashed into little pieces. We have several years of empirical evidence that our economies can function without any of these Oligarchs. And we have not one, single (valid) argument for allowing these oligopolies to continue to exist.
The failure of Western governments to implement such obvious, essential policies would be nothing less than treason: sacrificing their own economies, and the prosperity of their own citizens solely to prop-up (and continue to enrich) the most vile financial predators to have ever been hatched on this planet.