Emerging
in the aftermath of the global financial crisis that began in late 2007 is a
world order dominated by a few governments and corporations with unprecedented
control over global resources. These power appear to have little-to-no-regard
for the welfare of the vast majority of the world’s populace, even within
developed economies such as the U.S. and Japan. Within the U.S., government prioritization of corporate
interests over public welfare during the financial crisis was reflected in the
lopsided allocation of funds to banks, including the bailout of investment
banks that should not have been eligible for relief, and the unlimited
backstopping of AIG’s credit default swaps while average Americans, who saw
work hours and income collapse, received little-to-no support. Financial sector
fraud and corruption have prevailed in the four years following the bailouts.
ORIGINS OF THE CRISIS
Prioritization by government of corporate over
social welfare during and after the financial crisis was a predictable outcome
of three decades of neoliberal philosophical and market rule. Neoliberal
philosophies and policies stemming from the Chicago school essentially re-made
national and global financial infrastructures in the 1980s and 1990s. The
strong laissez-faire ethos promoted by neoliberal advocates resulted in
de-regulation and rapid expansion of the US financial system and liberalization
of international trade and currency transactions. The effects of neoliberal
policies were greater economic turbulence and growing inequality even prior to
the great recession that officially began in December of 2007. The reign of
neoliberal financialization also adversely impacted industrial production in
the US and contributed to the rapid outsourcing and globalization of
production. Liberalization of trade and cross-border currency transactions
facilitated globalization of production, as did advances in computerization.
Financial corporations in western economies have
benefited disproportionately from neoliberal de-regulation and globalization.
Within the US a series of legislative acts, especially the Graham-Bleach-Bliley
Act of 1996 and the Commodities Futures Modernization Act of 2000, relaxed
banking regulations and de-regulated derivatives trading. The power of the
financial industry grew exponentially, particularly through the strategic uses
of derivatives and high frequency trading. These strategic technologies allowed
unprecedented influence as western banking interests, particularly within the
US and UK (City of London) shaped industrial policy and economic development in
domestic economies and played an important role in promoting financial
de-regulation and liberalization policies in the developing world.
The
growth of the financial sector contributed to growing inequality within and
across nations. For example, the top .1% of the U.S. population, about 315,000
individuals, receives half of all capital gains on the sale of shares or
property and these gains constitute sixty percent of the total income made by
the Forbes 400.[i] The top 20 percent of US households owns 89%
of all equities.[ii]
Monopolization of wealth and power has been a deliberate strategy pursued by
elite groups and structural adjustment has been one of the most efficacious
macro-economic policies for shifting wealth upwards.
Consolidation
of wealth and power among individuals and corporations resulted in strong
pressure for dismantling of policies and laws viewed as restrictive and/or
costly. The de-regulation of finance is a very good example of how special
interests dictated law and government policy. Consolidated wealth also finds
current levels of social-welfare and education spending to be problematic,
although war and surveillance spending are allowed to remain intact. Structural
adjustment programs, not unlike those that were imposed upon the developing
world in the 1980s, are now being imposed upon advanced western economies, such
as the U.S., Ireland, Greece, Spain, and countries within Eastern Europe.
PRIVATIZED PROFITS AND SOCIALIZED RISKS
Naomi Klein concluded that "the crisis on Wall
Street created by deregulated capitalism is not actually being solved, it's
being moved. A private sector crisis is being turned into a public sector
crisis" (Klein 2009
http://www.thenation.com/doc/20090525/stresstest_video).
In 2011, Bloomberg news reported that “Fed
Chairman Ben S. Bernanke’s unprecedented effort to keep the economy from
plunging into depression included lending banks and other companies as much as
$1.2 trillion of public money, about the same amount U.S. homeowners currently
owe on 6.5 million delinquent and foreclosed mortgages” (Keoun and Kuntz 2011).
Eventually it was revealed that secret Federal Reserve loans to the biggest
banks totaled $7.7 trillion .[iii]
Risk was transferred from financial speculators to
public budgets by government bailout programs, especially through the
backstopping of AIG and direct loan guarantees to banks, even those that had
not been eligible through participation in the FDIC program. Graham Bowley
observed in The New York Times that
the federal financial “bailout helps fuel a new era of Wall Street wealth”
enabling “hefty bonuses” to corporate Wall Street executives.[iv]
Goldman Sachs alone received $70 billion in combined funds from TARP, the
Federal Reserve, AIG, and the FDIC.[v]
Perhaps most telling of
who benefited and how lost in the crisis was the failure to prosecute those
financial agents responsible for the crisis within these monopolists, many of
which profited from rampant foreclosure fraud in the wake of the crisis. Reflecting on these data, Economist Simon Johnson observed: "The
US increasingly displays characteristics that we have seen many times in
middle-income “emerging markets” – new dimensions of vast inequality, forms of
financial instability that benefit the best connected, and consistently easy
credit for the privileged."[vi]
For citizens of countries most directly
impacted by the financial disaster, especially the US and the UK, one of the
most galling aspects of the crisis has been the failure to bring criminal
charges against the agents involved. For example, Jean Eaglesham asks in the
Wall Street Journal: "It is a question that has been asked time and time
again since the financial crisis: How many executives have been convicted of
criminal wrongdoing related to the tumultuous events of 2008-2009? The Justice
Department doesn't know the answer...."
William Black, who was responsible
for the Savings and Loan criminal prosecutions, asserts that neither the Bush
nor the Obama administrations prosecuted any elite corporate executive officers
for the “epidemic of mortgage fraud that drove the ongoing crisis” (Black “Holder and Obama on” 2012). In a
November 2011 speech, “Recurring Crises Derive From Epidemics of Fraud Stemming
from C Suite,” Black condemns the fraud for wiping out $11 trillion dollars in
household wealth and for eliminating 6 million jobs and 5 million that would
have been created. He observes that the FBI warned of the epidemic of mortgage
fraud and accuses the government for promoting incompetence in order to assist
the richest 1 percent of the population by failing to take action.
CONSEQUENCES OF THE CRISIS
Naomi
Klein describes how natural or human-wrought disasters enable neoliberal
opportunism and predatory capitalism, shifting wealth from the many to the few,
through government reconstruction policies and programs. The policy playbooks
used by many western governments in the wake of the shock of the financial
crisis echo the neoliberal reforms described by Klein as occurring in the wake
of natural disasters such as the Indonesian tsunami. For instance, the
financial crisis opened the door for disaster capitalism in Eastern and Baltic
European nations, including Hungary, Estonia and Latvia, as capital flight from
these nations precipitated by the crisis forced reliance on IMF loans with
structural adjustment contingencies.[vii]
Eastern European nations were also denied the ability to engage in
counter-cycle stimulus spending by creditors and lenders to combat recessionary
deflation.
Moreover, the current financial crisis in Greece illustrates how
financial firms can deliberately cripple a nation, forcing it to privatize
holdings and cuts social spending: In the early part of 2010, the country of
Greece was subject to assault by investment banks and hedge funds that (naked)
shorted Greek bonds, causing credit default swaps on Greek debt to skyrocket.
Skyrocketing credit default swaps caused Greek interest rates to rise, which
compromised the nation’s ability to roll over its bonds.[viii]
The subsequent Euro-zone bailout was conditional upon severe Greek austerity,
exacerbating economic contraction.[ix]
The
U.S. has also been subject to disaster capitalism and it has not been spared
from austerity measures. U.S. states, counties and cities experienced
significant declines in sales, corporate, and income tax revenues across 2008
through 2010. Although federal stimulus helped states plug education and health
care spending in 2008 and 2009, states began massive public sector cuts to
education, social-welfare and health spending, and infrastructural maintenance
in 2010.[x] Additionally, it appears that states’
vulnerability has set them up for the same types of attacks launched against
Greece. U.S. banks are currently being investigated by the SEC for deliberately
short-selling and/or purchasing credit default swaps on municipal bonds sold to
those banks’ investors.[xi] . . . . .
The problem is that the financial crimes continue unabated. For details of current wrongdoings and the lack of prosecution, please see the following links
Overview on Neofeudalism in America http://majiasblog.blogspot.com/2012/01/neofeudalism-book-prospectus.html
Headlines that point to what is wrong in America
Outrageous Bankers Escape All Justice http://majiasblog.blogspot.com/2012/08/outrageous-banksters-escape-all-justice.html
The Libor Scandal http://majiasblog.blogspot.com/2012/07/libor-scandal.html
[i] Robert
Lezner. “Capital Gains: Top .1% Earn ½ Capital Gains. Forbes (2011, Nov
20):
http://www.forbes.com/sites/robertlenzner/2011/11/20/the-top-0-1-of-the-nation-earn-half-of-all-capital-gains/.
[ii] Ellen
Byron and Karen Talley "Luxury Sales at Risk," The Wall Street
Journal (2011, August 10): B1.
[iii] Bob Ivry, Bradley Keoun and Phil Kuntz “Secret
Fed Loans Helped Banks Net $13B,” Bloomberg.com (2011, November 27): http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html
[iv] Graham Bowley “Bailout Helps Fuel a New Era of Wall Street
Wealth,” The New York Times (2009, October 17): http://www.nytimes.com/2009/10/17/business/economy/17wall.html?_r=1&th&emc=th.
[v]
Dylan Ratigan “Goldman Sachs' Black
Magic, Here's How They Did It,” The Huffington Post (2009, October 16): http://www.huffingtonpost.com/dylan-ratigan/goldman-sachs-black-magic_b_324095.html.
[vi]
Simon Johnson “Who is Carlos Slim,” Baseline
Scenario (2009, October 17): http://baselinescenario.com/2009/10/17/who-is-carlos-slim/.
[vii]
Michael Hudson “Europe’s Fiscal
Dystopia,” Economic Perspectives from Kansas City [on-line] (2010a,
June): http://neweconomicperspectives.blogspot.com/2010/06/europes-fiscal-dystopia-new-austerity.html
And Michael Hudson “Latvia’s Cruel Neoliberal Experiment,” Michael Hudson
homepage (2010b, April 8): http://michael-hudson.com/2010/04/latvia%e2%80%99s-cruel-neoliberal-experiment/.
[viii] N. D. Schwartz
and E. Dash “Banks Bet Greece Defaults on Debt They Helped Hide,” The New
York Times (2010, February 25): p. A1.
[ix] O. Besancenot and P. Grond “The Greek
People Are the Victims of a Carefully Engineered Financial Extortion Racket,”
Originally published May 14 Le Monde by Richard Fidler. Published in
English by socialistproject.ca at Global Research [on-line] (2010, May
19): http://www.globalresearch.ca/index.php?context=va&aid=19226.
[x]
Paul Krugman “America Goes Dark,” The
New York Times (2010, August 8): http://www.nytimes.com/2010/08/09/opinion/09krugman.html?th&emc=th
and R. Miller and A. Feld “Economy in U.S. Slows as States Lose Federal
Stimulus Funds,” Bloomberg (2010, June 13): http://www.businessweek.com/news/2010-06-13/economy-in-u-s-slows-as-states-lose-federal-stimulus-funds.html.
[xi]
J. I Dugan “Scrutiny for Bets on Municipal Deals,” The
Wall Street Journal (2010, May 14): C1, C3 AND Matt Taibbi “The Great
American Bubble Machine,” The Rolling Stone (2009a, July 30): http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine/print.
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