Here Ellen Brown tries to explain just how terrified elected representatives are of the big banksters. And for valid reasons—the banksters have an almost unlimited power to destroy.
Time to Put Finance Back in Its CageRobert Kuttner 06/17/2012
Last Wednesday, speaking at the Council on Foreign Relations, Treasury Secretary Tim Geithner had this to say about the deepening European crisis: "If you wait to move on these things and you let the market get ahead of you, then you increase the cost of the solutions." Geithner was referring to efforts by European leaders to shore up Europe's banking system and public finances, to regain the trust of money markets.
But what's really at work here? As financial markets pull money out of economies perceived to be weak, the cost of government borrowing goes up, rating agencies downgrade bonds, private investors pull put capital, and the whole cycle feeds on itself. Then governments and central banks need even more heroic measures to try to stem the tide, and they demand more budget austerity in return, deepening the crisis still further.
Europe was actually heading towards a modest recovery in late 2009. Growth was resuming and unemployment was coming down in most countries. Then the new Greek government elected that October reported that the Greek deficit was worse than previously reported; hedge funds began betting against Greek bonds; and then the run on sovereign debt spread to Portugal, Spain and now Italy, where interest costs on bonds keep rising and the European authorities keep playing catch-up.
It wasn't the Greek economy, accounting for about 2 percent of European GDP that deepened the crisis. It was the speculative response to the Greek situation.
Geithner's comment gets the real dynamics backwards. It's not that economies are too slow to appease markets. It's that the markets have too much power to destroy economies.
Let's not forget -- this entire crisis was caused because markets mispriced risk. That's a polite, bloodless way of saying that a bunch of overpaid wise guys bet the farm on the premise that housing prices could never fall, and created opaque securities that made a lot of insiders rich and duped the rest of the economy at a cost of several trillion dollars.
So if financial markets totally screwed up when they created collateralized debt obligations backed by sketchy mortgages and treated them like triple-A bonds, why do we think that the same financial markets are to be trusted when it comes to accurately pricing Greek or Italian or Spanish bonds? more
The JPM Derivatives Propping Up U.S. Debt
Why the Senate Won’t Touch Jamie Dimonby ELLEN BROWN JUNE 21, 2012
When Jamie Dimon, CEO of JPMorgan Chase Bank, appeared before the Senate Banking Committee on June 13, he was wearing cufflinks bearing the presidential seal. “Was Dimon trying to send any particular message by wearing the presidential cufflinks?” asked CNBC editor John Carney. “Was he . . . subtly hinting that he’s really the guy in charge?”
The groveling of the Senators was so obvious that Jon Stewart did a spoof news clip on it, featured in a Huffington Post piece titled “Jon Stewart Blasts Senate’s Coddling Of JP Morgan Chase CEO Jamie Dimon,” and Matt Taibbi wrote an op-ed called “Senators Grovel, Embarrass Themselves at Dimon Hearing.” He said the whole thing was painful to watch.
“What is going on with this panel of senators?” asked Stewart. “They’re sucking up to Jamie Dimon like they’re on JPMorgan’s payroll.” The explanation in a news clip that followed was that JPMorgan Chase is the biggest campaign donor to many of the members of the Banking Committee.
That is one obvious answer, but financial analysts Jim Willie and Rob Kirby think it may be something far larger, deeper, and more ominous. They contend that the $3 billion-plus losses in London hedging transactions that were the subject of the hearing can be traced, not to European sovereign debt (as alleged), but to the record-low interest rates maintained on U.S. government bonds.
The national debt is growing at $1.5 trillion per year. Ultra-low interest rates MUST be maintained to prevent the debt from overwhelming the government budget. Near-zero rates also need to be maintained because even a moderate rise would cause multi-trillion dollar derivative losses for the banks, and would remove the banks’ chief income stream, the arbitrage afforded by borrowing at 0% and investing at higher rates.
The low rates are maintained by interest rate swaps, called by Willie a “derivative tool which controls the bond market in a devious artificial manner.” How they control it is complicated, and is explored in detail in the Willie piece here and Kirby piece here.
Kirby contends that the only organization large enough to act as counterparty to some of these trades is the U.S. Treasury itself. He suspects the Treasury’s Exchange Stabilization Fund, a covert entity without oversight and accountable to no one. Kirby also notes that if publicly-traded companies (including JPMorgan, Goldman Sachs, and Morgan Stanley) are deemed to be integral to U.S. national security (meaning protecting the integrity of the dollar), they can legally be excused from reporting their true financial condition. They are allowed to keep two sets of books.
Interest rate swaps are now over 80 percent of the massive derivatives market, and JPMorgan holds about $57.5 trillion of them. Without the protective JPMorgan swaps, interest rates on U.S. debt could follow those of Greece and climb to 30%. CEO Dimon could, then, indeed be “the guy in charge”: he could be controlling the lever propping up the whole U.S. financial system. more