Here they go again! Financial capitalism is crashing. So the lights are on late in Washington’s Federal Reserve, SEC and Treasury Department trying to figure out how socialism (your tax dollars and credits) can once again bail out these big time gamblers with our money.
Every cycle of casino capitalism that heads for, or goes over, the bankruptcy cliffs gets larger and larger. This year’s collapse towers over the bailout of the Savings and Loan banks in the 1980s.
This unfolding cycle of the Washington to Wall Street gravy train is not based on a huge spike in interest rates that tanked so many thrift institutions nearly twenty years ago. It is based on unbridled greed by the bosses of these big commercial banks, investment banks, brokerage giants and those two goliaths—Fannie Mae and Freddie Mac.
“Unbridled” because the financial institutions got themselves unregulated during the reign of Bill Clinton and his Treasury Secretary Robert Rubin. Rubin skipped out of town to become a wildly overpaid official with Citigroup—the leading lobbyist for his disastrous, so called Financial Services Modernization Act of 1999.
Fannie and Freddie have been deeply unregulated for decades which allowed their capital ratios to be lower—far lower—than even investment banks like Morgan Stanley. With that long-time implicit guarantee by the federal government, these two secondary marketers for home mortgages became more and more reckless so as to raise the corporate profits that their top executives need to skyrocket their personal compensation packages!
In 1991, lawyer Tom Stanton warned about the risks and non-regulation of Fannie and Freddie in his prophetic book—"A State of Risk" (Harper Business).
A decade ago, our banking specialists warned about the Federal Deposit Insurance Corporation (FDIC) under assessing its member banks thus leaving its reserves at the risk of being perilously low when needed. Today, these reserves are very much needed and perilously low.
Combined with the limitless greed, unbridled corporate power can wreak havoc with our entire economy. As it is doing now. The domino effect is underway.
So the Bush boys and the Congressional leaders, so to speak, are busy reassuring the investors that they will in some way make things stable. This time, however, they seem to be offering too little too late and the investors aren’t buying.
The stocks of the banks keep plunging down anywhere from seventy to ninety percent from their last year’s high.
The nation’s largest savings bank—Washington Mutual—closed at under $4.00 per share down from over $40 last year.
Again and again, year after year, the CEOs and the patsy federal agency heads have lied to the people about the financial status of these corporations. There is no credibility left and therefore no confidence. Over three trillion dollars is sitting in disbelief on the sidelines. Trillions of dollars have been looted or lost in the meantime, draining worker pension funds, mutual funds and the savings of small investors.
None of this had to happen. Regulation against conflicts of interest and hyper risk taking could have stopped it, including preventing the housing mortgage crisis. Empowering investor-owners could have headed it off. But Washington-based right wing corporate funded think tanks and the banking lobbies battered down the regulatory guards and the federal cops.
So now only the American taxpayers and their creditworthiness inside a deficit-ridden government and a debt-loaded Federal Reserve stand in the way of a far bigger financial collapse than the stock market crash of 1929. Will it be done smartly this time around?