How Bankers Bust The West and Killed the Kids

Forgive the hyperbole of a headline probably more suited to the title of a horror movie  — (bankers did not kill kids, just crippled their careers) — but it is six years since the crisis hit and many are wondering just when the pain will stop.

Stop the trillions still being wasted is the call of leftwing campaigners in France

The fact that the euro zone has not yet imploded (as so many pundits predicted it would) does not mean the crisis is over, French business commentator, Eric Le Boucher warns. Europe, he reminds us, is the only part of the world still gripped by recession in 2013 and the EU’s worsening unemployment is a ticking time-bomb.

Writing on the website of the French version of Slate magazine he is dismissive of over-optimistic remarks by François Hollande in Oslo, a month ago when he claimed: “The crisis in the eurozone is behind us”.  Indeed the Socialist president’s words were followed in the New Year by even more exuberance from EU Commission President José Manuel Barroso. The former Portuguese Prime Minister speaking January 6 in Lisbon said:  “I think we can say that the existential threat against the euro has essentially been overcome. In 2013 the question won’t be if the euro will, or will not, implode”.

…. and right on cue the Centre for Economics and Business Research says Britain faces another 10 years of austerity.

Le Boucher hastens to throw some realism into the ring noting the appalling toll five years of grinding crisis have left on Europe: “There are now 19 million unemployed in the euro area, 2 million more than a year ago. The EU unemployment rate has reached 11.8%. This average hides an explosive divergence across Europe: while unemployment is falling in the EU’s seven Northern and Eastern countries  —  in Germany it is down to 5.4% (Eurostat) —  the 18 remaining countries face a deteriorating jobs market and unemployment in Spain and Greece is at record highs — above 26%.

“One Spaniard in four is unemployed while the rate among the under 25s is 56.5%, a sign of great crisis. When Roosevelt launched the New Deal in 1933 (after the Great Depression),   U.S. unemployment was 25%. Given that the Spanish economy will contract further in 2013 —  growth is forecast at less than 1.5% — we must ask is the situation socially and politically sustainable? Even the Germans, the architects of all this “fiscal adjustment” in the Latin countries, never imagined the costs would be so high or last so long: 2013 will be the sixth year of recession in Greece, the third in Portugal and the fifth in Spain”.

Here by way of a warmup to the main film, is Daniel Hannan MEP urging the Occupy Wall Street protestors to switch their destination to the Central banks. He calls the banking bailouts an “ethical crime”.

Yes it is now Year Six of the GFC – Global Financial Crisis and most realistic observers (from which most politicians are by definition excluded) say Europe is not yet out of the woods and likely won’t be for a decade or more unless dramatic steps such as a private debt jubilee are taken.  So here to help further hone reader’s disgust and focus the anger, is a  BBC report on How Bankers Broke the West.

The video clip below can be viewed here on YouTube and is from the second part of the BBC’s Robert Peston series on what went wrong with the economies and finances of the West.

“The financial crisis has been as economically devastating as a world war and may still be a burden on ‘our grandchildren,’” Bank of England official Andrew Haldane recently observed. “‘In terms of the loss of incomes and outputs, this is as bad as a world war.’ he said. The rise in government debt has prompted calls for austerity – on the part of those who did not receive the giveaway. ‘It would be astonishing if people weren’t asking big questions about where finance has gone wrong.’”[2]

One view of where it has all gone wrong is that propounded consistently by Michael Hudson. The good professor sets it all out for readers in this recent summary of how the banks took the world to the brink, in what he calls, a global economic war:
“… Bankers always have fought to block government from creating its own money – at least under normal peacetime conditions. For many centuries, government bonds were the largest and most secure investment for the financial elites that hold most savings. Investment bankers and brokers monopolized public finance, at substantial underwriting commissions. The market for stocks and corporate bonds was rife with fraud, dominated by insiders for the railroads and great trusts being organized by Wall Street, and the canal ventures organized by French and British stockbrokers.

“However, there was little alternative to governments creating their own money when the costs of waging an international war far exceeded the volume of national savings or tax revenue available. This obvious need quieted the usual opposition mounted by bankers to limit the public monetary option. It shows that governments can do more under force majeur emergencies than under normal conditions.  And the September 2008 financial crisis provided an opportunity for the U.S. and European governments to create new debt for bank bailouts. This turned out to be as expensive as waging a war. It was indeed a financial war. Banks already had captured the regulatory agencies to engage in reckless lending and a wave of fraud and corruption not seen since the 1920s. And now they were holding economies hostage to a break in the chain of payments if they were not bailed out for their speculative gambles, junk mortgages and fraudulent loan packaging …

“… In the post-2008 financial wreckage it took only a series of computer keystrokes for the U.S. Government to create $13 trillion in debt to save banks from suffering losses on their reckless real estate loans (which computer models pretended would make banks so rich that they could pay their managers enormous salaries, bonuses and stock options), insurance bets gone bad (underpricing risk to win business to pay their managers enormous salaries and bonuses), arbitrage gambles and outright fraud (to give the illusion of earnings justifying enormous salaries, bonuses and stock options) …

” … A new term, Casino Capitalism, was coined to describe the transformation that finance capitalism was undergoing in the post-1980 era of deregulation that opened the gates for banks to do what governments hitherto did in time of war: create money and new public debt simply by “printing it” – in this case, electronically on their computer keyboards…”

  • Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends (ISLET), a Wall Street Financial Analyst, and Distinguished Research Professor of Economics at the University of Missouri.


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