Banks, insurance giants are free again to abuse the real economy

US Secretary of the Treasury Steven Mnuchin, (third from left) standing near the American President Donald Trump.They all deliver the first report on recalibrating the US financial system. (White House photo, 12/7/2017).

Not many years after the financial meltdown of 2008-2010, the main culpable parties for that global catastrophe, the big banks and the gigantic insurance companies are now commandingly asking the world to forget that. They demand to be again left completely unchecked, free to repeat what they did then; inflate all and every market to bursting point. They are empowered by the trillions the central banks handed them for free at the peak of the crisis. Now they are about to make sure they are keeping the money for an indefinite period of time. Actually, the monetary authorities have reassured them about that. Of course, this will be at zero or even negative real interest rates. Let’s follow the latest developments.

At the end of last month, the European Central Bank clearly ‘guaranteed’ that. ECB President Mario Draghi said the Central Bank will keep its basic interest rate at their current zero level, “for an extended period of time, and well past the horizon of our net asset purchases”. He also guaranteed “the Eurosystem will reinvest the principal payments from maturing securities purchased under the Asset Purchase Program for an extended period of time after the end of its net asset purchases, and in any case for as long as necessary”. In short, the European financial leviathans will keep ECB’s gift of €2.5 trillion in perpetuity.

They keep the trillions

On the other side of the Atlantic Ocean, US President Donald Trump, despite having been voted to support the ‘left behind’ Americans, is primarily worrying about how to make the New York bankers richer. The New York Stock Exchange, located in the perennially shaded from sun’s light Wall Street, has gained around 25% in the last twelve months that is after Trump’s 2016 electoral victory. He did what he could to support that. This is an increase in market capitalization of around $4.5tn. It’s an inconceivable mass of asset creation in just twelve months. No relation whatsoever though with the real world, but enough to destroy it.

Of course, this hideous sum of wealth belongs only partially to the New York banks, yet they thrive on all of it. How they do it? It’s very simple. They get money for free from the central bank, then spread it on all and every white and grey financial activity. A large part of it, inflated many times by leverage, returns to prime financial markets and sends them to the skies. Elon Musk’s Tesla electric car company is valued at NYSE at more than $50bn, without having ever produced one dollar in net profit.

It’s the same good old story. The banks and some others create their own money. If left uncontrolled, this ‘technique’ can go on and on, until the lenders go bankrupt. In the between, the bankers have become immensely rich. The thing is as old as the banking profession. Until the early 1990s the lenders were so closely controlled and checked by the authorities, up to the point they could barely grow in size. But the neoliberal politicians ‘liberated’ the financial sector from its bonds and now it has outgrown many times in value the real economy.

Insured by the taxpayers

As taxpayers on both sides of the Atlantic Ocean know very well, in 2008-2010 the bankrupt financial giants, banks and insurance companies alike were saved with their money. After that, the authorities, alarmed by the dimensions of the catastrophe, introduced some checks and controls, obliging the major banks and insurers to reduce their exposure to risks and increase coverage with more own capital.

Bit by bit though, the banks have found ways to overcome the controls by using various techniques. For the new schemes to hold though, the banks and the other financial firms must keep the money which was given to them at the peak of the last crisis. Now, they say they cannot do without those trillions the monetary authorities have lent them at zero interest rate. Bowing to those demands the central banks have ‘promised’ not to ask for that money back or raise the real or actual interest rates. On top of that, Trump has even reassured his fellow New York bankers, to further ‘liberalize’ them from the remaining checks and controls.

Insurers too

Along with the banks, the insurance companies are now demanding to be also ‘liberalized’ from their bonds. The US Treasury Department under Steven Mnuchin vies to do that. It’s not a surprise he would do everything he can to support his banker and insurer friends. He made his fortune with thousands of home foreclosures, after the hard working Americans were hit by the last meltdown.

However, insurers are so big as to have come under the international control of G20’s Financial Stability Board. G20 is the council of the 20 largest world economies. According to Reuters “The shift in the FSB’s approach to designating globally systemically important insurers, or GSIIs, follows pressure from the U.S. Treasury Department”.

It’s all financial…

In short, the US administration under the inglorious guidance of Donald Trump and instrumented by some financial killers like Mnuchin, is pressing the world to leave the insurance firms alone to do whatever they want, with other people’s money. Not to forget, back in 2008 the largest insurance company of the world, the American International Group (AIG) was saved from bankruptcy with taxpayers’ money.

This firm was one of the main culpable parties which brought the world to its knees. They insured whatsoever could or couldn’t be insured, without prudentially estimating the risks they were undertaking. The American taxpayers, after saving AIG with $185bn, ‘generously’ returned it to its previous owners, as if nothing had happened. This was of course a political decision by the Washington elites. Now, AIG wants to be liberalized from the prudential checks of the FSB and the Trump/Mnuchin duo is struggling for that. The scheme is too flagrant. There is probably a lot of cash changing hands under the table.

…And it’s theirs

The last centuries of the previous millennium taught us that the banking and insurance sharks are doing what it is natural to them; feeding on the flesh of the real economy. The structured societies though had set as their duty to block the sharks from killing people. The western countries were successful in achieving that until the early 1990s.

Then, the neo-liberalism introduced in the 1980s by Ronald Reagan and Margaret Thatcher prevailed and the financial conglomerates had it their way. Today, judging from what happens in the financial world one may conclude, organized structured in the economy is no more. Just open fields, where some gangs impose their will, as in the ‘good old wild West’.

 

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