It never really did go away in 2009. Sure, the bailout package did
stabilize the markets and, to a lesser degree, the banks. (It propped up
the big banks. Small banks are still dying like red shirts in a Star
Trek parody show). Most of the national economies pulled out of
recession – America with the help of a stimulus package.
But the fundamental problems that caused the global meltdown in the
first place are all still in place, the flaws not addressed.
And most Americans are unaware of it, because the corporate media has a
vested interest in pretending all is fine, because profits of their
parent corporations are riding on an illusion of economic stability.
Credit Default Swaps and other derivatives still make up the vast
majority of a phantom world economy that doesn't actually really exist.
The actual world economy is about $60 trillion a year, and the
derivatives market, which consists mostly of insurance policies betting
that chunks of the real economy WILL fail, is about ten times that amount.
If you have a beat up old Ford Pinto, and you find an insurance company
willing to insure it for ten million dollars against it being totaled,
the first thing you're going to do is run that Pinto into a crusher and
collect your ten million. That's assuming of course, that an insurance
company would write such a policy, and not provide incentives for you to
hold on the the rolling wreck. That's where the magic of derivatives
The bank is selling you an outlandish policy like that because the
premiums are a percentage of the amount of the policy. They probably
have policies of their own on the Pinto, one for $50,000 that says it
will still be running on a certain date, and another for TWENTY million
in case it gets totaled. The company willing to ensure it for Twenty
million (premiums are three million a year) probably has it insured as
By the time that Pinto coughs and dies, several hundred million might be
riding on it. And you, the owner of this Pinto, haven't totaled it yet
because, with all that money on it, you've been able to secure some nice
big fat loans, with that multi-million Pinto as collateral. That $200
Pinto is now an “asset” of over ten million dollars.
You also have a sneaking hunch that if it did die, you might see little
or none of the sum payout offered, and like any gambler, will stay in
the game in hopes of “covering your losses”. Of course, now you're using
that vaporous asset, the solid gold-like Pinto, to back those loans.
When you have sums of money equal to roughly 1,000% of the amount of
money that actually exists in the world tied up that way, the result
isn't a real stable economic structure.
Another big part of the problem is that debt is so attractive to
politicians and banks. For politicians with no scruples whatever,
deficit spending is a good way to produce an illusion of prosperity
without having to pay for it. In the US, that suicidal practice began
with Reagan (most people, subjected to endless propaganda about how the
New Deal and Great Society caused all our debt, are amazed to learn that
the national debt was only 7% of what it is now back in 1980.) In
Britain, it was Maggie Thatcher. They both ensured that much of the debt
would be privatized, and made it all worth while by relaxing the usury
laws to the point where banks could charge a vig that would make Tony
Soprano blush. Banks and the financial sector love debt. They make a
fortune off of it.
It leads to an incredible contraction of wealth. The five banks regarded
as “too big to fail” in America control over 60% of the country's
wealth, and that's not even including all the imaginary wealth in the
It's not a tenable situation. Capitalism, by its nature, will eliminate
competition, create a captive market, and siphon off ever-increasing
amounts of the wealth. That's why any sensible society regulates it,
because the only outcome of unregulated capitalism is an economic
implosion, followed by widespread poverty.
Although you usually see revolutions before that happens.
Greece, crowded into an austerity program by bankers anxious to protect
their vig, is seeing riots. No telling what that situation might develop
into. The people of Greece didn't create the situation, and see no
reason why they should have to suffer for it.
When (not if) it's America's turn, you'll see riots here, too.
Because the Eurozone dithered over helping Greece, and passed on several
opportunities to do it relatively painlessly, they now have a situation
where it may be too late to prevent the Greek economic convulsions from
tipping the rest of the European economies. And the offer is so
unpalatable that Greece may have to reject it out of hand, which should
lead to a collapse of the Euro. Germany's Angela Merkel is quite put out
by all this, especially since she is the main reason it came to this
extreme. She wasn't willing to help the Greeks in any way as long as
Germany could avoid the contagion, which is about the same as refusing
to help get a victim of pneumonic plague to the hospital before you
start getting a skin rash yourself.
The United Kingdom had an election Thursday and hung their Parliament.
This doesn't involve hemp ropes and scaffolding such as you might see in
more sensible nations; it means that no one party got 50% of the seats,
and so one of the two major parties will have to form a coalition with
the left-leaning Liberal Democrats in order to govern. Otherwise they
will have another election in the very near future, and the country will
be effectively paralyzed in the interim. With no guarantee that any of
the parties will get half the seats in the next election, right.
(Canadians have a more civilized approach: they don't hang their
Parliament; instead, they have “minority government”, which sounds like
they are sharing with the less fortunate, but is actually the exact same
as hanging the Parliament.)
It doesn't help that in America, the Republicans are stonewalling any
attempts to overhaul the financial system which nearly destroyed the
country just 18 months earlier. For the rest of the world, acutely aware
that America's out-of-control financial sector is what caused all the
trouble in the first place (and outside of America, nobody believes, or
has even heard, the myth that poor people getting mortgages caused the
collapse), see this as a sign that the main underlying problem with the
world markets is both unresolved and still out of control. Thanks to the
filibuster, and the ability of any Senator to block legislation through
the personal “hold”, America is in a permanent state of having a hung
government. The crazies of the far right, convinced that government
serves no useful purpose, think this is a good thing, and will be
outraged when they find out it is not.
Even America's out-of-control financial sector is nervous. Something
happened Thursday – the story is a day trader made a typo on his
computer and typed “billion” where he meant to type “million” on a trade
– and the Dow instantly plummeted a thousand points – about a trillion
dollars – over the next few minutes. It bounced back up within a half
hour, doubtlessly leaving a number of cardiac arrests in its wake.
Regulators are looking into that, to try and determine what happened and
how it could have happened, but the answer is really quite simple: the
markets are afraid of the monster they have given birth to. Even Wall
Street is doubting the myth that unregulated capitalism is good for a
Other countries are teetering. Japan, the second biggest economy in the
world, is worrying openly that they may have a crash. China, the biggest
bubble in the world these days, is getting ready to pop, and when that
happens, may demand the US make good on some three trillion in IOUs in
order to prop China up. That, in turn, would wreck the dollar. India,
missing Europe and America, its biggest customers, and with no real
domestic consumer base, would fall next.
End result: widespread poverty and chaos, and a small group of people
with land, and a bunch of currency that is no longer worth anything.
The good news is that twenty million dollar Pinto will be revalued to a
more sensible amount. You might be able to get it for 10 chickens and a
goat. You wouldn't be able to drive it, of course, but it would make a
nice cozy shelter, since by then you would be out of work, your house
would be taken by the bank and sitting empty, and gasoline would be a
week's salary a gallon.
But no worries. The capitalists, those “productive members” of society,
won't miss any meals, and will be anxious to enlist your support in the
They might even agree to buy your Pinto for ten chickens and TWO goats,
provided you give them six eggs a month interest.