Before the 2008 global financial crash, there were many trillions of dollars worth of derivative projects in the shadow banking system, says an analyst.
Since the 2008 collapse of Lehman Brothers, we’ve had a global unwinding of bad debt, financial journalist Max Keiser said in an interview with Press TV.
He added that JP Morgan’s recent financial loss has suddenly made more visible the shadow banking system.
The following is a rough transcription of the interview.
A Pan-European banking authority be put in place and give Brussels the final say over national budgets in the eurozone. That’s what a host of these officials such as EU President Herman Van Rompuy, the European Commission President Jose Manuel Barroso, the Central Bank chief, that’s what they’ve asked for. What do you think about this?
To follow up on what the previous speaker said about collateral values and banks lending to each other based on presumed collateral value, the collateral value of these banks is constantly being downgraded. All of the bonds of these sovereign countries and these banks are being downgraded by Moody’s and S&P which means that the banks’ balance sheets are being impaired more.
Since the 2008 collapse of Lehman Brothers, we’ve had this global unwinding of all this bad debt. To solve it, it would be like trying to catch a piano that’s been thrown off a 20-story building. There’s no way you can do that.
There’s no solution to this other than to let the system play out, let these debts find a market because by simply trying to keep them afloat with more quantitative easing, more accounting tricks, more lending facilities, all that’s happening is that a greater percentage of the population of these countries are being exposed to austerity measures for things that they themselves have nothing to do with.
What do they mean though when they say a Pan-European banking authority? Pretty much they want control as to what banks are going to do and to have oversight on them, is that what that means?
What it means is banks are sitting on bad debts and instead of revealing these bad debts they want to re-securitize them and resell them into a Pan-European banking facility and pretend as if these bad debts are really good by re-denominating them in euros or outside of euros or possibly from the IMF -- is talking about re-denominating these debts in special drawing rights which is the currency of the IMF.
They’re looking of ways to kick the can down the road by expanding the debt on top of this shrinking collateral value, on top of a shrinking economy, on top of unemployment numbers that are getting worse and an economy that’s getting worse. They’re exaggerating the problem. They’re pursuing the wrong policies and, yes, social tensions are rising.
There have been other tools that have been used and perhaps you can fill us in on them ever since maybe the financial crisis hitting 2007, 2008. Why have those tools failed? It’s been, what, four or five years since then.
I think that they draw the wrong conclusions and lessons from the Depression. The thing that got the US and the world out of the Depression back in the 30s was the introduction of things like the Glass-Steagall Act that was alluded to earlier, real banking reform and a Pecora Commission that put bankers in jail.
Here they are ignoring the predatory bankers, the kleptocrats that are destroying these countries and these economies, and instead they’re trying to puff up or put a blood transfusion to a corpse. The banks are effectively dead. Their balance sheets are worthless. The only thing that keeps these zombies alive is a pretend-and-extend game between governments and bankers.
I would say that additionally what’s remarkable is that if you look at some of these bankers on Wall Street, if they’re looking to take over a country like Greece, they have an infinite amount of credit at their disposal at virtually zero percent interest rates.
We know this from what’s been going on in Greece for the last few years. It’s been a wide open situation for outside bankers to come in with unlimited amounts of credit to destabilize that country.
But if you live in Greece and you want to start a business or you’re trying to work in the economy, there’s no credit at any cost and at any interest rate. This is what I would call an example of apartheid using interest rates where if you’re Greek and you’re living in the economy, you’re part of an apartheid system where you get nothing; you’re treated like a second class citizen.
If you’re a Wall Street banker under this financial apartheid system, your cost of funds are zero and you have rights and privileges that extend beyond any constitution, that extend beyond any normal societal acceptable kind of behavior.
This is a global interest rate apartheid driven by special interest on Wall Street that’s created an enormous global, social problem that’s erupting in ways that we have yet to see the full extent.
Perhaps an important point here over what Simon Dixon said that’s it’s impossible to know what’s on the banks’ balance sheet. Why is that impossible? Since the 2008 crash, the financial crisis, shouldn’t there have been a study on these balance sheets or is it that hard to figure out what they have in terms of assets, in terms of tangible assets, their liquidity, etcetera?
They have a name for it, don’t they? -It’s called a shadow banking system. Bloomberg just ran a report that the shadow banking system is greater than the visible banking system.
During the run up to the 2008 crash, you had a multi-trillion dollar expansion in the global GDP but you had many more trillions of dollars worth of derivatives building up in the shadow banking system.
Banks make money trading these instruments back and forth with each other in the shadow banking system. It’s unregulated.
As we’ve just found out from Jamie Dimon over there in JP Morgan, occasionally we see some evidence of what’s going on there. He had a two or nine billion dollar loss because one of his traders in London, again London as the previous speaker alluded to, is the center of this global financial fraud. Suddenly we made visible something in this shadow banking system.
Jamie Dimon’s JP Morgan, they’ve got 90 trillion dollars in derivatives on their balance sheet. That’s almost two times the entire globe’s gross domestic product or GDP.
Jamie Dimon says that it’s perfectly fine. It’s safe. It won’t blow up except when it does blow up and then the government has to bail them out, and of course there’s a very tight relationship between Wall Street and the government.
To pay for the bailouts, they go to austerity measures so the cost of health, the cost of food, the cost of energy for the vast majority of the population goes up to pay for the mistakes being made by what I call financial terrorists like Jamie Dimon.