Wednesday, January 26, 2011

Global financial meltdown avoidable?

On Thursday, a report from the Financial Crisis Inquiry Committee will be released, according to the New York Times, that says the global meltdown of 2008 was "avoidable." This hardly comes as breaking news to anyone any more than their conclusion that both the George W. Bush and the Obama administrations equally share the blame.

The committee places responsibility for the financial calamity squarely on the shoulders of former Federal Reserve chairman, Alan Greenspan, for his support of deregulation, as well as lack of oversight of what the Times calls "shoddy" mortgage lending practices, as well as "risky bets on securities backed by loans," but what some economists call fraud. Ben Bernanke is blamed for shielding derivatives.

Anyone looking for some larger, iconic statement will be disappointed by the report. The usual suspects, greed and incompetence, are allowed to upstage the real suspect, fraudulent, criminal activity for the sake of enhancing profit.

As the panel rightly suggests it would be an egregious lie to say that no one saw this coming as In October, 2008, the International Monetary Fund went on record predicting an imminent, ominous economic slowdown.

While many, including the panel, date the ineptitude of key figures in both administrations back to 2008, there is evidence that Federal Reserve practices of as far back as 2000 are largely responsible for the aftershock that was 2008. Former chief economist at the IMF, from 2001 to 2004, Prof. Kenneth Rogoff, according to Timesonline.Uk, spoke of a "worldwide credit crunch and financial turmoil especially in the U.S."

It was Rogoff who, years earlier, presaged the demise of Fannie Mae and Freddie Mac, as well as the mortgage industry, and criticized the Federal Reserve for cutting interest rates in 2000: "Cutting interest rates is going to lead to a lot of inflation in the next few years," he told the TimesonlineUK back in August, 2008. And, Rogoff wasn't a lone wolf in the desert. There were other prominent economists at the time who envisoned the same catastrophic outcome if Federal Reserve policies didn't change.

But, the report does not ask the all-important question of why, despite persistent warning signs and cautionary advice from the IMF, firms like Fannie Mae and Freddie Mac were allowed to write home loans to consumers who had invisible credit. The report doesn't go into who profited most from this Federal Reserve policy of "See no evil, hear no evil, speak no evil." So it is then that we can feel the anxious fingers of puppeteer like Greenspan and Bernanke behind recessions and recoveries. But, to whose benefit?

A quick look at the profit margins of banks, and corporations, whose profited as a direct result from the recession will prove enlightening:

Last April, as Reuters reported, Citigroup posted its best results in three years, up $4.43 billion in the first quarter of 2010 as the "recovery" reduced the bank's credit losses, and "increased prices even on its worst assets."

In September, per Bloomberg, AIG projected a pretax operating profit of $2 billion for fiscal year ending November 30, 2010.

As of October, JP Morgan Chase's profit, in 2010, jumped 23% to $4.4 billion.

The U.S. government now owns 80% of Fannie Mae and Freddie Mac. Bailing out the ailing home mortgage company could cost as much as $1 trillion. Notably, the government absorbed their bad assets, and taxpayers are taking the hit. Think about this in light of this week's report that the federal budget deficit has now reached a record $1.5 trillion.

As James K. Galbraith, one of the world's leading economists, told a Senate committee back in May, "Fraud is at the root of the financial crisis."

There can be little doubt that the actions of big banks, and corporations who are now reaping record profits at taxpayer expense were deliberate, and premeditated, hence they are criminal.

So, now that the Supreme Court has endowed corporations with personhood granting them First Amendment rights, courtesy of the Citizens United ruling, it's time for Justice to read executive officers of Citigroup, AIG, JP Morgan Chase, and other corporate behemoths that boast obscene profits at taxpayer expense, their Miranda rights.