Nomi Prins: Why The Financial & Political System Failed And Stability Matters

Tyler Durden's picture

Submitted by Nomi Prins, author of All The Presidents' Bankers, via NomiPrins.com,

The recent spike in global political-financial volatility that was temporarily soothed by ECB covered bond buying reveals another crack in the six-year-old throw-money-at-the-banks strategies of politicians and central bankers. The premise of using banks as credit portals to transport public funds from the government to citizens is as inefficient as it is not happening. The power elite may exude belabored moans about slow growth and rising inequality in speeches and press releases, but they continue to find ways to provide liquidity, sustenance and comfort to financial institutions, not to populations.

The very fact - that without excessive artificial stimulation or the promise of it - more hell breaks loose - is one that government heads neither admit, nor appear to discuss. But the truth is that the global financial system has already failed. Big banks have been propped up, and their capital bases rejuvenated, by various means of external intervention, not their own business models.

Last week, the Federal Reserve released its latest 2015 stress test scenarios. They don’t even exceed the parameters of what actually took place during the 2008-2009-crisis period. This makes them, though statistically viable, completely irrelevant in an inevitable full-scale meltdown of greater magnitude. This Sunday, the ECB announced that 25 banks failed their tests, none of which were the biggest banks (that received the most help). These tests are the equivalent of SAT exams for which students provide the questions and answers, and a few get thrown under the bus for cheating to make it all look legit. 

Regardless of the outcome of the next set of tests, it’s the very need for them that should be examined. If we had a more controllable, stable, accountable and transparent system (let alone one not in constant litigation and crime-committing mode) neither the pretense of well-thought-out stress tests making a difference in crisis preparation, nor the administering of them, would be necessary as a soothing tool. But we don’t. We have an unreformed (legally and morally) international banking system still laden with risk and losses, whose major players control more assets than ever before, with our help.  

The biggest banks, and the US and European markets, are now floating on more than $7 trillion of Fed and ECB intervention with little to show for it on the ground and more to come. To put that into perspective – consider that the top 100 global hedge funds manage about $1.5 trillion in assets. The Fed’s book has ballooned to $4.5 trillion and the ECB’s book stands at $2.7 trillion – a figure ECB President, Mario Draghi considers too low. Thus, to sustain the illusion of international systemic health, the Fed and the ECB are each, as well as collectively, larger than the top 100 global hedge funds combined.

Providing ‘liquidity crack’ to the financial system has required heightened international government and central bank coordination to maintain an illusion of stability, but not true stability. The definition of instability is this epic support network. It is more dangerous than in past financial crises precisely because of its size and level of political backing.

During the Panic of 1907, President Teddy Roosevelt’s Treasury Secretary, Cortelyou announced the first US bank bailout in the country’s history. Though not a member of the government, financier J.P. Morgan was chosen by Roosevelt to deploy $25 million from the Treasury. He and a team of associates decided which banks would live or die with this federal money and some private (or customers’) capital thrown in.

The Federal Reserve was established in 1913 to back the private banking system in advance from requiring future such government injections of capital. After World War I, a Laissez Faire policy toward finance and speculation, but not alcohol, marked the 1920s. before the financial system crumbled under the weight of its own recklessness again. So on October 24, 1929, the Big Six bankers convened at the Morgan Bank at noon (for 20 minutes) to form a plan to 'save' the ailing markets by injecting their own (well, their customer’s) capital.  It didn’t work. What transpired instead was the Great Depression.

After the Crash of 1929, markets rallied, and then lost 90% of their value. Liquidity froze. Credit for the masses was as unavailable, as was real money. The combined will of President FDR and the key bankers of the day worked to bolster people’s confidence in the system that had crushed them - by reforming it, by making the biggest banks smaller, by separating bet-taking arms from those in which people could store, and borrow money from, safely. Political and financial leaderships collaboratively ushered in the reform measures of the Glass-Steagall Act.  As I note in my most recent book, All the Presidents' Bankers, this Act was not merely a piece of legislation passed in spirited bi-partisan fashion, but it was also a means to stabilize a system for participants at the top, middle and bottom of it. Stability itself was the political and financial goal.

Through World War II, the Cold War, and Vietnam, and until the dissolution of the gold standard, the financial system remained fairly stable, with banks handling their own risks, which were separate from the funds of citizens. No capital injections or bailouts were required until the mid-1970s Penn Central debacle. But with the bailout floodgates reopened, big banks launched a frenzied drive for Middle East petro-dollar profits to use as capital for a hot new area of speculation, Third World loans.

By the 1980s, the Latin American Debt crisis resulted, and with it, the magnitude of federally backed bank bailouts based on Washington alliances, ballooned. When the 1994 Mexican Peso Crisis hit, bank losses were ‘handled’ by President Clinton’s Treasury Secretary (and former Goldman Sachs co-CEO) Robert Rubin and his Asst. Treasury Secretary, Larry Summers via congressionally approved aid.

Afterwards, the repeal of the Glass Steagall Act, the mega-merging of financial players, the explosion of the derivatives market, and the rise of global ‘competition’ amongst government supported gambling firms, lead to increased speculative complexity and instability, and the recent and ongoing 2008 financial crisis.  

By its actions, the US government (under both political parties) has chosen to embrace volatility rather than stability from a policy perspective, and has convinced governments in Europe to follow suit. Too big to fail has been replaced by bigger than ever.

Today, the Big Six US banks are mostly incarnations of the Big Six banks in 1929 with a few add-ons due to political relationships (notably that of Goldman Sachs, whose past partner, Sidney Weinberg struck up lasting relationships with FDR and other presidents.) 

We no longer have a private financial system responsible for its own risk, regardless of how it’s computed or supervised. We have a system whose risk is shouldered by the federal government and its central bank entities, and therefore, the people whose deposits seed that risk and whose taxes and futures sustain it.

We have a private financial system that routinely commits financial crimes against humanity with miniscule punishments, as approved by the government. We don’t even have a free market system based on the impossible notion of full transparency and opportunity, we have a publicly funded betting arena, where the largest players are the most politically connected and the most powerful politicians are enablers, contributors and supporters. We talk about wealth inequality but not this substantial power inequality that generates it. 

Today, neither the leadership in Washington, nor throughout Europe, has the foresight to consider what kind of real stress would happen when zero and negative interest rate and bond-buying policies truly run their course and wreak further havoc on their respective economies, because the very banks supported by them, will crush people, now in a weaker economic condition, more horrifically than before.

The political system that stumbles to sustain the illusion that economies can be built on rampant financial instability, has also failed us. Nomi Prins: Why The Financial & Political System Failed And Stability Matters

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SandiaMan's picture

I failed my stress test

Clarabell's picture

Have a drink, you'll feel better.

Kitler's picture

Would it kill everyone to have a couple of "good news" stories every now and then?

Thanks to neoliberalism the air and water has never been cleaner since the turn of the industrial revolution  Also the hookers are more plentiful and better looking

TahoeBilly2012's picture

Sorry Nomi, love the spirit, but it's a plan, not an accident.

falak pema's picture

I presume you've been to Fuku and those islands of trash in the Atlantic and Pacific. 

I won't add the coming methane cloud over the Taiga. Nor the smog of Peking. As for fracking sour cream coming to Dallas...

new game's picture

when it is too late, then we ALL will care...

getting 2 billion humans to agee on anything,ha

and religion, survival first, da gun, simple stuff.

fuck you, i want what you have...

TeethVillage88s's picture

After the Crash of 1929, markets rallied, and then lost 90% of their value. Liquidity froze. Credit for the masses was as unavailable, as was real money. The combined will of President FDR and the key bankers of the day worked to bolster people’s confidence in the system that had crushed them - by reforming it, by making the biggest banks smaller, by separating bet-taking arms from those in which people could store, and borrow money from, safely. Political and financial leaderships collaboratively ushered in the reform measures of the Glass-Steagall Act. As I note in my most recent book, All the Presidents' Bankers, this Act was not merely a piece of legislation passed in spirited bi-partisan fashion, but it was also a means to stabilize a system for participants at the top, middle and bottom of it. Stability itself was the political and financial goal.

Read it again Bitchez.

Notice that the Morals that supported banking 100 years ago led to the Great Depression:

Moralism:

Where we pay for:

- Global war on Drugs
- Global war on Communism
- Cold War
- Vietnam
- Nazi Scientist & their government systems in the USA
- Fiat Money
- Federal Reserve Carte Blanche
- Global Network of NSA & CIA Spying
- Subversion of Foreign Governments
- Capture of US Corporations & Dissolution of Pension Funds
- Privatization of War, Iraqi War
- Privatization of Veteran Benefits
- Privatization of MEDICARE/MEDICAID
- Privatization of Post Office
- Privatization of Highways & Bridges
- Privatization of Social Security
- Privatization of Water & Energy
- Privatization of Land, Farm Land, Mining Land, Lumber

OW My Balls's picture

Rule #666

 

When all else fails

 

Put a hot chick [present or former GOLDMAN] piece of @ass in front of the camera

 

It might just buy you a few more months of the PONZI if all else happens 2 goes well

yield_curver's picture

On Series 65, I scored about 98% on math & economics and about 35% on ethics. My average was 72%. I passed by 2%. I didn't see anything wrong with depositing client funds into my own account, so long as I give them their money when the time comes. WTF. I'm fucking honest.

ChanceIs's picture

I got a 95% on my Series 7.  First time.  No BS.  Took the Kaplan course twice.  Sat in the booth filling out multiple choice bubbles for six hours.  What is the most you can loose on a long straddle, does the Act of 33 ban HFT (before its time), etc.  Just joking about HFT, but in my opinion it did, but nobody seems to bother that they figured that out way back when.

I walked out of that test and said to myself, 'I can't believe that the federal government just turned me loose on the investing public wih that little knowledge.'  Seriously.  I was not impressed with the knowledge standing behind a typical Series 7 success.  Just watch Max Keiser to get a second opinion on that.

Then I failed as an RIA.  Unwilling to browbeat potential clients.  Got a mailing oday from an RIA.  Wants to give me a $100 gift certificate at the local steakhouse if he can come into my home and give me a sales pitch.  I was unwlling to that sort of BS as well.  Please, please give me your account.  You owe it to me.  I bought you dinner.

SAT 800's picture

I got the impression this lady was unhappy about somethng?

CASTBOUND's picture

my best friend's sister makes $80 /hour on the internet . She has been laid off for 7 months but last month her paycheck was $13987 just working on the internet for a few hours. visit site... www.Yelptrade.com

Clarabell's picture

Getting Ebola and dying a slow death would be too good for you.

kchrisc's picture

The system of theft and violence supporting the ponzi-empire nearly collapsed.

It will next time, and the guillotines will be there to pick up the pieces.

An American, not US subject.

 

"I think therefore I am. I shoot, therefore I will be."

css1971's picture

The bank of england is 300 years old. The government, the bank and The City have been around for a long time. There have been many crashes. The people never got the guillotines out. Doesn't mean it won't happen. I just won't hold my breath for it.

 

What's needed are a shadowy organisation of assassins who take out bankers for the benefit of humanity as a whole.

sleigher's picture

assassination politics

I forget the onion address...

new game's picture

css +1. slowly but surely it is happening. won't get em all...

kchrisc's picture

The Rothschild banksters offloaded the their dirty diaper to the dollar. They, and their pol, crat and func tools, avoided the guillotines they were due. That was what the big UK and DC US gold moves were about in the 1920s and what set off the "Roaring 20s."

This time the Rothschild banksters will try to convert debt, especially dollar debt into SDRs, basket-currencies. Won't work because of the sheer levels of poverty of the sheeple. Then their are people like myself who won't let them get away with it, and will be screaming their names crimes from every rooftop.

An American, not US subject.

 

"My guillotine is Jimmy John fast."

teslaberry's picture

bankers run those assasins shadow bank accounts. 

 

the only thing that can take out the bankers is other bankers. if a king has no banker. he makes one, and by that mere act of delegation loses his thone. 

 

the real power of cooperation is money. the real power of coercsion is the military. 

kchrisc's picture

"The Federal Reserve was established in 1913 to back the private banking system in advance from requiring future such government injections of capital."

That was funny. Thanks for the afternoon laugh.

An American, not US subject.

 

"A store with a million fiats in inventory loses between $30,000 to $50,000 a year in theft by the banksters. The same store robbed once or twice might lose a few hundred to a couple grand. And yet they hunt down robbers and shield the banksters."

Stoploss's picture

Fuckin JP Morgan.  The worst thing to ever happen to this country.

Notsobadwlad's picture

Mayer Amschel Rothschild realized that there are four classes of beings.

1. God
2. Those who create money and distribute it at their whim
3. Those who believe that they need money to live
4. Those who have no need for money because they don't wear pants and eat grass (or smaller fish, etc.)

He, like the other jews and Goldman Sachs get their direction directly from God. They don't mess much with the fish and the beasts ... but he and his decendents sure fuck with catagory 3., enslaving everyone who believes they need the money they create out of thin air.

Atticus Finch's picture

If Jews had all this power, how could the holocaust occur?

The other problem I have with the interview is that, if everything Rosenthal says in the interview is accurate, it is the best case for proving that Hitler was right and supporting Nazism would have been a logical choice.

Seek_Truth's picture

Which "holocaust" are you referring to?

Here's a litmus test that everone should take to open their eyes:

 

1. How many Jews were killed by Germany in WW2?

Now answer these questions, without doing a websearch:

2. How many Poles?

3. How many Americans?

4. How many British?

5. How many French?

6. How many Germans?

7. How many Russians?

8. How many Ukranians?

9. Bonus question- how many Christians died?

Now, read these articles, and see if the number of Jews who were killed by Germans had any historical precedent:

http://www.biblebelievers.org.au/holohoax.htm

http://www.thetruthseeker.co.uk/?p=24369

http://dawn666blacksun.angelfire.com/Holocaust_Hoax.html

http://holywar.org/S35.htm

Now be honest with yourself- you couldn't answer questions 2-9 without looking them up.

And why did you think you knew your answer to question 1 was correct?

 

bunnyswanson's picture

Holocaust was an inside job.

https://www.youtube.com/watch?v=uE2hsaHAEX0

Orchestrated by initially zionist owned newspapers who announced the headline fired the first bullet.

http://www.wintersonnenwende.com/scriptorium/english/archives/articles/j...

 

This truly could be described as "the first shot fired in the Second World War."

 

"In a similar vein, the Jewish newspaper Natscha Retsch wrote:

 

    The war against Germany will be waged by all Jewish communities, conferences, congresses... by every individual Jew. Thereby the war against Germany will ideologically enliven and promote our interests, which require that Germany be wholly destroyed.
          The danger for us Jews lies in the whole German people, in Germany as a whole as well as individually. It must be rendered harmless for all time.... In this war we Jews have to participate, and this with all the strength and might we have at our disposal."

      Rainman's picture

      If there is a hanging party formed at some future date, my vote is that Bubba Clinton, Robert Rubin and Phil Gramm be the first 3 to line up. No preference on the remainder.

      Seek_Truth's picture

      Hoarded wealth = Hoarded food, clothing and shelter.

      Refer to James­_5:1-5 for details.

       

      Keyser's picture

      When politics is fodder for those behind the curtain pulling the strings, we are all but cogs in the machine... 

      Listen to Louis preach it...

      https://www.youtube.com/watch?v=1m58uchF4Qs

       

      VWAndy's picture

      A big ass strike would do it. Any sector goes on strike on a global basis and this shit show stalls. jmo. Its the labor that matters nothing else.

      Amish Hacker's picture

      When the highest-ranking law enforcement officer in the land (the Attorney General) announces publicly that he will not prosecute a certain class of felons (which includes many of his personal friends and upon whom his luxurious financial future depends), well, you just have to figure it's getting close to Game Over.

      Rememberweimar's picture

      Jews don't put Jews in jail...

      Kyddyl's picture

      "The Long Depression was a worldwide economic recession, beginning in 1873 and running through the spring of 1879. It was the most severe in Europe and the United States, which had been experiencing strong economic growth fueled by the Second Industrial Revolution in the decade following the American Civil War. " ( Wikipedia.) The Great Depression as the one we commonly refer to, partly arose from unfinished business of the Long Depression. These Depression years were under a gold standard. It was back then and still is still mostly a matter of human avarice that banks failed and militaristic governments have blended into power brokers and bankers. With this history alone the future looks more and more like guns, beans and bullets for everyone that hasn't a large well stocked yacht to escape upon.

      Seek_Truth's picture

      Generally agree, but in the days that are coming, a large well stocked yacht to escape upon will be a fine target.

      surf0766's picture

      She has a hardon for FDR.. Nuff said..

      WTFUD's picture

      For whatever reason ( haha ) the majority of attacks on the elite is going unreported. Take me for example, i've killed 2 banksters and a judge, left plenty clues and not even a knock on the door.

      Dick Buttkiss's picture

      None of the playas, obviously, or you'd be dead too.

      new game's picture

      fantasy bankster elimination.

      PN7's picture

      The past tense of the verb lead is led.  I almost never encounter "led" anywhere anymore.  Maybe "led" is being disappeared.  Small point, and maybe I'm wrong?  But it jangles my brain every time I read "lead" when "led" seems appropriate...as in Naomi's article: 

      "Afterwards, the repeal of the Glass Steagall Act, the mega-merging of financial players, the explosion of the derivatives market, and the rise of global ‘competition’ amongst government supported gambling firms, lead to increased speculative complexity and instability, and the recent and ongoing 2008 financial crisis."

      Oh well, I'm getting old.  I hardly recognize what my mother called "the King's English" anymore.