The Trial Lawyer Summer 2018 - Page 73

it ’ s ever been . Meanwhile , the top 1 % of American earners saw their incomes go up by leaps and bounds since the Fed started manufacturing money — to more than 40 times that of the bottom 90 %.
Just as before the 2007 – 2008 financial crisis , there ’ s a scary level of confidence among politicians and regulators that neither the economy nor the banking sector could possibly go bust . Even the new Federal Reserve chair views the possible need for bailouts as a relic of a bygone time . As Powell said at his confirmation hearing , “ Generally speaking I think the financial system is quite strong .” When asked if there are any U . S . banks that are still too big to fail , he responded , “ I would say no to that .”
That ’ s a pretty decisive statement , and not strikingly different from one outgoing Fed Chair Janet Yellen made last year . By extension , it means that Trump ’ s new chairman supports laxer structures for the big banks and more cheap money , if needed , to help them . So watch out .
When a crisis hits , liquidity dies , and banks close their doors to the public . Ultimately , the same formula for crisis will surely send Wall Street executives crawling back to the government for aid and then Donald Trump will find out what financial negligence truly is .
A TIME OF CRISIS AND FINANCIAL COLLUSION
As signs of crisis emerge , few in Washington have delved into how we can ensure that a systemic crash does not happen again . That ’ s why I ’ ll never forget the strange message I got one day . It was in the middle of May 2015 , about a year after my book , All the Presidents ’ Bankers , had been published , when I received an email from the Federal Reserve . Every year , the Fed , the International Monetary Fund , and the World Bank hold an annual conference where the most elite central bankers from around the globe assemble . To my shock , since I hadn ’ t exactly written in a kindly fashion about the Fed , I was being invited to speak at the opening session about why Wall Street wasn ’ t helping Main Street .
Two months later , I found myself sitting in front of a room filled with central bankers from around the world , listening to Fed Chair Janet Yellen proclaim that the worst of the crisis and its causes were behind us . In response , the first thing I asked that distinguished crowd was this : “ Do you want to know why big Wall Street banks aren ’ t helping Main Street as much as they could ?” The room was silent . I paused before answering , “ Because you never required them to .”
I added , “ The biggest six U . S . banks have been rewarded with an endless supply of cheap money in bailouts and loans for their dangerous behavior . They have been given open access to these funds with no major consequences , and no rules on how they should utilize the Fed ’ s largess to them to help the real economy . Why should you expect their benevolence ?”
After I returned home , I became obsessed with uncovering just how the bailouts and loans of that moment were only the tip of an iceberg , the sort of berg that had once taken down the Titanic — how that cheap money fabricated for Wall Street had been no isolated American incident .
What my research for my new book , Collusion : How Central Bankers Rigged the World , revealed was how central bankers and massive financial institutions have worked together to manipulate global markets for the past decade . Major central banks gave themselves a blank check with which to resurrect problematic banks ; purchase government , mortgage , and corporate bonds ; and in some cases — as in Japan and Switzerland — stocks , too . They have not had to explain to the public where those funds were going or why . Instead , their policies have inflated asset bubbles , while coddling private banks and corporations under the guise of helping the real economy . The zero-interest-rate and bondbuying central bank policies prevailing in the U . S ., Europe , and Japan have been part of a coordinated effort that has plastered over potential financial instability in the largest countries and in private banks . It has , in turn , created asset bubbles that could explode into an even greater crisis the next time around .
So , today , we stand near — how near we don ’ t yet know — the edge of a dangerous financial precipice . The risks posed by the largest of the private banks still exist , only now they ’ re even bigger than they were in 2007-2008 and operating in an arena of even more debt . In Donald Trump ’ s America , what this means is that the same dangerous policies are still being promoted today . The difference now is that the president is appointing members to the Fed who will only increase the danger of those risks for years to come .
A crash could prove to be President Trump ’ s worst legacy . Not only is he — and the Fed he ’ s helping to create — not paying attention to the alarm bells ( ignored by the last iteration of the Fed as well ), but he ’ s ensured that none of his appointees will either . After campaigning hard against the ills of global finance in the 2016 election campaign and promising a modern era Glass-Steagall Act to separate bank deposits from the more speculative activities on Wall Street , Trump ’ s policy reversals and appointees leave our economy more exposed than ever .
When politicians and regulators are asleep at the wheel , it ’ s the rest of us who will suffer sooner or later . Because of the collusion that ’ s gone on and continues to go on among the world ’ s main central banks , that problem is now an international one .
An earlier version of this article appeared on the website TomDispatch . com .
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