10/12 The Financial Crisis Was Entirely Foreseeable

The Financial Crisis Was Entirely Foreseeable

by Washington’s Blog

December 10th 2011

Whenever there is a disaster, those responsible claim it was “unforeseeable” so as to escape blame.

For example:

It happened with 9/11
It happened with the BP oil spill (see this, this, this, this and this)
It happened with the Japanese nuclear accident
The big boys gamble with our lives and our livelihoods, because they make a killing by taking huge risks and cutting costs. And when things inevitably go South, they aren’t held responsible (other than a slap on the wrist), and may even be bailed out by the government.

But surely the financial crisis was different. After all, Wall Street executives and politicians say that the financial crisis wasn’t foreseeable. And see this.

Actually, it might have been slightly foreseeable for a little while before the financial crisis.

We’ve Known for Thousands of Years
We’ve known for literally thousands of years that debts need to be periodically written down, or the entire economy will collapse. And see this.

We’ve known for 1,900 years that that rampant inequality destroys societies.

We’ve known for thousands of years that debasing currencies leads to economic collapse.

We’ve known for hundreds of years that the failure to punish financial fraud destroys economies.

We’ve known for hundreds of years that monopolies and the political influence which accompanies too much power in too few hands is dangerous for free markets.

We’ve known for hundreds of years that trust is vital for a healthy economy.

We’ve known since the 1930s Great Depression that separating depository banking from speculative investment banking is key to economic stability. See this, this, this and this.

We’ve known since 1988 that quantitative easing doesn’t work to rescue an ailing economy.

We’ve known since 1993 that derivatives such as credit default swaps – if not reined in – could take down the economy. And see this.

We’ve known since 1998 that crony capitalism destroys even the strongest economies, and that economies that are capitalist in name only need major reforms to create accountability and competitive markets.

We’ve known since 2007 or earlier that lax oversight of hedge funds could blow up the economy.

And we knew before the 2008 financial crash and subsequent bailouts that:

The easy credit policy of the Fed and other central banks, the failure to regulate the shadow banking system, and “the use of gimmicks and palliatives” by central banks hurt the economy
Anything other than (1) letting asset prices fall to their true market value, (2) increasing savings rates, and (3) forcing companies to write off bad debts “will only make things worse”
Bailouts of big banks harm the economy
The Fed and other central banks were simply transferring risk from private banks to governments, which could lead to a sovereign debt crisis
Given the insane levels of debt, rampant inequality, currency debasement, failure to punish financial fraud, growth of the too big to fails, repeal of Glass-Steagall, refusal to rein in derivatives, crony capitalism and other shenanigans … the financial crisis was entirely foreseeable.

Global Research Articles by Washington’s Blog


Debasing the Currency is Leading to Financial Collapse . . . Just As It Has for Thousands of Years
Posted on June 29, 2009 by WashingtonsBlog

In a fascinating 22-page study of money and currency, Christopher Weber shows that every government – from Athens, to pre-collapse Rome, to the Islamic countries in the Middle Ages – which stuck to the Greek standard of coins has been stable and prosperous.

Specifically, the Athenian Drachma contained 65.6 grains of silver. Even after Greece declined as a superpower, its currency remained stable.

The Roman Denarius, Byzantine Bezant, and Islamic Dinar all copied the Drachma, using around 65.6 grains of gold or silver in their coins.

For the many centuries the Romans, Byzantines, and Islamic rulers left this precious metal content alone, they had stable and prosperous money supplies and nations.

But after the Romans and Byzantines started to whittle down the precious metal content of their coins – and after the Muslims started issuing paper money – their currency went down the drain, their prosperity plummeted and their empires collapsed.

This may all sound like ancient history, except that Weber points out that:

The US dollar has been depreciating for generations. Seventy years ago it was first devalued from $20.67 a gold ounce to $35. Then 35 years ago the devaluation started gaining strength. The dollar has lost over 90% of its gold value since August 15, 1971.

History is repeating . . . Sound money is again being trashed, which is causing the collapse of the American empire.


Grading Free Market Capitalism and “The Invisible Hand”
Posted on February 28, 2010 by WashingtonsBlog

Free market capitalism is based on the idea that “the invisible hand” of the market will create the best possible outcome for the most people.

But as I noted a couple of weeks ago, the man who came up with idea of the invisible hand did not believe in unrestrained free market capitalism:

Americans have traditionally believed that the “invisible hand of the market” means that capitalism will benefit us all without requiring any oversight. However, as the New York Times notes, the real Adam Smith did not believe in a magically benevolent market which operates for the benefit of all without any checks and balances:

Smith railed against monopolies and the political influence that accompanies economic power …

Smith worried about the encroachment of government on economic activity, but his concerns were directed at least as much toward parish councils, church wardens, big corporations, guilds and religious institutions as to the national government; these institutions were part and parcel of 18th-century government…

Smith was sometimes tolerant of government intervention, ”especially when the object is to reduce poverty.” Smith passionately argued, ”When the regulation, therefore, is in support of the workman, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.” He saw a tacit conspiracy on the part of employers ”always and everywhere” to keep wages as low as possible.

As Paul Krugman writes:

Adam Smith … may have been the father of free-market economics, but he argued that bank regulation was as necessary as fire codes on urban buildings, and called for a ban on high-risk, high-interest lending, the 18th-century version of subprime.

Moreover, as I pointed out in September:

One of the leaders of the new science of financial modeling – Rama Cont – points out that Adam Smith was wrong about the “Invisible Hand”.

Specifically, investors in financial markets rationally pursuing individual profit can produce outcomes that are bad for almost everyone.

As an article in City Journal notes:

Simple forecasts can also be mistaken if they fail to account for the actions of market participants themselves: investor strategies can influence prices, which in turn influence future strategies in a feedback loop that can cause considerable instability. Cont recalls the severe stock-market crash of October 1987, which seemed to strike out of the blue, since nothing significant was happening in the real economy. Subsequent research, though, blamed the crash in part on a new investment strategy, “portfolio insurance,” which a large number of fund managers had simultaneously adopted. Based on the famous Black-Scholes options-pricing model, this strategy recommended that fund managers reduce their risks by automatically selling shares whenever their values fell. But the approach didn’t take into account what would happen if many investors followed it simultaneously: a massive sell-off that could send the market plummeting. The 1987 crash was thus not provoked by events in the real economy but by a supposedly smart risk-management strategy—and the current downturn, of course, also derives at least partly from a global craze for a seemingly foolproof financial innovation…

Investors in financial markets rationally pursuing individual profit, then, can produce outcomes that are globally negative. Doesn’t that contradict classical economic theory? “Both theory and empirical facts do tend to show that, on the financial markets, the Invisible Hand does not always lead to welfare-improving general outcomes,” Cont replies.

Does this mean that free market capitalism is dead?

No. And I’m not sure that there is any better alternative.

But capitalism has to grow up and become less naive, relying less on a blind faith in “the invisible hand” and more on an understanding of human nature, including insights from the field of behavioral economics.

It must include sophisticated checks and balances to make sure that the system is not gamed, instead of childish ideas about the “inherent stability” of the market.

And it must make sure that the poker game doesn’t suddenly end when one of the players gets all of the chips.

Of course, with high-frequency trading dominating the market (and see this), frontrunning, permanent bailouts (and see this), government-sponsored credit rating scams and enterprises, the creation and maintenance by the government of banks so big that their very size warps the entire system, socialism for the big boys, and all of the other shenanigans going on, we don’t currently have free market capitalism.



Bernanke Knew Back in 1988 that Quantitative Easing Doesn’t Work
Posted on October 2, 2010 by WashingtonsBlog

Ed Yardley notes:

Two economists, Seth B. Carpenter and Selva Demiralp, recently posted a discussion paper on the Federal Reserve Board’s website, titled “Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist?” [Here’s the link.]

[The study states:] “In the absence of a multiplier, open market operations, which simply change reserve balances, do not directly affect lending behavior at the aggregate level. Put differently, if the quantity of reserves is relevant for the transmission of monetary policy, a different mechanism must be found. The argument against the textbook money multiplier is not new. For example, Bernanke and Blinder (1988) and Kashyap and Stein (1995) note that the bank lending channel is not operative if banks have access to external sources of funding. The appendix illustrates these relationships with a simple model. This paper provides institutional and empirical evidence that the money multiplier and the associated narrow bank lending channel are not relevant for analyzing the United States.”

Did you catch that? Bernanke knew back in 1988 that quantitative easing doesn’t work. Yet, in recent years, he has been one of the biggest proponents of the notion that if all else fails to revive economic growth and avert deflation, QE will work.

Yardley is right. But he’s only got half the story.

On a deeper level – as I pointed out in some detail in March – the Fed is intentionally locking up “excess bank reserves” so that they will not be loaned out into the economy. Specifically, in an ill-conceived attempt to prevent inflation, the Fed has been paying sufficiently high rates of interest on reserves deposited at the Fed by the big banks to encourage banks to lock up their reserves at the Fed instead of lending that money out to borrowers who need it.

So on this level, all the quantitative easing in the world won’t increase lending, because the banks will just continue to stockpile their money.

(On the deepest level, banks actually create credit out of thin air. See this, this and this. In other words, the commonly-accepted process for money creation is false, and banks don’t need any reserves to create credit).

Indeed, multiple lines of evidence demonstrate that quantitative easing helps the biggest companies, but not the little guy or the American economy as a whole.


More links within the main article…

That prove the shysters know exactly what they are doing!!


3 responses to “10/12 The Financial Crisis Was Entirely Foreseeable

  1. http://www.washingtonsblog.com/2010/10/bernanke-knew-back-in-1988-that-quantitative-easing-doesnt-work.html


    Cheney: No One Could Have Predicted The Financial Crisis, Just As No One Foresaw 9/11
    Posted on January 9, 2009 by WashingtonsBlog
    Cheney just said that no one could have predicted the financial crisis, just as no one foresaw 9/11

    Given that 9/11 was totally foreseeable, that must mean the financial crisis was predictable too, right?

    In fact, it was


    samcan1980 on 17 Nov 2011

    Italy’s new prime minister, Mario Monti, has began work on forming a new ‘technocrat’ government to tackle the country’s towering debt. An economist and former EU-commissioner, he now has to implement structural economic reforms to pull Italy out of its financial chaos. For more on this, RT talks to Max Keiser, financial analyst and host of the Keiser Report.

    RT on Twitter http://twitter.com/RT_com

    Persecuted..for what?

    @gulbirk Christianity is essential for growing and maintaining populations. It is being introduced so Russian numbers don’t keep declining at a rate of 700,000 a year. Abortions will be looked at properly again and women will accept their role as mothers first and a career and what other aspirations she has second. Without at least 2 children per family a population cannot be sustained. Communism would have lead to the eventual destruction of the Russian people. Russia had highest abortion rate.
    Luigi84289 2 weeks ago
    Reply Share
    Flag for spam
    Block User
    Unblock User @Marius26879 They kill millions in the middle east and STILL play the victim. The West is the only region in the world that falls for their crap. Asia, what’s left of the middle east and Africa (except Zio controlled South Africa) know. Look up the Shanghai Cooperation Organization. There’s going to be a showdown soon and it’s up to the East to save the world.
    Luigi84289 2 weeks ago

    must look that up….

    came across this- victims of Bolshaviks the Russian Royal Family..Lovely girls…

    excused by an idiot that knows naff all of the history of the Czar..slaughtered by judean Bolshaviks…as if there can be any excuse!

    Just imagine if the Czar had a program to give some bread and protein to the general population (just a little). There world may have been quite different.
    sassyshoes1 3 weeks ago

    Zionist NWO you keep your fingers crossed!

    what a bloody mindset..

    Jewish Israeli professor – Arnon Sofer – made this quote to the Jerusalem Post regarding the Jewish-Zionist-Israeli people:
    “If we want to remain alive, we will have to kill and kill and kill. All day, every day. If we don’t kill we will cease to exist.” -Israeli Prof. Arnon Sofer of Haifa University, Jerusalem Post
    OurLordLennon 2 days ago

    Why should we believe in God? We hate Christianity & Christians. Even the best of them must be regarded as our worst enemies. They preach love of one’s neighbor, and pity, which is contrary to our principles. Christian love is a hinderance to the revolution. Down with love of one’s neighbor; what we want is hatred. We must know how to hate, for only at this price can we conquer them…Lunatcharski jew, The Jewish Assault on Christianity, Gerald B. Winrod

    The Jews admit that they are not descendants of the Ancient Israelites in their writings. In “A brief History of the Terms for Jew” In the 1980 Jewish Almanac pg 3 is the following:”Strictly speaking it is incorrect to call an ancient Israelite a ‘Jew’ or to call a contemporary Jew an Israelite or a Hebrew.” Communists are against religion,they seek to destroy religion; yet, when we look deeper into the nature of Communism, we see that it is nothing else than Judaism Rabbi Harry Waton
    OurLordLennon 2 days ago

    “We Jews the destroyers, will remain destroyers forever. We will forever destroy because we require a world of our own.” – Maurice Samuel, a Jew, ‘You Gentiles’ 1924″

    Our major vice of old, as of today, is parasitism. We are a people living on the labor & good nature of the rest of the world historically. I cannot find anything of value that the Jews have created in their 250 years residence on the American continent most we have stolen. Samuel Roth, a Jew, Jews Must Live 1934

    “The fact is that the Jews were known as destroyers in ancient history, not creators. They have developed no science, have produced no art, have built no great cities, and alone have no talent for the finer things of civilized life. The Jews claim to be the torchbearers of civilization, but through their parasitic habits have deteriorated or destroyed every nation in which they have existed in large numbers.” (Charles A. Weisman, a Jew, Who is Esau-Edom?, p. 28).
    OurLordLennon 2 days ago

    “Most Jews do not like to admit it, but our god is Lucifer (Satan) and we are his chosen people. Lucifer is very much alive.” — Harold Wallace Rosenthal, a jew and top Administrative Aide to one of this nation’s ranking senators, Jacob Javits R-NY, in a tape recorded interview by Walter White, Jr., which was conducted in 1976. From the book “The Hidden Tyranny”. Harold Rosenthal was murdered shortly after giving this interview in 1976 and making this & other revealing statements….
    OurLordLennon 2 days ago

    Hitler created israel. Jewish eugenics pre-dates Hitler’s Master Race Zionists had already established a racial purification program. Our race is the Master Race. We are divine gods on this planet. Different from the inferior races as they are from insects.Compared to our race, other races are beasts, human excrement.Our earthly kingdom will be ruled w/a rod of iron. The masses will serve us as our slaves Menachem Begin Israel PM 1977-1983. Nobel Prize Winner for peace? GOOGLE;jews and communism
    OurLordLennon 2 days ago

    what horrible quotations….yet kept well under the radar of most Christians.

  3. Marius26879 They kill millions in the middle east and STILL play the victim. The West is the only region in the world that falls for their crap. Asia, what’s left of the middle east and Africa (except Zio controlled South Africa) know. Look up the Shanghai Cooperation Organization. There’s going to be a showdown soon and it’s up to the East to save the world.
    Luigi84289 2 weeks ago


    Iran appeared increasingly interested in joining the Shanghai Cooperation Organization (SCO) and form a powerful axis with its twin pillars, China and Russia, as a counterweight to a US power “unchained”. The SCO was initially set up as an open and nonaligned organization and it was not initially targeted at a third party. Chinese Assistant Foreign Minister Li Hui said that the Shanghai Cooperation Organization (SCO) will not take in new members before its six members make serious studies. The organization is still very young and the six SCO members need to have further discussions before deciding whether or not to accept new members, Li said 01 June 2004.

    Mongolia’s demand to participate in the organization as an ‘observer’ was approved at the June 2004 summit. Guidelines on the status of observer nations were approved and it was decided to award Mongolia this new status.

    On 17 June 2004, the Shanghai Cooperation Organization held its annual Summit in Tashkent, Uzbekistan. Attending this conference was Chinese President Hu Jintao, Russian President Vladimir Putin, Kyrgyzstan President Askar Akayev


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