It could still happen at any time, economists warn. Politicians are taking it seriously and putting new, global safeguards in place to prevent a repeat of the Lehman Brothers catastrophe in 2008. Earlier we documented how the 2008 economic Armageddon precipitated the death of Capitalism (as we know it) when the government rescued mega-corps “too big to fail” and allowed smaller banks to collapse and become acquisition-fodder for mega-banks (often for a fraction of their value). This occurred with 212 smaller banks since 2008, simply increasing the size of mega-banks already “too big to fail.”
About 7,000 banks handle the vast economic activity in the USA today, but in 1940 nearly 15,000 banks handled a much smaller economic world. A New Economy dominated by mega-banks is emerging from the $1 trillion the government invested since 2008:
While small banks are becoming extinct, big, consolidated, financial institutions that have been rescued by government bailouts are managing to pull off some unbelievable feats. Bank of America, JP Morgan, Citibank, and Goldman Sachs managed to pay back their billions of dollars In bailout funds early. Then, amazingly, In the first quarter of 2010, not one of these banking giants posted a loss—a virtually impossible feat…1
Clearly the government is furiously spending money favoring mega-banks, which is not traditional Capitalism, and clearly not free-market economics. A Nobel laureate in economics and former president of the World Bank explains the changes:
While there may be no winners in the current economic crisis, there are losers, and among the big losers is support for American-style capitalism. This has consequences we’ll be living with for a long time to come. – Joseph Stiglitz,((Joseph Stiglitz, “Wall Street’s Toxic Message”, Vanity Fair: July, 2009.))
Congress passed new banking regulations to match the New Economy dominated by those “too big to fail”, as President Obama explained:
“Reform of financial institutions is necessary to make certain that taxpayers are never again on the hook because a firm is deemed ‘too big to fall.’… A vote for reform is a vote to put a stop to taxpayer-funded bailouts. (Pres. Obama, “Remarks by the President on Wall Street Reform”, 4/2010)2
The New Economy favoring mega-corps is not a Democrat-inspired movement, nor can Republicans or “tea party” conservatives reverse the trend. It all began under the Bush White House, which was as conservative as any. The Bible says we are heading for a digital, global economy because it is inevitable, not because too many Democrats came to power. In the same way that Israel regained her homeland as prophesied by the Bible, it is inevitable that a global, digital economy will arise.
A global economy dominated by mega-corps “too big to fail” necessitates considerable government oversight, as Pres. Obama said. Traditional, free-market Capitalism will trigger another global economic meltdown, as 2008 demonstrated, which is not a good option.3
Reversing the trend toward mega-banks is impossible for American banks trying to compete against even larger institutions emerging in Asia and Europe. As the global economy heats up, the pressure to form larger mega-banks will increase, and the pressure for global financial oversight will increase.
“It certainly is a different world now,” Prof. Martin Feldstein told FRONTLINE. “It’s a globalized world. It’s a world of capital markets rather than banks.”4
Does anyone know where “capital markets” are headquartered? Such are the beasts pulling us into a new “globalized world,” as Prof. Feldstein said. Bank headquarters and bank trustees were the beasts nobody could trust historically, but at least they were tangible. When banks got sneaky, they got audited. But “capital markets” are uncontrolled forces in a globalized world. They are so massive, they dwarf the Fed’s governing ability.
What are the world’s politicians and economic leaders doing in the face of this new economic reality? This is one of the most fascinating questions emerging from the 2008 crisis, especially since the answers are largely unknown.
One of the most fascinating footnotes in the Frontline report “Inside the Meltdown” comes from a Harvard professor of economics with strong insider-ties to the Fed. “It’s very hard to know what [the Fed and U.S. Treasury] actually know, because in part they don’t want to alarm the public; they don’t want to alarm financial markets.((From Inside the Meltdown: Interview with Martin Feldstein.)) In a fragile economic recovery, no doubt they can’t “raise alarms.”
An economic shakedown is very much in-progress, however, even if it is rather subdued. The Federal Reserve and US Treasury invested $1 trillion in a gamble to stabilize the economy. Having once worked at the Fed in Cleveland, I know there is considerable heat and pressure fomenting inside the world’s largest bank to ensure that money is not lost. Heads will roll if the experiment fails!
Politicians and leading economists know that American-style Capitalism is dead. But what does the average American know about it? Although Frontline, the NY Times, Washington Post, and other news organizations are reporting the changes of this “defining moment,” the news is drowning in a sea of information overload dominated by Tweets and Facebook “Likes” buttons.
The problem is that “many Americans still don’t understand what has happened to the economy,” said Frontline producer/director Michael Kirk.5 What did Americans miss? That 2008 changed everything, and overnight.
The Defining Moment
It is surprising to discover how much activity has been underway since 2008 to redefine the global economy. The crisis launched “a world-wide battle over ideas—over what kind of economic system is likely to deliver the greatest benefit to the most people,” wrote economist Joseph Stiglitz.6
All the world’s economic powers are coming together to ensure the global crisis of 2008 is never repeated. British Prime Minister Gordon Brown explained this activity in historic terms:
Historians will look back and say this was no ordinary time but a defining moment: an unprecedented period of global change, and a time when one chapter ended and another began.7
This “defining moment” in history was the birth of a new economy controlled internationally, the Prime Minister said:
So now is the time for leaders of every country in the world to work together to agree the action that will see us through the current crisis and ensure we come out stronger…rebuilding global financial stability is a global challenge that needs global solutions…as this – the first truly global financial crisis – underlines. Globalisation is not an option, it is a fact, so the question is whether we manage it well or badly…
The Prime Minister’s comments were made shortly before the meeting of the G-20 (the top 20 global leaders) in 2009:
That is why President Obama and I will discuss this week a global new deal, whose impact can stretch from the villages of Africa to reforming the financial institutions of London and New York– and giving security to the hard-working families in every country.8
The Prime Minister was making a pitch for a “global new deal” for regulating national economies:
I see this global new deal as an agreement that every continent injects resources into its economy…that every country that wishes to participate in the international financial system agrees common principles for financial regulation, coordinated internationally, and changes to their own banking system that will bring us shared prosperity once again.8
The G-20 is superseding the once-powerful G-8 meeting of the world’s superpowers, as the NY Times explains it:
The Group of 20, or G-20, is an international body that meets to discuss economic issues. Its members— 19 countries with some of the world’s biggest industrial and emerging economies, plus the European Union— represent about 90 percent of the world’s gross national product, 80 percent of world trade (including trade within the European Union) and two-thirds of the global population…The organization…has taken on a new prominence in the current economic crisis.9
The result of the G20 Summit seems to have flown under the radar for most Americans. A global plan was adopted that called for uniform regulations and bylaws that will be governed by the Financial Stability Board (FSB). The Federal Reserve, US Treasury, and the Securities and Exchange Commission (SEC) are all members of this new charter, along with the equivalent top-financial organizations from the other G-20 members. This is a new and powerful, international, governing body.
A new global economic government designed to monitor potential risks to the stability of the global economy is developing right before our eyes. Whether or not they Intend to keep their commitment, ail the G20 members have agreed to put their important financial institutions, instruments, and markets under the authority of a single regulatory agency: the Financial Stability Board.10
As I said recently in my Daniel 7 teaching, the FSB is not the world economy prophesied by the Bible, but it certainly is an interesting (and powerful) move in that direction, is it not?
- David Jeremiah, Economic Armageddon, p.80. [↩]
- Economic Armageddon, p.82. [↩]
- See the Wall Street Journal, Lehman’s Demise Triggered Cash Crunch Around Globe. 9/29/2008. [↩]
- See Inside the Meltdown: Interview with Martin Feldstein. [↩]
- See Inside the Meltdown: Introduction. [↩]
- Vanity Fair. [↩]
- See Gordon Brown, “The special relationship is going global” in: The Sunday Times (London) 2009/3/1. [↩]
- Ibid. [↩] [↩]
- NY Times, 2/19/2011. [↩]
- Jeremiah, Economic Armageddon, p.65. [↩]
- Wish You Were Here!
- Signs of the Times