Canada and the Global Financial Crisis: We Are NOT Immune

By Paul Glumaz

Most, if not all, of the major banks of the world are bankrupt.  That is they have liabilities tens or hundreds of times over what they can cover.  To keep them open, the governments and central banks of North America and Europe have been engaged in desperate schemes that sacrifice the interest of the average Canadian, American, and European worker for the benefit of a financial oligarchy.   Some of those desperate schemes are listed below.

The basic reason given for these desperate schemes is that the banks are “too big to fail.”  What this means is that if a major bank goes under, the losses will be so great that it will take all the other major banks down with it and everything else.  No one wants that to happen.  So all the policies of the governments of North America and Europe start from the standpoint of what has to be done to keep the major banks open.   If the bankers commit fraud, well “they are too big to jail” and can’t be touched.

FDR signs Glass-Steagall into law in 1933

FDR signs Glass-Steagall into law in 1933

How did this situation come into being?  After the last depression, banks in Europe and North America were regulated under the American President Franklin Delano Roosevelt. Gradually during the period of 1971-1999, those regulations were removed, making it possible for the bankers to make more profit by gambling than by investing in the real economy. As gambling increasingly became the basis of the financial system, investment in the real economy became less capable of creating the kind of perpetual financial returns necessary satisfy the bankers’ hopeless addiction to profits.  This caused companies and countries to try to make things more “profitable” or “sustainable” by increasing austerity and cutting wages and social programs.  We exist today not to give our children a future; we exist today to satisfy this system of gambling which is bankrupt.

As new and ever more exotic forms of leveraged speculation called derivatives are used, more and more useless debt is created that has to be propped up by yet more speculation. While not having any existence in 1986, Derivatives have become so complex that the bankers themselves cannot understand them.  The tumor in our financial system known as derivatives is now estimated to be two thousand trillion dollars… over 20 times the world GDP. The Canadian banks themselves are exposed to approximately $22 trillion of these toxic instruments.

Due to the undoing of FDR's banking regulation over the period of 1971-1999 culminating in the takedown of Glass-Steagall, total derivative growth has ballooned to nearly $2 Quadrillion

Due to the undoing of FDR’s banking regulation over the period of 1971-1999 culminating in the takedown of Glass-Steagall, total derivative growth has ballooned to nearly $2 Quadrillion

DESPERATE SCHEMES TO KEEP THE BANKS OPEN:

1-BAIL-OUTS:  Since 2008 both in Europe and North America many trillions of dollars of public debt have been created just to bail out the banks, and trillions of tax payers funds have also been used.

2-PURCHASING TOXIC FINANCIAL INSTRUMENTS: Many more trillions of dollars have been expended by central banks like the Federal Reserve to purchase (at face value) financial speculative instruments that have no intrinsic value whatsoever, making the central banks technically bankrupt,  while at the same time giving the banks the fuel to further expand their speculation and creation of more toxic debt instruments.

3- LENDING TO BANKS AT ZERO INTEREST:  Banks now get credit from the central banks at zero, near zero or even negative interest rates.  This allows the banks to keep rolling over their worthless debts at no cost. Imagine co-signing for a million dollar loan, and finding out that the person you trusted is only making the minimum payment, say $100,000 every decade, but at the same time, increasing the debt by a million dollars a year to fund their gambling habit. They can never go broke as long as there is more interest free money to be borrowed, but at the same time, they are pretty far from being solvent. This also allows the banks to give loans to corporations so they can purchase back their own stock to keep the stock values up, at virtually no cost.

Canada's debt explosion since 1971 has fed a global system of speculation

Canada’s debt explosion since 1971 has fed a global system of speculation

4- DEBT BUNDLING:  All the debts of credit cards, mortgages, student loans, corporate debts, and public debts, are bundled and traded, and are used as assets on which to leverage the creation of more credit to gamble on derivatives.  So every dollar of debt in the system is supporting ten to one hundred times more debt in the form of derivative speculation. This system is about to blow out, and demand that the governments of North America and Europe come to the rescue. Which brings us to:

5-BAIL-INS:  In 2009 at the G-20 meeting in London an entity was established called the Financial Stability Board which then organized to have the banking laws changed in Canada, the U.S. and Europe to make it possible for the banks in the next major banking crisis, like 2008, to be able to convert people’s savings, deposits, and pensions into bank stock like was done in Cyprus.  Along with the U.S. and Europe, Canada’s government  is currently legally prepared to assist the banks in confiscating your deposits.

6- There is a lot more.  In all of this, in one way or another, the ultimate costs of these and other desperate schemes falls upon the backs of working people.

WHY ONLY NORTH AMERICA AND EUROPE?

BRICSIn response to this dire situation, a group of nations have decided to break with this bankrupt system and create a new system that will allow them to finance, not the bankers’ globalized casino, but rather the physical development of their nations.   The development of these nations is to be centered on large infrastructure projects reminiscent of the sort of great works that Canada used to engage in during saner years.   The core nations setting this new system up are called the BRICS.  BRICS stands for Brazil, Russia, India, China, and South Africa.  They have established various development banks to do this, like the New Development Bank, the Asian Infrastructure Investment Bank, The Silk Road Fund, the Shanghai Cooperation Bank, and other such credit facilities. None of the credit created by these institutions is to be used to bail out the banks, or their worthless gambling debts.  As a result, most of Asia, South America, and Africa are now in the process of linking up with the BRICS.

The Bering Strait tunnel would allow the Americas to join the BRICS New Silk Road and usher in a new global system of relations

The Bering Strait tunnel would allow the Americas to join the BRICS New Silk Road and usher in a new global system of relations

The manner by which this global economic development is to occur is centered on building rail lines throughout all of Eurasia, and ultimately connecting Eurasia with Africa, and with the Americas through a tunnel under the Bering Strait.  Canada is one of the nations that most stands to benefit from this economically.

Two different economic systems have now emerged in the world.  One based on the BRICS, similar to what the U.S. and Canada used to do during the 30 years following WW2, while the other is based on the bankers of Wall Street and London.  These facts are not being reported in the media.  The bankrupt bankers very much view this as a threat to their empire.  When feel threatened they tend to want to start wars.

WHAT CAN CANADIANS DO ABOUT THIS?

Canada is a nation, or at least it should be.  As a nation it has the power to bring back the regulations that once kept the bankers in check.  In the U.S. these regulations were called Glass-Steagall after the legislators who wrote the legislation that passed the U.S. Congress in 1933 to separate speculative banking from commercial banking while ensuring that investments were tied to the physical-cultural growth of the nation.  Canada had a similar system called the Four Pillars that was enacted after World War Two, which did the same thing.

The Glass-Steagall standard is meant to be a firewall that protects the productive economy from the spread of an inferno among the extremely flammable piles of paper perpetually pumped out by speculators since 1980. The kinds of things that would be saved are pensions under a Glass-Steagall reform globally are deposits, farms, homes, social services, and infrastructure. By introducing such measures again, Canadians can separate the part of the banking system that is involved in productive commercial activity from the bankrupt gambling casino.  Once this is done the bail-outs, etc., end.   Once this is done new productive credit can also be created for the real economy as was done in the 1930’s 1940s.

Most Canadians do not yet know about this.  In the U.S. however there is a big fight going on and legislation to re-establish Glass-Steagall has been reintroduced into the new session of the U.S. Congress. While many union representatives, citizens and municipalities have endorsed the Committee for the Republic of Canada’s call for the re-enactment of this important legislation, the federal and provincial governments have not yet budged. That must change now.

Glass Steagall