By David Gosselin [Originally published on The Age of the Muses]
With the Silicon Valley Bank having just gone under, followed by the New York-based Signature Bank, with a third and fourth major financial institution on the brink of collapse, the greatest financial bubble in human history—the Wall Street/City of London banking system — appears to be finally unwinding, as it inevitably must.
However, while some have gotten so fed up with the degeneracy and orgiastic usury of the City of London/Wall Street system that they would like to just see it all crash and let the chips fall where they may, the question is: can the financial cancer be cut out without sacrificing the entire system upon which the Trans-Atlantic world is built? Does the best of Western civilization have to go with the rot of a decrepit financial empire, or is there a way to separate out the legitimate portions of the financial system from the doomed zombie banking casino? In a word: the question comes down to whether the legitimate assets, including people’s deposits, savings, pensions, mortgages and credit for the productive parts of the economy can be separated out from the toxic financial waste and bad speculative bets made by the private merchant banking system which currently controls the entire Western credit system. The financial cancer in question includes a vast derivatives bubble which exceeds 100 trillion in value.
According to the Bank of International Settlement—the central banks of central banks—the outstanding notional value of derivatives worldwide stands at 610 trillion. However, several sources believe the total derivatives market may be well over a quadrillion dollars in notional value, whereas other estimates hover at around 750 trillion. What started to unwind in 2007-2008 was in fact this very same derivatives bubble, rather than simply “sub-prime” mortgage markets, bond markets, corporate debt or other sectors of the financial system.
While the 2007-2008 financial crisis was framed as a sub-prime crisis, in reality the crisis was not only about the fact that many people were defaulting on their mortgage payments (though this was the trigger), the real crisis was the astronomical number of derivatives contracts built atop all these mortgages, including mortgage-backed securities (MBS), credit default swaps (CDS), and various other collateralized debt obligations (CDO). In fact, these derivative markets were themselves largely an outgrowth of the attempt to prop up the then already faltering Western financial system going back to the late 1980s and the infamous “black Monday.”
MBS were financial products in which countless mortgage debts were turned into financial “tranches” which were in turn packaged into new securitized debts obligations. These “securities,” composed of various mortgage debts and their future income streams were pooled together and sold as legitimate financial products. Not only that, but these same speculative debt-based financial products were themselves subjected to vast speculative orgies in the form of credit default swaps, interest rate swaps, and other derivatives premised on the future speculative values of these “securities.”
When the system began melting down in 2007-2008, financial behemoths like the insurer AIG and major lenders like Fannie Mae, Freddy Mac, Wells Fargo, JP Morgan, and Morgan Stanley, suddenly became bankrupt or insolvent, unable to cover all the bad derivatives bets which had to be called in as the sub-prime mortgage market house of cards began to radically unwind. Nearly overnight, massive financial black holes began surfacing on the balance sheets of the largest financial institutions in the world. As is well known today, the total emergency bailouts paid out to keep the system and the world’s largest financial institutions from being vaporized by trillions of bad derivative bets totaled 16 trillion in “quantitative easing.”
As Wall Street on Parade reported on the Government Accountability Office (GAO) audit in July of 2011 (citing Senator Bernie Sanders’ office press release):
“The first top-to-bottom audit of the Federal Reserve uncovered eye-popping new details about how the U.S. provided a whopping $16 trillion in secret loans to bail out American and foreign banks and businesses during the worst economic crisis since the Great Depression…
“The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo. The same firms also received trillions of dollars in Fed loans at near-zero interest rates. Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.”
It should be noted that virtually none of this money ever made its way to farmers, manufacturing, small business, infrastructure, health-care systems. It was purely a bailout of Wall Street and the City of London financial octopus, along with its many tentacle satellites. Rather than cancelling the funny money and worthless speculative monopoly debts, the population and its political class were convinced and coerced into accepting the lie that the only way to stop the very real prospect of the largest financial institutions in the world being vaporized overnight was massive money-printing schemes and astronomical new debt obligations, with the population strapped with the bill through new draconian austerity programs and health-care “reforms” i.e. the infamous Obama Care. The purpose was to keep the game going by looting more of the population’s income streams and withdrawing care and services from the most vulnerable.
To give readers a sense of the magnitude of the current crisis unfolding, consider the graph below, which was published on ZeroHedge. It compares the notional amount of outstanding derivatives contracts compared with the US GDP, global stock market cap, domestic debt and securities etc.
The typical response by proponents of the present Wall Street/City of London-dominated system is to say that the notional amount of derivatives and the actual value of derivatives contracts is significantly less, and that hedging bets is a natural part of the market. However, these purported arguments overlook the fact that the 2007-2008 financial crisis was not a sub-prime mortgage crisis per se, it was the unwinding of the derivatives bubble, triggered by the sub-prime mortgage market’s implosion.
This takes us to our present paradigm-shifting moment. The inevitable reality of the unwinding of the Western financial system has not gone unnoticed. Conveniently, in anticipation of this event, the 2010 US financial reform bill inserted a “bail-in” clause under Title II of Dodd-Frank. Thus, a provision for protecting derivatives bets and derivatives counterparties by the major banks has been on the books since January 2010. As described by Investopedia in their “Why Bank Bail-Ins Will be the New Bailouts”:
“As unsecured creditors, depositors and bondholders are subordinated to derivative claims. Derivatives are the investments that banks make among each other, which are supposed to be used to hedge their portfolios. However, the 25 largest banks hold more than $247 trillion in derivatives, which poses a tremendous amount of risk to the financial system. To avoid a potential calamity, the Dodd-Frank Act gives preference to derivative claims.”
The “bail-in” policy anticipates another crash, with the major Wall Street and City of London banks having already taken steps to guarantee their protection as the system melts down—the program having already been tested in Cyprus in 2013.
In the event of a new crash, which appears inevitable, arguments will likely be framed to the effect that in order to avoid more bailouts and a complete vaporization of the financial system, depositors and investors will be given the option of either accepting a financial “hair-cut” (meaning a significant portion of people’s pensions and deposits over a certain amount will be directly seized by the banks themselves i.e. “bailed-in,” as opposed to “bailed-out”) or otherwise threatened with the very system itself imploding and everyone losing virtually everything in a systemic Trans-Atlantic banking collapse. Efforts will likely be made to terrify the population into accepting these drastic measures under the threat of total annihilation, from threat of death by a virus to threat of death by total financial collapse—all in order to ultimate advance a “Great Reset.” Said otherwise: there would be a controlled demolition of the current financial system in order to set the stage for a new fully-digitized system based on CBDCs.
Were the “there is no alternative” argument to be made, it would be a complete lie. The actual crisis can be quickly resolved in an orderly fashion, provided the crisis and its alternatives are understood in clear and simple terms. If an uncontrolled collapse of the entire system occurs, it will not be the result of its inevitability, or the lack of solutions, but the absence of a vision and a misunderstanding on the part of citizens and lawmakers. As the proverb says, “Where there is no vision, the people perish.”
If the fictitious nature of the derivatives bubble and the Western financial oligarchy’s predicament is properly understood, the solutions become relatively simple. In clear and simple terms, the hundreds of trillions of dollars in funny money can be cancelled, followed by the restoration of a sound separation between commercial banking and investment banking activities (a Glass-Steagall banking separation). The latter will allow for the protection of the population’s savings, pensions, deposits, loans—activities tied to the real productive sectors of the economy—as opposed to the Wall Street and City of London financial casino.
Having cut the financial cancer, sovereign nations would find themselves in a position to reorient themselves towards a policy of real physical economic progress and take their place within the new multi-polar world of nations committed to the healthy growth and development of their populations. Rather than a multi-polar world being framed as some kind of unstable jungle in which there is no Anglo-American Leviathan to maintain the “rules-based order” of the current Five Eyes surveillance web and Wall Street/City of London financial nexus to regulate all the parties and keep everyone in check, the reality of a multi-polar world should be understood as a combination of advanced diplomatic overtures and statecraft, cooperation on mutual multi-generational development with major economic science and infrastructure programs that open new spectrums of economy, and a robust dialogue among the world’s civilizations. Such developments are what warmongering empires and small subversive divide-and-conquer financial oligarchies fear most.
To all those who would argue that such a system re-organization of the Western financial system would be impossible, we should simply state the following: it’s been done before. The re-organization of the Western financial system was undertaken in the 1930s by the FDR administration, which held the Pecora Commission to prosecute the financial criminality that led to the collapse of the system, followed by a Glass-Steagall banking separation of the commercial and investment banking sectors of the economy. These measures allowed for the protection of the productive sectors of the economy and cancellation of the fiat financial casino system. The steps were later followed by the creation of a new international financial architecture, the Bretton Woods system.
However, Roosevelt’s reorganization of the financial system and expulsion of the “money changers from the temple of our civilization” was not new—it echoed a much earlier program by none other than Solon of Athens, one of the Seven Sages of Ancient Greece and father of Western constitutional systems. Solon’s reforms were famously enacted to end the era of usury and serfdom that had brought the Greek population to the brink of destruction. Perhaps it’s time we revisit this pivotal chapter in the story of Western civilization?
Repeating History the Right Way
Solon famously enacted his reforms through the creation of a new constitution which took the form of a poem. Solon (640 to 560 BC) was one of the original poet-legislators famously praised by Percy Bysshe Shelley in his essay, “A Defence of Poetry.”
While Shelley set an admittedly high standard for the function of legislators, the broader history of Western civilization offers some striking and decisive examples which prove Shelley’s argument to be more than some mere rhetorical effusion or flight of poetic fancy. To the degree that our own age finds Shelley’s conceits remote and archaic, we have a strong indication of how far the West has drifted from its own classical roots and the classical wisdom that is the bedrock of our civilization.
For, both the creation of democratic institutions and the establishment of constitutional republics have their roots in this classical tradition. Solon famously forged the Athenian constitution in the form of the following poem.
Solon’s constitution reads:
“Never will our city be destroyed by Zeus’ decree,
Nor by the will of the bless’d immortal gods,
For, born of a potent father, great-hearted guardian
Pallas Athena spreads her hands o’er our city.
But, by money seduced, the Athenians themselves
Seek mindlessly to corrupt the greatcity,
Joined by the iniquitous schemes of their leaders,
Who from arrogance great woes shall suffer:
For they understand not how to restrain gluttony,
Nor best to order their feasting in quiet.
Sparing neither sacred ground nor public goods,
Greedily they steal from the one place or the other.
They fail to protect the rev’rend temples of Justice,
She who notes silently the “what is and what has been ,
Who in time shall come exacting retribution.
Behold, an inex’rable harm visits all Athens:
To vile slavery is she swiftly progressed,
Which rouses up from slumber civil strife and war
War that wipes out for many their cherished youth;
Now our much-loved city is soon worn down by faction,
While the wicked stir them to confrontations.
These evils ensnare the whole people; but the poor,
Many of them, depart to a foreign land,
Plundered, and bound up in shameful fetters.
[For the slave’s yoke bears all other wickedness.
Thus does the public evil come home to each of us:
Straining, the courtyard gates no longer hold fast,
The evil leaps o’er the high walls; it finds everyone,
Even him fleeing to the inmost chamber.
This my soul commands me teach the Athenians:
A bad constitution brings civic turmoil,
But a good one shows well-ordering and coherence,
As it puts shackles ’round about wrong-doing
It smoothes out the rough; it checks greed, tempers hubris,
And withers the fruits of reckless impulse.
It takes crooked judgments and makes them straight,
Softens arrogant deeds, halts seditious acts,
And ends the bile of grievous strife. And so under it,
Everything for mankind becomes whole and wise.
The model for Solon’s constitution was none other than the goddess Athena—the only truly wise and virtuous god portrayed by Homer in his Iliad and Odyssey. The poem marked the end of a period in which the honest and productive economic sectors of Athenian society were crushed by a system of debt-slavery and predatory financial practices imposed by the oligarchy of that time. In our own age of political tumult and economic turmoil in which speculative financial bubbles reach into the hundreds of trillions in notional value—with trillions of dollars having been added to the national debts of sovereign nations through “bailouts” to prop up these values—remembering the bold visions of poet-sages who laid the basis for our modern civilization remains vital to the survival of Western culture and institutions.
More than two millennia later, Roosevelt echoed the words of Solon in his March 4th, 1933, inaugural address, declaring:
They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish. The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.
As illusions which once appeared to be immutable truths shatter before our eyes and the modern Wall Street/City of London Tower of Babel totters over the precipice, perhaps it’s time Western civilization takes a page from its own better days and ushers in a new age of rebirth—a true Renaissance—informed by the best of the West and built upon the foundations of a new multi-polar world of sovereign nations.