I watched the last episode of The Duran and Alexander said something really important: he mentioned the financial crisis of 2008 and its similarities with the current situation. If you listen to real economists, people who think about economics in real world terms. You hear that we’re still in a financial crisis from 2008. That crisis never ended, not only did it get worse, it got worse.
Let’s start with what caused that financial crisis back then. It was caused by private banks and financial institutions breaking the law and misrepresenting the quality of financial assets. That is, the banks and financial institutions broke the law and lied about the quality of financial assets. They falsely represented toxic, junk assets as triple A(AAA) assets, i.e. better quality. Because they did this, banks started giving loans to everyone, regardless of whether they could pay them back or not, because eventually the toxic assets would eventually be dumped on society and the public. They knew they would be bailed out, so why not lend money to anyone, even if they couldn’t pay it back, and in doing so they created toxic assets and also profits for themselves. All these toxic assets will be spread throughout the financial system, so it is too interconnected to be dealt with. These assets are spread into pension funds and throughout the system. Then it all collapsed and all the damage caused by these toxic assets was dumped on the public and society, while the people who did it profited by making loans to people who couldn’t pay because they were getting interest on the loans and knew they would be paid no matter what. Even if the borrower would not be able to pay, the government and society would.
How were they so sure that the government would force society and the public to bail them out? First it happened in the US and the West, so they had a political system in their pocket. Second, they deliberately spread these toxic assets throughout the system because our financial system is so interconnected that too much damage would cause ripples that could collapse the entire system. Also, over the years they have consolidated the financial system. In order to increase profit and reduce costs, just as in manufacturing where scale reduces costs, so did the financial system. So they consolidated the banks creating huge, mega banks. The second reason for this consolidation was to create a monopoly and increase dominance throughout the system and create a financial cartel.
Okay, this is the financial crisis of 2008. How did we deal with it? First, none of the bankers who created it went to jail. Not only should they have gone to jail, but those people in the financial institutions and banks should have ended up in the prison and tell us everything. While this economic crisis is mainly only causing economic damage in the West, it has actually caused people to die of starvation in other parts of the world. How have we punished them? Not at all! We allowed them to give themselves huge bonuses while making huge profits by giving credit to anyone and earning interest while creating toxic assets.
Now what have we done to fix it, to prevent it from happening again? Nothing, not only have we made the whole situation worse. First of all, we did not put in any kind of additional regulation to prevent such lies in the future. We didn’t punish anyone, so we just showed them that they can do such things without consequences. One of the issues of the last crisis was that our financial system is intertwined and our financial institutions, our banks are very big, so what we did we made them even bigger. In other words, we didn’t do anything, we just made the situation worse.
Now what should we have done? Let these banks fall, nationalise them and restructure the whole financial system. Break up all the big banks and financial institutions and as I wrote before, put all the people responsible in prison and that they tell us everything and at the same time tell the others that if you try it you will be imprisoned. We should have made some kind of NEW AGREEMENT. But I mean the real NEW DEPARTMENT, the purpose of the NEW DEPARTMENT was to put the economic genes in the bottle.
The GREEN NEW DEAL or whatever they called it didn’t have anything to do with the real NEW DEAL.
New Deal – Wikipedia
The New Deal was a series of programs, public work projects, financial reforms, and regulations enacted by President Franklin D. Roosevelt in the United States between 1933 and 1939. Major federal programs and agencies included the Civilian Conservation Corps (CCC), the Works Progress Administration (WPA), the Civil Works Administration (CWA), the Farm Security Administration (FSA), the National Industrial Recovery Act of 1933 (NIRA) and the Social Security Administration (SSA).
Bretton Woods system – Wikipedia
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the United States, Canada, Western European countries, Australia, and Japan after the 1944 Bretton Woods Agreement. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent states.
Glass-Steagall legislation – Wikipedia
Toggle the table of contents From Wikipedia, the free encyclopedia The Glass-Steagall legislation describes four provisions of the United States Banking Act of 1933 separating commercial and investment banking. The article 1933 Banking Act describes the entire law, including the legislative history of the provisions covered herein.
Best description of the current economic situation was provided in my opinion in this lecture by Yanis Varoufakis.
From that lecture I took that sentence “to put financial genes in the bottle”. He describes in that lecture how the goal of the new deal was to make banking boring. For example they put a stable exchange rate between currencies to prevent speculation on currency markets. They have created Glass–Steagall legislation to prevent too big consolidation of markets by creating monopolies and entities: banks, corporations etc.. to become too big to fail. This was dismantled in the 70’s.
So in the 2008 crisis or even earlier we should have made a real NEW DEAL with the same purpose as the old one “to put financial genes in the bottle” and make banking boring. But we didn’t and we just made the situation worse and here we are now.