``Consumers are too strapped to pull the economy out of the muck and Wall Street knows it. That's why Bernanke has defended high-risk debt-instruments and securitization so ferociously, because they represent the only means of maintaining profitability in a stagnant economy. The battle over derivatives is the battle for the future of capitalism itself.''
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This answers my question from the other day, how does a consumer economy recover with no consumer? Credit. When credit is broken? Go to derivatives and fraud.
I think this was one of best articles I've read in a long time. I have no idea whether it is correct or not. Maybe it just confirms my worst expectations. Whitney reminds us that there were two phases to the great depression. There was the big one, then the really big one.
This general outline turns Barack Obama into Herbert Hoover, which for some reason makes me laugh. Below is Whitney from last week which claims Obama spent his weekend hectoring various countries in the EU.
``Obama's concern is that a Greek default will put pressure on French and German banks (which have 110 billion-euro exposure) that will start the dominoes tumbling again. According to Dow Jones, "JP Morgan's holdings of non-U.S. government bonds increased by $36.5 billion in 2009, while Citigroup's increased by almost $40 B." ("The European Bailout", James Hamilton, Econbrowser)
So, despite the news this week that all four of the nation's biggest banks (Bank of America, Goldman Sachs, JP Morgan, and Citigroup) racked up perfect quarters off their trading desks, (showing that the Fed's liquidity and zero-rates has restored profitability) the banking system is still so weak that the President of the United States has to spend his whole weekend hectoring heads-of-state throughout Euroland to beef up their bailout or the whole financial system will come crashing down.
What does that tell us? It tells us that the whole "recovery" meme is a fraud. It tells us that the banks (where lending is down 20 per cent, and foreclosures are running at 300,000 per month) are once again engaged in the riskiest type of speculation; that they're using complex financial assets and repo to maximize leverage to goose profits in the middle of a slump. And, it tells us that Obama is Wall Street's biggest champion, a real "enabler" in chief.
Greece should walk away from this farce and start fresh. "Thumbs down" on the EU bailout.''
http://www.counterpunch.org/whitney05142010.html
I am not sure what to make of all this. I'd like some list discussion to read about all this. Ever since CounterPunch pushed the climate denial stuff by Cockburn, I've become suspicious of their editors' judgement.
CG