Avoiding the next financial train wreck

(Part 6 in a series)
Back in 2006, into 2007, too-big-to-fail superbanks, complacent governments and boosterish business media ignored the few economists who predicted there would be a financial crisis. Today, governments lack the will or the legal weapons to control the greed endemic to elite bank culture.

Given the persistence of that culture in big banks, I am not at all optimistic that we will avoid another, even more serious, financial collapse in the not-so-distant future.

To prepare for that day -- and perhaps avoid it altogether -- we need to reduce the power of big banks, weakening their grip on society’s financial resources, and challenging their support for destructive, neo-liberal economic policies.

Ordinary people and public-interest organizations have to do two things: First, we must demand that our governments crack down on reckless, corrupt bankers and protect our money in the process.

Second, we have to take matters into our own hands, rewarding and inventing independent financial systems that we can trust and control.

Should Account-holders pay for High-Flying Bankers' Misdeeds?

(Part 5 of a series)
When the next big financial crisis hits the world economy, and Canadian banks are in distress -- as they were  during the 2008 financial crisis -- the bank-using public will have plenty to worry about.

As we saw earlier in this series, it’s hard to trust banks to protect our savings and investments when so many of them have been exposed behaving unethically, gambling extravagantly on exotic financial instruments, and even engaging in fraudulent activities.

Last week, U.S. regulators adopted the new Volcker rule, which bars American banks from several forms of conflict of interest, including trading securities for their own account, or owning hedge or private-equity funds.

It, and similar new laws in Europe, will help, but they will not stop big banks and rogue investors that are determined to gamble and carry out illegal activities.

Meanwhile, governments themselves are the source of an altogether new threat to our bank accounts that Canadians should watch very carefully. Many, including the Harper Conservatives, are eyeing a new mechanism for rescuing banks whose rash behaviour gets them in trouble. It’s called the “bail in.”

How banks play Russian Roulette with our financial security

(Part 4 of a series)
The next major threat to Canadian and international financial systems is very likely to come from reckless investors gambling with derivatives, the dangerous betting vehicles that contributed to the 2008 collapse of financial services firm Lehman Brothers and the start of the Great Recession.

Used properly, simple derivatives (literally: a financial asset that "derives" its value from that of an underlying asset) can reduce the risk of some financial transactions. To use a simple example, they can help bakers guarantee what price they’ll have to pay for wheat two years from now. (Click here for an explanation on how derivatives work.)

But big-money gamblers can invest in any of a number of highly risky, extremely complicated kinds of derivatives for purely speculative purposes. When this happens, derivatives are just a form of very dangerous, virtually no-limit, betting.

The problem is that derivatives can blow up!

The problem is that derivatives can blow up. Two former JPMorgan Chase employees are facing criminal charges related to a derivatives trading scandal last year in London that cost the bank $6.2 billion -- enough money to run the City of Vancouver for more than five years. The traders also tried to hide losses from investors and federal regulators.

Cocky JPMorgan Chase CEO Jamie Dimon dismissed  its $6.2-billion loss as "a complete tempest in a teapot." Nonetheless, the image of the bank has suffered in the wake of the outrageous caper.

Hair-trigger derivatives, along with laissez-faire deregulation, greed, and poor homeownership policies in the United States, caused the 2008 economic crisis.

GREED & FRAUD... setting us up for another crash

(Part 3 of a series)
Are you ready for the Western world’s economy to crash -- again?

More banks will go under. Many tens of thousands of people will again be thrown out of work. Billions of dollars in "investments" will disappear into thin air.

I believe it’s not a question of “if” financial markets and the economy will crash again, but “when.”

Boom and bust economies are features of unfettered capitalism. There have been more than 20  major international and national economic collapses since the early 20th century.

But now the threat of a nuclear-scale financial implosion is more likely than just an economic downturn or a mere correction.

Many of the big investment banks that caused the near-meltdown in 2007-08 -- well known firms such as JPMorgan Chase and Barclays Bank -- are now more deeply involved than ever in dangerous, aggressive, and even often unethical and/or fraudulent activities.

Economist Joseph Stiglitz, a Nobel Prize winner, warns  that “a resurgence of right-wing economics, driven, as always, by ideology and special interests, once again threatens the global economy -- or at least the economies of Europe and America, where these ideas continue to flourish.”

Out-of-control banks challenge governments for power & economic might

(Part 2 of a series)
Giant banks are the most powerful institutions in in the world – in many ways as powerful economically and politically as the biggest governments. Unfortunately, the banks frequently use their power in ways that damage the economy and hurt folks living around the world.

Two prominent research projects carried out in recent years paint a picture of a ruthless banking and financial sector powerful enough to dictate the nature of key parts of the world’s economy and challenge the strongest politicians.

Research carried out by three Swiss economists reveals the links and structure the giant financial institutions dominate and use to their advantage.

The researchers looked at 30-million “economic actors” around the globe. Their remarkable research found  that a group of 147 trans-national corporations (TNCs) controlled nearly 40 per cent of the economic value of all TNCs in the world. More shockingly, financial institutions make up 75 per cent of the organizations at the core of this powerful group: what the researchers call, a “super entity.”

Are our banks really safe?

The world banking system could come crashing down around our heads again – even worse than in 2008. Giant banks apparently learned very little from the earlier collapse. Many of them are carrying on the same overly risky and even illegal activities that led to the earlier crisis.  (Part 1 of a series)

If Canada’s banking regulations are not substantially toughened by the time the next global financial crisis hits – yes, there will be another crisis – our Big Six banks may very well find themselves in serious trouble. Again.

The public is almost entirely unaware that our banking system, with just a couple of wrong moves or some bad luck, could go into a tailspin at any time. And when the next serious setback occurs, we could end up suffering even more than in 2008-2010.

Throughout the Great Recession, Finance Minister Jim Flaherty and the financial community managed to keep secret the fact that our largest banks were in financial difficulty. Had people known the reality, they might have wanted their money back.