THE NEXT FINANCIAL CRISIS
The $1.1 trillion spending bill will fund the US government until
September 2015. This bill is a tripartite alliance between the White house, the
Democratic Party and the Republican Party. This alliance is not new, it is at
the origin of the repeal of “Glass–Steagall” in November
1999 and increase of synthetic assets in our financial system. The tripartite alliance is a product of the functioning mechanism of “Bipartisanship”. This
political dualism has been an extraordinary force of American democracy, but
start to loose its strength at the end of the 20th century.
“Bipartisanship” represent a political eco-system of the 20th
century and cannot satisfy the political exigencies of the 21st century or shape
the future of American democracy. The bill demonstrates that the structure of “Bipartisanship”
is no longer a positive function of American democracy and capitalism. Here is
what I wrote about the inefficiency of “Bipartisanship” in the 21st
century:
“Temptation of conquest of power and degradation of democracy are
the two most important political risk of bipartisanship. This political
structure has a propensity to transform productive symmetric relationship into
an irreversible and unproductive asymmetry”.
“Bipartisanship has divided our country into multiple dualism:
republicans and democrats; big government and small government; private sector
and public sector. We became more republicans and democrats than Americans.
This culture of division of Americans into two camps stifles innovative
political thinking and creation of new innovative political organizations. If
we want to keep our position as world leader and improve the well being of
Americans, our nation political structure must be innovative and open channels
of new political energies.”
“We are in the 3rd millennium; the digital revolution is
creating radical transformations in the United States of America and around the
world. But, the ideological structure of Bipartisanship is totally incompatible
with the extraordinary innovations of our time. Ideological solutions of the 20th
century are obsolete; we are now in a world of “Rational Solutions” created by
digital revolution”
The $1.1 trillion spending bill is a consequence of an irreversible
and unproductive asymmetry creates by “Bipartisanship”. It satisfied the
immediate political interest of the White House, the political parties and Wall
Street, but undermine our democracy and economic system for the following reasons:
-Citigroup wrote the new banking deregulation; consequently the bill does not represent the will of the American
people.
- Increase donation to party
committees from $ $97,200 to $ $777,000 each year. Money should not be a
determinant factor of democracy.
-This bill eliminates the Lincoln Amendment
(section 716) of Dodd-Frank and increase “moral hazard” in our financial
system. Section 716 regulates the derivatives that
were at the origin of the financial crisis of 2008. Dodd-Frank Prohibition
Against Federal Government Bailouts of Swaps Entities (swaps push-out rule) involves only 5% to 10%
of banks’ activities.
- The American people will again bailout Wall Street big banks in
case of financial crisis. This bill eliminates the rule of accountability that
define capitalism.
- The bill is an expression of the division of American society in
2 opposing camps: Wall Street versus Main Street.
We were warned by Ms. Brooksley Born (chairperson of the CFTC , August 1996 - June1999). Her warning about the
risk of uncontrolled derivative market has been validated by the financial
crisis of 2007-08. Now, 3 women warn us: Elizabeth Warren, Maxine Waters and Nancy Peloci.
The nature of this bill is more dangerous than “Bipartisanship” ideological conflict.
It is not about Democrat, Republican, Liberal,
Conservative, Left or Right. It undermines free-market capitalism, democracy and
increase fundamental systemic risk that can destabilize the American
society.
On December 10, 2014 Thomas Hoenig Vice Chairman of the
Federal Deposit Insurance Corporation made the following statement: “In 2008 we learned the economic consequences of conducting
derivatives trading in taxpayer-insured banks. Section 716 of Dodd-Frank is an
important step in pushing the trading activity out to where it should be
conducted: in the open market, outside of taxpayer-backed commercial banks. It
is illogical to repeal the 716 push out requirement. In fact, under 716, most
derivatives -- almost 95% -- would not be pushed out of the bank. That is
because interest rate swaps, foreign exchange and cleared credit derivatives
can remain within the bank. In addition, derivatives that are used for hedging
can remain in the bank. The main items that must be pushed out under 716 are
uncleared credit default swaps (CDS), equity derivatives and commodities
derivatives. These are, in relative terms, much smaller and where the greater
risks and capital subsidy is most useful to these banking firms.”
(www.fdic.gov)
The bill is not an improvement of American
capitalism, but fuel the dynamic of creation of “sub-capitalism” in United
States of America. Nothing has change since the financial crisis of 2007-2008;
the market of derivatives markets is bigger in 2014. The total notional value, of these synthetic assets was about US$ 500
trillion in 2007-2008, and it is more than US$ 700 trillion today. But, the value of the
world's financial assets is US$156 trillion in 2014 ( businessinsider.com- MAR 2014), the US treasury grew from US$4.5tn in 2007 to US$11.9tn in 2013. The big banks are bigger today than in 2007. Assets of the 4
largest banks have increase by more than $2 trillion since
the financial crisis. The possibility of new financial crisis is bigger today.
The $1.1 trillion spending bill is a legislation that prepares the
next financial crisis. It shows that the power of Wall Street big banks
increase under Democrat and Republican presidents. Financial crisis are a
succession of bad decisions taken by our political leaders and they are
exacerbate by degradation of moral value. This bill does not create a market discipline that capitalism needs to prosper, it is an ideological
solution created by Bipartisanship. In the 21st century, the future
of American capitalism will be define by rational solution create by new
dynamics of “knowledge society”.
