Day of Reckoning; America’s Economic Meltdown

There’s growing concern among economists and market-savvy pundits that the global financial system is hanging by a few well-worn threads that could snap at any time. The $10.4 trillion real estate “bubble” has attracted the most attention, but the shaky derivatives market, hedge funds, and falling dollar are equally worrisome. 20 years of deregulation has created an economic monster which is increasingly unmanageable and threatens to bring down the whole system in a heap. As Gabriel Kolko said in a recent counterpunch article (“Why a Global Economic Deluge Looms”), “The entire global financial structure is becoming uncontrollable in crucial ways its nominal leaders never expected. Instability is increasingly its hallmark….Contradictions now wrack the world’s financial system, and if we are to believe the institutions and personalities who have been in the forefront of the defense of capitalism, it may very well be on the verge of serious crisis.” Deregulation has reduced market transparency and created a plethora of financial instruments which are relatively untested and extraordinarily volatile. By eliminating the “rules of the game” the market big shots have raked in hefty profits but reshaped the economic landscape in a way that no one can predict what the ultimate outcome will be. The new investment-regime includes such opaque standards as credit derivatives, credit derivative futures, and collateralized debt obligations. Hedge funds are now loaded with these over-leveraged debt-instruments that promise a generous return in an “up-tempo” market, but certain doom in an economic downturn. Now, that the indicators are all pointing toward a slowdown or recession, the potentially devastating effects of this new “liberalized” system will soon be felt throughout the global economy.

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Rigging the Market; the secret maneuverings of the Plunge Protection Team

“Every individual…generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.” Adam Smith, “The Wealth of Nations” The Plunge Protection Team is a working group of high-ranking officials from the Dept. of the Treasury, Wall Street, and the Federal Reserve. Its purpose is to establish the protocols for preventing another incident similar to the stock market crash of 1987. In the event of a steep decline, the team is prepared to buy large amounts of equities in an effort to stabilize the market. Some people believe that the government has no right to interfere in the activities of “free markets”. Others think it is a prudent way of staving off economic collapse. Still others believe that the intrusion of government, aided by the privately-owned Federal Reserve and the NYSE, naturally favors the larger institutional investors and creates an uneven playing field for small investors. Whatever side one is on, it is proof-positive that “free markets” are merely a public relations myth with no basis in reality. The preservation of the system takes precedent over the lip-service to ideology; the “invisible hand” will always be overpowered by the manicured and mettlesome fingers of banking elites and Wall Street big wigs. This is their system and they’re not going to let it be obliterated by some foolish commitment to principle.

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