SAN LUIS OBISPO, Calif. (MarketWatch) — Spoiler alert: Actually, you’ll hear the crash coming. Many, many times. You just won’t act. Won’t get out in time. Worse: Just as in 2000, and again in 2008, our leaders in Washington and on Wall Street will hear all the warnings, too. But they won’t stop the crash, either.
Why don’t they act? Because they’re the cause. They are setting up the next crash. Their brains aren’t wired to prevent crashes. They’re only programmed to set them up, then clean up afterward. Leaving taxpayers to fund the bailouts, again.
Here’s why our brains fail us: It starts at the top, leaders like Fed Chairwoman Janet Yellen, America’s “New Alan Greenspan.” We trusted him for 18 long years as Fed chairman. And he trusted big banks and their free-wheeling disaster capitalism, as Naomi Klein called it in “The Shock Doctrine.” Yes, Greenspan screwed up Main Street. Now it’s Yellen’s turn, and she’s doing it faster.
Remember Greenspan’s book, “The Age of Turbulence”? After the crash he even confessed to Congress and on “60 Minutes” he “really didn’t get” till “very late.” Stocks lost $ 10 trillion in market capitalization. But Greenspan pocketed more than $ 10 million from a cover-up book. To say nothing of his reported $ 250,000 speaking fee.
The brains of America’s leaders are driven by ideology, never facts
Was Greenspan clueless? No, no — he knew exactly what he was doing. For 18 painfully long years Greenspan was a loyal disciple of Ayn Rand and her free-market dogma, which also inspired Reagan’s trickle-down economics.
Greenspan wasn’t the only one who didn’t get it. You can’t trust political leaders on economic matters. Their brains are preprogrammed and incapable of self-examination. Treasury Secretary Hank Paulson not only failed to warn the public about the hard facts he knew back in 2006; he misled America, in a Fortune magazine interview, saying it was the “strongest economy in my lifetime.”
What Greenspan did get was that America’s bankers loved his “Atlas Shrugged” ideology of “pure, uncontrolled, unregulated laissez-faire capitalism.” Yes, it works for J.P. Morgan. But it doesn’t work for the American people. Greenspan’s ideology sabotaged the economy, ultimately costing investors, retirees and taxpayers over $ 10 trillion in the 2008 crash.
The new Greenspan
Today a new Fed boss is following in Greenspan’s ideological footsteps, following the same Ayn Rand playbook that lost $ 10 trillion of Main Street’s money, as she panders to the big five banks that control 90% of America’s deposits. They’re spending hundreds of millions on lobbyists and campaign donations to protect and expand their preferred version of capitalism.
With the recent budget bill, the too-big-to-fail banks were handed even more of what they’ve wanted: a further delay of the Volcker Rule, which could effectively kill it, and, worse, a rollback of Dodd-Frank provisions that protected taxpayers against abusive gambling in the shadowy global derivatives casino using Main Street depositors’ money.
Fed, banks and politicians: united in a misguided faith
It’s as if we’re back to 1999, when the banks got Congress to erase the Glass-Steagall Act, which for 80 years protected Main Street by separating retail banks and investment banking. Now the banks are back to their speculation and gambling, exposing the economy to great risk, just as they were before the 1929 crash.
As MarketWatch’s David Weidner put it, Yellen’s Fed looks to have forgotten that banks caused the Great Recession: that hellish era that was set off by the Bear Stearns, Lehman, Countrywide, AIG, Merrill, Freddie, Sallie and the other disasters. Now Yellen’s Fed and our too-big-to-fail banks and their mainly Republican co-conspirators have set another big trap. A huge trap.
As Stephen Roach, former chairman of Morgan Stanley Asia, wrote for Project Syndicate, Yellen’s Federal Reserve “is headed down a familiar — and highly dangerous — path.”
“Steeped in denial of its past mistakes, the Fed is pursuing the same incremental approach that helped set the stage for the financial crisis of 2008-2009. The consequences,” writes Roach, “could be similarly catastrophic.”
Next crash scheduled
The next crash is due in 2016, around the presidential election. Why? Yellen’s brain is trapped in the same myopic capitalist dogma that blinded Greenspan for 18 years, forcing him to confess he “really didn’t get it till very late,” long after the $ 10 trillion market loss was a reality. Same with Yellen.
It will happen again. Losses bigger than 2000 and 2008 combined. Think I’m kidding? Bet against this at your peril. Jeremy Grantham’s already on record predicting that “around the presidential election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse.” That could translate to the DJIA crashing — which on Friday posted the week’s (and history’s) second close above the 18,000 level — to around 10,000.
The Dow crashing all the way back down to 10,000? Wow. Unimaginable. No wonder our brains tune out. Instead, we prefer the happy talk that will just keep coming out of Wall Street and Washington till 2016. We’ll keep denying reality … till it’s too late, and another $ 10 trillion loss is in the books.