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Is the Financial Crash 2.0 Coming?

Market ideology has been on the rise since the 1980s. Only a few voices warned of the risks and instability of the liberalized financial markets. Politicians made great reform promises after dramatically underrating the extent of the crisis.The European states mobilized 4.5 trillion euros to prevent their banking systems from collapsing. After they profited from the generous bailout packages, the banks speculated against the most indebted countries.
IS THE FINANCIAL CRASH 2.0 COMING?


Ten Years after the Lehman Bankruptcy: For a Financial System in the Interest of Many


By Isabelle Bourboulon


[This reading sample of the 2018 Attac-Basis text is translated from the German on the Internet, vsa-verlag.de.]


A Guide for Political Action


Our society is in danger when one part becomes so influential it dominates all other parts and can force its will on them. It is in danger when powerful minorities can enforce their interests and their striving for dominance. Although our society is democratic according to its self-image, it must submit to the will of a very powerful force that ruthlessly pursues its interests. The globalized financial markets are this power. They do not know any limits any more, no geographic limits and no limits to their boundless profit-mongering. We describe them as a casino. Their core business is speculation, gambling with gigantic sums. They deal with risks and responsibility like a gambler.


Ten years after the 2008 crisis, the situation today is comfortable again for financial market actors. The timid reforms of the first years after the crash did not seriously limit their power. At that time, a new phase of deregulation was marked out in Europe and the US. So President Trump turns back regulatory measures introduced under his predecessor. Politicians have seemingly forgotten again the lessons from the crisis. The next crash can come at any time.


Many people are scandalized in view of this dangerous situation and the outrageous injustice. But they feel powerless to change the course of things. Most are convinced the banks are still managed with the same irresponsibility as in the past. Since the modern world of finance is mathematicized and non-transparent in a crafty way - like a secret language keeping the people from gaining insight in the connections. Its functioning and its problems elude democratic discussion. Still, the only political battlers that one loses are those that are not fought! Many persons seek possibilities for political action. They want to resist and contribute so the financial system serves society and not vice versa.


This book is for them. Written in the form of a popular guide accessible for every public, it could help us understand the causes of the 2008 crisis, why it broke out and spread over the whole world and how it influenced our living conditions and working conditions. What was done - or not done - to reform the international financial system and why the crisis is not really solved are analyzed in the second chapter. The consequences for the countries of the South are summarized. The current situation is described, the increasing inequality, the role of tax havens and the unchanging power of finance capital. Finally in the fourth and last part, proposals are made for the democratic control and regulation of financial markets for the priority of law before the power of money.


This book is published in several languages (French, English, German and Spanish). It also supports the political campaign Ten Years of Financial Crisis - organized by social movements and civil society in Europe. The high-point will be September 15, 2018, the tenth year anniversary of the Lehman Brothers bankruptcy.


Beyond the 2018 campaign, we hope this book will help organize a counter-veiling power against the world of finance capital - locally, on the national plane and internationally. The masters of money hold fast to their privileges and profits at the expense of society more than ever. Changing the power relations and hierarchy of power is crucial. Civil engagement and civil disobedience will be important instruments to create the new solidarity world we desire.


1. Ten Years Ago


What caused the crisis?


Market ideology has been on the advance since the 1980s. Measures to privatize and liberalize the financial sector and capital streams were carried out on national, European and international planes without creating crisis-prevention mechanisms. In the 2002, private households in the US were stopped from acquiring property. Property loans were deregulated by raising the indebtedness limit again and again for private households including lower income groups. American banks encouraged households to become indebted beyond their means, first at zero-interests and then at variable rates that followed the market interests. The goal was to compensate for the stagnation of real wages that continued for a long while. So the purchasing power of households and the economy could be kept going through private indebtedness. Driven by a surplus of credits, an enormous real estate bubble arose until the prices began falling and did not rise any more. In 2004, the Federal Reserve (FED), the US Central Bank, resolved to raise its interest rates to curb speculation. The storm began to brew.


In the spring and summer of 2007, the US real estate market turned. The noose tightened for many private households. They could no longer meet their payment obligations to the banks. Driven by the neoliberal practices of financialization, the banks packaged rotten and risky real estate credits in complex financial products, the so-called Collateral Debt obligations (CDOs). These products subdivided outstanding debts - from hardly risky to very risky - were described by insiders as toxic or radioactive. Nevertheless, they were sold to investors worldwide.


From June 2007, the crisis rapidly spread in industrial countries. On June 22, the Bear Stearns investment bank that held many of these rotten debts declared the bankruptcy of two of its hedge funds and the stock exchange crashed on July 26. On September 14, the British bank Northern Rock collapsed after a panic among its customers. It was nationalized by the British government on February 22, 2008 and since then has been a symbol of the financial crisis. To avoid a liquidity crisis in the bank system, the central banks of all large political economies lent hundreds of billions of dollars, euros, yen and pounds from today to tomorrow. In addition, the FED lowered its key interest from 5.25% to 0% from 2007 to 2008 to prevent the transfer of the crisis to the real economy. But this did not change much. Neither the insolvency of many institutes nor serious effects on the real economy could be prevented.


Gradually, J.P. Morgan Chase took over Bear Stearns, two giant real estate banks, Fannie Mae and Freddie Mac, were nationalized and the largest insurance, the American International Group (AIG), declared bankruptcy. AIG had sold complex derivatives, so-called credit default swaps (CDS) that actually were intended as securities against non-servicing real estate credits including sub-prime loans. The collapse of Lehman Brothers on September 15, 2008 triggered the classic chain reaction, as known from all great financial crises. The global banking system was shaken in its foundations. Panic ruled in the massive financial centers and monetary transactions grinded to a half, particularly inter-bank transactions (banks constantly lent enormous sums in normal times). This led to a credit crunch. The world was confronted with the most severe financial crisis since Black Friday 1928.


Who Predicted the Crisis?


Aside from civil society organizations like Attac and several heterodox economists, only a few voices warned of the risks and instability of the liberalized financial markets. In the months before the Great Crisis, the forecasts of the mammoth multilateral institutions and the central banks were optimistic and rating agencies gave banks a Triple A, the best possible rating, just before they went bust. The European Central Bank under the leadership of Jean-Claude Trichet had no presentiment of any crisis and resolved raising interests in the summer of 2008 out of fear of inflation. A few weeks before the collapse of Lehman Brothers, Alan Greenspan, chairman of the FED up to 2006, was convinced the balance sheets of the bank were solid. "For forty years, everything functioned perfectly."


After examining the Anglo Irish Bank, Olivier Wyman, one of the most prominent financial strategists and the CEO of a worldwide business consulting firm, said: "This is the best bank in the world." Four years later, it went bankrupt and caused a 30% collapse of the Irish GDP. After the G8 summit of 2007, the CEO of the Deutsche Bank, Josef Ackermann, reacted to the criticism of Attac Germany on the risks of debt risks and new products: "They increase the risk security of the total system and the stability of the financial markets. Therefore, they are not a danger." Jim O'Neill, the star-analyst of Goldman Sachs, predicted a grandiose comeback of the United States from 2011. He said, the stock market would climb 20% and unemployment would fall to the pre-crisis level. We could laugh at these high-paid analysts and financial prophets if the crash did not have such catastrophic social consequences - impoverishment, unemployment and economic stagnation.


Before the crisis, some responsible politicians in the EU did not know the name sub-prime. In France, the rightwing candidate in the presidential election, Nicolas Sarkozy, recommended organizing the mortgage system according to the American example that shortly after ruined millions of American households. On September 25, 2008, ten days after the Lehman Brothers bankruptcy, the German financial minister Peer Steinbruck said: "The financial crisis is an American problem."


How Did Politics React?


Politicians made great reform promises after the dramatically underestimating the extent of the crisis: What happened would not happen again! France held the presidency of the European Union in these terrible weeks when the world economy stood under shock of one bank collapse after another. Nicolas Sarkozy took the bull by the horns and proposed a meeting of the most important European politicians in Paris to find a political answer to the tsunami. "We must make an intelligent capitalism out of capitalism without faith and law," he declared.


At the Paris Summit on October 4, 2008, Nicolas Sarkozy, Angela Merkel, Gordon Brown and Silvio Berlusconi promised a bailout for the European banks and urged an international summit for reforming the global financial system. On October 10 and 12, the G7 countries, the euro-zone, resolved a comprehensive plan to bailout the global financial system. In the United States, the Paulsen Plan earmarked the creation of a public fund of at least $700 billion giving the state the possibility of buying back bad debts to stabilize the financial markets. In France, the government passed a national plan to make available 10.5 billion euros to France's six largest private banks. In a countermove, the banks should award credits to small and medium-size businesses and private households to mitigate the effects of the crisis on the total economy. The banks did not hold to the conditions. In Germany, the financial ministers told the press: "The Federal Government guarantees the savings of Germans." This aimed at averting the risk of a panic among the depositors and a run on the banks. Berlin also drew up a bailout plan. Finally, a G20 summit took place in Washington on November 15, 2008. The group of 20 was founded after the 1999 Asian crisis as a dialogue forum of financial ministers, central banks and supervisory authorities of industrial- and threshold countries. The expert group Financial Stability Board commissioned by the G20 made a merciless diagnosis: the big banks are the most dangerous actors for the stability of the international financial system. They were described as "system relevant." In addition, non-transparent businesses, above all over-the-counter bilateral trade and margins, had to be guaranteed.


However, the politicians of the EU were satisfied with speeches while holding back with substantial reforms. In April 2009, Sarkozy warned banks of business with tax havens. He urged banks "to lead the way with a good example" by reducing their activities in 42 tax havens that were on the black list of the OECD. If necessary, "they could apply sanctions." Several months later, the French president praised a little hastily: "Tax havens and bank secrecy do not exist any more." In September 2009, Sarkozy and Merkel demanded again the regulation of the financial system. The EU needed several years to gradually bring about several financial reforms, different from the United States that passed the extensive Dodd-Frank bill for a stronger financial regulation.


The Consequences for the Economy and the Population


European states mobilized 4.5 trillion (4,500 billion) euros to prevent their banking system from collapsing like a house of cards. But these exorbitant costs are only the direct costs of the financial crisis. In addition, there are the higher indirect costs through recession and increased unemployment engendered by the crisis. Like a toxic virus, the crisis of private finances expanded to public finances and the real economy. The loss in financial assets was estimated at 31% of the GDP for the United States and 23% for the euro-zone. Most developed countries experienced a permanent decline in their economic activities in the Great Recession. In the 2nd and 3rd quarter of 2008, production in the euro-zone declined 0.4%. The victims of the crisis in Spain, Ireland and Greece, countless unemployed, were added to the millions of American households. The population everywhere lost purchasing power.


How Crisis Management Aggravated the Crisis


From 2010, the euro-zone nearly imploded on account of the higher public debts in most member countries. The sudden debt explosion can be referred back to the recession caused by the financial crisis, the nationalization of private debts, and the bailout of the banks responsible for the crisis.


A real vicious circle destabilized both the public budgets and the financial system. Public debts suddenly increased which triggered a wave of mistrust and speculation toward the public budgets, the euro and those banks that were the main creditors of the governments.


After they profited from the generous bailout packages, the banks began to speculate against the most indebted countries. American hedge funds, in particular, speculated against the euro.


Far from protecting the countries of the euro-zone from the crisis, the euro intensifies the crisis by deepening the imbalances between the rich countries of the North and the less developed countries of the South, the PIGS states (Portugal, Ireland, Greece and Spain). Greece and Ireland are the countries affected most intensely. From 2007 to 2010, the public debt burden in Greece rose from 105% to 140% of the GDP and from 25% to 97% in Ireland. These two countries received financial "assistance" from the European Union and the International Monetary Fund (IMF) estimated at 206.5 billion euros for Europe and 85 billion euros for Ireland. This assistance was combined with drastic structural adjustment conditions to prevent further speculation against the euro and mounting debts. A brutal austerity policy with immense social costs goes along with the explosion of poverty and unemployment. The share of unemployment rose to 13% in Ireland and to 25% in Greece. Nearly all the money that these two countries received - 77% for Ireland and 100% for Greece - was used to pay the creditors and to bailout the banks, mostly in foreign countries like Germany and France. The assistance had to be paid predominantly by the population stricken by the crisis. The taxpayers and the population of the impacted countries paid the highest price including many young persons who did not find any work in their countries and emigrated.


Germany, the Netherlands and Austria successfully enforced structural adjustment under the label Stability Pact. In November 2011, the chairperson of the CDU-fraction in the Bundestag, Volker Kauder, proclaimed full of price: "German is spoken again in Europe." Francois Hollande who declared the financial markets "his enemies" during his election campaign quickly bowed to Berlin. The protests of the population at the ballot box are ignored. The reactions in the countries affected by the crisis were immediate. Caricatures of Merkel in a Nazi-uniform appeared in Greek newspapers. The crisis promptly spread to politics. It deepened economic imbalances within the US and mobilized chauvinism and nationalism on all sides.


How "their" crisis became "our" crisis


Thus, the costs of the financial crash were much greater than the sums expended in bailing out the banks. The banking crisis became our crisis striking us intensely: state debt crisis, austerity policy, wage freeze, falling purchasing power and investments, massive terminations, rising unemployment particularly among youths, deteriorating working conditions, cuts in the social net etc. The governments resolved "structural reforms" that neoliberals always advocate while the banks responsible for the crisis evade far-reaching reforms. Unemployment reached historical all-time records. Employees, pensioners and receivers of social transfers paid the bill. The official unemployment rate in the European Union jumped from 7.3% before the crisis to 11.1% in 2012. The unemployment rate for young persons under 25 was twice as high on average in the euro-zone and reached almost 50% in 2012 in Spain, Greece, and Portugal. Part-time work, precarious jobs and limited work contracts expanded. The crisis intensified the polarization between nonsense or "bullshit" jobs and well-paid jobs.


The crisis was also the opportunity for applying a shock strategy leading to growing inequality between the social groups and between the member countries. The public austerity measures that restricted access to public services in the public health system for example were an important element. Many reforms aimed at worsening living conditions of today's and future pensioners. In the United States, 10,000 families were expelled daily from their homes in the months after the Lehman bankruptcy. How many lives were destroyed? How many businesses closed and why?

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The economy for the few must be overcome 02.Sep.2018 05:24

marc

The US faces a nationwide power failure, the bitter fruit of the Twitterer's lies, vulgarities and scapegoating.
Narcissism, illiteracy and apolitical indifference are homemade curses. The social state is the human future and should not be slandered as "Bolshevism."
The economy for the few is an economy based on myths, fairy-tales and lies. Owners of capital should not be the only ones with enforceable rights. Building 2440 F-35 fighter jets for $291 billion is a blindness in a world where weapons don't work, enemies don't exist and money is regularly squandered.

Base Erosion and Profit Shifting (BEPS)
by Olesya Kazantseva, 2015

 https://www.indybay.org/newsitems/2017/12/06/18805126.php
Closing tax havens, ending tax competition, and prohibiting profit-shifting are necessary for a fair tax system. The richest 1% in Pennsylvania could receive another $3 billion from Trump's tax scam! Democracy is different than plutocracy. Problems do not disappear when they are ignored or repressed as fake populists and lies must be overcome with truth-tellers and sharing wealth.

Only radical change can avert egoism replacing solidarity. The state should serve the public interest and yet private or special interests are often in the driver's seat.

Utopia and the exhaustion of the center
September 1, 2018 real world economic review
from David Ruccio

We're ten years on from the events the triggered the worst crisis of capitalism since the first Great Depression (although read my caveat here) and centrists—on both sides of the Atlantic—continue to peddle an ahistorical nostalgia.

Fortunately, people aren't buying it.

As Jack Shenker has explained in the case of Britain,

one of the most darkly humorous features of contemporary British politics (a competitive field) is the ubiquity of parliamentarians, pundits and business titans who wail and gnash at our ceaseless political tumult but appear utterly incurious about the conditions that produced it. . .

Such stalwart defenders of a certain brand of "common sense" capitalism have watched in horror as ill-mannered upstarts — on both the right and the left — build power at the fringes. But these freshly emboldened centrists pretend that the rupture has no connection to their own dogma and seem to envision the whole sorry mess as some sort of administrative error that will be swiftly tidied away once the right person, with the right branding, is restored to authority.

Much the same is true in the United States, where centrists in the Democratic Party watch in horror as the Republican Party falls in lockstep with Donald Trump and the only energy within their own party comes from the Left. All the while, they ignore their own role in creating the conditions for the crash and the fact that their technocratic promises to American young people—university or community-college education leading to a stable and prosperous worklife, the dream of a thriving middle-class democracy, the claim for capitalism's economic and ethical superiority—lie in tatters.

As it turns out, Jürgen Habermas sounded the warning of just this eventuality back in the mid-1980s.* His argument, in a nutshell, is that western cultures had used up their utopian energies—and for good reason, because

the very forces for increasing power, from which modernity once derived its self-confidence and its utopian expectation, in actuality turn autonomy into dependence, emancipation into oppression, and reality into the irrational.

more at www.freembtranslations.net, www.openculture.com, www.grin.com and www.therealnews.com

The Economy as a Game of Monopoly 02.Sep.2018 23:16

by Jill Richardson

August 31, 2018

As a sociology professor in community college, I have my students play Monopoly. Only, I give them a special, rigged version.

There are five players. The wealthiest begins with $5,500, all of the railroads, and the two most valuable properties (Boardwalk and Park Place). The least wealthy begins with about $200 and no property. The remaining three are in between.

Each time the players pass Go, the wealthiest player gets $500. The poorest gets $30.

It doesn't take long before the poorest two players run out of money entirely. It's an unfair, boring game.

This is the game all Americans are playing.

The wealthiest player's starting assets are proportional to the wealthiest 20 percent of Americans. The poorest player's starting assets are proportional to the poorest fifth of the U.S. population. The remaining three are proportional to the remaining three fifths of the country.

Likewise, the money they receive as they pass Go is linked to the income of each fifth of the U.S. population.

For the richest players in the game, it's probably the best Monopoly game of their lives. For the rest, especially the two poorest, it's a nightmare.
I'm sick of playing this game in real life.

Where I live, in California, about one fifth of the population lives in poverty, and another fifth lives just above the poverty line. And the official poverty line doesn't even consider the cost of living.

Since I moved here, nearly 12 years ago, the cost of rent has doubled. Areas that used to be affordable no longer are. You could once find a way to make it work by living far from the beach in an un-trendy neighborhood or suburb. Now you can't.

Some speculate that Airbnb is driving up rental costs, and everyone speaks of an "affordable housing crisis." But nobody's doing anything about it.

For the wealthy, life here is great. We've got beaches, mountains, desert, and year-round good weather. For the people who serve them their food, clean their homes, or landscape their lawns, the cost of rent alone is strangling.

In the U.S. overall, wages haven't kept up with either inflation or productivity over the years. Since 1973, productivity has increased by 77 percent while wages increased by only 12.4 percent. Taking inflation into consideration, wages have remained stagnant since the 1960s, while most of the gains go to the wealthiest.

Average pay keeps up with cost of living better in some parts of the U.S. than others. California isn't even the worst.

I watch my students try to complete a college education while struggling to make ends meet.

The middle class vision of parents paying for their children's college education and their living expenses isn't a reality for many students. For some families it's the opposite — the child works to put him or herself through school while contributing to the family budget.

Attending school and working at the same time is difficult, and sometimes impossible. Some students attempt it while raising children or caring for sick or elderly family members. In the end, most community college students never get a four-year degree.

We need to make our country fairer than my rigged Monopoly game. In a game, it's just a bummer when the poorest players go broke first. In life, the costs are in human misery.


Tenth Anniversary Of Financial Collapse, Preparing For The Next Crash 04.Sep.2018 22:03

by Kevin Zeese and Margaret Flowers

September 3rd, 2018

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Jail Bankers Not Protesters, Occupy Wall Street, 2011 (Photo by Stan Honda for AFP-Getty Images)
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Ten years ago, there was panic in Washington, DC, New York City and financial centers around the world as the United States was in the midst of an economic collapse. The crash became the focus of the presidential campaign between Barack Obama and John McCain and was followed by protests that created a popular movement, which continues to this day.

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Banks: Bailed Out; The People: Sold Out
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On the campaign trail, in March 2008, Obama blamed mismanagement of the economy on both Democrats and Republicans for rewarding financial manipulation rather than economic productivity. He called for funds to protect homeowners from foreclosure and to stabilize local governments and urged a 21st Century regulation of the financial system. John McCain opposed federal intervention, saying the country should not bail out banks or homeowners who knowingly took financial risks.

By September 2008, McCain and Obama met with President George W. Bush and together they called for a $700 billion bailout of the banks, not the people. Obama and McCain issued a joint statement that called the bank bailout plan "flawed," but said, "the effort to protect the American economy must not fail." Obama expressed "outrage" at the "crisis," which was "a direct result of the greed and irresponsibility that has dominated Washington and Wall Street for years."

By October 2008, the Troubled Asset Relief Program (TARP), or bank bailout, had recapitalized the banks, the Treasury had stabilized money market mutual funds and the FDIC had guaranteed the bank debts. The Federal Reserve began flowing money to banks, which would ultimately total almost twice the $16 trillion claimed in a federal audit. Researchers at the University of Missouri found that the Federal Reserve gave over $29 trillion to the banks.

This did not stop the loss of nine million jobs, more than four million foreclosures and the deep reduction in wealth among the poor, working and middle classes. A complete banking collapse was averted, but a deep recession for most people was not.

The New Yorker described the 2008 crash as years in the making, writing:

... the crisis took years to emerge. It was caused by reckless lending practices, Wall Street greed, outright fraud, lax government oversight in the George W. Bush years, and deregulation of the financial sector in the Bill Clinton years. The deepest source, going back decades, was rising inequality. In good times and bad, no matter which party held power, the squeezed middle class sank ever further into debt.

Before his inauguration, Obama proposed an economic stimulus plan, but, as Paul Krugman wrote:

Obama's prescription doesn't live up to his diagnosis. The economic plan he's offering isn't as strong as his language about the economic threat.

In the end, the stimulus was even smaller than what Obama proposed. Economist Dean Baker explained that it may have created 2 million jobs, but we needed 12 million. It was $300 billion in 2009, about the same in 2010, and the remaining $100 billion followed over several years — too small to offset the $1.4 trillion in annual lost spending.

New York Magazine reports the stimulus was "a spending stimulus bigger, by some measures than the entire New Deal." But unlike the New Deal, which benefited people at the bottom and built a foundation for a long-term economy, the bi-partisan post-2008 stimulus bailed out Wall Street and left Main Street behind.

Wall Street executives were not prosecuted even though the financial crisis was in large part caused by their fraud. Bankers were given fines costing dimes on the dollar without being required to admit guilt or having their cases referred for prosecution. The fines were paid by shareholders, not the perpetrators.

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Protest near Union Square in New York, April, 2010. Popular Resistance.
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Still at Risk

Many of the root causes of the crisis remain today, making another economic downturn or collapse possible. The New Yorker reports that little has changed since 2008, with Wall Street banks returning to risky behavior and the inadequate regulation of Dodd-Frank being weakened. Big finance is more concentrated and dominant than it was before the crash. Inequality and debt have expanded, and despite the capital class getting wealthier in a record stock market with corporate profits soaring, real wages are stuck at pre-crisis levels.

People are economically insecure in the US and live with growing despair, as measured by reports on well-being. The Federal Reserve reported in 2017 that "two in five Americans don't have enough savings to cover a $400 emergency expense." Further, "more than one in five said they weren't able to pay the current month's bills in full, and more than one in four said they skipped necessary medical care last year because they couldn't afford it."

Positive Money writes:

Ten years on, big banks are still behaving in reckless, unfair and neglectful ways. The structural problems with our money and banking system still haven't been fixed. And many experts fear that if we don't change things soon, we're going to sleepwalk into another crash.

William Cohen, a former mergers and acquisitions banker on Wall Street, writes that the fundamentals of US economy are still flawed. The Economist describes the current situation: "The patient is in remission, not cured."

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From Occupy Washington DC at Freedom Plaza
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The Response Of the Popular Movement

Larry Eliott wrote in the Guardian: "Capitalism's near-death experience with the banking crisis was a golden opportunity for progressives." But the movement in the United States was not yet in a position to take advantage of it.

There were immediate protests. Democratic Party-aligned groups such as USAction, True Majority and others organized nationwide actions. Over 1,000 people demonstrated on Wall Street and phones in Congress were ringing wildly. While there was opposition to the bailout, there was a lack of national consensus over what to do.

Protests continued to grow. In late 2009, a "Move Your Money" campaign was started that urged people to take their money out of the big banks and put it in community banks and credit unions. The most visible anti-establishment rage in response to the bailout arose later in the Tea Party and Occupy movements. Both groups shared a consensus that we live in a rigged economy created by a corrupt political establishment. It was evident that the US is an oligarchy, which serves the interests of the wealthy while ignoring the necessities of the people.

The anti-establishment consensus continues to grow and showed itself in the 2016 presidential campaigns of Senator Bernie Sanders and Donald Trump. They were two sides of the same coin of populist anger that defeated Jeb Bush and Hillary Clinton. Across the political spectrum, there is a political crisis with both mainstream, Wall Street-funded political parties being unpopular but staying in power due to a calcified political system that protects the duopoly of Democrats and Republicans.

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Occupy Wall Street 2011
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Preparing for the Next Collapse

When the next financial crisis arrives, the movement is in a much stronger position to take advantage of the opportunity for significant changes that benefit people over Wall Street. The Occupy movement and other efforts since then have changed the national dialogue so that more people are aware of wealth inequality, the corruption of big banks and the failure of the political elites to represent the people's interests.

There is also greater awareness of alternatives to the current economy. The Public Banking movement has grown significantly since 2008. Banks that need to be bailed out could be transformed into public banks that serve the people and are democratically controlled. And there are multiple platforms, including our People's Agenda, that outline alternative solutions.

We also know the government can afford almost $30 trillion to bail out the banks. One sixth of this could provide a $12,000 annual basic income, which would cost $3.8 trillion annually, doubling Social Security payments to $22,000 annually, which would cost $662 billion, a $10,000 bonus for all US public school teachers, which would cost $11 billion, free college for all high school graduates, which would cost $318 billion, and universal preschool, which would cost $38 billion. National improved Medicare for all would actually save the nation trillions of dollars over a decade. We can afford to provide for the necessities of the people.

We can look to Iceland for an example of how to handle the next crisis. In 2008, they jailed the bankers, let the banks fail without taking on their debt and put controls in place to protect the economy. They recovered more quickly than other countries and with less pain.

How did they do it? In part, through protest. They held sustained and noisy protests, banging pots and pans outside their parliament building for five months. The number of people participating in the protests grew over time. They created democratized platforms for gathering public input and sharing information widely. And they created new political parties, the Pirate Party and the Best Party, which offered agendas informed by that popular input.

So, when the next crash comes. Let's put forward a People's Agenda. Let's be like Iceland and mobilize for policies that put people first. Collectively, we have the power to overcome the political elites and their donor class.


maybe 07.Sep.2018 10:19

.

im still waiting for peak oil

RE: peak oil, it was averted by Cheney & Co. emissions laws for fracking 08.Sep.2018 01:35

on

United States properties in 2005.

although technology for economically effective horizontally-drilled fracking (e.g. slickwater fracking) had been developed by the late 1990s, it was only with the relaxing of emissions laws and exempting fluids for hydraulic fracturing exploration installations and equipment which permitted the widespread, profitable usage of the technology across oilfields and other public and private properties in the U.S. to extract petroleum and natural gas from shale and other relatively hard, low permeability shallow geologic deposits.

Hence the current 'boom' in domestic U.S. oil and gas production.


The Secret of the Great American Fracking Bubble 11.Sep.2018 02:19

By Justin Mikulka

• Wednesday, April 18, 2018 - 10:28

In 2008, Aubrey McClendon was the highest paid Fortune 500 CEO in America, a title he earned taking home $112 million for running Chesapeake Energy. Later dubbed "The Shale King," he was at the forefront of the oil and gas industry's next boom, made possible by advances in fracking, which broke open fossil fuels from shale formations around the U.S.

What was McClendon's secret? Instead of running a company that aimed to sell oil and gas, he was essentially flipping real estate: acquiring leases to drill on land and then reselling them for five to 10 times more, something McClendon explained was a lot more profitable than "trying to produce gas." But his story may serve as a cautionary tale for an industry that keeps making big promises on borrowed dimes — while its investors begin losing patience, a trend DeSmog will be investigating in an in-depth series over the coming weeks.

From 2008 to 2009, Chesapeake Energy's stock swung from $64 a share under McClendon to around $17. Today, it's worth just $3 a share — the same price it was in 2000. A visionary when it came to fracking, McClendon perfected the formula of borrowing money to drive the revolution that reshaped American energy markets.

An Industry Built on Debt

Roughly a decade after McClendon's rise, the Wall Street Journal reported that "energy companies [since 2007] have spent $280 billion more than they generated from operations on shale investments, according to advisory firm Evercore ISI."

As a whole, the American fracking experiment has been a financial disaster for many of its investors, who have been plagued by the industry's heavy borrowing, low returns, and bankruptcies, and the path to becoming profitable is lined with significant potential hurdles. Up to this point, the industry has been drilling the "sweet spots" in the country's major shale formations, reaching the easiest and most valuable oil first.

But at the same time energy companies are borrowing more money to drill more wells, the sweet spots are drying up, creating a Catch-22 as more drilling drives more debt.

"You have to keep drilling," David Hughes, a geoscientist and fellow specializing in shale gas and oil production at the Post Carbon Institute, told DeSmog. But he also noted that with most of the sweet spots already drilled, producers are forced to move to less productive areas.

The result? "Productivity goes down and the costs remain the same," he explained.

While Hughes understands the industry's rationale for continuing to drill new wells at a loss, he doubts the sustainability of the practice.

"I don't think in the long-term they can drill their way out of this," Hughes told DeSmog.

While politicians and the mainstream media tout an American energy "revolution," it is becoming clear that — like the housing bubble just a few years earlier — the American oil and gas boom spurred by fracking innovations may be one of the largest money-losing endeavors in the nation's history. And it caught up with McClendon.

In 2016, the shale king was indicted for rigging bids at drilling lease auctions. He died the very next day in a single car crash, leading to speculation McClendon committed suicide, a rumor impossible to confirm. However, the police chief on the scene noted: "There was plenty of opportunity for him to correct and get back on the roadway and that didn't occur."

The same could be said of the current shale industry. There is plenty of opportunity for these energy companies to correct their path — for example, by linking CEO pay to company profits rather than oil production volumes — but instead they are plowing full-speed ahead with a business model that seems poised for a crash.
But Hope Springs Eternal

Of course, business media and conservative think tanks are still selling the story that the fracking industry has produced an economic and technical revolution.

In 2017 Investors Business Daily ran an opinion piece with the title, "The Shale Revolution Is A Made-In-America Success Story." It was authored by Mark Perry of the American Enterprise Institute — a free market-focused think tank funded in part by the oil and gas industry.

How does the author measure success? Not via profits. The metric Perry uses to argue the success of the fracking industry is production volume. And it is true that the volumes of oil produced by fracking shale are increasing and currently at record levels. But here is the catch — when you lose money on each barrel of oil you pump and sell — the more you pump, the more money you lose. While it is true that the industry has been successful at getting oil out of the ground, its companies have mostly lost money doing it.

However, much like with the U.S. housing boom, this false narrative persists that the fracking industry is a money-making, rather than money-losing, venture.

A Wall Street Journal headline published in early 2018 projected this eternal optimism about the fracking industry: "Frackers Could Make More Money Than Ever in 2018, If They Don't Blow It."

This headline manages to be, at the same time, both very misleading and true. Misleading because the industry has never made money. True because if oil and gas companies make any money fracking in 2018, it would be more "than ever."

However, the nuance comes in the sub-headline: "U.S. shale companies are poised to make real money this year for the first time since the start of the fracking boom."

Poised to make "real money" for "the first time." Or to put it another way, the industry hopes to stop losing large amounts of real money for the first time this year.

In March 2017, The Economist wrote about the finances of the fracking industry, pointing out just how much money these businesses are burning through:

With the exception of airlines, Chinese state enterprises, and Silicon Valley unicorns — private firms valued at more than $1 billion — shale firms are on an unparalleled money-losing streak. About $11 billion was torched in the latest quarter, as capital expenditures exceeded cashflows. The cash-burn rate may well rise again this year.

Some historic money-losing has been going on, and is expected to continue, as reported by the Wall Street Journal: "Wood Mackenzie estimates that if oil prices hover around $50, shale companies won't generate positive cash flow as a group until 2020." However, Craig McMahon, senior vice president at Wood MacKenzie, notes, "Even then, only the most efficient operators will do well."

U.S. oil produced via fracking is priced as West Texas Intermediate (WTI), which averaged $41 a barrel in 2016 and $51 in 2017. The consensus is that WTI should average over $50 a barrel in 2018, thus providing the industry another reason to keep pushing forward. However, even in 2017 with the average over $50 a barrel, the industry as a whole was not profitable.

Irrational Exuberance

In the introduction to The Big Short, Michael Lewis' book-turned-movie about how the 2008 financial crash unfolded, he describes the finances of the housing bubble:

"All these subprime lending companies were growing so rapidly, and using such goofy accounting, that they could mask the fact that they had no real earnings, just illusory, accounting-driven, ones. They had the essential feature of a Ponzi scheme: To maintain the fiction that they were profitable enterprises, they needed more and more capital to create more and more subprime loans."

If you substitute "shale oil and gas development companies" for "subprime lending companies," it becomes an apt description of the current shale industry. These companies are losing more money than they make and can only sustain this scenario if lenders continue to bankroll their efforts, allowing the fracking industry to drill more wells as it points to production increases, rather than profits, as progress. Which — for now — Wall Street continues to do in a big way.

This article is the first in a series investigating the economics of fracking and where the vast sums of money being pumped into this industry are actually going. The series will look at how fracking companies are shifting these epic losses to the American taxpayers. It will review the huge challenges facing the industry even if oil and gas prices rise: the physical production limits of fracked wells, rising interest rates, rising water costs, competition from renewables, OPEC's plans, and what happens if Wall Street stops loaning it money.

The oil industry has always been a boom or bust industry. And during each boom someone inevitably declares that "this time is different," assuring everyone there won't be a bust. The sentiment about the early 2000s housing bubble was much the same, with critics being drowned out by the players claiming that, this time it was different, arguing "Housing doesn't go down in value."

And what about for shale production? Is this time really different? Some in the industry apparently think so.

"Is this time going to be different? I think yes, a little bit," energy asset manager Will Riley told the Wall Street Journal. "Companies will look to increase growth a little, but at a more moderate pace." There is little evidence of restraint or moderation in the industry. Until analysts and investors start talking about profits instead of growth, however, this time is likely to end, at some point, in a completely familiar and predictable way: bust. A fate even Aubrey McClendon, the highest-paid CEO, the shale king, eventually met.

David Hughes summed up his take on the industry's financial outlook: "Ultimately, you hit the wall. It's just a question of time."


The Next Financial Crisis Lurks Underground 11.Sep.2018 02:26

By Bethany McLean

Fueled by debt and years of easy credit, America's energy boom is on shaky footing.

Ms. McLean, a contributing editor at Vanity Fair whose book about Enron was turned into an Oscar-nominated documentary, is the author of "Saudi America: The Truth About Fracking and How It's Changing the World," from which this essay is adapted.

Sept. 1, 2018

About 20 years ago, an entrepreneur named George Mitchell proved that it was possible to get lots of oil and gas out of parts of the earth long thought to be sucked dry, by injecting liquid at high pressure into a horizontal well below the surface. About 10 years ago, fracking — the common term for this process — began in earnest.

In that short amount of time, fracking in America has turned the energy world upside down. A decade and a half ago, Congress was hand-wringing about impending shortages of oil and natural gas. By the end of 2015, President Barack Obama lifted the ban against oil exports. Today, America is the world's largest producer of natural gas and is an oil powerhouse, ready to eclipse both Saudi Arabia and Russia.

This has led to muscular claims about American energy wealth. Erik Norland, executive director of CME Group, a derivatives marketplace, calls fracking "one of the top five things reshaping geopolitics."

This radical change has resulted in widespread concern about the impact of fracking on the environment, about earthquakes and water contamination. But another, less well-known controversy may prove to be more important.

Some of fracking's biggest skeptics are on Wall Street. They argue that the industry's financial foundation is unstable: Frackers haven't proven that they can make money. "The industry has a very bad history of money going into it and never coming out," says the hedge fund manager Jim Chanos, who founded one of the world's largest short-selling hedge funds. The 60 biggest exploration and production firms are not generating enough cash from their operations to cover their operating and capital expenses. In aggregate, from mid-2012 to mid-2017, they had negative free cash flow of $9 billion per quarter.

These companies have survived because, despite the skeptics, plenty of people on Wall Street are willing to keep feeding them capital and taking their fees. From 2001 to 2012, Chesapeake Energy, a pioneering fracking firm, sold $16.4 billion of stock and $15.5 billion of debt, and paid Wall Street more than $1.1 billion in fees, according to Thomson Reuters Deals Intelligence. That's what was public. In less obvious ways, Chesapeake raised at least another $30 billion by selling assets and doing Enron-esque deals in which the company got what were, in effect, loans repaid with future sales of natural gas.

But Chesapeake bled cash. From 2002 to the end of 2012, Chesapeake never managed to report positive free cash flow, before asset sales.

In early 2015, another famous hedge fund manager, David Einhorn, went public with his skepticism at an investment conference. He had looked at the financial statements of 16 publicly traded exploration and production companies and found that from 2006 to 2014, they had spent $80 billion more than they received from selling oil.

A key reason for the terrible financial results is that fracked oil wells show a steep decline rate: The amount of oil they produce in the second year is drastically smaller than the amount produced in the first year. According to an economist at the Kansas City Federal Reserve, production in the average well in the Bakken — a key area for fracking shale in North Dakota — declines 69 percent in its first year and more than 85 percent in its first three years. A conventional well might decline by 10 percent a year. For fracking operations to keep growing, they need huge investments each year to offset the decline from the previous years' wells.

Because the industry has such a voracious need for capital, and capital costs money, fracking could not have taken off so dramatically were it not for record low interest rates after the 2008 financial crisis. In other words, the Federal Reserve is responsible for the fracking boom.

Amir Azar, a fellow at the Columbia University Center on Global Energy Policy, calculated that the industry's net debt in 2015 was $200 billion, a 300 percent increase from 2005. But interest expense increased at half the rate debt did because interest rates kept falling. Dr. Azar recently called the post-2008 era of super-low interest rates the "real catalyst of the shale revolution."

Fracking is such a fragile industry that it is not hard to make it go bust. Saudi Arabia almost succeeded in doing so in 2014, when oil ministers from OPEC decided that they would not cut production in order to prop up falling oil prices. This was seen as an attempt by the Saudis to kill off shale, by cutting prices below the point where American frackers could afford to produce a barrel. By mid-2016, American oil production had declined by nearly a million barrels a day and some 150 oil and gas companies filed for bankruptcy.

The death of Aubrey McClendon, the former chief executive of Chesapeake, in the spring of 2016 seemed to mark the end of the industry. On March 2, Mr. McClendon died instantly when his car slammed into a concrete bridge on Midwest Boulevard in Oklahoma City. He was speeding, wasn't wearing a seatbelt and didn't appear to make any effort to avoid the collision. A day earlier, a federal grand jury had indicted McClendon for violating antitrust laws. (His death was ruled an accident, and prosecutors have since withdrawn the charges, which he denied.)

Mr. McClendon was once listed at No. 134 on the Forbes list of 400 richest Americans, with an estimated net worth of over $3 billion. But because he borrowed so much money and secured business loans with personal guarantees, lawyers were wrangling over claims against his estate two years after his death, including the $465 million loan made by multiple Wall Street firms. Vulture funds descended, buying the debt for less than 50 cents on the dollar, one person who was involved told me.

It wasn't the end, though. Fracking has been more resilient than anyone, including its proponents, would have dreamed. In its most recent forecast, the Energy Information Administration predicted that United States crude oil production would average almost 10.6 million barrels a day in 2018 and reach 12.1 million barrels a day by 2023.

A big reason for fracking's resurgence is an area of West Texas and Southeast New Mexico known as the Permian Basin. It wasn't a secret that there was oil in the Permian, which had its first boom almost a century ago. But oil men thought it was mostly tapped out — until entrepreneurs began to frack there around 2010. Scott Sheffield, the former chief executive of Pioneer Natural Resources, has said that the Permian could hold 75 billion barrels of oil, second only to the Ghawar field in Saudi Arabia.

Believers say that technology will dramatically reduce costs of fracking wells, reshaping the financial firmament so that companies can make money, even with low oil prices. According to a 2016 paper by the board of governors of the Federal Reserve, not only are rigs in the Bakken region drilling more wells, but each well is producing more. Extraction from new wells in the area in their first month of production has roughly tripled since 2008. The break-even cost, the estimate of what it costs to get a barrel of oil out of the ground, has plunged.

The best-run companies, which often focus on the Permian, are now making some money. "Their rates of return are still below levels that will sustain the industry in the long run," says Brian Horey, who runs Aurelian Management, but "they are trending in the right direction."

And yet only five of the top 20 fracking companies managed to generate more cash than they spent in the first quarter of 2018. If companies were forced to live within the cash flow they produce, American oil would not be a factor in the rest of the world, an investor told me.

It wasn't just the rediscovery of the Permian that helped restart the oil boom after plunging prices almost killed it. The most important factor is the one that started the boom in the first place. "It came back because Wall Street was there," Mr. Chanos told me. In 2017, American frackers raised $60 billion in debt, up almost 30 percent since 2016, according to Dealogic.

Interest rates have remained low, helping debt-laden companies afford their borrowing costs. And pension funds, which need high yields to make payouts to retirees, have turned to hedge funds that invest in high-yield debt, like that of energy firms. They are also investing with private equity firms which, in turn, have shoveled money into shale companies.

Private equity funds dedicated to natural resources raised nearly $70 billion of capital in 2015, according to SailingStone Capital Partners, an energy-focused investment firm, and over $100 billion in 2016. Today, 35 percent of all horizontal drilling (the industry's preferred terminology) is done by privately backed companies.

Private equity titans have made fortunes, but not necessarily because the companies they fund have produced profits. Private equity firms have generated some of their returns by selling one company to another, or taking a company they've funded public.

For a long time, the public markets have been valuing fracking companies not based on a multiple of profits, the standard way of valuing a company, but rather according to a multiple of the acreage a company owns. As long as companies are able to sell stock to the public or sell themselves to companies that are already public, everyone in the chain, from the private equity funders to the executives, can continue making money.

It's all a bit reminiscent of the dot-com bubble of the late 1990s, when internet companies were valued on the number of eyeballs they attracted, not on the profits they were likely to make. As long as investors were willing to believe that profits were coming, it all worked — until it didn't.

These days, the rhetoric of "energy independence," meaning an America that no longer depends on anyone else for its oil, not even Saudi Arabia or OPEC, is in perfect harmony with "Make America Great Again." But rhetoric doesn't produce profits, and most things that are economically unsustainable, from money-losing dot-coms to subprime mortgages, eventually come to a bitter end.