One would have thought that the Great Recession 2008 to the present, would have sobered the World Bank and partners up after a heavy lunch and dinner, but no, they still plug the same innocent tale of eradicating or severely reducing world poverty by 2030. People with bad hangovers do work in mysterious ways.
The Banking Crisis that engulfed the World in 2008 did not have to be, a bit of foresight, a similar curb on greed and jealousy and the flood of the poor house may have been avoided. Those who pointed out the dangers were screaming into a deluge but a finger could not hold the dam.
Read the story of the boy and the dam.
Angelo Mozilo, in an email pointed out that the subprime loan was, “… the most dangerous product in existence…” and the most toxic (Spring 2006). All the Devils Are Here. McLean & Nocera p.219 He was a leading light in Countrywide Financial and would later agree to pay $67.5m fine. Go back a few years to Dick Pratt’s earlier warning “… the mortgage is the neutron bomb of financial products…” He was the former Chairman of the Federal Home Loan Bank Board. Prof Nouriel Roubini began to warn that the bubble will burst in 2004. Chasing Goldman Sachs, Suzanne McGee p.218/9. Some economists such as Paul Krugman were warning the bubble may burst as early as 2002. Steve Eisman – hedge fund manager, “…witnessed the subprime market blow up in 1990s and was convinced the same would happen again.” www.economist.com/node/15716869 Michael Burry “ …was convinced the housing market was going to crack…” 2005 McLean & Nocera.
Printiss Cox – Minnesota ’05 “This whole thing is going to collapse…” At a meeting of a group of Attorney Generals’ Cox pointed out that it was not in anyone’s interest to give loans that people couldn’t pay back. That as far back as 2002 they had seen the problem develop. However, they were looking at it from a consumers point of view whereas the ‘big boys’ saw only the $ sign. “Greed has taken over” David Rubinstein, cited in McGee p177
There was money to be made and they cared little for the consequences.
‘“They’d cut your ear off for a nickel, rip your throat out for a quarter, sell your grandmother for a penny, and sell two grandmothers for two pennies”’
quoted in McLean & Nocera p.153 an opinion of Goldman Sachs.
If that was not shocking enough, Suzanne McGee, writes,
“Compensation policies across the Street rewarded bankers and traders for turning a blind eye to the needs of the money grid; regulators – agencies charged with ensuring that utilities operate in the public interest – ended up catering to Wall Street rather than trying to rein in its worst excesses”.
These two quotes are the essence of what happened in Wall St. that pushed the world into recession. Some parts of the world are still reeling from the impact and recovery will take some years yet. The banking crisis also opened a festering sore called the European Union (EU) that had been covered with a hospital load of plasters. Now it seems that the EU is significantly weak and may require emergency surgery.
We have had recessions before but this one exposed the extent of greed across the globe and therefore affected the long term development of several nations. Some economists, notably the Dallas Federal Reserve think the banking collapse may have left ‘permanent’ damage in its wake.
Millions more have been shovelled into poverty and with the prospects of recovery less than bright those millions will remain in dire straights. This fact alone spells the death knell of the World Bank’s desire to reduce the numbers in poverty to 3% or below. Yet, the WB purports to be able to achieve its goal. It reminds me of an old adage “Whom the gods would destroy, they first drive mad” Euripides (484 BC – 406 BC)
In 17 years the WB will perform a miracle or is it far more devilish than that? Their adherence to a $1.25 a day threshold is nothing more than a cheap gimmick, a conjurers trick; now you see it, now you don’t; a deceiving card trick. By keeping the threshold artificially low they ensure that most people over a set period will, by the aegis of economics, earn more. It is a cruel methodology to apply, every bit as callous as the bankers of Wall Street.
Without significant change in thinking and thus culture the future is every bit as bleak as the present. Yes, more people have more material goods and millions have a television that ensures their passivity. Nonetheless, poverty has not diminished, if anything the scale of it has increased. Poverty walks in many guises and inflicts pain in various degrees. It infects the poor with a pernicious virus that eats at the soul by ravaging their self-esteem and then pisses on their dignity.
In over 2000 years we have not progressed very far:
“Men decide far more problems by hate, love lust, rage, sorrow, joy, hope, fear, illusion or some other inward emotion, than by reality, authority, any legal standard, judicial precedent or statue”
Cicero (106 BC-43 BC). The Leaders Guide to Influence. Mike Brent and Fiona Dent.
We are the true cancer and we seem powerless to find a cure. We have witnessed greed abandon all moral ceremony in pursuit of the ‘fast buck’. As exemplified by the big guys of Wall Street.
“… there was no evidence that any of the institutions felt the slightest bit of remorse or any need for increased supervision or regulation”. McLean & Nocera
“According to Sparks that business is totally dead, and the poor little subprime borrowers will not last long”. He went on to predict, “…the complete explosion of the industry” McLean & Nocera p.281. He worked for Goldman Sacks who were fined $550m in 2010 but no guilt clause was attached to the verdict.
Goldman Sachs were the most criticized for selling their clients down the river. They were not alone in allowing clients to flounder in the rapids without a paddle; Merrill Lynch sold a package known as Norma, in early 2007. All three ‘rating’ agencies gave 75% Norma’s tranches a triple A rating. Before the deals were done, Norma had lost 20% and was worthless by December 2007. McLean & Nocera Therefore the ‘rating’ agencies are as much to blame as any one for their lack of supervision.
How cheerfully he seems to grin,
How neatly spreads his claws,
And Welcomes little fishes in,
With gently smiling jaws.
Alice’s Adventures in Wonderland ch: 2
They were all at it, a guy named, John Paulson, at the time a little known hedge fund manager in January 2007 was to make $4bn gambling that the market would collapse. Magnetar, a company based in Chicago played a similar game. These guys made mega bucks predicting people’s misery.
A year after the bubble burst Goldman Sachs, “…reported the largest quarterly profit in its history in the summer of 2009…”. Only weeks earlier they had paid back $10bn received in a Government bailout. By the third quarter of 2009 both, Goldman Sachs and J.P. Morgan Chase had posted profits of $8billion.
In 2010, Jamie Dimon of J.P. Morgan was paid $20m in wages and told people to get off his case. Meanwhile, Lloyd Blankfein of Goldman Sachs told a reporter of the Times in London that he was “doing God’s work”. (McGee) In another case, Stan O’Neal, CEO of Merrill Lynch, walked away with a golden handshake of $161.5m only to get a job the following year at the Bank of America. Guardian .co.uk 2012
The government of America spent in excess of $700bn to bail out the banks. This was titled the Troubled Asset Relief Program (TARP). They certainly threw a tarpaulin over that fire. Unsurprisingly there was nothing for the poor, nothing for those facing foreclosure.
Since the banking bubble burst some 3 million families have suffered foreclosure; communities have been devastated, such as Jamaica New York. A local lawyer, Elizabeth Lynch suggests: “These neighborhoods won’t come back for decades.” McLean & Nocera These people will take the pain for the lack of thought and foresight of the bankers; not forgetting the compulsive greed that fuelled their fire. Unemployment in the USA remains very high. In pre-crisis 2008 unemployment stood at 5%, in March 2013 it’s almost 8% or 12 million and 5.5 m added to the disability roll.
Europe is just as bad with unemployment reaching record levels in 2012. It fell for the first time in two years in June 2013 but: “…is still at a record high” Jonathan Loynes Capital Economics. The economist, Wei Yao opines a slight upturn in the Eurozone but suggests that it: “…is still far too modest to suggest a clear upward trend”. www.telegraph.co.uk/finance/economics
Therefore there is little light at the end of the tunnel. People in the developed nations are stuck in the darkness of that tunnel. Meanwhile governments’ have introduced austerity measures to curb their spending. In such a situation there is little hope that those in the developing economies will receive much business and thus unemployment and hardship will continue for them too.
To add to the misery, several commentators are predicting another recession quite soon. Nouriel Roubini, who warned about the subprime debacle in 2004, is now advancing a theory of a ‘global storm’ in 2013/2014. Jim Jubak at money.msn.com is also seeing a deep crisis around the corner. Economist, Martin Wolf tells us that the present austerity measures can lead to a recession and Paul Krugman shares that outlook.
Suzanne McGee, in her book warns that now the banks see the crash as behind them, “…the odds that another crisis will rock the financial system to its core are creeping higher again”. Her analysis is given credence by, Leo Tilman, a risk management specialist when he suggests that: ‘“Déjà vu is just around the corner”’.
The brokers sucked in the little guys by offering them mortgages they couldn’t afford. These ‘Ninja’ deals, in sector parlance mean: no job, no income applicants, hooked people in with wild promises and assurances that they could pay. The rationale was based on an interest rate of 1% and that house prices would continue to rise. When it all went belly up interest was 4%, while incomes started to decrease dramatically. House prices fell 30% and remain at that level. Folks couldn’t sell; trapped, they had to accept foreclosure.
According to the Dallas Federal Reserve the crisis could cost $14 trillion and continue to affect the economy for years. www.huffingtonpost.com/2013/07/30/financial Government attempts to control the situation have been characterized as: pathetic, fundamentally flawed, terrible, and already watered down. Only one prosecution yet there is evidence that, “…prove bankers knew they were selling their clients garbage”. Stephen Grandel at www.finance.fortune.cnn.com/2013/08/02
Ordinary people are left with the dilemma of who they can rely on:
“Trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships”.
The Speed of Trust, Stephen M.R. Covey cited in, The Leaders Guide to Influence by Mike Brent & Elsa Dent. Who can we rely upon?
I believe it is clear that the World Bank and cronies cannot achieve their target of reducing or eradicating ‘extreme’ world poverty by 2030. The world economy is as fragile as a new born; it requires good succour and realistic parental guidance. However, as long as Wall Street adheres to the principle: “…me first, me foremost, and only me”. McGee p354 Then we are all in for a double-edged white water rafting experience whether we like it or not. Can we rely on the politicians? Ha, ha, ha.