Quantcast
Connect with us

A ticking time bomb from the big banks could cause the next recession — but ‘King of Debt’ Trump doesn’t care

Published

on

Thanks for your support!
This article was paid for by reader donations to Raw Story Investigates.
Trump took a break from his war with congressional Democrats to slam the central bank (AFP Photo/TOM PENNINGTON)

This article was paid for by Raw Story subscribers. Not a subscriber? Try us and go ad-free for $1. Prefer to give a one-time tip? Click here.

The art of hiding multi-trillions of dollars of debt has found an eager accomplice, the businessman who once proudly proclaimed, “I love debt”:  Donald J. Trump.

The King of Debt is now in control of an obscure federal watchdog agency intended to prevent derivatives—complicate financial instruments that billionaire businessman Warren Buffett once described as “Weapons of Mass Destruction”—from causing the Great Recession of 2008. Intended is the keyword. The agency, the Commodity Futures Trading Commission (CFTC), was hog-tied by big money interests long before the first whiff of bank failure could drift from Wall Street’s canyons.

ADVERTISEMENT

This December, Trump’s hand-picked CFTC members marked a decade of financial recovery by voting 3-2 in favor of leaving a giant hole in the regulatory framework known as Dodd-Frank. The vote leaves the Big Four—Too Big to Fail—U.S. banks free to slip the riskiest of their debt-deferring derivative trades through that defensive wall at will. And, this sleight of hand pushes an unsuspecting public onto the firing line of another possible multi-trillion-dollar U.S. taxpayer bailout.

Outstanding balances keep ballooning for car and tuition loans and credit cards. During 2016, banks opened 110 million new credit card accounts about 50% more than in 2010.

As in the 2008 meltdown, the weapon of choice for manipulating and moving piles of bank-owned debt around the world is a type of derivative called a “swap.” A swap can be as simple as a contract between two parties or a contingency laden nightmare, such as a “naked” credit default swap (CDS) for trading unfunded payment obligations, some of which are used as “insurance” guarantees. That guarantee is what banks can continue now to switch on and off at will.

The Usual Suspects

Instead of home mortgages, this time consumer debt holds our fate. Outstanding balances keep ballooning for car and tuition loans and credit cards—greatly enlarged by exotic trading on the debt itself. During 2016, banks opened 110 million new credit card accounts about 50% more than in 2010. Citigroup, JPMorgan Chase, Bank of America and Wells Fargo reported a combined loss of $12.5 billion from credit card loans in 2017. In June that same year, the Federal Reserve valued outstanding credit card loans at $1.02 trillion. Yet banks continue to shower subprime borrowers with fresh lines of credit.

Despite the efforts of a severely hobbled CFTC, the swaps markets continue to grow and without the depth of transparency promised. Consider that the four big U.S. bank holding company swaps dealers: Citibank, JPMorgan Chase, Goldman Sachs and Bank of America handle close to 90% of U.S. swaps trades, representing a combined notional value of $300 trillion, while consumers stagger under debt and defaults mount higher than pre-2008. The big picture reveals “a financial infrastructure that mimics the failed financial engineering created in the mortgage markets leading up to the 2008 financial crash,” says Professor Michael Greenberger, former deputy to the Clinton-era CFTC Chair Brooksley Born.

ADVERTISEMENT

‘Dark Swaps’

Greenberger, a former director of the Division of Trading and Markets, and current law school professor at the University of Maryland Carey School of Law, contends that “dealers have engineered a way to evade Dodd-Frank, by helping banks transfer trillions of dollars in liability in risky unfunded trading, by turning the regulations off at will.” The world’s debt burden is being “financialized,” he says, as were mortgages in 2007. The tool this time is “dark swaps”‘ sold by the banks’ foreign subsidiaries, into increasingly complex instruments. These are the very exposures from which the CFTC and Dodd-Frank were charged with protecting us.

“The CFTC is totally controlled by Trump,” Greenberger tells DCReport.org. Until another administration takes office the only recourse may be a state by state solution. Greenberger means the state attorneys general, “since the president can’t fire them,” he says. Short of that, since a chain of attempts to plug the loophole have been tried, undermined or overturned, Greenberger’s last hope is the new administration, whose CFTC board could vote to close the loophole and spare the world another multi-trillion meltdown the U.S. taxpayer will suffer to pay.

This article was paid for by Raw Story subscribers. Not a subscriber? Try us and go ad-free for $1. Prefer to give a one-time tip? Click here.


Report typos and corrections to: [email protected].
READ COMMENTS - JOIN THE DISCUSSION
Continue Reading

2020 Election

Trump can ‘rage from the balcony’ but he ‘will not succeed’: Dem super lawyer promises to protect the vote

Published

on

President Donald Trump has a lot of options available to him when it comes to his attempt to steal the election. That doesn't mean they'll work, however.

In an interview with Democratic "super-lawyer" Bob Bauer, "The Circus's" John Heilemann listed a few scenarios for Trump trying to steal the election.

"We already have an electoral infrastructure -- a voting system -- that is not always adequately resourced or supported," Bauer explained. "You take that system, you layer on top of it a pandemic, you lay on top of that destructive behavior by one of the major political parties who espouses this kind of nonsense, and you add on top of that the internet-distributed misinformation plays, and that just means that the task that you have to address these contingencies is much larger than it's been as a structural matter any time in the past."

Continue Reading

2020 Election

Will American elections ever again be legitimate?

Published

on

Only an established, legal “right to vote“ can defeat Republican voter suppression.

Republican politicians and conservative commentators are shocked, shocked! that Chief Justice John Roberts would say that people who voted before election day in Pennsylvania but their ballots were delayed by Lewis DeJoy’s sabotage of the Post Office should have their vote counted.

Increasingly, this election is coming down to the simple question of how effective 40 years of concerted Republican voter suppression efforts will be.

Their main strategy, particularly since George and Jeb Bush got together in 2000 to use a Texas felon list to purge 90,000 Black people off voting roles in Florida, has been removing the names of people who are legitimate voters.

Continue Reading
 

2020 Election

Melania Trump cancels appearance at Pennsylvania rally due to ‘lingering cough’

Published

on

First Lady Melania Trump has cancelled an appearance at a Pennsylvania rally with President Donald Trump due to her ongoing COVID-19 symptoms.

The first lady was slated to travel with the president on Tuesday to her first rally since receiving the COVID-19 diagnosis.

"Mrs. Trump continues to feel better every day following her recovery from COVID-19, but with a lingering cough, and out of an abundance of caution, she will not be traveling today," a statement from the First Lady's Office said.

CONFIRMED: Melania Trump will no longer accompany her husband to PA tonight, per her spokeswoman: "Mrs. Trump continues to feel better every day following her recovery from COVID-19, but with a lingering cough, and out of an abundance of caution, she will not be traveling today."

Continue Reading
 
 
Democracy is in peril. Invest in progressive news. Join Raw Story Investigates for $1. Go ad-free. LEARN MORE