By the time you have started reading this, it is already too late. It already was too late long ago. But they won't tell you that. Think I exaggerate? Then indulge me.
The current collapse was presaged long ago in the prior collapse. The revoking of the Glass Steagall Act of 1934 by the Gramm Leach Bliley Act of 1999 brought the big banks back into the financial markets for the first time in 60 years. How easily forget why the banks were kept out of financial speculating. How easily we forget why they were regulated (such an abhorrent word these days) and the disaster that precipitated their being essential. How easily forget that American Capitalism is not and never was Laissez Faire Capitalism. It has always operated with regulated markets. To the Glass Steagall Act of 1934, add the Securities Exchange Acts of 1933 and 1934 and antitrust law. Because once the banks began speculating in the markets, it was only a matter of time before they lost their asses, and this collapsed the commercial lending system that fuels the Main Street economy. Instead of passbook savings and secured lending, the banks were trading in new, complex fraud schemes with fancy names. "Collateralized Debt Obligations," "Credit Default Swaps," "Mortgage-Backed Securities," and "Derivatives," each a house of cards resting ultimately upon very little, or nothing. As the Ancient Greek described the foundation of the world, he explained. The Earth as we know it is held on the shoulders of Atlas, who stands upon the backs of giant elephants, who, in turn, stand on the backs of even larger turtles. When asked, as would be expected, what the turtles are standing on, the Ancient Greek quipped, "Oh, yes, after that, it is turtles all the way down."
So they deregulated the securities industry, exempting these new-found fraud schemes from oversight. In this holy "free market," they could trade and re-trade the instruments over and over, to their hearts' content. When the music stopped, and everyone had to find a chair, there weren't enough to go around. In the 60 Minutes interview, when the bank executive was asked how many derivatives there were issued out there, he responded in the range of $12 trillion worth. In the aftermath of the collapse of the value of the derivatives, however, it was exceedling hard to gauge the fallout. However, when asked how many of the instruments were held by his bank, his answer was an astonishing, "I don't know."
You see, when you trade a stock, a regulated security, the Securities Exchange Commission tracks the sale, the price, and who eventually holds the stock. The Commission issues rules seeking to ensure that trading is as efficient and fair as possible. However, without regulation, no one knows who sold what, for what it was sold, or even in whose hands it now rests. With the collapse of the value of these "toxic assets," it became a fool's wager to loan to a bank that may have such assets somewhere in its vaults, if not on its books. With no one knowing who had the toxic assets, no one was willing to extend credit. Indeed, the balance sheet was fundamentally flawed because it omitted the "toxic assets." And so it began. The collapse of the commercial lending market, all starting with the de-regulation of the banks and the securities markets.
Then, just two weeks ago, the political hucksters and snake oil salesmen came calling. Seeing that average Joe Americans had been suckered, their 401K's collapsed in the house of cards, their small businesses unable to get financing for inventory and operations, and their cost of living increasing, these hucksters began preaching austerity. "How quaint, you see," they charmed, "the real problem here is spending." Just like you, we need to stop government stimulus spending. And what had been a stall began to develop into a irreversible, headlong dive.
And they said it couldn't happen here.
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