Global Financial Meltdown October 2008 Newsletter

October Newsletter

Welcome to the October Edition of the Satya Center newsletter. Warm greetings from your Editors, Curtis Lang and Jane Sherry.

This is the week of the Global Financial Meltdown, during which stock exchanges around the world have lost 5 years worth of gains, extinguishing TRILLIONS of dollars worth of investor equity. Pension funds, 401(k)s and IRAs are suddenly worth only a fraction of their former worth.

Investors have voted with their dollars, and their verdict is that the entire financial system needs rebooting – maybe an operating system upgrade too. Speculators are in a panic.

Hundreds of millions of middle class people around the world are likewise in a panic, unsure what to do. Will they be able to finance their retirement? If they need a job at that time, who will hire them?

The entire global banking system is collapsing, from New York to London to Moscow, to Rio and Mumbai, putting savings at risk, and creating a demand for TRILLIONS of dollars in bailouts from various national governments with lots to lose.

America, Europe, and rest of the G7 group of wealthy nations are meeting this weekend to plan a strategy to avoid another GREAT DEPRESSION.

Here at Satya Center we predicted the current crisis in great detail back in February in our newsletter entitled “The Coming Collapse of Globalization” (

At that time, I said, “I believe we are witnessing the slow motion collapse of the current financial system, known as ‘globalization’, which is shorthand for a whole range of political, economic and social policies, including laissez-faire Utopian capitalism and its trickle-down economics, Reaganomics, free trade and the leveling down of global wages, human rights and environmental protection, financial deregulation and corporate oligarchy.”

“US taxpayers are being set up to bail out the extremely rich institutions and individuals who have profited the most by creating the present debacle. This is an unacceptable, immoral, and undemocratic outcome, to say the least.”

“It is time to have a full-throated public discussion about the necessary re-structuring of our financial system so it will benefit everyone, and not just the elites who gamble with our world’s financial future in their members-only digital casinos, secure in the knowledge that they will get to keep all their winnings, and that in the event they lose their shirts, Uncle Sam will be happy to buy them a new tuxedo in time for them to appear at the next glittering virtual financial soiree.”

“It is hardly surprising that the Presidential candidates in America have no stomach for such a discussion. This crisis is a bi-partisan crisis. It is a crisis created by the last twenty-five years of consensus governance, and implicates all of Washington and Wall Street.”


“Unfortunately, just bleeding American taxpayers for a trillion dollars or so will not be enough to avoid a global recession, and perhaps a global loss of confidence in the Federal Reserve, the stock exchanges, and the banking system. Nor will a Gargantuan bailout necessarily guarantee that we can avoid a lengthy recession, perhaps to be followed by a long-lasting global depression.”

“Reregulation of the American financial system is necessary to avoid a repetition of this Mother of all Financial Collapses. This crisis is partly caused by the immense concentration of wealth in fewer and fewer hands, which means that wealthy institutions and individuals have vast pools of “hot money” available to them, and they are chasing high yield in risky financial instruments fabricated from risky real estate deals, investment fads and risky corporate restructurings that are sold around the world in various stock exchanges. This hot money chases high yield and as it flows into various types of investments, bubbles are created. Thus we have a bubble economy. First the commercial real estate and LBO bubble of the Eighties, then the bubble of the Nineties, then the LBO and real estate bubble of the Bush Jr. years.”

“The government bailout will be huge however, that goes without saying. A few hundred billion, I imagine is a good starting number for it.”

How big a bailout will be required? That’s a good question. I am not sure anyone knows. Let’s talk about America. We’re talking at least several trillion dollars, at this point, but the total could certainly grow.

According to a recent study by Professor L. Randall Wray, by the Levy Economics Institute of Bard College, projected losses on residential mortgage backed securities will be $200 billion to $1 trillion. Home values are expected to decline around $6 trillion altogether. Losses from nonperforming construction and nonfinancial corporate debt could be $400 billion more. Bank losses on special investment vehicles will start at $150 billion. Losses on credit cards could be $100 billion more. Losses on credit default swaps and other derivatives, which are at the heart of the crisis, would be another $2.25 trillion, if the losses reach a 5% level, a not at all unthinkable outcome.

Because the global financial system is collapsing, we are now seeing that the rules of the game, as currently constructed in our laws and regulations, our economic theory and our political ideology, are outdated and no longer work.

Our financial system is a social construct, a game if you will, with rules we all come to know so well, we begin to assume that this is the only way the game can be played. Not so!

It’s time to create new rules for financial markets, new laws and regulations to insure that mistakes are not repeated, new economic theory and new political ideology. This new way of thinking and acting should include a few basic truths.

First, there is a constructive role for government in the financial system, contrary to free market neo-liberal economic orthodoxy.

Second, there is no “invisible hand” regulating markets.

The theory of the invisible hand presumes when every individual acts solely out of self-interest the “magic of the marketplace” will automatically produce the greatest good, and the best interests of the entire community will be served. This is illogical and has historically proven to be false.

We are finding now that in markets where people are allowed to act without some social constraints, in the form of specific government requirements and regulations, the end result is the collapse of the global financial system.

Without active regulation and oversight, financial markets act to maximize profits without regard for morality or the good of society as a whole. That is their purpose and function.

As reckless behavior and misrepresentation become standard practice under pressures to maximize profits, entire industries, like the residential real estate industry, can be weakened to the point where the entire financial system simply self-destructs as investors themselves withdraw their confidence and their funds from the system, which freezes up and then implodes.

On the environmental front, when people are allowed to act without specific governmental, legal constraints on their behavior, they tend to trash up their area. We humans have trashed up the area to the point of actually driving half the species on Earth into extinction, poisoning the air and water, and raising the global temperature into ranges that could even result in the deaths of billions of humans around the world.

So, we need government to provide a safe playpen for investors and to insure that the good of society as a whole is protected. We engage in politics to determine what those rules will be. And that’s a good thing. We need not be worried that these rules will hamstring the “free market”.

Our third important truth is that there is no “free market”.

In the real world, as opposed to the world of economic theories, the “free market” is a social construct, with rules that are created by governments to insure transparency, accountability, and the rule of law. Without such rules, no advanced economy can operate. Thus investors have problems in countries like Russia, China, and African countries where the rules of the marketplace are not sufficiently developed to protect the interests of investors.

In America, we have a highly developed system of laws and regulations designed to insure that business can be conducted safely and securely. The government appoints regulators who are appointed and empowered by we, the people, to protect the players in the marketplace from harming themselves or others unduly.

However the present crisis is proof that the guardians of the public trust have failed in their sacred duty. They have allowed the foxes to guard the henhouse. Since Ronald Reagan, every administration, both Republican and Democrat, has allowed the financiers to rewrite the rules governing banking and investment to their own advantage.

The end result is a global catastrophe in which the wealthiest firms and individuals in the world are blackmailing the rest of the planet into paying for their greed, arrogance and miscalculations.

The people who benefited most from Reagan’s policies of deregulation, privatization, and “free trade”, which have created this global financial meltdown, are the very rich, the politically well-connected, and the financiers who service them.

"The American people are bitter,” said Senator Bernie Sanders of Vermont at the time of the Senate vote on the Paulson-Bush bailout bill. “They are angry, and they are confused. Over the last seven and a half years, since George W. Bush has been President, 6 million Americans have slipped out of the middle class and are in poverty, and today working families are lining up at emergency food shelves in order to get the food they need to feed their families. Since President Bush has been in office, median family income for working-age families has declined by over $2,000.More than seven million Americans have lost their health insurance. Over four million have lost their pensions. Consumer debt has more than doubled. And foreclosures are the highest on record. Meanwhile, the cost of energy, food, health care, college and other basic necessities has soared.

"While the middle class has declined under President Bush's reckless economic policies, the people on top have never had it so good. For the first seven years of Bush's tenure, the wealthiest 400 individuals in our country saw a $670 billion increase in their wealth, and at the end of 2007 owned over $1.5 trillion in wealth. That is just 400 families, a $670 billion increase in wealth since Bush has been in office.

"In our country today, we have the most unequal distribution of income and wealth of any major country on earth, with the top 1 percent earning more income than the bottom 50 percent and the top 1 percent owning more wealth than the bottom 90 percent,” contends Senator Sanders. “We are living at a time when we have seen a massive transfer of wealth from the middle class to the very wealthiest people in this country, when, among others, CEOs of Wall Street firms received unbelievable amounts in bonuses, including $39 billion in bonuses in the year 2007 alone for just the five major investment houses.

“Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000. . .now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000,” says Bob Herbert in a New York Times article entitled ‘A Class War is Raging, and the Rich are Winning Handily’. “Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.”

The rest of us must now pay the price for the larger-than-life mistakes of America’s wealthy classes, and for the mistakes of the politicians and bankers who set up the rules of the game that favored the wealthy so disgracefully, and which is now coming to a very messy and very public end all over the world.

For example, in America, the CEO of Goldman Sachs, Henry Paulson, becomes Treasury Secretary. His firm receives a government bailout, but Goldman’s arch-rival Lehman Brothers is bankrupted by a decision made – at the Treasury Department. Investors ask, what are the rules here? How do I know which firms will be saved and which will be bankrupted by government regulators? If the power of government regulators is used to benefit individuals, specific companies or classes of citizens at the expense of others, then no one can trust the markets at all. We are seeing the results of a lack of confidence in the regulators of the American marketplace all around us today.

When it became clear a little while ago that every investment firm on Wall Street was going bust and that they all needed a bailout, Paulson provided $700 billion in taxpayer money, to be administered by an assistant at Treasury, who used to work at Goldman Sachs. There is discussion in Washington about outsourcing the bailout to a private company, perhaps allowing Goldman, Sachs to manage the entire operation.

Here we have a classic case of market failure, marked by one regulatory failure after another.

First, government regulators allowed reckless endangerment of the entire financial system by greedy Wall Street investment bankers. Indeed, they deregulated banks and Wall Street firms repeatedly over the last twenty years, in spite of problems like the S&L debacle and the Enron scandal, both of which are traceable directly to lack of government oversight.

Second, capricious actions by virtually unaccountable government officials who appear to be favoring individual firms with whom they have relationships over the rest of the players in the market.

Third, Treasury Department officials and the President, along with Congress, are guilty of favoring the interests of wealthy investment bankers over the interests of taxpayers, and favoring the interests of the financial sector of the economy over the interests of those who work in the productive sectors of the economy, producing goods and services other than financial products.

In this case the government officials who come from Wall Street decided that the same investment bankers who were paid tens of millions of dollars a year while they created a financial house of cards that was doomed to fall, should now receive hundreds of billions of dollars of taxpayer money as a reward.

This is socialism for the rich, as practiced in Reagan’s America. This is socialism for Wall Steet financiers. Profits go to the wealthy in the private sector, but all these losses are paid for by the taxpayers.

Not only is the Bush-Paulson plan an arrogant and immoral attack upon America’s middle classes by the wealthiest most privileged people in the world, it is also totally inappropriate to the moment, and will do little or nothing to fix the basic problems in our banking system.

Robin Hahnel, an economist at American University, told Alternet’s Joshua Holland that "while it's not necessary for the U.S. financial crisis to become a world financial crisis, and for the U.S. recession to become a depression of the magnitude and duration of the Great Depression of the 1930s, if the short-term, medium-term and longer-term responses continue to be as incompetent as the short-term response in the U.S. has been so far, this worst-case scenario could happen."

You see, Henry Paulson and George Bush just failed bank economics 101 with their bailout bill. The Paulson-Bush plan has the government buy bad assets from banks. The banks have to volunteer to sell those bad assets to the government and then they negotiate a price.


But all the banks are virtually bankrupt. They have not got a spare dime to lend. Buying their bad assets does not provide them with additional equity capital they need so they can once again make loans.

If a bank were given an injection of money directly into its equity, by say a government program to buy part of or all of a bank directly, then the bank would be able to make loans equal to ten times the value of that new capital.

In addition, the United States government, the taxpayers, would be owners in these banks and would be able to minutely scrutinize their books, making sure that the problems are identified, understood and properly managed. This would restore investor confidence in markets and enable lending between banks and lending by banks to companies and individual borrowers. This would ease the credit crunch.

Anyone who is in charge of a government’s Treasury Department and can’t tell the difference between a liquidity crisis and a solvency crisis is completely incompetent. This is why banking insiders and sophisticated investors know that the Paulson-Bush plan is a complete failure, a waste of $700 billion.

Not only that, the Bush administration should have known about this crisis months ago and acted then to prevent the huge problems ballooning every day as you read this article.

One would think that if we at Satya Center were able to predict the current crisis in great detail back in February in our newsletter entitled “The Coming Collapse of Globalization, then surely the President of the US and the former CEO of Goldman, Sachs should have known that our banking system was in a serious crisis. up. But they did nothing.

No wonder Americans are angry. Someone should ask them why they did nothing to prevent this when economists have been warning about this very dramatic moment for months & months.

Americans’ anger has not produced much response from the Presidential candidates or from either political party. Politicians in America are spending more time attacking one another than in producing any kind of viable or comprehensive plan to deal with this global crisis.

"The great presidential debate last night was painful to watch,” said Richard Russell, editor and publisher of Dow Theory Letters, in remarks posted on his website on October 8th. “On the important subject of economics, I thought both candidates were totally at sea. Neither McCain nor Obama had any idea of what they were talking about. Neither mentioned the scandalous $150 billion of earmarks that were added to the bailout bill. Neither touched on unemployment or the need for massive government programs and spending. Neither mentioned the precarious state of the dollar or of rising gold. Their ignorance of economics was frightening. Let's hope they, at least, have informed economic advisors -- on their own they are both clueless.”

“Based on the Wilshire 5000, [ed. note: an index of small companies] this bear market has now cost stockholders 4.7 trillion dollars,” says Russell. “The annual gross domestic product of the US is $13 trillion. The loss in stock value is almost equal to one third of the US's annual GDP, and that's got to hurt."

Now we know that the economics of competition and greed does not serve us well as a people or a country or as a small interconnected global marketplace.

Who will be able to say “Greed is good!” with a straight face ever again?

There is a tremendous amount of anger, frustration and fear cloaking the entire world like a poisonous fog.

Yet we have every reason to expect an infusion of new visions, new vitality, and new ways of doing business starting this week and continuing for the next several years.

This crisis creates an opportunity to envision an entirely new global financial system. In fact, you can bet and hope that this is exactly what the G7 leaders are discussing this weekend in Washington.

Citizens, politicians, activists, and consumer advocates around the world will soon be adding their own ideas to the emerging mix. What we have seen over the last few weeks is very instructive.

The conservative Republican party of America is now presiding over the biggest government intervention in the US economy in fifty years. This was supposed to be utterly taboo, a violation of the most sacred tenets of the secular religion of Reaganomics, whose presiding deity is Mammon.

And the rules of the banking and investing game are being changed, virtually day to day, by a handful of appointed bureaucrats in central banks and Treasury Departments around the world.

We are discovering that in many cases the new rules benefit the personal friends and associates, the wealthy corporations and supporters of these financial high priests, at the expense of the rest of their countrymen and women.

This has increased the level of anger and outrage around the world, most of it directed at Washington and Wall Street.

But the main point is that this is one of those rare times, which comes around once a century on average, when the financial rules of the road are all up for rewriting.

It is only on these rare occasions, usually preceded by a systemic crisis, that the people of the world will be given an opportunity to speak up for their own interests.

Now is the time to demand reforms that level the financial playing field, and to create new laws, rules and regulations that will guarantee transparency and accountability on the part of Wall Street financiers and Washington political wizards.

It has become clear that the entire political system in America is geared toward meeting the needs of the financiers at the expense of the productive economy, the middle class, all taxpayers, and the rest of the world.

If Washington can find $700 billion in one day to bail out Wall Street bankers, then we can surely find the money to provide the middle class with affordable mortgages, affordable health care, affordable education, and good jobs with good pay.

In fact the future success of the entire financial system depends upon providing the middle class with these rights and benefits. If there is no middle class, there will be no market for the products and services provided by big business, and thus there will be no future profits for the financiers.

If Washington can spend $700 billion in one day to bail out Henry Paulson’s friends and associates, we DO have the money to protect the environment and to jump-start a Green Technology industry in this country that could be the envy of the world. We do have the money to reset mortgages to lower, affordable prices that reflect reality and to keep millions of Americans in their homes. We have the ability to rewrite the rules of the political and financial games we play so they are more democratic, more equitable, and more beneficial to the society as a whole, while protecting the environment and the future of our children.

The key constituency for America’s governing classes is no longer the middle class, despite Sarah Palin’s constant invocation of her best friend, “Joe Sixpack”.

The key constituency for both the Democratic and Republican parties, has been big campaign contributors for the last thirty years. These big contributors are concentrated on Wall Street and in financial industries generally.

During that period, the government was considered the enemy. New Deal reforms were replaced by self-supervision of financial markets, safety nets were shredded to allow tax cuts for the wealthy, and monetary and fiscal policy were skewed against full employment. The government actively promoted the outsourcing of jobs via GATT, NAFTA and the free trade and globalization agenda.

Now the US has created an economy, a political system, and a culture that is more like a Third World country. We have extreme disparities of wealth and power, a consumer culture of conspicuous triviality, a politics of celebrity worship and a cultural bias toward cut-throat competition that encourages greed and aggression.

We are destroying our middle classes. We are punishing the poor. We have a health care crisis that affects everyone but the extremely rich. We have an environmental crisis that threatens our coastal cities, and our entire way of life. We have a peak oil crisis that requires trillions of dollars to be invested in new green technologies, but we are focused on maintaining control of the supply of world oil by military means.

Worst of all, our leaders are behaving like Third World despots, engaging in multiple wars of aggression to strengthen their own power, endorsing torture, bombing civilians indiscriminately, and alienating billions of people around the world as a result.

That is the lesson of the $700 billion bailout and the TRILLIONS of dollars in bailouts to come. We have the ability to rewrite the rules of the game and to try entirely new ways of relating to one another and to the world around us. So let’s get to work!

This then, is a time when courage, compassion and above all, discernment, are called for in abundance. And this week, the Cosmic Forces are in alignment with humanity’s most pressing needs.

Cosmic Weather Forecast

Full Hunter’s Moon in Aries & Libra Solar Festival

This Tuesday is the Full Hunter’s Moon in Aries, occuring at 10:02 am EST.

Here in the Hudson valley, we are still in the season of long twilights in these northern latitudes, but it is a little surprising to be sitting in the sunlight without a shirt on – even in mid-afternoon - at this time of year. The leaves are starting to change color with that startling clarity of blue sky days that helps you forget winter is right around the corner.

This is a time of global change and transformation, a time of balancing the needs of Self and Community, and the Full Moon on Tuesday is ideally positioned to bring forth the qualities of compassion and courage we most need today, since this is the Libra solar festival (22˚ Libra) & Aries Full Moon (22˚ Aries).

Libra is ruled by Venus, Goddess of Love and Beauty, and Aries is ruled by Mars, God of War, so the Universe is simultaneously providing us with a spine-stiffening jolt of martial energy and a heart-opening hug by the Mother of Love.

We are being confronted by a series of global crises to wake up, open our hearts, and courageously choose to work with others in a harmonious way to resolve the issues that threaten our very way of life. This is an example of using Mars energy to achieve the goals of Venus, and we can only hope that many, many individuals around the world will answer the call to forge a new, global community in which the power to help others is valued more highly than the power to dominate others.

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