The coronavirus pandemic exposed for the first time what the financial bailout of 2008 has kept hidden from taxpayers and investors for over a decade now. After the worldwide financial crash of 2008, to prop up governments worldwide, government central banks everywhere filled up their banks with newly printed money (called QE or quantitative easing) to prevent a worldwide depression and it worked…until the coronavirus revealed what has really been happening since 2008.
In some ways the following is eerily somewhat similar to the Bernie Madoff Wall Street Ponzi scheme that ripped off unsuspecting investors for decades and all right under the nose of incompetent U.S. government regulators at the Securities Exchange Commission (SEC) in charge of protecting the American public from losing their life savings to crooked behavior, and once again the U.S. government failed taxpayers. After the 2008 financial collapse, legislators regulated banks more than ever before and authorized the U.S. Federal Reserve Bank to flood U.S. banks with mind numbing sums of newly printed taxpayer dollars to lend to borrowers at a zero interest rate. This zero interest rate lasted for nearly 10 years which, and as we know now in 2020, was like ‘giving a child a loaded gun’. Once qualified to borrow money to re-invest as they so desire, what corporation or Wall Street hedge fund would not want to borrow money at zero interest? This is like giving candy to a baby.
Consequently, well capitalized corporations and wealthy hedge funds for ‘rich people’ worldwide flooded the bankers’ credit windows with requests for no interest loans. Using the corporations and hedge funds billions of dollars of net worth to qualify for zero interest loans, these titans of high finance borrowed trillions of taxpayer dollars to supposedly help start growing the economy again after the 2008 worldwide financial collapse, thus in the long run helping make U.S. taxpayers whole again after many taxpayer employees and mom ‘n pop retail investors got ‘wiped out’ during the 2008 crash.
However, since 2008, in the minds of those in charge of corporations, the climate has been lukewarm, at best, for risk and re-investing these borrowed dollars into capital expenditures (capex) to expand their companies and hire more employees and growing the economy worldwide.
Instead of putting the taxpayer loans to work in the interest of taxpayer employees, or putting the borrowed money into a ‘rainy day’ fund for unexpected emergencies in the future, for the most part, the trillions of taxpayer dollars borrowed at zero interest rates from banks by corporations went into ‘stock buybacks’, thus piling more and more unpaid debt upon corporations worldwide. Buying back your own company’s stock basically does nothing more than increase a company’s stock share price which artificially inflates the value and net worth of a company, for the most part, doing nothing more than lining the pockets of a company’s corporate management and the company’s shareholders with windfall profits and all at the expense of U.S. taxpayers. Multiply this by the tens of thousands of companies worldwide and it becomes clear why stock market company share prices soared from 2008 until 2020 making lots of corporate executives and stock shareholders look and feel very wealthy…‘on paper’.
Add to corporate buybacks a bubbling cauldron of toxic behavior by a plethora of hedge funds for the past 10 years which borrowed trillions of taxpayer dollars at zero interest rates, and you can see why stock markets worldwide have exploded upward since 2008. During the past 10 years, hedge fund ‘superstar’ owners and managers, along with everyone investing in their funds, lavished upon themselves and their families their 3rd, 4th and 5th beach homes worldwide, as well as adding to their fleets bigger and better private jets, and topping off this opulence with ocean going yachts virtually the size of cruise ships in the eyes of typical U.S. taxpayers, and all at the expense of loans from taxpayers at zero interest rates. As critics have been saying for the past 12 years since 2008, “The man in the borrowed suit just bought a new car with free money.”
Then in 2020 along comes the ‘unexpected’ to spoil the party. The coronavirus pandemic changed the world economy in a matter of weeks and stock markets worldwide started selling off. Like the 2008 crash exposed the Bernie Madoff Ponzi scheme, along with all the bad bank loans and bad U.S. government policy making decisions that had been made for nearly a decade prior to 2008, the pandemic of fear sweeping the world in 2020 exposed what unfortunately had been taking place on Wall Street and in the Deep State swamp in Washington D.C. for the past 12 years since 2008.
For the past 12 years, while getting rich driving up their own companies’ stock prices, too many corporations were going deeper and deeper into debt using zero interest loans from taxpayer dollars with nowhere near enough capital on hand, or built-in corporate value accrued, to warrant getting more credit made available to corporations from banks to be able to withstand any unforeseen, upcoming financial crisis without going bankrupt.
Making matters worse, hedge funds worldwide were discovered to have ‘leveraged up on margin’ from banks, meaning borrowed on credit, trillions of taxpayer dollars at zero interest rates at not one to two times their hedge fund value, but up to an unheard of, mind boggling ten to fifteen times their hedge funds value!
Thus when pandemic fear took over, the stock market started selling off and the artificially inflated corporation share prices plummeted. Simultaneously the stocks that hedge funds had bought with borrowed taxpayer dollars got ‘margin calls’ from the banks they borrowed taxpayer dollars from so hedge funds had to sell up to ten to fifteen times more stock than anyone had ever anticipated they would have to sell to meet the incoming flood of margin calls and investor redemptions thus driving down corporation stock prices, leaving debt ridden corporations nearly bankrupt now requiring taxpayer bailouts to remain in business in 2020.
There was no way to know hedge funds were leveraged up so much because there is no list anywhere disclosing how many taxpayer dollars hedge funds have borrowed on credit. As in all historical events, generally, only during crises is the incompetent, unethical, conceivably criminal, seamy underbelly, toxic behavior exposed by previous political and business leadership in capitalist, socialist and communist societies that almost always hurts who?…the average citizen along with middle class and lower class hard working taxpayers.
During the worldwide financial crisis of 2008, President Obama’s administration and the U.S. government bailed out General Motor (GM) with taxpayer dollars. The incompetence of political leaders during the GM bailout became apparent when the government did not mandate taking equity stakes in all companies being bailed out with taxpayer dollars as a requirement to even get a taxpayer bailout. Taking equity stakes in GM would require GM to give a certain amount of control over GM to taxpayer representatives and government legislators which could be exerted to keep GM from squandering taxpayer dollars again in the future. Unfortunately for taxpayers this did not happen.
Every time corporations, hedge funds and the like are allowed to unnecessarily squander taxpayer dollars and not have their political and financial leaders prosecuted in a court of law, it leads to wide public mistrust of big government and big business, thus widening the gap of income inequality between the taxpayers and wealth accumulation by career politicians, who have no term limits as to how long they can hold office as national elected officials; as well as wide public mistrust of the Wall Street titans of high finance. In this case this all just leads to more and more monetary value destruction, and in too many cases, leads to wiping out taxpayer investments, individual taxpayer 401ks, corporate pensions and taxpayer retirement accounts, destroying value accrued prior to and since 2008.
Critics charge, with more crimes being committed on Wall Street before noon of every day than is committed in a week nationwide by the masses in the USA, and with ‘insider trading’ being the ‘norm’ on Wall Street, and when stockbrokers go to full cash positions in their own personal stock portfolios in advance of and during stock market crashes while telling their investor clientele to ‘hang tight’ and not to sell their stocks, consequently, the mom ‘n pop, ‘dumb money’ retail investors do not stand a chance in unstable markets.
The worldwide financial meltdown of 2008 was due in part to the financial practices adopted by the U.S. Congress during President Clinton’s administration around 2001. Albeit well-intentioned, the U.S. Congress and the President encouraged U.S. banks to relax their previous strict lending standards for credit so most anyone who wanted to borrow to buy a home could do so with the introduction of the no income verification, no job required ‘ninja loan’ which basically extended credit to people less than qualified to borrow, allowing them to get loans they could not afford.
Couple this with the greed of Wall Street and incompetence of Wall Street ratings agencies, the U.S. government Securities Exchange Commission (SEC) in charge of protecting investors regulating improper Wall Street practices, as well as the incompetence of the U.S. Federal Reserve Bank, ALL contributed to the 2008 financial crash and no one went to jail for the white collar crimes committed against U.S. taxpayers by those on Wall Street and those representing the U.S. government. By contrast, the Chinese Communist Party has the penalty of death for certain white collar crimes committed against corporations, its employees and/or Chinese citizens.
During the coronavirus pandemic, well intentioned American politicians are willing to potentially economically bankrupt the USA to save precious American lives. The Chinese communist leaders feel a policy of sacrificing a country’s robust economy simply to ‘try’ and save lives is not wise. Chi-com leaders feel the economy of a nation is more important than saving lives. Lives can reproduce in a matter of a few years whereas losing a robust economy may take decades to restore but, first and foremost, may threaten national security in the meantime.
During the coronavirus epidemic in China, which Chinese citizens call the Wuhan flu, why would Chi-com leaders feel the need to report the ‘true’ number of lives lost in China? One anonymous Chi-com Party member claims that to get a closer ballpark number of lives lost in China to coronavirus, simply add a ‘zero’ to whatever number is reported by the Chinese Communist Party as the number of lives lost in China. Intentionally or unintentionally, when U.S. President Obama’s administration suffered the loss of 13,000 American lives due to the ‘swine flu’ of 2009, the American economy was not severely interrupted, halted or sacrificed to save lives. Granted, no one knows how deadly any pandemic disease will be or how many innocent people will die until it can be stopped. Regardless, life-changing potentially risky decisions are made.
The Chinese communists welcome the chance at bringing America to its knees socially and economically, destroying the already increasingly de-valued American dollar initiated by the worldwide financial crisis of 2008. Now with the 2020 coronavirus, critics charge, America is unrealistically printing trillions of new dollars it does not have and cannot realistically back up, ‘spending money like a drunken sailor’ to save lives. Realistically governments worldwide, which have parked their financial monetary reserves and investments in the U.S. for decades, may lose trust in the USA’s ability to guarantee payment on America’s ever increasing debt.
Once this trust is lost governments worldwide will need a more dependable currency. Enter the Chinese yuan. China has been hoarding gold for years to back the yuan. Unfortunately, American politicians gave up backing the U.S. dollar with gold during 1960s, thanks to President Nixon’s administration, for the misguided opportunity to spend more and more taxpayer dollars on government projects thus, for decades now, increasing government budget deficits to the unfathomable levels seen today. With the 2020 market crash ‘the chickens from the 2008 bailout may have finally have come home to roost.’
In an otherworldly way, the French Revolution of the 18th Century and World War II of the 20th Century and the American Civil War of the 1860s, all combined killed millions of innocent people. However, in the long run these events also united fractured and fragmented populations and cultures to fight for a common cause. The coronavirus pandemic may have the same effect inexplicably coming at a time when nations and cultures worldwide need unification thus potentially changing the world for the better despite the great loss of innocent human life in the process.
SUPPLEMENTAL SOURCES: CHAMATH PALIHAPITIYA, FOUNDER AND CEO OF SOCIAL CAPITAL ON CNBC TV NEWS 3/19/20 and VICTOR DAVIS HANSEN, NATIONAL REVIEW INSTITUTE FELLOW
ON BLOOMBERG TV NEWS 3/20/20
