Democracy in Flames and Sovereignty under Fire!

Democracy in Flames and Sovereignty under Fire!

By J.M. Hamilton  (11-11-11)

“Thus was parliamentary democracy finally interred in Germany.  Parliament had turned over its constitutional authority to Hitler and thereby committed suicide…”  - William  L. Shirer, The Rise and Fall of the Third Reich

It doesn’t take much to overturn a democracy or democratic institutions:  economic chaos, unchecked fear, a couple of gallons of gasoline, and a few matches.   That’s all it took in Germany in the 1930’s, when the Nazis burned down the Reichstag (Germany’s emblem of democracy and the equivalent to the U.S. Congress).  Communist were of course blamed and used as scapegoats.  In the resulting fear and turmoil, civil rights were suspended by Germany’s President Hindenburg, allowing Hitler to round up and exterminate any and all political opposition without due process.  A short time later the aptly named “Enabling Act” was passed and a dictatorship was born – all perfectly legal and sanctioned by the state.  Hitler said the suspension of both German civil liberties and democracy itself, was all for the German peoples protection.  It was through fear and uncertainty that Hitler seized that which the Nazis could not obtain democratically, hegemonic and absolute power over the German state.

Today in Europe and America we see the erosion of democratic institutions at every turn.   And what global banking oligarchs cannot accomplish by a flood of money into the political process, or by the purchase of politicians, is won through the coercive power of the state, as former bank executives cruise through the revolving door and operate key government positions – again, all perfectly legal and sanctioned by the state.  (e.g. Witness the recent coronation of Goldman Sachs alum, Mario Draghi, as head of the E.U.’ central bank, who is said to have wrote the book on hiding government debt via the use of swaps and derivative products; or check out another Goldman alum who runs the Commodities Futures Trading Commission (CFTC), Mr. Gensler… and some people wonder why the CFTC has delayed implementation of new derivative/swaps rules and regulations?)

Per the New York Times’ Thomas Friedman, there’s a reason why 61 house members sit on the congressional Financial Services Committee.

In the cradle of democracy last week, Greek Prime Minister, George Papandreou, dared defy the established order of things, that of banking uber alles, and actually sought a referendum by the people on the proposed E.U. Greek bailout package.   Now this bailout package promises a write down on Greek debt of 50%, when the market values the haircut to bond holders at no less than 80% (what a deal for the bank or institution who picks up this debt at the fireside sale price, because if the bailout holds, they will more than double their money, all at the expense and suffering of the taxpayer – both U.S. and European); moreover, the proposed bailout would in all probability consign Greece to austerity and economic decline for at least a decade or more.  Not that the alternative, default, hyper-inflation, capital flight magnified, and a return to the drachma, would have been much better.  But the resulting outcry from the European and U.S. political elites was so stunning and sharp in response to the referendum, it merely proves the point that the J.M. Hamilton blog made in an editorial a couple of weeks ago (entitled, Fear and Loathing – Globally), namely, that the elites fear democracy.   Mr. Papandreou retreated and cancelled democracy/the referendum, which would have finally given Greek citizens an opportunity to weigh in on their nation’s financial crisis.

Meanwhile, in Italy, a media mogul and a septuagenarian playboy, also known at the Italian Prime Minister, has “voluntarily” submitted his government and its budget to International Monetary Fund (IMF) oversight and scrutiny.   Now, submitting your government budget for IMF review is very much like the indignity, and an infringement upon sovereignty, that the Greeks have already endured and continue to suffer, that of sovereign budgetary oversight by interested third parties.

Moreover, it is an indignity and threat to sovereignty that the United States Congress would never tolerate, at least not yet.  You’ve got to hand it to the bankers, however, they would never tarnish and soil their bespoke suits with gasoline and matches.   That’s entirely unnecessary, especially when the banks can burn down democracy with threats of a “Lehman event,” a capital strike, dumping sovereign debt, or by making financial bets against the very nations that have repeatedly bailed them out.  (Note: In yet another assault on pesky democracy, both the democratically elected Italian and Greek prime ministers, Berlusconi and Papandreaou, are being replaced by “technocrats,” which is a fancy word for saying that Messrs. Monti and Papademos are more than likely BBF or Banker Buddies Forever.  Messrs Monti and Papademos have not been popularly elected, but will most likely run both Italy and Greece, presumably, for Wall Street’s and E.U. Bank benefit.)

Three years after the last financial crisis, politicians are desperate to avoid another “Lehman event,” which is code for the global systematic risk posed by international banking, derivatives, and credit default swaps.  Aside from the economic damage such an event would  cause the global economy, already strained state budgets, and the havoc it would reek upon global currencies, the political elite are worried that the European and U.S. electorate might begin asking very pointed questions.  Namely, what have these same politicians done over the last three years to prevent the banking crisis that is unfolding before our eyes, here and now in real time?

And that’s a question no politician, who wants to be elected or re-elected, appears to want to answer.  Why?  Because in the U.S. both political parties share blame for catering to Wall Street, and the lack of rules, regulation, and oversight since the 2008 financial crisis.

At the end of the day, international banking is the tail that has been wagging world governments, democracy, and the global economy with ever more frequent and deleterious effects.  Multi-national corporations wised up to the games these Wall Street sharks play a while ago, and have hoarded colossal amounts of cash, in essence becoming their own banks, so as to avoid dealings with same.

But the public isn’t quite as fortunate.

Ultimately, the only thing that will rein the banks in, and the threat to global security and stability they represent, is to allow them to fail and subsequently nationalize them.  If the global banking model the world is headed towards, willingly or unwillingly, is that of utility banking (i.e. elementary/pedestrian lending without the proprietary trading), than why not nationalize the cartel, install new management, and preserve as many banking jobs as possible, when these institutions inevitably fail again?  As it stands, the banks often prey upon anybody or any institution, private or public, they come into contact with; and as often as not operate to the detriment of legitimate business, the world economy, and world governments.  World governments are tapped out after bailing out international banking, repeatedly, and now the banks are demanding fiscal austerity, so that governments have the means to bailout the banks, yet again.

And to insure that the global political system continues to favor banks, these same institutions now appear to be installing their own heads of state.  Democracy be damned.

Outlawing and unwinding existing naked shorts (e.g. speculative derivatives instruments) is also a must, if we are avoid repeating the same mistakes ad nauseum.  In the last bubble, the speculative instrument of choice was mortgages, and in the coming crisis, as predicted by J.M. Hamilton, it is sovereign debt.  In both instances, the banks have suspended all business prudence in exchange for the fast buck, with the full knowledge that governments will bail them out again, since they are too big to fail.  Isn’t it time to stop this cycle?  The failed banking institutions can always be returned to the private sector, post re-org.

As this blog has alluded to before, global democracies, as a general rule, don’t allow megalomaniacs to hold and operate standing armies or to possess nuclear weapons (or they do a great deal to suppress, contain, and avoid the re-occurrence of such individuals as Herr Hitler).

Containing these rogues is a matter of global security for world markets and the consumers within those markets.

If that’s the case, then why would business leaders and global governments allow something possibly more insidious than nukes, say international banking in its present incarnation, to be left in the hands of private sector dictatorships?

PS:  For those who think that our banks, shadow banking, and exchanges are over-regulated… please explain it to the fine investors of MF Global, who relied upon CME -the self- regulating futures trading exchange – to protect their interests.   A lot of farmers and investors are missing millions of dollars, because of this unregulated market and exchange, and some could face financial ruin.

Copyright JM Hamilton Publishing 2013