Top 10 Economic Stories of 2010

By • on December 12, 2010 3:29 pm

1) In 2008 and 2009, the Federal Reserve functioned as the central bank for the entire world. Documents pried from the Federal Reserve in November show that dozens of foreign banks and an astonishing number of foreign governments lined up to get handouts from the Fed, who kept its client list a deeply protected secret. The recipients included most of Europe’s major banks: Barclay’s Bank, Bank of Scotland, RBS, Societe Generale, Dresdner Bank, Bayerische Landesbank, and Dexia. Also on the list are the central banks of Australia, Denmark, Mexico, Norway, Switzerland, Sweden, South Korea, Britain, and Japan.

If it had been publicly known at the time what the true, global extent of the crisis really was, the world’s economy would have completely collapsed. This is the biggest story of the year, perhaps of the entire past decade, but it’s received zero attention from the US press.

2) The Fed’s current policy of “quantitative easing” (QE I and QE II) are an under-the-table bailout of US corporations. By buying up medium- and long-term treasury bonds, the Fed is keeping interest rates near zero so US corporations can refinance a record amount of junk bonds that were set to come due in 2012, 2013, and 2014 (a total of $700 billion). Some corporations have been able to refinance their debt by issuing 50- or 100-year bonds. That’s insane. Most companies don’t stay in business for 10 years, much less 100 years.

3) The IMF rises from the dead…just in time to impose austerity measures on Greece, Ireland, and a host of other European Union countries. Of course, the one country that’s most responsible for the global economic crisis—the United States—doesn’t fall under the IMF’s purview. Instead, we get to do the opposite: extend the Bush tax cuts, extend the war in Afghanistan to at least 2014, and run up a record government deficit.

4) The financial industry is too big. Way too big. In the mid 1990’s it accounted for about 17% of the gross domestic product of the US. Now it accounts for over 60%. How did that change happen? Well, blame it on the worst Bush era tax cut ever devised: the 15% capital gains and dividend tax rate. When you give a tax cut for dividends and capital gains, you’re subsidizing the investment industry, which is now mostly composed of speculation: money in search of profits taxed at only 15%. So we get huge amounts of money invested in non-productive areas of the economy: derivatives, currency trading, speculation in commodities markets, hedge funds, and stupid venture capital investments that will never make a profit or provide a necessary service (i.e., on steroids). Too big to fail? Yes, but it’s also too big to even comprehend.

5) More banks failed in 2010 than in 2009. The FDIC told us that 2009 would be the worst year of the crisis, but this year small and mid-sized banks continued to fail in record numbers. In 2008 the FDIC closed 25 banks; in 2009 the total was 140. As of November, the total for 2010 was above 150 and counting. Clearly, we still haven’t seen the worst of the crisis.

6) Meanwhile, the biggest banks are still misbehaving. From refusing to modify mortgage loans to using robo-signers and filing defective paperwork with bankruptcy courts, to sending a huge posse of lobbyists to Washington DC to gut the financial reform bill, the biggest banks have been operating as if the financial crisis never happened. And they’ve been racking up record profits and paying out enormous bonuses to their top management. Guess who’s really running this country?

7) Low-interest loans + bad banks = new perfect storm on the horizon. I won’t say more, or it will depress you.

8) Flash crashes are the wave of the future in the stock markets. (Yes, you read that right. “Stock markets,” plural. There are more than a dozen in the US alone.) If you don’t know what a “flash crash” is, then you should sell your stock right now and stick your money in your mattress, because you don’t know enough about investing to keep from losing your shirt. If computers have made it possible for everyone, including your grandma, to play the stock market, they’ve also made it possible for a few big sharks to crash the markets within milliseconds. And nothing’s being done to stop them.

9) Microcredit banks, which were heralded as the saviors of the poor in developing nations, are headed for a major collapse. It turns out that the nonprofits that extended small loans to poor people in developing nations from India to Sub-Saharan Africa have been operating just like the big US banks that caused the 2008 economic collapse. They saw a way to make a profit off the poor, and they went for it. Guess who’s going to pay for it all in the end?

10) It’s the end of 2010 and nobody’s been prosecuted for the mortgage meltdown, banking crisis, or the economic collapse. No one’s even been charged with a crime. Obama’s Financial Crisis Inquiry Commission has turned out to be toothless, powerless, and invisible.

If George Orwell could have seen the real dimensions of our Brave New World, he wouldn’t have been worried about governmental control. In fact, maybe we ought to give Barack Obama a break: there’s only so much you can get away with before your boss gets really pissed off.

The question is: who’s the real boss? Is it Citigroup, Bank of America, Morgan Stanley, and Goldman Sachs? Or is it you and me?

Maybe it’s time to stand up and show ‘em who’s boss.


By John Chapman on December 17th, 2010 at 11:51 am

Nice run-down of these stories.

One bit about the IMF ruturning from the dead – not only are they returning from the dead, but in Europe they seem to be wearing the white hats. After widespread criticism over decades of loaning money to third-world countries then throttling those countries with blood-draining austerity programs, the IMF has started to loosen up and realize that austerity programs make countries less likely to pay back their loans, not more. In Europe they have been a voice of moderation toward the heavily indebted countries on the periphery of the EC (Ireland, Greece, Spain) recognizing that austerity programs on top of a global recession will only kill any hope of recovery. Without recovery, the debt burden of these countries gets worse over time, so austerity only makes it more likely that they will default.

Not so Germany, and to a lesser extent France, who are demanding that Europe squeeze blood from Irish and Greek turnips, rather than see any bondholders take a penny loss. Germany in particular has been steadfast in it’s opposition to any talk of devaluation or debt restructuring, and taking a moralistic austerity line. Which is ironic, because Germany’s response to the global economic crisis was a huge (but quiet) stimulus program. And it was the German banks who were largely responsible for flooding Europes periphery with cheap credit and kicking off housing bubbles in Spain, Portugal, Ireland and elswhere throughout Europe that were worse than the US housing bubble. German banks are deeply invested in the soverign debt of these countries, and any restructuring of the debt would hit the German banks hard. So Merkel insists that bondholders are held good at 100 cents on the Euro, and demands that the Irish and Spanish people pay for it.

Compared to the bankers in Berlin, the IMF has become the good guys – which is a pretty frightening thought.


By sgt_doom on December 18th, 2010 at 10:54 am

Brilliant end-of-the-year financial summation, Ms. Tomchick, absolutely and most pithily brilliant!

And for anyone requiring the background story, please see the following:

(A concise analysis of those in control.)

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