Okay, so now we have Italian authorities suing German and Swiss banks, the Greeks are suing the American and the Americans are suing themselves. The banks are being accused of misleading investors and not telling the truth by the very same regulators and governments who over the last three years have been telling us that “the worst is over” and that the global economy is on the road to recovery.
It seems pretty clear by now that the banks, in fact, have been manipulating the markets, misleading investors and covered up their risks so no one can figure out what their real financial exposure is. But I have trouble imagine that only the bankers knew about it, and that the politicians and regulators have been totally in the dark.
The financial industry is broadly represented in governments and regulatory institutions all over the world.
And that’s okay. It provides the elected leaders with important knowledge about how our financial system works. Or, at least it is supposed to.
Looking back over the last few years, it’s amazing to see how ignorant even the most prominent economic experts must have been.
It’s almost unbelievable.
One of the most surreal moments of today’s financial crisis was when formed FED chairman Alan Greenspan was to testify before the U.S. Congress in October 2008 after the collapse of the American subprime mortgage market.
Mr. Greenspan, for many years regarded as one of the best economists in the world, told the Congress that he was “in a state of shock and disbelief.”
Adding that he still did not fully understand why it happened.
To compliment the impression of total darkness; exactly two years earlier (October 9th 2006) Alan Greenspan was quoted saying that the “U.S. housing market appears to be emerging from its recent travails” and that “the worst may well be over.”
Remember – this is the man who was seen as one of the best economists in the entire world.
One might also wonder it the politicians have been in some kind of denial about the severity of the crisis.
I guess many of you remember U.S. Treasury Secretary Hank Paulson’s statement from May 7th 2008:
“There’s progress,” he said. “I think we’re closer to the end of this than the beginning.”
In late 2008 and early 2009 Hank Paulson’s words was echoed by politicians all over the world, backed by statements from “independent” economists like the Dean of the NYU Stern School of Business, Thomas F. Cooley:
“There are distinct signs of a recovery in the U.S. economy, parts of Europe and elsewhere. There is a definite sense that the worst is over.” (May 11th 2009)
“After months of turmoil, the worst of the financial crisis is over — unless governments decide to mess it up,” executive director Mark Mullin at the Frasier Institute said on November 17th 2008.
Well, obviously they did…
Here’s the Irish Finance Minister, Brian Lenihan, on December 10th 2009:
“The inauguration of John F Kennedy as President of the United States in 1961 gave a powerful sense of hope, possibility and self-belief to Irish people all over the world,” he said, speaking about how the Irish people wanted the country to start believing in itself again.
He had earlier declared that the “worst is over” and that “we are now on the road to economic recovery”.
“As we begin to emerge from the unrelenting economic gloom of the last 18 months, we need to rediscover our optimism and our self-belief.”
He concluded by stating: “Our plan is working.We have turned the corner.”
(And no one has seen him since?)
“It gives the minister optimism as the GDP result is better than foretasted. So we can officially say the recession is over,” Vita Ramanauskaitė, spokeswoman for the Ministry of Economy in Lithuania said on October 27th 2009.
“The hemorrhaging has peaked. We’re on the other side of the recession now,” Bernard Baumohl, chief global economist, Economic Outlook Group, said on July 5th 2009.
“There’s still a lot of pain left, but the most dangerous time is over,” director Chris Richardson at Access Economics stated on July 21th 2009.
“The worst of the U.K.‘s recession is over,” according to the British Chambers of Commerce (BCC) business group, July 7th 2009.
“I think I see a light at the end of the tunnel and I don’t think it’s an oncoming train,” Harold L. Sirkin with The Boston Consulting Group said on April 27th 2009.
(Guess Mr. Sirkin is still trying to figure that one out).
“I believe that the greatest part of the [crisis’] negative impact is behind us,” Mario Breglia, president of Italian property intelligence company, Scenari Immobiliari, said on October 28th 2008.
The Media Heavyweights
The ones who were supposed to call the bluff – the big media – were among the first to declare that the experts was right.
First ; Steve Forbes, founder of the prestigious Forbes Magazine and publisher of the famous Forbes 500 lists.
“I think the credit crisis – the worst of it – is over. The fever is broken,” Mr. Forbes said on October 29th 2008.
Speaking to analysts on a conference call, May 6th 2009, Mr. Murdoch said:
“It is increasingly clear that the worst is over. There are emerging signs in some of our businesses that the days of precipitous declines are done and that revenues are beginning to look healthier.”
Well, what has become “increasingly clear” is that the financial media was just as lost as politicians and the financial “experts.”
Financial News.com (October 20th 2008): “Directors at companies across Europe have this month increased the amount of shares they bought in their own companies, suggesting they believe the bottom of the market may soon arrive.”
The Guardian (May 11th 2009) “The worst of the recession may now be over, according to the Organisation for Economic Cooperation and Development, which said today that Britain is among a handful of countries which may be seeing a pause in its economic slowdown.”
The Australian.com (February 15th 2010): “There is clearly a growing confidence that the worst is over.”
Anyway – the biggest bluff ever was pulled off at December 5th 2008, after the U.S. Labor Report showed a drop of 533.000 jobs in November – the worst labor report since 1974.
The Biggest Bluff Of All
As unbelievable as it seem now, the report was in fact analyzed and found to be yet another sign that “the worst is over.”
Here’s some of the statements from that day:
“This is history,” says economist Ram Bhagavatula, who’s also managing director at Combinatorics Capital. “December payrolls will be weak as well. The leading indicators will come from a slow re-activation of the credit markets and increases in consumer spending. You should begin to see that in the next couple of months.”
“Every recession has its worst day, and this is probably the worst day,” says Chris Rupkey of Bank of Tokyo-Mitsubishi.
“It suggests we are getting so weak there will be a turnaround,” says Robert Brusca, chief economist at Fact & Opinion Economics.
Economists pointed to historical data and recent developments as solid grounds for their optimism.
“Once you have a steep drop like that, even a steady weak state starts to look better,” Brian Bethune, senior U.S. economist at Global Insight.
“There’s now starting to be some visibility about how this might end,” says David Resler, chief economist at Nomura International.
Visibility? How it might end?
Excuse me, Mr. Chief Economist, have you had your eyes checked lately?
Hallelujah! A Revelation!
Just last week two of the most influential persons, when it comes to European economy, ECB president Jean-Claude Trichet and former British PM Gordon Brown finally arrived at the same conclusion as millions of people around the world have found out a long time ago; that this probably is the worst economic crises ever.
Hallelujah! They must have had some kind of revelation.
But still, there are plenty of political and economic leaders who try to insure us that “the worst is over.”
California’s Governor Arnold Schwarzenegger being one of them.
“Despite the state’s high unemployment rate, California’s economy is making a slow comeback and the worst is over,” Schwarzenegger said on February 21th this year..
“We’ve seen that the foreclosure rate has slowed down. We’ve seen that the house sales have picked up. We’ve seen people are getting back to work, especially in the green sector. So there’s signs all over.”
(What has he been smoking?)
“The Global economy appears to be recovering and the worst is definitely over,” chairman of the International Monetary Fund, Youssef Boutros-Ghali, said in Washington at April 26th 2010.
“With good crop prospects, remunerative prices being in place and Indian prices broadly in line with international prices, we will soon be able to stabilize food prices,” prime minister, Manmohan Singh, of India said on February 7th 2010.
“The economy is starting to show some positive signs. So business for us is looking up, particularly the past 60 to 90 days. We’re hoping it’s going to be a lot of fun soon,” Royal Bank of Canada Bank president Reggie Davis said on April 20th 2010.
Islamabad, May 4th 2010: “Prime Minister Gilani stated that as a result of bold policy measures taken over the last two years, macro-economic stability has been restored, manufacturing has begun to pick up, business climate is improving and exports are on the rise. He observed that challenges remain but the worst is over.”
“I think the worst is over for the crisis that we’ve had – the sort of peak of the crisis.” prime minister of Greece, George Papandreou, concluded on April 3th 2010.
Sue, Baby, Sue!
So, now the banks are being sued because they’ve been telling their clients and investors more or less the same things as the politicians, the central banks and their economic experts have been telling their citizens.
After trillions of bailout dollars at tax payers’ expense, will the central banks be sued for being the big banks accomplice in a crime?
When do we see the first law suit being filed against a government for misleading the public?
Or will governments start suing people for voting on the wrong politicians?
Just don’t tell me that the “worst is over”….
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