The ABA Is Ecstatic: What Are the Bankers Smoking?

By Nancy Spannaus

June 22, 2018—In a June 21 release, the Economic Advisory Committee of the American Bankers Association (ABA) declared that the U.S. economy was “fundamentally strong.” While making a nod toward possible disruptions from the ongoing trade conflict, the 16 economists from the major money-center banks who make up the Advisory Committee were basically euphoric, forecasting higher growth, solid financial health in households, low delinquencies, and a drop in the unemployment rate to 3.6% by 2019.

“We see the economy as fundamentally strong this year with little down drift in major sectors,” said Ellen Zentner, chair of the group and chief U.S. economist for Morgan Stanley. “Tax cuts and regulatory reform will help support continued growth in business investment.”

The ABA Is Ecstatic: What Are the Bankers Smoking?
The rise of bank profits may skew the ABA’s perception.

The ABA’s perception was seconded by the release of the preliminary results of the Federal Reserve’s stress tests on the major moneycenter banks, which showed they all had sufficient reserves (barely) to survive a crisis.

Those who live in the real world would do well to ask, “What are these bankers smoking?”

Forecasts of Collapse

The last months have produced ample evidence and warnings of looming, imminent dangers in the financial sector, creating a picture quite opposite to the ABA press release. The latest bombshell to be dropped came June 19, when Michael Greenberger, formerly the director of trading and markets at the Commodity Future Trading Commission, released a report by the Institute for New Economic Thinking.

Greenberger’s report argues that a new major risk of systemic collapse, like that of 2008, has been created by the growth of credit default swaps (CDS) since that time, when they were a trigger for major losses. Greenberger reports that Citibank, JPMorgan Chase, Bank of America, and Goldman Sachs—who handle 90% of the CDS market—have built the market up to over $10 trillion by using a loophole in Federal regulations that allows them to do the trading overseas. The risks are thus hidden from regulators. And while CDSs were about six times higher before the last crash, the rise points to potential disaster. The well-informed former CFTC commissioner sees this process as having created a “massive vulnerability.”

The CDSs are not the only source of danger for a new crash, of course. There have been other Red Alerts put out pointing to the shaky corporate debt, auto, and student loan markets as dangerous trigger points. These alarums have led once again to calls for reinstituting Glass-Steagall by former Clinton Administration Labor Secretary Robert Reich and prominent London publications.

Economic Fundamentals
Are the ABA economists aware of these risks? Of course they are. They simply anticipate that they, the Wall Street bankers, will be protected (bailed out) no matter what happens.

The ABA Is Ecstatic: What Are the Bankers Smoking?
A homeless man in Washington, D.C.–a truer reflection of the real economy.

But the ABA’s denial of reality has consequences far beyond financial matters. In order to declare the economy sound, they ignore the fundamental physical parameters of economic health, which also lie at the core of the American System of Economics. To wit:

  • Productivity growth in the U.S. economy remains below 1%, reflecting the lack of investment in new technologies and infrastructure, and in upgrading the workforce.
  • The real unemployment rate is estimated even by Wall Street economists to be at least 8%, and the labor force participation rate remains at a low 62.7 percent.
  • The basic economic infrastructure upon which daily life depends—transportation, power, and water, for starters—is subsisting at a dismal level, and liable to catastrophic collapse at any time in many areas of the country.
  • The U.S. population is suffering a dangerous increase of “diseases of despair”—i.e. suicides, drug addiction, and alcohol. All of these are contributing to a rise in rates of mortality, and decline in life expectancy.

Does the ABA think the legalization of drugs will simply make the American population oblivious to the real economic and social crises enveloping them?  Do we have to wait for a physical or financial crash to bring us to our senses?