War and the Economic Crisis

What is of utmost significance is that this plunge in stock market values occurs at the crossroads of a major military adventure. The global financial crisis is intimately related to the war. 

A spiraling defense budget backlashes on the civilian sectors of economic activity. The war economy has a direct bearing on fiscal and monetary policy. Defense expenditure is in excess of $500 billion. A separate $70 billion is earmarked "to cover war costs into the early months of a new administration.  Those amounts combined would represent the highest level of military spending since the end of World War II (adjusted for inflation)." (Csmonitor.com  February 06, 2008). 

"War is Good for Business": The powerful financial groups which routinely manipulate stock markets, currency and commodity markets, are also promoting the continuation and escalation of the Middle East war. The financial crisis is related to the structure of US public investment in the war economy versus the funding, through tax dollars, of civilian social programs. "More broadly, this also raises the issue of the role of the US Treasury and the US monetary system, in relentlessly financing the military industrial complex and the Middle East war at the expense of most sectors of civilian economic activity." (See Michel Chossudovsky, The Democrats endorse the "Global War on Terrorism": Obama "goes after" Osama, Global Research, August 29, 2008)

The war is profit driven, financed through the massive Worldwide expansion of dollar denominated debt. War and Globalization go hand in hand. Wall Street, the oil companies and the defense contractors have concurrent and overlapping interests. The oil companies are behind the speculative surge in crude oil prices on the London energy market. 

In turn,  resulting from the military agenda, the US civilian economy is in crisis as the nation's resources including tax dollars are diverted into funding a multibillion Middle East war. 

The Speculative Onslaught

The Worldwide scramble to appropriate wealth through "financial manipulation" is the driving force behind this crisis. It is the source of economic turmoil and social devastation. 

What are the underlying causes? What prevails is a totally deregulated financial environment characterized by extensive speculative trade. 

The history of deregulation goes back to the beginnings of the Reagan administration. 

In the wake of the 1987 stock market meltdown, the US Treasury was advised by Wall Street not to meddle in financial markets. Free of government encroachment, the New York and Chicago exchanges were invited to establish their own regulatory procedures. 

The authority to regulate the market no longer rests with the State but with stock market officials who directly serve the interests of the institutional speculators. 

The crisis on Wall Street is part of a process of financial warfare. 

Since the 1987 crisis, a new era of intense financial rivalry has unfolded.

Financial deregulation in the US has created an environment which favors an unprecedented concentration of global financial power. 

What we are dealing  with is a major clash between competing financial conglomerates. 

The financial meltdown is intimately related to the unregulated growth of highly leveraged speculative operations.

Read: Euroasian corridor 

The Hedge Funds

The hedge funds play a key role in this process of restructuring. These speculative transactions (the panoply of derivatives, options, futures, index funds, etc) often transacted through hedge funds overshadow the workings of stock market transactions, and their relationship to real economic activity.  

The hedge funds are private investment funds, which manage the pooled funds of wealthy investors. While they are often linked to major financial institutions, they are totally unregulated. They operate with a large pool of money capital, which is used to undertake highly leveraged speculative transactions. The latter have the characteristic that profits can be reaped when the market goes up, but also when the market goes down. 

Short Selling

A stock market meltdown can be highly profitable operation. With foreknowledge and inside information, a collapse in market values constitutes (through short-selling) a lucrative and money-spinning opportunity, for a select category of powerful speculators who have the ability to manipulate the market in the appropriate direction at the appropriate time. 

There are indications of a carefully engineered conspiracy to trigger the collapse of several major financial institutions through outright manipulation. 

"Short selling" as well as the spreading of false rumors were used as a strategy to trigger the collapse of selected stocks on Wall Street including Lehman, Morgan Stanley and Goldman Sachs. 

"Short sellers aim to profit from share declines, usually by borrowing a stock, selling it and buying it back after its price has decreased. In abusive “naked” short selling, the seller does not borrow the stock and fails to deliver it to the buyer.

Some market participants say abusive short sellers have contributed to the fall of companies such as Lehman Brothers by forcing down share prices

John Mack, chief executive of Morgan Stanley, told employees in an internal memo Wednesday: “What’s happening out there? It’s very clear to me – we’re in the midst of a market controlled by fear and rumours, and short sellers are driving our stock down.”' (Financial Times, September 17, 2008) 

Regulators have acknowledged that the collapse of  Bear Stearns last March was attributable to short selling. "Regulators have been looking into a combination of short-sales and false rumors are part of the problem." (Wall Street Journal, September 18, 2008)

Merrill Lynch is bought, Lehman Brothers is pushed into bankruptcy. These are not haphazard occurrences. They are the result of manipulation by powerful rival financial institutions, using highly leveraged speculative operations to achieve their objective, which consists in either displacing or acquiring control over a rival financial institution. 
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The current financial meltdown has nothing to do with market forces: it is characterized by financial warfare between competing institutional speculators.  

The Market for Crude Oil

Leveraged speculative trade has pushed the price of crude oil to exceedingly high levels, reaching a peak in  July 2008. A turning point was reached and the direction of speculative trade was rapidly reversed,  leading to a dramatic plunge in prices of crude oil (See Chart  below)

Those financial institutions and/or investors who have the ability to manipulate the movement of crude oil prices,  and had prior knowledge and the ability to determine the timeline of the speculative surge and subsequent collapse, were able to reap large money profits both during the upward and downward movement of the price of  crude oil. 

"The movement in global prices on the New York and Chicago mercantile exchanges bears no relationship to the costs of producing oil. The spiraling price of crude oil is not the result of a shortage of oil. It is estimated that the cost of a barrel of oil in the Middle East does not exceed 15 dollars. The costs of a barrel of oil extracted from the tar sands of Alberta, Canada, is of the order of $30."  (For further details see, Michel Chossudovsky, The Global Crisis: Food, Water and Fuel. Three Fundamental Necessities of Life in Jeopardy, Global Research, July 2008)




Global Economic Restructuring

This economic crisis is the outcome of a process of macroeconomic and financial restructuring initiated in the early 1980s. It is the result of a policy framework: trade and financial sector reforms under WTO auspices not to mention the imposition of the IMF deadly macroeconomic reforms, commonly referred to as the structural adjustment program.  It is accompanied by the concurrent impoverishment of large sectors of the world population. 

The debt crisis of the early 1980s unleashed a wave of corporate mergers, buy-outs and bankruptcies. These changes in turn paved the way for the consolidation of a new generation of financiers clustered around the large merchant banks, the institutional investors, stock brokerage firms, large insurance companies, etc. In this process, commercial banking functions have coalesced with those of the investment banks and stock brokers leading to the consolidation of a handful of global financial conglomerates.  

The unregulated use of complex speculative instruments has provided Wall Street with the means to extend its global financial empire. The main thrust of this process does not consist in overseeing the stock market per se. Rather it resides in controlling the lucrative markets for speculative instruments --derivatives, options, futures, hedges, etc.-- where the scope for manipulation and insider trade is far greater.

Read: The Criminalization of the State: ... 

Wall Street's financial dominance was to be achieved through its institutional control over the channels of speculative trade. This control also provided, as in the case of the Asian crisis, the basis for weakening the role of central banks, taking control over the reigns of monetary policy, stock markets and currency markets.  In the 1997 Asian crisis alone, more than 100 billion dollars were confiscated in a matter of months from the vaults of Asia's central banks; similar speculative assaults were carried out in Russia in 1998 and in Brazil in 1999.