Toxic Waste Dumps of Credit

Robert Kurz

Anyone who still has a vestige of memory might wonder what happened to the huge masses of bad loans for which the search was on after the financial crash of 2008 to find as inconspicuous a resting place as possible. Nothing has been paid off; on the contrary, the imaginary liabilities have continued to swell. The game of apparently servicing old loans with new ones, and servicing them again with new ones, has long been exhausted in the private sector. On the other hand, the notorious “toxic papers” were not allowed to be written off in full because of their sheer mass, apart from a few cosmetic operations by the banks. According to the financial gurus themselves, this would have meant the famous “meltdown” of the global financial system. In balance sheet terms, the banks were allowed to offload their toxic waste. But even the “bad banks,” which were supposed to temporarily cushion the collapse of the shadow banking system after the bursting of the real estate bubble with the help of government guarantees, have gone quiet.

Officially, hopes and expectations were raised that the government guarantees could soon create enough new “confidence” to bring the long worthless securities back to a halfway decent price. The prerequisite for this would have been that the U.S. real estate sector, from which the shock wave had emanated, recovered strongly. There is no evidence of such a recovery. But the government guarantees did not come due either. This was simply not allowed to happen, because otherwise the “meltdown” would have taken place via the detour of the state budgets. So where has the highly toxic waste of the financial system gone? A final repository has indeed been found, namely the central banks. As is well known, they are currently flooding the world with dollars, euros, etc., in order to breathe life into what is actually a clinically dead global economy. Officially, they are not yet dropping the money from the helicopter, but are giving it to the commercial banks as a loan; albeit at low or even zero interest rates. As with any loan, the banks have to deposit “collateral” for it. And what does this collateral consist of? In the masses of toxic waste paper that the central banks take in their stride as if they were the crown jewels.

Less than three years have passed since the crash of the financial markets, and already the public finances of more and more countries are running out of steam because they were overstretched in the course of the anti-crisis policy. Basically, the same development is repeating itself with government securities as with private financial securities. A growing part of the barely serviceable debt has been transferred to shadow budgets. More and more government bonds are turning into toxic waste like real estate mortgages before them. And central banks are also becoming grateful customers for this. The Asians are buying less and less U.S. bonds? No problem, the U.S. Federal Reserve itself is asking for them like grain during a famine. The European sovereign debt crisis would also have worsened, despite all the rescue packages, if the European Central Bank had not long since started buying up worthless bonds of the crisis states en masse. Of all things, the central banks, the supposed guardians of the Grail of financial stability, have become toxic waste dumps of the global financial system. This is the final disposal site because there is no longer any authority behind it that could, in turn, relieve the central banks of their burden. The façade of normality that has been put up since 2008 consists of the adventurous policy of money creation based on the “safety net” of bad loans.

Originally published in Neuen Deutschland in 07/25/2011

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