December 20, 2007
Many Christians in many denominations are watching world events to discern how latter-day prophecies are being fulfilled. While many watch world geopolitics to see evidence of prophetic fulfillments, recent events indicate that Christians ought to watching economic news for as well. This blog is about how the financial system of the entire Western World is now teetering on the edge of an abyss. This is not “scare talk.” Jim Cramer of CNBC’s popular show, “Mad Money” recently had an on-camera, frenzied segment re: Armageddon could be coming for the financial markets (see blog archives for the Jim Cramer segment).
If you are reading this blog, you are a serious person who is trying to examine world events in biblical perspectives. You are already familiar with the mortgage meltdown and global credit crisis which has resulted from the sub-prime lending fiasco. As a result of so many sub-prime loans being “securitized” and sold as Collateralized Debt Obligations (CDOs) to banks and investors around the world, the financial risks from these sub-prime loans was also being spread around the world. The high risks of sub-prime loans are comparable to a severe virus which has spread to everyone in a given community. In this case, virtually the entire global banking and investment community “has the virus.” Because no one really knows which banks and investment houses are in the riskiest financial condition, the investment community doesn’t know which institutions are really trustworthy and solvent. You have, no doubt, read many articles in the media about this crisis. How can this be seen in a biblical perspective?
II Timothy 3:1 warned that, in the latter days, “perilous times shall come.” That prophecy goes on to list many sinful conditions which would be common in the latter days. One of these is “covetousness,” or in more modern terms: “greed.” Greed is at the heart of the sub-prime financial crisis. Revelation 18 also prophesied that in the latter days, an entity called “Babylon the Great” would emerge which would be a political-economic system created by the “kings of the earth” and the “merchants of the earth.” Has this prophecy ever come true! Babylon the Great is the modern “globalist” system jointly created by the political leaders of the earth and the multinational corporations (for which the term “merchants of the earth” is a perfect term). Revelation 18 prophecies that Babylon the Great’s system will “fall” at the end of this age, but it will benefit the world elites for a short time before its collapse at the end of this age. Revelation 18:11-13 prophesied that the “merchants of the earth” (the global multinationals) would trade in every kind of product imaginable, including “the souls of men.” We tend to think of this as a reference to overt slavery, but a prophecy about global merchants trading in “the souls of men” could also be applied to the sub-prime mortgage crisis.
In more conservative times, mortgages were loaned by bankers who knew their borrowers, and bankers “carried the paper” for the life of the loan. This was a straightforward transaction in which profits were booked slowly over time. Then, people got greedy. Very greedy! Someone decided to “securitize” the mortgage business and combine vast numbers of mortgages into “investment vehicles” which could be sold to investors in many institutions located in many nations. Ostensibly, this was to “spread the risk,” but it all backfired. Mortgage originators realized that they could make all kinds of risky loans which would be packaged into CDOs and other investments, but the originators didn’t care because they were not going to “carry the paper” for 30 years. They simply wanted the origination fees which they received for creating mortgages for the purveyors of CDOs to sell to others. People who bought mortgaged homes no longer knew who actually “held their mortgage.” Their financial “souls” (their ability to make payments on their mortgages for 30 years) were being bought and sold around the world by nameless “merchants of the earth.”
The sub-prime mortgage crisis has revealed the world banking and financial community to be a “house of cards,” and it is teetering now that many of the bottom cards (sub-prime mortgages) are being pulled out of the structure. There are so many articles on this subject, that I can only cite a few. Mortimer Zuckerman had some insightful observations in his editorial in the December 24th issue of US News and World Report Editor. He wrote: “…the risks of the credit squeeze are the worst since the Great Depression,” and that “We may be at the finish of not just the long-term borrowing bubble, but the long-term spending bubble.” Mark Zandi, Chief Economist for Moody’s, was cited in a USA TODAY article (“Government, industry craft plan to slow foreclosures,” 12-4-07, p. 1B) that “This is the most serious housing recession since the Great Depression.” Comparisons of modern conditions to the Great Depression are becoming more frequent.
Citibank was among the global institutions hit the hardest by this crisis. Their CEO was replaced after mega-billions of losses were reported. Citibank was bailed out by an infusion of about $7 billion in Arab oil money. The December 20, 2007 issue of USA TODAY reported that Morgan Stanley had a $9.4 billion “write down of mortgage-related” losses and survived due to “the Chinese government…purchas[ing] a 9.9% stake in the investment bank for $5 billion.” (see first link below) [Those readers who frequent my “Gog-Magog” blog will take special note of this fact.] You can be sure that the foreign nations and banks which are injecting large sums of money into America’s flagship banks and investments houses will increasingly “call the shots” in the rescued institutions. China may have already “called the tune” on one issue to which the US Government was required to “dance.” The December 20, 2007 issue of USA TODAY (see second link below) also reported that the US government declined to name the nation of China as a “currency manipulator” even though the entire world knows that China is manipulating its currency for maximum advantage over the USA. This farcical declaration by the US government is, no doubt, made necessary by China’s bail-out of Morgan-Stanley and its on-going bailout of the US government itself via purchases of US Treasury Debt. The economic law of Proverbs 22:7 cannot be undone by either nations or individuals. “Borrowers” will always be “servants” to their lenders.
The US Federal Reserve Board has just completed the first in a series of four unprecedented “auctions” of $20 billion each to banks in need of emergency loans to stabilize their balance sheets. In the third link below, another December 20, 2007 article in USA TODAY reported that in the first such auction, “93 banks bid…for $61.6 billion, more than three times the amount offered,” and added that the “new system [of Fed auction] provides more anonymity.” Most interesting! The crisis is so bad that far more banks wanted to participate in this auction than could do so, and “anonymity” was a prime motivator. Many banks apparently want to make sure the general public (and perhaps even their own shareholders) do not realize how bad their balance sheets really are. Things could get far worse due to the fact that banks and investors cannot accurately assign a true market value to the CDOs and other exotic financial instruments they hold. Since their are no bidders for these “assets,” is their effective value “zero?” If so, many banks and investment houses would become technically insolvent. Again, the Federal Reserve Board (the “mother” of all American banks) could come to the rescue for this crisis too. In a column in the 12-24-07 issue of Newsweek magazine (“A Sequel to the Subprime Mess”) , Robert Samuelson wrote “The Federal Reserve…acted to forestall [the crisis] by creating a new lending procedure by which banks can borrow from the Fed by using some of their existing investments as collateral.” [Emphasis added.] This statement indicates that the money borrowed by banks in the Fed’s secret auctions may eventually be “paid for” by the borrowing banks assigning their devalued CDOs to the Fed (valued at full price, no doubt). In other words, the Fed will, effectively, monetize the CDOs, reliquify the banks and many worthless CDOs will disappear into financial cyberspace. Babylon the Great is clever at insuring its own survival! It helps when you can write your own rules.
However, a new problem surfaced today. Bloomberg News reported on December 20, 2007 (see fourth link below) that “the ratings… for the world’s largest bond insurers were lowered by Standard and Poors, raising the specter of more writedowns for the companies investment-bank clients.” The article added that “industrywide downgrades would lead to losses of $200 billion” for the banking industry in addition to the “$76 billion” already lost in “the collapse of the US subprime mortgage market.” In other words, even as the Fed issues $80 billion in the next few weeks in secret auctions to rescue banks already reeling from the subprime mortgage crisis, the size of the fiscal crisis just tripled! This crisis could affect you and your home town. The bond insurers guarantee vast pools of municipal bonds around the nation. By insuring municipal bonds, these firms enable cities to obtain better interest rates on those bonds. Now that the bond insurers are, themselves, being downgraded by rating agencies, it calls into question many aspects of the entire municipal bond market. This crisis reached my state already. An article in the December 20, 2007 issue of my local newspaper, the Sioux Falls Argus-Leader (“Bond Insurer rated as ‘junk,'” an AP story by Dirk Lammers), related that “Many municipalities get high credit ratings because their bonds are insured…higher borrowing costs for cities will force them [to] charge higher property taxes…some cities may be shut out of the credit markets.” This article was prompted because the insurer of the muni bonds of a South Dakota city was, itself, downgraded to “junk bond” status. You can be sure many municipalities everywhere are looking very carefully at the status of their bond offerings today.
At this time of year, some people wonder if there is a Santa Claus. For the banks and financial houses of the modern system called “Babylon the Great” in Revelation 18, there is a Santa Claus. It is the Federal Reserve Board. Like a tireless “mother,” it creates endless billions of dollars “out of thin air” to bail out all its “daughter” banks and investment houses, and it finds shadowy statistical ways to make the bad investments disappear. However, globalism, the invention of modern Babylon the Great, has a dark side. The US Fed is not the only “lender of last resort” anymore. China, Japan, Saudi Arabia and Arab sheikdoms, etc. are all becoming “lenders” to US banks and investment houses as well. US banks and investment houses will now have to “dance to the tune” of the foreign investors too, not just to the tune of the Federal Reserve Board. The measures taken to keep the current global financial system afloat are getting very complex indeed. The Fed (in cooperation with other central banks around the world) is taking unprecedented (and shadowy) actions to save the solvency of the western banking and financial system. Desperate times call for desperate measures.
Combining all the global economic crises with the on-going global geopolitical crises makes for a dangerous world indeed. Paul said in I Timothy 3:1 that “perilous times” would come in the latter days. They’re here.