I interviewed Ellen Brown on April 30th. This is part one of a two part interview. Here's a link to the audio podcast.
Thanks to Don Caldarazzo for doing the transcript.
Also, check out the Public Banking Conference , June 2-4, here.
Rob Kall: And welcome to the Rob Kall Bottom Up Radio Show, WNJC 1360 AM out of Washington Township, reaching metro Philly and South Jersey. My guest tonight is Ellen Brown. Now, Ellen Brown could be THE world expert on public banking. When I think of public banking, I think of Ellen Brown.
Ellen Brown: (laughs)
Rob Kall: She has been writing on this for a long time. She's got a book out: The Web of Debt: The Shocking Truth About Our Money System, and How We Can Break Free. Welcome to the Show!
Ellen Brown: Thanks Rob! Great to talk to you.
Rob Kall: Really good to have you here, back again. Now, a couple things. I want to get some definitions set up, because you talk about ideas and concepts that are really important, that touch everybody's lives, but I don't know that everybody really understands some of the ideas. So let's start off with derivatives and the Glass-Steagall Act. Could you describe what each of those are?
Ellen Brown: OK. Well, the Glass-Steagall Act was passed in 1934 and it separated investment banking from depository banking. Before that, the banks we commingling their funds; so if they did some wild investments that went bad, they took those from the depositors' funds. For many years after Glass-Steagall was imposed, things went along fine. Then they repealed Glass-Steagall in 1999 - supposedly to help the banks, to help them with their market share - because (laughs) they were losing market share. For this reason, they changed the law.
Derivatives are essentially bets, but they're called "derivatives" because they're derived from something else. So you don't actually own the assets, you're betting on the assets. For example, if you went to the racetrack and you bet on the horses, you would not own the horses, but you would just be betting on who is going to win. So derivatives are like that. You can bet on whether interest rates are going to go up or down -- I mean, theoretically, you're hedging your bet. It's what farmers do, where they would sell their corn early, betting that the price will be a certain price; and whoever buys the futures for the corn is betting that the price will actually be better than that when the corn comes to market, and that they'll make a profit. So they're both betting on the future: one betting one way, and one betting the other way.
So you have this gigantic derivatives market now that's built up, that's way bigger than the GDP of the world. In fact, it's about -- well, it depends on who you talk to, but according to the BIS itself (which has fairly reliable numbers), it's over 600 trillion dollars, which is -- wait. 60 Trillion [dollars] is the GDP of the entire world, so 600 trillion is ten times the GDP of the world. But some people say it's up to two or three quadrillion, because they're all just numbers. You don't need to own anything, and therefore you can have bets, upon bets, upon bets, and they're all counted in the figures.
So those outrageous bets are being commingled with JP Morgan's deposit share arms now, and Bank of America's depository arms. Those are the two biggest derivatives players. They have, respectively, 79 trillion and 75 trillion [dollars] in derivatives that are mixed with their 1 trillion in deposits. So if they go bust, the deposits are going to be sucked into that for the derivatives losses - as we saw with MF Global, for example. So that's more than a definition, sorry! (laughs)
Rob Kall: No, that's good, that's good. There are some people who say that the solution is to just ban derivatives and eliminate them from the world economy. Is that possible? Would that work? And what would the effect of that be?
Ellen Brown: Up until the nineties - derivatives were considered an illegal form of gambling until they were legalized, so you could certainly do that again. The problem is unwinding them. The fear factor is that when you start unwinding them, because all these derivatives players have placed their bets both ways. They tend to hedge their bets, you know, like Goldman Sachs will do it. So if they lose one bet, then they can't pay off the other bet - and so [the fear is] the whole thing is this great house of cards, and that it'll all go down and take the economy with it.
But we know that's not actually true, because Iceland did it, for example, and it worked out perfectly well for them. They just refused to bail out their banks. Even when Lehman Brothers went down, which precipitated the banking crisis of 2008, they settled up on their derivatives claims and a couple of years ago. It can all be netted out. There will be a little time of trauma, but it could work, I think.
Rob Kall: If it was done, how would that change things?