An asteroid the size of a football stadium will blaze past Earth on Friday. Here's how to watch the 'City Killer' pass by live.

Ellyn Lapointe
Thu, February 1, 2024 




A giant "city killer" asteroid will safely shoot past Earth this Friday traveling at 41,000 mph.


Its closest approach to Earth will be 1.77 million miles, over seven times farther than the moon.


You can't see it with the naked eye but you can watch the event live on YouTube.

NASA's Jet Propulsion Laboratory has spotted a giant, "city killer" asteroid in space that's currently flying toward Earth. And this Friday, February 2, it will reach its closest approach to our planet, about 1.77 million miles away.

For reference, the moon is about 239,000 miles from Earth, so this asteroid will be 7.4 times farther than the moon. The speedy space rock is expected to be zipping along at about 41,000 mph and measures roughly 890 feet across or roughly the size of an entire US football stadium, according to NASA.

Experts sometimes call asteroids this size "city killers" because they are capable of destroying an entire city if they collide with an inhabited part of Earth.

Still, this asteroid will be too small and far away to see without a telescope on Friday. In fact, it will be about 10,000 times fainter than the faintest stars visible to the naked eye, Gianluca Masi, an astrophysicist and the scientific director of The Virtual Telescope Project, told Business Insider over e-mail.

But if you want to catch a glimpse of the asteroid as it whizzes by, you're in luck!

Masi and his colleagues at VTP will be recording the event live starting at 1 p.m. ET on Friday. You can watch their livestream on YouTube or in the video below:



The livestream will track Asteroid 2008 OS7 as it flies by Earth. Viewers will be able to distinguish it as a tiny dot moving past other, fixed tiny dots, aka stars, in the background. The livestream will last about 45 minutes, Masi said.

VTP has recorded other flybys like this and it's "something always very fascinating to see," Masi told BI.

About asteroid 2008 OS7

Asteroid 2008 OS7 orbits the sun every 962 days. After passing by Earth, it will continue along its oval-shaped path through our solar system.

Its oblong-shaped orbit means that each time the asteroid approaches Earth, its distance from our planet varies significantly.

For example, according to spacereference.com, upon its next closest approach in July 2037, it will be about 9.7 million miles away from Earth — nearly 5.5 times farther than during Friday's encounter.
Potentially hazardous asteroids

Asteroid 2008 OS7 is what NASA calls a "potentially hazardous" asteroid because of its size and how close it flies past Earth.

An asteroid is considered "potentially hazardous" if it is at least 460 feet in diameter and orbits Earth within a distance of about 4.65 million miles.

Scientists have identified more than 34,000 near-Earth objects. As of August 2023, just over 2,300 have been designated potentially hazardous, Space.com reported.

But NASA suspects there are many more out there that have yet to be discovered. If a giant asteroid was on course to hit Earth, we'd need 5-10 years warning to destroy or deflect it.

NASA JPL is currently working on the Near-Earth Object Surveyor mission, set to launch in September 2027 and send an infrared space telescope into Earth's orbit to expand NASA's search for near-Earth objects that could potentially threaten our planet.


'City killer' asteroid will make its closest approach to Earth for centuries this Friday (Feb. 2)

Harry Baker
Thu, February 1, 2024 

An asteroid floating in space with Earth and the sun in the background.

A "potentially hazardous" football stadium-size asteroid will zip safely past Earth on Friday (Feb. 2), and, in doing so, will reach its closest point to our planet for more than 100 years. It will also be at least several centuries before the space rock ever gets this close to us again.

The massive asteroid, named 2008 OS7, is around 890 feet (271 meters) across and will pass by Earth at a distance of around 1.77 million miles (2.85 million kilometers), according to NASA's Jet Propulsion Laboratory (JPL). For context, that is more than seven times further away than the moon orbits Earth.

You can watch the asteroid flyby for yourself thanks to a live stream from The Virtual Telescope Project, which will begin at 1:00 p.m. ET on Feb. 2.

As it passes by Earth, the asteroid will be traveling at a speed of around 41,000 mph (66,000 km/h), according to JPL.

To compare this space rock's girth to that of other asteroids, it is around half the size of asteroid Bennu, which NASA visited and took samples of, and at least 70 times smaller than the Vredefort meteor — the largest known space rock to ever hit Earth.

Related: 'Planet killer' asteroids are hiding in the sun's glare. Can we stop them in time?

A balck and white image of an asteroid streaking through the stars

Due to its size and proximity to Earth, the asteroid is classified as potentially hazardous despite the fact it will never come close enough to impact our planet, JPL predictions show. If the space rock did ever crash to Earth, it is big enough to wipe out a large city, such as New York.

However, the object isn't hefty enough to be considered a "planet killer" asteroid, such as the Vredefort meteor or the space rock that wiped out the dinosaurs 66 million years ago.

NASA has identified around 25,000 potentially hazardous asteroids, although a significant percentage of these are not as large as the impending space rock. One of these deadly asteroids is expected to hit Earth every 20,000 years, Live Science previously reported.

An orbital diagram showing the asteroids trajectory through the solar system.

2008 OS7 has a highly elliptical orbit, meaning that it does not orbit evenly around the sun. Because of this, the distance between it and Earth varies wildly whenever the space rock makes a close approach to our planet. For example, when the asteroid approached us shortly after its discovery in 2008, it was around 55.9 million miles (90 million km) away from us, which is more than 30 times further away than it will be this week, according to JPL.

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—The 8 most Earth-shattering asteroid discoveries of 2023

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—NASA's most wanted: The 5 most dangerous asteroids in the solar system

Scientists have only directly observed the asteroid fly by Earth twice before. But based on the space rock's orbital data, JPL has simulated every close approach the asteroid has made since 1900 and predicted every close approach it will make until 2198. At no other point in this nearly 300-year dataset is the asteroid expected to be closer to our planet than on Feb. 2 this year.

Several other asteroids have made close approaches to or directly hit Earth in the last few weeks.

On Jan. 27, an airplane-size asteroid passed by Earth at a distance of just 220,000 miles (354,000 km), which is slightly closer than the moon is to our planet. And on Jan. 21, a child-size asteroid was discovered by astronomers around 3 hours before it exploded in the atmosphere above Germany.

Mapping the COVID-19 Recession
Until there is a better sense of when and how the COVID-19 public-health crisis will be resolved, economists cannot even begin to predict the end of the recession that is now underway. Still, there is every reason to anticipate that this downturn will be far deeper and longer than that of 2008.

Apr 7, 2020 KENNETH ROGOFF

CAMBRIDGE – With each passing day, the 2008 global financial crisis increasingly looks like a mere dry run for today’s economic catastrophe. The short-term collapse in global output now underway already seems likely to rival or exceed that of any recession in the last 150 years.


Even with all-out efforts by central banks and fiscal authorities to soften the blow, asset markets in advanced economies have cratered, and capital has been pouring out of emerging markets at a breathtaking pace. A deep economic slump and financial crisis are unavoidable. The key questions now are how bad the recession will be and how long it will last.

Until we know how quickly and thoroughly the public-health challenge will be met, it is virtually impossible for economists to predict the endgame of this crisis. At least as great as the scientific uncertainty about the coronavirus is the socioeconomic uncertainty about how people and policymakers will behave in the coming weeks and months.

After all, the world is experiencing something akin to an alien invasion. We know that human determination and creativity will prevail. But at what cost? As of this writing, markets seem to be cautiously hopeful that a recovery will be fast, perhaps starting in the fourth quarter of this year. Many commentators point to China’s experience as an encouraging harbinger of what awaits the rest of the world.

But is that perspective really justified? Employment in China has rebounded somewhat, but it is far from clear when it will return to anything close to pre-COVID-19 levels. And even if Chinese manufacturing does rebound fully, who is going to buy those goods when the rest of the global economy is sinking? As for the United States, returning to 70% or 80% of capacity seems like a distant dream.

Now that the US has failed miserably to contain the outbreak despite having the world’s most advanced health system, Americans will find it exceedingly difficult to return to economic normalcy until a vaccine becomes widely available, which could be a year or more away. There is even uncertainty about how the US will pull off its November 2020 presidential election.



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For now, markets seem to be comforted by massive US stimulus programs, which have been absolutely necessary to protect ordinary workers and prevent a market meltdown. Yet it is already clear that much more will need to be done.

If this were just a garden-variety financial panic, a massive injection of government demand stimulus would absolve a lot of sins. But the world is experiencing the most serious pandemic since the 1918-20 influenza outbreak. If another 2% of the global population were to die this time, the death toll would come to roughly 150 million people.

Fortunately, the outcome probably will not be that extreme, given the radical lockdowns and social-distancing measures that are being adopted worldwide. But until the health crisis is resolved, the economic situation will look exceedingly grim. And even after an economic restart, the damage to businesses and debt markets will have lingering effects, especially considering that global debt was already at record-breaking levels before the crisis began.

To be sure, governments and central banks have moved to backstop broad swaths of the financial sector in a fashion that seems almost Chinese in its thoroughness; and they have the firepower to do a lot more if necessary. The problem, however, is that we are experiencing not just a demand shock but also a massive supply shock. Propping up demand may contribute to flattening the contagion curve by helping people stay locked down, but there is a limit to how much it can help the economy if, say, 20-30% of the workforce is in self-isolation for much of the next two years.

I have not even touched on the profound political uncertainty that a global depression can spark. Given that the 2008 financial crisis produced deep political paralysis and nurtured a crop of anti-technocratic populist leaders, we can expect the COVID-19 crisis to lead to even more extreme disruptions. The US public-health response has been catastrophic, owing to a combination of incompetence and neglect at many levels of governance, including the highest. If things continue the way they are, the death toll in the New York City area alone could rival that of Northern Italy.

Of course, one can imagine more optimistic scenarios. With extensive testing, we could determine who is sick, who is healthy, and who is already immune and thus able to return to work. Such knowledge would be invaluable. But, again, owing to several layers of mismanagement and misplaced priorities stretching back many years, the US is woefully short of adequate testing capacity.

Even without a vaccine, the economy could return to normal relatively quickly if effective treatments can be swiftly implemented. But, absent widespread testing and a clear sense of what will constitute “normal” in a couple of years, it will be difficult to persuade businesses to invest and hire, especially when they are anticipating higher tax bills when it’s all over. And it is possible that stock-market losses so far have been less than those of 2008 only because everyone remembers how values shot back up during the recovery. But if that crisis does turn out to have been a mere dry run for this one, investors shouldn’t expect a quick rebound.

Scientists will know a lot more about our microscopic invader in a few months. With the virus now racing across the US, American researchers will have direct access to data and patients, rather than having to rely only on Chinese data from Hubei province. Only after the invasion is beaten back will it be possible to put a price tag on the economic cataclysm it left in its wake.


KENNETH ROGOFF
Writing for PS since 2002
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.


Will ‘The Great Cessation’ be worse than the Great Recession? Here’s what we can tell so far

BY SHAWN TULLY March 25, 2020 FORTUNE

Which is moving faster: the spread of the coronavirus, or the damage to the U.S. economy?

That’s the question on the minds of tens of millions of American workers, small-business owners, managers, and investors. And as the economic effects pile up, many are wondering: Are we on the cusp of the kind of yearslong descent that began in 2008?

Never in recent decades has America suffered a deterioration in our economic outlook as swift and shocking as the tremors of the past five weeks caused by the coronavirus crisis. The 30% drop in the S&P 500 since its all-time high in mid-February is the fastest slide on that scale in its history; since Valentine’s Day, $10 trillion in shareholder wealth has vanished. The short-term funding that’s the lifeblood of corporations is freezing up as folks withdraw cash from money-market funds to pay for rent and groceries. An economy that was rebounding a few weeks ago after President Trump called a trade war truce is now universally viewed as heading for what could be the steepest one-quarter contraction in history.

Why 2008 was so terrifying

Americans are looking to crashes of the past for a prognosis on how sick the coronavirus will make our economy. And the one that’s top of mind is the most recent, the Great Recession, or what I'll simply call “2008.” The Great Recession is such a terrifying precedent because it was both extremely deep, and it was long—a full recovery took not a quarter or two, but years.

GDP shrank by 4% over six quarters, bottoming in mid-2009, and national income didn't rebound to late 2007 levels for 14 quarters, until mid-2011.

In the depths, unemployment spiked to nearly 10%. Yields on investment grade debt hit 9%, and junk bonds fetched 13.4%. The S&P 500 plunged 58% by the spring of 2009; it took five years, until the close of 2012, for equities to regain the summit of late 2007, the level first reached in 1999.

So far, it appears that the U.S. isn't threatened by a fundamental fissure that will crack and wrack the economy for years to come, like the housing bubble that caused the Great Recession. “This doesn’t seem to be another Great Depression or Great Recession,” economist and Nobel laureate Robert Shiller told Fortune. “The story isn’t the same. It seems to be a virus story and a stock market story, not like the housing story of 2008.”

But in some ways, this crisis is more serious than 2008. That’s because the early devastation hit much faster, and caused far more damage, than in 2008. To prevent an economic contagion that parallels the virus’s rampage, the federal government needs to provide emergency funding for beleaguered businesses at a speed, and size, never before achieved. The paramount threat isn't the kind of ticking time bomb—the subprime mortgage crash—that caused 2008. It’s the danger that America’s credit markets, already under severe stress, freeze up, sending cash-strapped companies into bankruptcy and causing cascading layoffs that deprive workers of cash, triggering more failures and layoffs. If the Fed, Treasury, and Congress don't deliver a gigantic package within days making the government the lender of last resort, America could experience another Great Recession even in the absence of a ticking time bomb like the subprime craze.

Mark Zandi, chief economist for Moody's Analytics, compares the current shock to a heart attack. “The heart of the economy is the credit markets, and it’s under attack because of the fear of lending,” he says. “We've got to do an angioplasty or valve surgery, or the heart will shut down.” He says that what makes this crisis so dire is the lack of time. “In 2008, it took months for the credit markets to dry up.” Now, he says, the U.S. has only days to act before the economy goes into cardiac arrest.

The Fed and Treasury have already taken important steps to bolster short-term funding. But the failed Senate vote on a $1.7 trillion package on March 22 undermined confidence and sent debt markets into a tailspin. We could be facing another onslaught of volatility in the quicksilver credit markets if Congress doesn't quickly pass the emergency funding measures in the augmented, $2 trillion bill agreed to by the Senate and White House on March 24.

That’s because America is experiencing a completely new phenomenon, the nearly total shutdown of large swaths of the economy. It’s as if the 9/11 attack that brought America to a standstill for a few days has morphed into a kind of Groundhog Day in which Americans awaken to the sight of empty streets and shuttered stores that shows no signs of ending. “In 2008, it wasn’t as if we didn’t go to restaurants and the gym,” says Jared Franz, an economist at asset management giant Capital Group. “People went about their daily lives. Now, businesses are completely shut down, or close to it.”

Franz notes that the virus is attacking the backbone of the U.S. economy, services that account for over two-thirds of GDP. He points out that around half of the 20% economic activity contributed by restaurants, airlines, in-store shopping, live entertainment, and hospitality is totally shuttered. “If you had to invent the perfect takedown of the U.S. economy, this would be it,” says Franz.

Delta Airlines predicts that its second-quarter revenues will drop by $10 billion, or 80%. JetBlue collected $4 million from customers in March, versus its average of $22 million. Marriott’s global hotel business has dropped 75% below normal, prompting CEO Arne Sorenson to label the current situation “worse than 9/11 and the financial crisis combined.” Analysts predict that Nike's sales will drop by one-third in its Q4 ending in May, and the suspension of the NBA and English Premier football league schedules is depriving the footwear colossus of crucial promotions. On March 19, GM and Ford shut down all production in the U.S., Canada, and Mexico until further notice.

The economy was already fragile when the coronavirus hit

To understand where we are now, you have to go back to the aftermath of the Great Recession, when the U.S. economy shifted into a slogging new normal, delivering slower growth and fewer new jobs than in the preceding decades. That trend reversed in Donald Trump’s first two years as President. Business confidence revived, and growth jumped to over 3% from mid-2017 to mid-2018. But although job growth remained robust and the stock market notched peak after peak, the economy entered 2020 back on its heels. The pandemic that would have weakened a strong economy is decimating a weak one.

To assess where the economy is headed, it’s crucial to review its more than yearlong downshift. Fearing that that overheating would stoke inflation, the Fed lowered its benchmark rate four times from December of 2017 through September of 2018. But a signature Trump onslaught was already tapping the brakes: the trade war. Starting in early 2018, Trump slapped tariffs on over $300 billion of U.S. imports from China, raising prices for consumers and businesses. “It was the trade war that was mainly responsible for sucking out growth,” says Zandi. Nevertheless, in December, the Fed made the mistake of imposing yet another rate increase, an ankle weight that further slowed the already halting jog.

Through much of 2019, big parts of the economy, notably farming, energy, and manufacturing, all hit by the trade conflict, sat mired in a downturn. By midyear, the U.S. seemed headed for recession. In July, the Fed reversed course, slashing its benchmark three times through October. “Then Trump connected the dots and called a truce,” says Zandi. Late last year, Trump announced a deal that would roll back some duties on Chinese goods and suspend other planned tariffs.

The gambit worked, at least in part. In January and February, business and consumer confidence was rising. The Fed forecast mediocre expansion of 2% for 2020, slowing to 1.8% by 2022, but no recession. The 10-year Treasury yield had fallen from 3% in mid-2018 to 1.5%, a signal that GDP could well wax more slowly than the Fed predicted. “If not for the pandemic, we might have muddled through,” says Zandi. “But it would have been a struggle. Manufacturing was still in recession. The economy was already fragile, and vulnerable to a shock that could send it into a tailspin.”
How deep will the next recession be?

Experts’ predictions on how deep this recession will go must be setting records given the distance from the depressing best to the previously unimaginable worst. What most economists at the banks, brokerages, and research firms have in common is that they’re positing that the shutdown lasts another nine to 12 weeks or so, and that a sharp recovery begins in the third quarter. Once again, that “this isn’t 2008” scenario hinges on heroic action to keep credit flowing.

According to most forecasts, the deep devastation hits in the second quarter. Just about the most optimistic outlook comes from Steven Blitz of TS Lombard, who foresees a fall of 8.4% in Q2. At the other extremes, Goldman Sachs sees a 24.5% drop in the three months from April through June, and Bank of America is just as pessimistic at 25%. Jim Bullard, president of the St. Louis Fed, warned GDP could crater by 50% without drastic emergency action from Congress, the Fed, and the Treasury. The contractions predicted by other notables: UBS at 10%, Oxford Economics at 12%, and JP Morgan Chase at 14%. Here’s a guide to how fast the numbers are deteriorating. On March 16, Goldman called for a decline of 5% in Q2 and four days later upped the number almost fivefold.

With the forecasts worsening so rapidly, it’s hard to find a middle range that could provide a reasonable view of how much the economy could shrink. Right now, the median appears to be around –15%, and that’s optimistic, since it’s been heading lower. Most banks also expect shrinkage in Q1 in single digits—a ballpark number would be 2%. Goldman is typical in projecting a strong rebound in the second half, foreseeing plus 12% in Q3 and 10% in Q4.

Where do those negative 3% and 15% predictions, followed by the Goldman-posited rebound, take us by year-end? By Fortune’s calculations, GDP for 2020 would shrink by over $1.3 trillion to $20 trillion, and decline 6.3%. As we’ll see, that’s more than half again the total shrinkage in the Great Recession. The difference is that the Q2 fall would be a passing hangover, since the economy would be recovering strongly moving into 2021.

The rolling lockdown of businesses, however, is already creating a job crisis. The week beginning March 3, 211,000 Americans filed unemployment claims. Just two weeks later, the number, by Goldman’s estimates, jumped to a staggering 2.25 million. Morgan Stanley predicts an average unemployment rate in the April to June period of 12.8%, more than triple today's 3.6%.

Aid to families and industry

On March 25, the Senate and the Trump Administration reached agreement on a colossal relief package providing $2 trillion in aid to businesses and families, and make as much as $4 trillion in emergency loans available for all types of large businesses from brokerages to automakers. Single adults making up to $75,000 a year would get a one-time payment of $1200, and couples making $150,000 or less would receive $2400, as well as $500 per child. Those amounts would be reduced for earnings above the $75,000 and $150,000 thresholds. On the business side, the bill earmarks $58 billion in aid for airlines. A crucial plank is a $367 billion infusion targeting America's 30 million small businesses that account for half our economy and employ 58 million workers.

The plan would provide “retention loans” available to all enterprises with 500 employees or fewer. Restaurants, flower shops, printing outfits, and the like would deploy the funds to pay their employees wages for the next two months. If they meet that test, the Treasury would forgive the loans. The program provides a crucial bridge so that small businesses can keep employees on the payroll so they’re ready to go when folks can finally get back to shopping. Right now, a long extension to prevent a cycle where wave after wave of workers lose their paychecks and clamp down on spending, causing big-company revenues and capital expenditures to keep shrinking, triggering still more layoffs that send us into another 2008.

Fortunately, the Senate and the White House also moved to forestall a credit crisis that would unleash armageddon. The Senate bill provides a $500 billion facility that would cover losses on loans provided by the Federal Reserve. The Treasury's backstop would enable the Fed to lend as much as $2 trillion to corporations that either can't obtain loans or refinance bonds in the private markets, or could only borrow at super-high rates.

Still, it's unclear when a final bill will pass so that the sorely needed cash will start flowing. In the House, Speaker Nancy Pelosi in championing a substantially different, $2.5 billion measure. It's unclear if she'll put the Senate version to a vote that would probably assure quick passage, or demand a compromise that would prolong getting that sorely needed cash to families and businesses. The stock market's 10% plus leap on March 24 was a reaction to the a huge infusion of liquidity was on the way. More days of squabbling in Congress could kill that show of confidence.
Growing risks in repos and commercial paper

What could turn a damaging but temporary storm into a hurricane requiring years of rebuilding is that aforementioned lockdown in credit. The danger lies in both of two distinct sectors of the credit markets. The first is the short-term financing provided by two types of vehicles: repurchase agreements, known as repos, and commercial paper. Repos aren't exactly a household name, but they constitute one of the world’s biggest debt markets; the average amount of repos outstanding stands at $3.9 trillion, one-fifth the size of the U.S. economy.

Repos are ultra-short-term loans, usually asset-backed, mainly provided by money-market mutual funds. The borrowers are financial institutions that aren’t funded by deposits like the big banks, nor do they rely on those banks for quick financing; the money market’s chief customers are brokers and hedge funds. The broker, say, sells the money-market fund, which has lots of cash to invest, a contract enabling it to borrow $100 million overnight, and the next day buys back the contract at a slight premium, giving the fund a fraction-of-a-basis point return. The brokerages use the cash to back equity and bond trading, and the hedge funds can deploy the funds to quickly acquire securities without selling parts of their portfolios.

As security, the hedge fund or broker furnishes Treasuries or Fannie Mae or Freddie Mac “agency” bonds. The major commercial banks do a thriving “clearing” business ferrying contracts, cash, and collateral between lenders and borrowers, and handling custody.

In almost all periods, repos are a supersafe vehicle for the money-market lenders. But in rare times of extreme volatility, they turn away borrowers, and the market seizes up. The money-market funds fear that hedge funds are taking big losses, are desperate for cash, and that the value of even the Treasuries supplied as collateral is fluctuating so fast that they may not get repaid. That’s what’s been happening intermittently for the past few weeks. In addition, money-market fund customers are taking out the cash, creating a shortage of funds available to borrowers.

If hedge funds and brokers face a liquidity crunch, the former will dump their Treasuries and other bonds to raise emergency cash, and the latter won’t have the funds to ensure a smoothly working fixed-income market. The freeze will send prices plummeting and yields soaring, further tightening the vise on credit.

A second critical source of funding is commercial paper, short-term IOUs that all kinds of companies obtain to finance inventories or receivables. That flow of ample, cheap cash enables the likes of automakers or restaurant chains to pay bills without liquidating their fixed-income holdings, and once again, the fear contagion virtually shut down the market briefly in mid-March.

It’s the Fed’s role to keep the repo and commercial paper markets liquid, and so far, it’s stepping up. In mid-March, the Fed stood in for the money-market funds and purchased $1 trillion a day in repos, averting a cash crunch for brokers and hedge funds. The Fed also is dusting off the Commercial Paper Funding facility from its 2008 playbook, agreeing to buy up to $1 trillion in the IOUs from corporations, bolstered by a big backstop from the U.S. Treasury, that can't get funding from money markets. Keep an eye on these two crucial funding sources. Only if the Fed continues to fill the role of the fleeing lenders, and only if the Fed pledges to keep doing so no matter how bad it gets, can America weather the crisis without a catastrophe.

Looming stress in corporate bonds and loans

In the recovery from the financial crisis, U.S. companies steeply increased their leverage and shrank their safety cushion. “For 11 years, everyone had a big appetite for risk,” says Alicia Levine, chief economist at BNY Mellon. “Companies gorged on debt. In 2008 the banks’ balance sheets were at risk. Now, corporate America’s balance sheets are threatened. We have a potential liquidity crisis not in the banks, but in the corporate sector.”

The jump in leverage was especially pronounced in such sectors as energy, notably fracking, utilities, and materials. Franz of Capital Group reckons that U.S. enterprises have borrowed a total of $5 trillion in high-yield, leveraged loans used in LBOs, and BBB-rated corporates, the lowest Moody's level above junk status. That’s an increase of well over 100% in the past decade, says Franz.

The junk bond market is already flashing red: Yields have catapulted from under 5% to around 6.1%. Companies are constantly refinancing the waves of maturing corporate debt. As the business lockdown raises the risk of defaults, yields could rise so high that companies can borrow only at ruinous rates, if private lending doesn’t shut down altogether.

To make matters worse, big asset managers are banned by their charters from holding bonds rated lower than BBB. So if those securities are downgraded to junk, mutual funds will dump them in bushels, once again, sending yields skyward.

It now appears that over the next few months, the shrinkage in cash flows will become so severe that private lenders retreat from the market or demand rates that drive corporate America to even deeper losses, causing a spillover into job losses and bankruptcies.

Once again, the government needs to provide credit that will bridge corporate America through the crisis. The Fed is barred from taking credit risk, so it’s the Treasury that must take the lead. Fortunately, the Senate bill allows Treasury to partner with the Fed to provide that $2 trillion in liquidity.

But that $2 trillion still isn't available. That's because the House has yet to pass the Senate bill, or a comparable measure, that includes that relief. Time is short. Any surge in bad news could spook the debt markets. More delays in Congress could provide just that disastrous shock.
The outlook beyond the crisis

Of course, it’s unknowable at this point whether the U.S. will emerge from this dark tunnel into the sunlight by spring or summer. Keep in mind that even the forecasts that get us to a shrinkage of 6% of GDP by year-end, a figure seldom seen, assume that folks will be back on the streets and offices by late spring or early summer.

Assuming we get to the other side, the outlook, frankly, isn’t great. Since stocks looked wildly overpriced prior to the crisis, it’s likely that a lot of the wealth families had in stocks isn’t returning. High tariffs that weren’t hurting us two years ago will probably be a permanent feature—no matter who’s elected President. That’s a major negative for growth. The exploding public deficits and debt can only be addressed with much higher taxes that would impose still another burden.

So the best bet is that we’d return to the same old, same sub-2% growth we were expecting before the crisis hit. It’s not the animal spirits of the early Trump days.

But it’s sure a lot better than 2008.

Massive risks to world economy as virus battle rages

AFP / Tolga AKMEN

The current crisis is likely to be more severe than the 2008 financial 

crisis crash because it affects the entire economy

The coronavirus outbreak and resulting lockdown of billions of people threatens the global economy to the point where economists are predicting the most violent recession in recent history, perhaps even eclipsing the Great Depression.

The crash will almost certainly be accompanied by a surge in unemployment, especially in countries with weaker worker rights, such as the United States.

Ahead of Thursday's emergency virtual G20 meeting, here are the key concerns.

- RECESSION OR DEPRESSION? -

"The G20 economies will experience an unprecedented shock in the first half of this year and will contract in 2020 as a whole, before picking up in 2021," economists from the rating agency Moody's wrote on Wednesday.

Angel Gurria, head of the Organisation for Economic Co-operation and Development (OECD), told the BBC the world economy would suffer "for years".

AFP/File / Angela WEISS, Nicholas KAMM, Johannes EISELE, Frederic J. BROWN, Mandel NGAN, Eric BARADAT, MEGAN JELINGER, Saul LOEB, Andrew CABALLERO-REYNOLDS

The crash will almost certainly be accompanied by a surge in unemployment, especially in countries with weaker worker rights, such as the United States

The current crisis is likely to be more severe than the 2008 financial crisis crash because it affects the entire economy, with a collapse in supply due to the shuttering of factories and a similar crash in demand with billions of people in lockdown.

The transport and tourism sectors have been the first to feel the pain, although some such as pharmaceuticals, health equipment, sanitary products, food and online trade have seen a boost.

The collective GDP of the G20 countries is predicted to contract 0.5 percent, according to Moody's, with the US down 2.0 percent and the eurozone losing 2.2 percent.

China is expected to buck the trend and grow, but at a much-reduced rate of 3.3 percent, according to Moody's.

Most major banks believe the US has already fallen into recession, with Goldman Sachs forecasting a contraction of 3.8 percent this year and Deutsche Bank predicting the worst US slowdown since "at least World War II".

In Europe, where the PMI business activity studies for March were the worst ever recorded, the German economy minister warned of a contraction of "at least" 5.0 percent in 2020.

France's economy could shrink by 1.4 percent, according to Moody's.

Britain could fare worse, with KPMG predicting a fall of 2.6 percent, but that loss could double if the pandemic lasts until the end of the summer.

Capital Economics paints the darkest picture, warning of a possible 15 percent contraction in the second quarter, almost twice as bad as during the Great Depression of the 1930s.

- UNEMPLOYMENT -

Unemployment rates are expected to soar, particularly in countries where levels have recently been at historic lows, such as Britain and the US.

These economies have relied heavily on the boom in jobs in the "gig economy", such as taxi drivers and delivery workers, which offer little or no social protection.

Even employees on long contracts can be fired easily in the US, with economists predicting a dramatic increase in unemployment claims of between 1.0 and 3.0 million when data is released on Thursday, compared to 281,000 at present.

James Bullard, president of the St Louis Federal Reserve, has predicted unprecedented unemployment rates of 30 percent, while Europe can also expect to suffer.

"We think the unemployment rate in the eurozone will surge to about 12 percent by the end of June, giving up seven years' worth of gains in a matter of months," said David Oxley of the London-based Capital Economics, adding they expected some rebound by the end of the year.

- INFLATION -

The effect the crisis will have on prices is the source of great uncertainty, with deflationary pressure due to a collapse in demand on the one hand and potential inflationary pressure caused by devalued currencies and possible shortages on the other.

Inflation rates are low for the moment, and generally below central bank targets, particularly in Britain.

- DEBT -

Britain's current national debt of 90 percent of GDP is high, but reached "nearly 260 percent after the Second World War," Carl Emmerson of the Institute for Fiscal Studies (IFS), told AFP.

But leaders "really shouldn't be worried" by debt and deficits for the time being with financing rates at historical lows, Jonathan Portes, professor of economics at King's College London, told AFP.

They appear to be heeding the advice, with leaders from Washington to Berlin consigning fiscal orthodoxy to the dustbin and announcing budget-busting rescue plans for the economy.

Why The US Banking System Is Breaking Up

Economist Michael Hudson responds to the collapse of Silicon Valley Bank and Silvergate, and explains the similarities with the 2008 financial crash and the savings and loan crisis of the 1980s.

By Michael Hudson

March 13, 2023

Source: Geopolitical Economy Report

A run on American Union Bank in 1932

The California-based, cryptocurrency-focused Silvergate Bank collapsed on March 8. Two days later, Silicon Valley Bank went down as well, in the largest ever bank run. The latter was the second-biggest bank to fail in US history, and the most influential financial institution to crash since the 2008 crisis.

Economist Michael Hudson, co-host of the program Geopolitical Economy Hour, analyzes the disaster:

The breakup of banks that is now occurring in the United States is the inevitable result of the way in which the Obama administration bailed out the banks in 2008.

When real estate prices collapsed, the Federal Reserve flooded the financial system with 15 years of quantitative easing (QE) to re-inflate real estate prices – and with them, stock and bond prices.

What was inflated were asset prices, above all for the packaged mortgages that banks were holding, but also for stocks and bonds across the board. That is what bank credit does.

This made trillions of dollars for holders of financial assets – the One Percent and a bit more.

The economy polarized as stock prices recovered, the cost of home ownership soared (on low-interest mortgages), and the U.S. economy experienced the largest bond-market boom in history, as interest rates fell below 1%.

But in serving the financial sector, the Fed painted itself into a corner. What would happen when interest rates finally rose?

Rising interest rates cause bond prices to fall. And that is what has been happening under the Fed’s fight against “inflation,” by which it means rising wage levels.

Prices are plunging for bonds, and also for the capitalized value of packaged mortgages and other securities in which banks hold their assets against depositors.

The result today is similar to the situation that savings and loan associations (S&Ls) found themselves in the 1980s, leading to their demise.

S&Ls had made long-term mortgages at affordable interest rates. But in the wake of the Volcker inflation, the overall level of interest rates rose.

S&Ls could not pay higher their depositors higher rates, because their revenue from their mortgages was fixed at lower rates. So depositors withdrew their money.

To obtain the money to pay these depositors, S&Ls had to sell their mortgages. But the face value of these debts was lower, as a result of higher rates. The S&Ls (and many banks) owed money to depositors short-term, but were locked into long-term assets at falling prices.

Of course, S&L mortgages were much longer-term than was the case for commercial banks. And presumably, banks can turn over assets for the Fed’s line of credit.

But just as QE was followed to bolster the banks, its unwinding must have the reverse effect. And if it has made a bad derivatives trade, it’s in trouble.


Any bank has a problem of keeping its asset prices up with its deposit liabilities. When there is a crash in bond prices, the bank’s asset structure weakens. That is the corner into which the Fed has painted the economy.

Recognition of this problem led the Fed to avoid it for as long as it could. But when employment began to pick up and wages began to recover, the Fed could not resist fighting the usual class war against labor. And it has turned into a war against the banking system as well.

Silvergate was the first to go. It had sought to ride the cryptocurrency wave, by serving as a bank for various brand names.

After vast fraud by Sam Bankman-Fried (SBF) was exposed, there was a run on cryptocurrencies. Their managers paid by withdrawing the deposits they had at the banks – above all, Silvergate. It went under. And with Silvergate went many cryptocurrency deposits.

The popular impression was that crypto provided an alternative to commercial banks and “fiat currency.” But what could crypto funds invest in to back their coin purchases, if not bank deposits and government securities or private stocks and bonds?

What was crypto, ultimately, if not simply a mutual fund with secrecy of ownership to protect money launderers?

Silvergate was a “special case,” given its specialized deposit base. Silicon Valley Bank also was a specialized case, lending to IT startups. First Republic Bank was specialized, too, lending to wealthy depositors in San Francisco and the northern California area.

All had seen the market price of their financial securities decline as Chairman Jerome Powell raised the Fed’s interest rates. And now, their deposits were being withdrawn, forcing them to sell securities at a loss.

Reuters reported on March 10 that bank reserves at the Fed were plunging. That hardly is surprising, as banks are paying about 0.2% on deposits, while depositors can withdraw their money to buy two-year U.S. Treasury notes yielding 3.8% or almost 4%. No wonder well-to-do investors are running from the banks.

This is the quandary in which banks – and behind them, the Fed – find themselves.

The obvious question is why the Fed doesn’t simply bail them out. The problem is that the falling prices for long-term bank assets in the face of short-term deposit liabilities now looks like the new normal.

The Fed can lend banks for their current short-fall, but how can solvency be resolved without sharply reducing interest rates to restore the 15-year, abnormal Zero Interest-Rate Policy (ZIRP)?

Interest yields spiked on March 10. As more workers were being hired than was expected, Mr. Powell announced that the Fed might have to raise interest rates even higher than he had warned. Volatility increased.

And with it came a source of turmoil that has reached vast magnitudes beyond what caused the 2008 crash of AIG and other speculators: derivatives.

JP Morgan Chase and other New York banks have tens of trillions of dollars worth of derivatives – that is, casino bets on which way interest rates, bond prices, stock prices, and other measures will change. For every winning guess, there is a loser.

When trillions of dollars are bet on, some bank trader is bound to wind up with a loss that can easily wipe out the bank’s entire net equity.

There is now a flight to “cash,” to a safe haven – something even better than cash: U.S. Treasury securities. Despite the talk of Republicans refusing to raise the debt ceiling, the Treasury can always print the money to pay its bondholders.

It looks like the Treasury will become the new depository of choice for those who have the financial resources. Bank deposits will fall. And with them, bank holdings of reserves at the Fed.

So far, the stock market has resisted following the plunge in bond prices. My guess is that we will now see the Great Unwinding of the great Fictitious Capital boom of 2008-2015.

So the chickens are coming hope to roost – with the “chickens” being, perhaps, the elephantine overhang of derivatives.

Silicon Valley Bank’s Collapse Shows Little Has Changed for Big Banks Since 2008

The spectacular collapse of Silicon Valley Bank was caused by corruption, financial recklessness, and poor decision-making. With its bailout echoing 2008’s eager bailouts for the rich, it begs the question: How much longer will Americans put up with this?

By Branko Marcetic

March 13, 2023

Source: Jacobin



Every now and then, a development perfectly embodies everything that’s wrong with an era. The collapse of Silicon Valley Bank (SVB) is one such development, the culmination of many years of financial recklessness, corporate entitlement, and corrupted political decision-making.

The sixteenth-largest US bank by assets up until a few days ago, SVB’s implosion is the second-worst bank failure in US history and the worst since the dominos of the global financial crisis began falling in 2008. Founded in 1983, the bank was the go-to financial institution for the glut of Silicon Valley start-ups that have spread like a rash in the era of cheap money, which was one of the factors in its downfall.

When times were good for venture capital, they were also good for SVB, which served nearly half of all US venture-backed companies. Times were particularly good this past decade or so, as the Federal Reserve ushered in an era of rock-bottom interest rates after the Great Recession. Sluggish growth and high unemployment were top of mind for the political and economic elite; low interest rates, the thinking went, would mean a lower cost of borrowing, leading to more investment and more job creation.

Things curdled in the wake of the coronavirus pandemic, when inflation overtook unemployment as the political and economic concern of the day. The Federal Reserve started rapidly hiking interest rates, by a massive 450 basis points over just the last year. This time, the thinking was that by constraining investment and raising expenses for both businesses and ordinary people, the Fed would put a lid on wage growth and consumer spending and rein in inflation (even though Fed chair Jerome Powell admitted this strategy wouldn’t affect food and fuel prices, two of the areas where average Americans are most feeling the effects of inflation).

This also had the secondary effect of turning off the tap on the ceaseless flow of venture capital that was keeping start-ups, even money-losing ones, above water, helping trigger a major downturn in tech, among other things. Lean times for the sector had a knock-on effect for SVB, which suddenly faced a crunch from its venture capital–backed depositors.

But the more perilous byproduct of the Fed’s rate hikes for SVB was the fact that it had heavily invested in government bonds — whose prices tend to drop when interest rates go up and vice versa — partly because it didn’t have much else to do with the money its customers were parking with it. According to Adam Tooze, SVB was taking a hit of at least $1 billion for every twenty-five basis points that the Fed raised rates, while not investing whatsoever in interest rate hedges, leaving it particularly exposed to Powell’s inflation-fighting gambit.

What finally doomed SVB was that the resulting losses prompted a panic among depositors. This was in no small part thanks to far-right billionaire Peter Thiel’s VC firm Founders Fund, which, after finding out its investors were having trouble transferring money to its SVB accounts, ordered them to send them to other banks and had withdrawn all of its cash by the time the bank started melting down late last week. Around the same time, a newsletter popular in the VC world warned about SVB’s financial issues, while one depositor described the fear among a group chat of more than two hundred tech executives, who soon rushed to pull their money out. Behavior like this led to a classic bank run, where everyone with funds in the bank scrambles to withdraw their money at the same time, collapsing it.

All of this was enabled by the usual combination of corporate power and corruption in Washington, DC. It was Donald Trump and a GOP Congress’s 2018 rollback of the Dodd-Frank financial reform law that, at the personal request of SVB’s president three years earlier, opened the door to this kind of meltdown, by exempting banks the size of SVB from liquidity mandates and more frequent stress tests from regulators. Not that it was the SVB simply asking nicely: the bank also spent more than half a million dollars on lobbying in those three years, employing as lobbyists former staffers for then House majority leader (and now speaker) Kevin McCarthy, who enthusiastically supported the rollback.

Of course, it wasn’t just Republicans to blame. Seventeen Democrats backed the legislation, and critical to shaking off progressive criticisms of the bill was Rep. Barney Frank — the “Frank” in Dodd-Frank — who insisted it wouldn’t make a future financial crisis more likely and whose advice was cited by Wall Street–captured Democrats on the Senate floor and elsewhere as they prepared to gut the hard-fought financial regulations.

Worse than the way Frank’s advice has aged is the fact that at the time, he happened to sit on the board of Signature Bank. That institution didn’t just benefit from Frank giving a thumbs up to Congress weakening his own signature legislative achievement, but has just now been closed down by regulators after becoming the third-largest bank failure in US history at the hands of its own bank run, to prevent a wider contagion of the financial system — the exact thing Frank insisted wouldn’t happen.

Meanwhile, the individualist supermen of Silicon Valley and Wall Street have transformed overnight into willing wards of the state, demanding the government come to the rescue of wealthy investors who stand to lose. (The federal government only insures deposits up to $250,000, which means more than 85 percent of SVB’s deposits were uninsured.) Larry Summers, fresh off railing against “unreasonably generous student loan relief,” is now telling us it’s “not the time for moral hazard lectures or for lesson administering or for alarm about the political consequences of ‘bailouts,’” as he demanded that all uninsured deposits “be fully backed by Monday morning.”

Unsurprisingly, Summers and his ilk won out. Despite pledging not to bail out SVB and Signature, the Treasury, Fed, and the Federal Deposit Insurance Corporation invoked a “systemic risk exception” to announce that all depositors, even those above the $250,000 threshold, will “have access to all of their money” starting today, and that it would start an emergency lending program for banks to ensure as much.

Some are drawing a distinction here from the infamous and hated 2008 bailouts, because this time, the banks aren’t being rescued and taxpayers aren’t footing the bill (the funds being used to cover depositors are made up of fees that were levied on banks). But at the end of the day, the government is stepping in to ensure wealthy investors and executives don’t lose a cent from this debacle, despite the fact that they knew full well their deposits weren’t insured. Even the Wall Street Journal calls this a “de facto bailout.”

There is the obvious, wealth-inflected unfairness inherent to all this. Once again, the big guys are quickly doused with a firehose of money when they get into trouble after failing to carry out basic due diligence. Meanwhile, working people are lectured about personal responsibility, and are forced to scratch and claw to be freed of crushing debt, for basic economic protections in the middle of an economic catastrophe, and to get one-time stimulus checks that barely cover a month’s rent in many cities.

There’s also the question of what kind of future irresponsibility this will encourage. After all, investors just saw (again) firsthand that the federal government will step in to rescue them even if their deposits are uninsured — no matter how irresponsible the financial institution they were parking their money in happened to be, as long as there’s a whiff of potential wider financial instability around the corner. We might also ask what other economic mayhem might be triggered by the Fed’s determination to fight inflation through cranking up interest rates; SVB is just one of many possible entities that could spiral into instability as the central bank barrels ahead with a plan that experts warn will trigger recession, as the cryptocurrency collapse already showed us.

Behind it all, there’s a question: How much longer people will tolerate a system like this? One where vast amounts of wealth are misdirected to unproductive ends in the middle of world historical crises, then frittered away in speculative recklessness that nearly brings the entire structure down, only for those with the money to parachute to safety while everyone else remains condemned to austerity. The original bank bailouts set off a cascade of popular anger that’s irrevocably shaped the landscape of twenty-first-century politics, from Occupy Wall Street and the Bernie Sanders campaigns to the Tea Party movement and the Trump presidency. What will it look like if they keep on happening?

Wall Street bonuses soar by 20%, nearly 5 times the increase in US average weekly earnings

Due to Washington inaction, millions of essential workers continue to earn poverty wages, while the reckless bonus culture is alive and well on Wall Street.

By

 Sarah Anderson

 -

March 28, 2022

SOURCEInequality.org

While inflation has wiped away wage gains for most U.S. workers, just-released data reveal that Wall Street employees are enjoying their biggest bonus bonanza since the 2008 crash.

Institute for Policy Studies analysis of new New York State Comptroller bonus data:

The Inflation Divide

• The average annual bonus for New York City-based securities industry employees rose 20 percent to $257,500 in 2021, far above the 7 percent annual inflation rate. By contrast, typical American workers lost earnings power in 2021. Average weekly earnings for all U.S. private sector employees rose by only 2 percent between January 2021 and January 2022, according to the Bureau of Labor Statistics.

Unlike hourly wage data, average weekly earnings reflect the fact that many Americans had to cut back on work hours last year, largely due to Covid-related illness, lack of child care, and other family care pressures. The average weekly hours worked by U.S. private sector employees dropped from 35.0 to 34.5 between 2020 and 2021.

Return to Pre-Financial Crash Bonus Levels

The average Wall Street bonus of $257,500 in 2021 was far higher than any year since the 2008 financial crash. The second-highest was the 2017 average bonus of $209,046, adjusted for inflation. These bonuses come on top of base salaries, which averaged $254,000 in 2020.

Wall Street pay v. the minimum wage

• Since 1985, the average Wall Street bonus has increased 1,743 percent, from $13,970 to $257,500 in 2021 (not adjusted for inflation). If the minimum wage had increased at that rate, it would be worth $61.75 today, instead of $7.25.
• The total bonus pool for 180,000 New York City-based Wall Street employees in 2021 was $45 billion — enough to pay for more than 1 million jobs paying $15 per hour for a year.

Wall Street bonuses and gender and racial inequality

The rapid increase in Wall Street bonuses over the past several decades has contributed to gender and racial inequality, since workers at the low end of the wage scale are disproportionately people of color and women, while the lucrative financial industry is overwhelmingly white and male, particularly at the upper echelons.

• The share of the five largest U.S. investment banks’ senior executives and top managers who are male: JPMorgan Chase: 74%, Goldman Sachs: 75%, Bank of America: 64%, Morgan Stanley: 74%, and Citigroup: 64%.
• In 2021, the leadership of the largest Wall Street banks became slightly more diverse when Jane Fraser, a white woman, became the first female leader of a top-tier U.S. investment bank. The CEOs of the other four banks in that tier are all white males.

Nationwide, men make up 62 percent of all securities industry employees but just a tiny fraction of workers who provide care services that are in high demand but continue to be very low paid. Men make up just 5.4 percent of childcare workers, an occupation that pays $26,790 per year, on average. Men make up just 13 percent of home health aides, who average $27,080 per year.

• At the five largest U.S. investment banks, the share of executives and top managers who are Black: JPMorgan Chase: 5%, Goldman Sachs: 3%, Bank of America: 5%, Morgan Stanley: 3%, and Citigroup: 4%.
• Nationally, Black workers hold just 7.2 percent of lucrative securities industry jobs but 27.4 percent of home care and 16.3 percent of child care jobs.

These jaw-dropping numbers are just the latest evidence of unequal sacrifice under the pandemic. While ordinary workers are struggling with rising costs for basic essentials, Wall Street bankers have seen their bonuses rise further into the stratosphere.

Actions to crack down on runaway Wall Street pay are long overdue. Since 2010, the year the Dodd-Frank financial reform became law, regulators have failed to implement that law’s Wall Street pay restrictions. Meanwhile, Congress has failed to raise the minimum wage.

“These two failures speak volumes about who has influence in Washington — and who does not,” Anderson said.

Powerful Wall Street lobbyists have succeeded in blocking Section 956 of the Dodd-Frank legislation, which prohibits large financial institutions from awarding pay packages that encourage “inappropriate risks.” Regulators were supposed to implement this new rule within nine months of the law’s passage but have dragged their feet — despite widespread recognition that these bonuses encouraged the high-risk behaviors that led to the 2008 financial crisis, costing millions of Americans their homes and livelihoods.

In contrast to the Wall Street lobbyists, advocates for the working poor have seen their efforts to raise the federal minimum wage and secure other important worker benefits stalled in Congress. Due to Washington inaction, millions of essential workers continue to earn poverty wages, while the reckless bonus culture is alive and well on Wall Street

Sarah Anderson  

IPS Global Economy Project Director Sarah Anderson’s current work includes research, writing, and networking on issues related to the impact of international trade, finance, and investment policies on inequality, sustainability, and human rights. Sarah is also a well-known expert on executive compensation, as the lead author of 16 annual “Executive Excess” reports that have received extensive media coverage. In 2009, she served on an advisory committee to the Obama administration on bilateral investment treaties. In 2000, she served on the staff of the bipartisan International Financial Institutions Advisory Commission (“Meltzer Commission”), commissioned by the U.S. Congress to evaluate the World Bank and IMF. Sarah is also a board member of Jubilee USA Network and a co-author of the books Field Guide to the Global Economy (New Press, 2nd edition, 2005) and Alternatives to Economic Globalization (Berrett-Koehler, 2nd edition, 2004). Prior to coming to IPS in 1992, Sarah was a consultant to the U.S. Agency for International Development (1989-1992) and an editor for the Deutsche Presse-Agentur (1988). She holds a Masters in International Affairs from The American University and a BA in Journalism from Northwestern University.

‘Jaw-dropping’: Wall Street bonuses have soared 1,743% since 1985

A new analysis finds that if the federal minimum wage had increased at the same rate, it would currently be $61.75 an hour.

By

 Jake Johnson

 -

March 24, 2022

SOURCECommon Dreams

A new analysis out Wednesday estimates that if the federal minimum wage had grown at the same rate as Wall Street bonuses over the past three and a half decades, it would currently be $61.75 an hour instead of $7.25.

According to fresh data from the New York State Comptroller, the average bonus dished out to Wall Street employees jumped 20% to a record $257,500 in 2021 as big banks reported huge profits despite widespread havoc caused by the coronavirus pandemic. Last year’s average Wall Street bonus was the highest since 2006, prior to the Great Recession.

The comptroller’s office points out that while the securities industry comprises just 5% of private-sector employment in New York City, it makes up one-fifth of total private-sector wages.

Taking the new figures into account, Sarah Anderson of the Institute for Policy Studies notes in a report that the average Wall Street bonus has soared by 1,743% since 1985.

“By contrast, typical American workers lost earnings power in 2021,” Anderson writes, noting that high inflation has eroded the modest wage gains seen by ordinary people. “Average weekly earnings for all U.S. private-sector employees rose by only 2% between January 2021 and January 2022, according to the Bureau of Labor Statistics.”

“These jaw-dropping numbers are just the latest evidence of unequal sacrifice under the pandemic,” Anderson adds. “While ordinary workers are struggling with rising costs for basic essentials, Wall Street bankers have seen their bonuses rise further into the stratosphere.”

Anderson argues that Wall Street bonuses have been soaring in recent years partly because Section 956 of the Dodd-Frank Act—a financial reform measure enacted in the wake of the 2008 crash—has never been implemented.

“Powerful Wall Street lobbyists have succeeded in blocking Section 956… which prohibits large financial institutions from awarding pay packages that encourage ‘inappropriate risks,'” Anderson writes. “Regulators were supposed to implement this new rule within nine months of the law’s passage but have dragged their feet—despite widespread recognition that these bonuses encouraged the high-risk behaviors that led to the 2008 financial crisis, costing millions of Americans their homes and livelihoods.”

“In contrast to the Wall Street lobbyists, advocates for the working poor have seen their efforts to raise the federal minimum wage and secure other important worker benefits stalled in Congress,” she continues. “Due to Washington inaction, millions of essential workers continue to earn poverty wages, while the reckless bonus culture is alive and well on Wall Street.”