Broken Banks and Other Unheeded Warnings

Does history indicate an even bigger crash coming?
From the February 2010 Trumpet Print Edition

When banking giant Barings collapsed in 1995, it shook the financial world to its core. How could a bank that survived the American Revolution, the Napoleonic Wars with France and both great wars collapse so quickly?

Because of an earthquake in Japan. After the Kobe earthquake on January 16 that year, Japanese stock markets plunged—and a 233-year-old banking icon disappeared.

Although Barings was not an American bank, it held special significance for America. It was the British bank that helped finance the Louisiana Purchase in 1803 for the fledgling United States. It was that purchase that enabled America to become an economic superpower.

Newsweek called the Kobe earthquake “an act of God.” In the April 1995 Trumpet, Gerald Flurry said he agreed. “The Barings Bank collapse is a strong warning sign for America and Britain. The collapse of our nations is going to be just as sudden if we don’t repent!” he wrote.

Fifteen years later, has America learned anything?

A Bubble Bursts

Soon after the Barings disaster, the world was shaken again. In July 1997, Asia went into currency meltdown. Beginning in Thailand and sweeping through virtually all of the Asia Pacific region, one currency after another collapsed as nations flirted with and succumbed to debt default.

After the Asian financial meltdown, the Trumpet warned that although America had emerged relatively unscathed, we shouldn’t “deceive ourselves by arrogantly thinking we are invincible” (November 1998).

“It is vitally important that we see behind the record-setting U.S. bubble stock market with all the hype and hoopla,” Trumpet writer Tim Thompson exhorted a few months later. “With the full view provided by combining news and prophecy, it is America which is in grave danger of an unstoppable fall over the precipice of financial ruin” (February 1999).

Over the following year, America’s economy grew at a wildfire pace. Giddy venture capitalists and fat pension plans drove the stock market to astronomical highs. The technology-heavy Nasdaq broke 5,000 and was still going up and up. Companies like DrKoop.com, Boo.com and Pets.com were supposed to unleash a new era of prosperity. Shares rocketed from pennies to hundreds of dollars. Companies that had never earned a cent were worth billions.

But despite the euphoria, the Trumpet kept declaring that the economy was built on sand. America was not being blessed by God, we said.

At the exact peak of the dot-com bubble, the Trumpet repeated its warning: “U.S. corporations and individuals are on a borrowing binge of historic proportions, which is making them more vulnerable than at any time in history to a slowdown in the economy. …

“A lot of people are going to be wiped out financially” (March/April 2000).

Who could forget what happened next? The mania came to a dramatic end. The stock market plunged through the floor. The economy was thrust into a sharp recession, and millions of people lost their jobs. Silicon Valley became Death Valley for many.

A full decade later, America still hasn’t recovered. It took the Dow Jones almost seven years to return to its peak, and it has since fallen below it again. The Nasdaq stock exchange is worth less than half of its March 2000 value. On an inflation-adjusted value, both markets are way down.

But the lessons learned from the dot-com delusion were soon forgotten. Greed, corruption and leveraged financing soon returned. And of course, America’s moral slide continued.

In an effort to treat the symptom instead of addressing the cause of the collapse, the Federal Reserve slashed interest rates to 1 percent. Consumers and businesses dutifully gorged on cheap borrowed money again, and speculators and gamblers returned. The good times appeared to return too, but in reality, the seeds for an even greater bubble were being sown.

A Bigger Bubble

By 2004, it was clear what that bubble would be—even if the Federal Reserve refused to even acknowledge that bubbles could be determined before they popped.

In November that year, in an article titled the “Biggest Bubble Ever,” the Trumpet warned that this time the housing market was heading for a massive collapse, one even as bad as 1929. “Never before have we witnessed the confluence of so many negative economic factors to this degree,” we wrote. “We are truly in uncharted territory. Yet the U.S. economy has been perking along largely because it’s been propped up by the greatest housing bubble ever known.”

The Trumpet told readers to begin preparing for a major crash by reducing their standards of living. When the housing bubble pops, it could hurtle the economy into “chaos reminiscent of the Great Depression—or worse!” we wrote (ibid.).

As it turned out, housing prices in America peaked two years later, in 2006. During the intervening time, Federal Reserve Chairman Alan Greenspan still denied that a bubble even existed.

How were we so sure? Yes, we looked at house prices, ownership rates, debt levels, interest rates, evidence of speculation and complacency—the same sorts of indicators many analysts looked at. But we also considered one other, more important source of knowledge that few value today—God’s Word.

“There is only one Master Economist, who knows all the intricate equations, all the delicate variables and all the laws that govern our modern economy,” the Trumpet wrote. “He has revealed some of the most fundamental principles of economics in His Instruction Manual for mankind” (May 2004).

God’s words and God’s prophecies form the basis of the Trumpet’s message.

“Are you willing to face reality, or will you keep your head in the sand?” we asked. “That decision is yours.”

Those who acted on these words had more than two years to prepare before things started to get really bad. It was time well needed because when the housing bubble popped, it exploded with a bang—taking much of Wall Street with it!

Getting Our Attention

When Bear Stearns failed in March of 2008, the whole world saw that something was seriously wrong in America. Whereas it took weeks for Barings bank to finally succumb to bankruptcy, 84-year-old icon Bear Stearns was shattered in just 24 hours.

At that time, the Trumpet wrote, “Just like Bear Stearns, America is also about to wake up and discover that everything has changed.”

By the time 2008 was over, America had changed. The biggest names in British and American high finance were lying prostrate before the world. Lehman Brothers, Merrill Lynch, Wachovia, Washington Mutual and Indi Mac Bank were gone. Citi Group, Bank of America, Royal Bank of Scotland, Barclays, Lloyds and many other banks continued to exist only due to massive government bailouts.

The chain of failures caused a massive credit crunch, and America’s debt-addicted economy went into convulsions.

America’s spectacular financial collapse brought home in vivid detail many of the Trumpet’s earliest warnings.

In August 1990, we said corruption and the general way of greed within the business world and society in general portended far greater economic problems to come. Referring to the prophecy in Micah 2:1-2, we wrote how some businessmen are “continually devising evil,” including “legalized robbery.” “It is all based on GREED and the ‘get’ way of life,” we wrote. “It is considered ‘good business’ today to make money and not worry about how you got it. … Micah is telling us that the ruin is going to be horrible in every way!” (emphasis ours).

“People look at the surface of the economy and of their society. On the surface everything looks good,” the November 1991 edition said. “Society looks so good to most people, as if it could last for thousands of years. But it is so badly eaten by the ‘moths,’ that a little pressure will cause it to fall apart”—referring to the prophecy of Hosea 5:12. “That is the condition of the U.S. and British economies today—right now! They are almost ready to collapse—like a moth-eaten coat! … This verse explains why people will believe the economy and their society is strong until they actually see it collapse!”

The lead-up to the housing bubble craze certainly was typified by fraud and greed, and it didn’t take much for it to fall apart and take the whole economy with it. People buying unaffordable mansions in the hope prices would keep going up. Realtors pushing the biggest homes they could, to get the largest possible commission. Appraisers selling their reputations to make the sale. Banks lending money to people even though they knew they were not creditworthy. And then selling the junk mortgages on to unsuspecting investors and pension plans. Credit rating agencies giving triple-A ratings to junk mortgages. And leaders in Washington not just turning a blind eye to all the action, but actually encouraging it with artificially low interest rates and pressuring banks to remove lending standards.

An economic system engulfed by greed can only end one way, no matter how strong or dynamic it may temporarily appear.

The post-housing bubble picture of America’s economy is not pretty. But it is going to get even uglier.

“The U.S. economy has helped to fuel the whole world’s economy. When it collapses, it will impact forcefully on the whole world,” we wrote in June 1992. The Trumpet’s economic warnings grew stronger over the years as America became more overleveraged and indebted. “Countries, just like individuals, can become addicted to credit! In order to maintain a high standard of living, America has become increasingly dependent upon foreign credit to pay its bills, piling debt upon debt, until it has mortgaged itself to the hilt!” we wrote in August 1997.

Over the past three decades, America has gone from being the largest creditor nation in the world, to its largest debtor—by far. Now our foreign creditors wonder how the bills will be paid.

Will America’s debt bubble be the next to burst?

When it does, it will irreversibly take America’s standard of living with it. Interest rates will soar. Inflation will ravage consumers. The dollar will lose its reserve currency status. And the current rate of 17 percent unemployment will seem like something from a happy dreamland.

As Mr. Flurry said when Barings collapsed, “… I guarantee you, by the authority of God, these financial problems will intensify until they do get our full attention!” (April 1995).

America’s history from Barings to Bear Stearns is that of escalating punishment from God that has gone unheeded.