Monday, June 20, 2016

824 Michael Hudson backs Sanders on Banks. Panama tax haven for oil, gas & mining industries

Michael Hudson backs Sanders on Banks. Panama tax haven for oil, gas &
mining industries

Newsletter published on 19 April 2016

(1) Panama: Laundering Havens for War Budgets - Michael Hudson
(2) Michael Hudson backs Sanders on Banks, against Paul Krugman
(3) Michael Hudson: Wall Street donors run the Gov't. Tim Geithner
should be in Jail
(4) Paul Krugman talks about Debt, but writes out the role of Banks -
Steve Keen

(1) Panama: Laundering Havens for War Budgets - Michael Hudson
http://michael-hudson.com/2016/04/laundering-havens-for-war-budgets/

Laundering Havens for War Budgets

By Michael Hudson

Thursday, April 14, 2016

Panama money laundering 2016

"Closing Panama Tax Haven Will Require Fighting the Most Powerful Lobby
In the World,"

The Real News Network, April 14, 2016.

Economist Michael Hudson says oil and mining industries and the State
Department created Panama and Liberia for the express purpose of tax
evasion.

Sharmini Peries coming to you from Baltimore.

Within a week the 11 million documents called the Panama papers,
published by the International Consortium of Investigative Journalists,
has become a household name. The documents are connected to the Panama
law firm Mossack Fonsesca that helped establish offshore accounts for
some of the wealthiest and most powerful leaders to launder money and
evade taxes.

On Tuesday the police in Panama raided the Mossack Fonseca law firm to
search for more documents linked to illicit activities. But what are
they expecting to find, since we have already known for some time now
that offshore accounts are being used to evade taxes by the banking
sector, essentially white-collar crooks, at institutions such as Credit
Suisse and others? But who is really behind the creation of these
mechanisms and loopholes for tax evasion?

Our next guest, Michael Hudson, says Panama was created as a tax haven
by certain sectors of our economy for this purpose. Joining us now from
New York is Michael Hudson. Michael is a distinguished research
professor of economics at the University of Missouri, Kansas City, and
he?s a former balance of payments economist for Chase Manhattan bank. He
is the author of many books, and the latest among them is Killing the
Host: How Financial Parasites and Debt Bondage Destroy the Global
Economy. And if you want to know more about that book, on our site
you’ll find Chris Hedges interviewing Michael Hudson on this book.
Thanks for joining us, Michael.

MICHAEL HUDSON: Good to be here, Sharmini.

PERIES: Michael, so let’s begin with a short history of the creation of
Panama and how it was bought from Colombia by the United States, and its
relevance today vis-a-vis the Panama papers.

HUDSON: Well, Panama was basically carved off from Colombia in order to
have a canal. It was created very much like Liberia. It’s not really a
country in the sense that a country has its own currency and its own tax
system. Panama uses U.S. dollars. So does Liberia.

The real story didn’t come out in the Panama papers. Reporters naturally
focused on criminal people laundering money. But Panama wasn’t designed
to launder money. It was designed to launder earnings – mainly by the
oil and the gas industries, and the mining industry.

Panama and Liberia were long noted as having "flags of convenience." Oil
tankers and mineral ships would register themselves under the flags of
Panama or Liberia, or some other country that used the U.S. dollar, not
its own local currency.

I first found out about this about 40 years ago, when I was doing a
study of the balance of payments of the oil industry. I went to Standard
Oil, whose treasurer walked me through their balance sheet. I said, I
can’t figure out whether Standard Oil and the other oil companies make
their money at the producing end of oil, or at the distributing end of
refining and selling it. And he said, "We make our earnings right here
in New York, in the Treasurer’s office." I asked what he meant He
explained: "We sell the oil that we buy from Saudi Arabia or the Near
East at very low prices to the tanker company that’s registered in
Panama or Liberia." They don’t have an income tax in their country,
because they’re not a real country. The oil companies then sell the
crude oil to downstream distributors in the United States or Europe – at
a very, very high markup.

The markup is so high that there’s no room for profit to be made at all
in refineries or gas stations selling the oil. So the oil companies
don’t pay the tax collector in Europe anything. They don’t pay the
American government an income tax either. All their earnings are
reported as being made in the tankers, which are registered in countries
that don’t tax income.

I told him that I had looked at the balance-of-payments reports from the
Federal Reserve and the Treasury Bulletin. I see here’s Europe, here’s
Latin America, here’s Africa and Asia. I can’t find where the profit
remittances are.

He told me to look at the very last line on the right hand of the
country tables. It’s called "International." I asked whether all these
countries in Europe and elsewhere were international. He explained to me
that "International" was a special category for what was really part of
the United States abroad. They’re the offshore banking centers – Panama,
Liberia, et cetera.

So I found out that basically Panama, and hence Panamanian companies,
were set up initially to register oil tankers and mineral ships in order
to give the appearance of taking all of their profits on the
transporting the oil, or the copper or other minerals, from third world
countries to the United States and Europe.

The United States went along with this. This made the oil industry tax
exempt really since the 1920s. When the income tax was created in 1913
or 14, it was intended to capture economic rents. But the big rent
extractors, oil and gas and minerals, got away with avoidance.

PERIES: Michael, you indicated in one of your articles that you were
approached by a State Department operative in 1967. Tell us more about
that experience.

HUDSON: It was from a former State Department person who had gone to
work for Chase. The problem that America had in the 1960s was the
Vietnam War. The entire balance-of-payments deficit of the United States
in the 1950s and the ‘60s, right down to the early ‘70s, was military
spending abroad. Either the dollar was going down or the United States
had to sell gold. That’s what finally led Nixon to take the dollar off
gold in 1971. But for many years the United tried to fight against doing
that.

So the State Department came to Chase, and said, we’ve got to figure out
some way of getting enough dollars to offset the military deficit. They
found the way to do it. It was to make the United States the new
Switzerland of the world. I was asked to make a calculation of how much
criminal capital there is in the world. How much the drug dealers made,
how much the criminals all over made, how much the dictators secreted
away. How much goes to Switzerland, and how can U.S. banks get this
criminal money in the United States?

The end result was that the U.S. Government went to Chase and other
banks and asked them to be good American citizens and make America safe
for the criminals of the world, to safeguard their money to support the
dollar in the process.

Earlier, Chase had been asked to create a bank in Saigon so that the
army and other people wouldn’t have to use French banks, which sent it
back to France, where it ended up with General De Gaulle cashing it in
for gold, Chase said, okay, we will help set up banks.

Other banks did this not to evade the law, not to break the law
initially, but to be good citizens and attract crooked capital from all
over the world. The same thing happened with the British West Indies –
the Cayman Islands. They had declared their independence, but in order
not to be a real country, in order to attract flight capital to England,
they rejoined the empire as a colony so that they could serve as money
laundering intermediaries. The idea was to have all of this money come
to the United States or its ally Britain.

All this context can easily be traced. If you look at the money that
goes into Panama and other offshore banking centers in the Caribbean,
none of this money stays in Panama. It becomes "U.S. liabilities to
Panama," or other banking centers – mainly to U.S. bank branches in
these regions.

PERIES: Michael, there is a question I want to ask you. Over the next
few days there has been many questions raised about why there are not
many Americans or even Canadians named in the leaked documents. Some
speculate that this is because in the U.S. they don’t need tax havens,
because it is one. States such as Nevada, Wyoming, and South Dakota are
considered the new Switzerland of tax evasion. Explain how the process
works, because all this is interlinked.

HUDSON: You usually have not only one or two, but often three or four
centers in a "veil of tiers." The idea is not to put money into the
United States directly. Imagine you’re a Russian kleptocrat, or a
Ukrainian kleptocrat, and you want to take a billion dollars and keep it
safe. You’re not going to put it directly into a Delaware corporation,
or a Wyoming corporation. The money is going to end up there. But if you
put it right in, then the U.S. Government and the bank would say, "Wait
a minute. Here is the president of Ukraine with a billion dollars, right
in our banking system."

So what you have to do is launder the money. Likewise with the Colombian
drug cartel. They’re not going to put the Colombian drug cartel balance
in a Delaware bank under their name. It has to go through a lot of
stages. The money goes out of the Ukraine and out of Russia into Latvia,
primarily via the banks of Riga. I’ve met with individuals in Riga,
Americans who provide the service of setting up maybe 30 companies for
the money launderer. They will send the money, say, to the British West
Indies. From the British West Indies it’ll go to Panama. And then it’ll
go from Panama, already being concealed, to end up in a Delaware
corporation at the end of the line.

You can look in the balance-of-payments statistics and you can find
liabilities of bank branches in Panama or the British West Indies or
whoever, owed to the U.S. head office. You can look and see how much
American stock, how many American bonds, how many American bank deposits
all come from these islands. The magnitude is so enormous that this is
what has been supporting the dollar.

Congress is right behind this. In the 1960s it recognized that
basically, criminals are the most liquid people in the world. They don’t
want to tie down their money and property, because property can be seen,
it’s visible. Finance in the balance of payments reports is called
"Invisibles." If you’re a criminal, you want to have your finance
invisible in order to keep it safe. And the safest investment is U.S.
Treasury bonds.

So there was an argument in Congress in the 1960s: Do we want to have
15% tax withholding on the Treasury bonds, especially to foreigners? It
was pointed out that most foreigners who hold Treasury bonds actually
are criminals. So Congress said, we need criminal money. We are not
going to withhold criminal taxes. We’re going to make crime tax-free.
We’re going to tax American industry, we’re going to tax American labor,
but not foreign criminals, because we need their money. So we’re not
going to withhold what they hold through their fiduciary accounts in
Delaware, which was the main at that time, or New York, or London
branches of U.S. banks. The London branches of U.S. banks were the
single major depositors and source of revenue of growth in the 1960s for
Chase, Citibank and others. They were called eurodollars. The
eurodollars flowing into these branches were very largely from drug
dealing and arms dealing, and third world dictators in Africa and other
places.

So under U.S. pressure the international banking system was set up to
facilitate the money laundering of drug capital. The reason the
Americans and the Canadians were not particularly noteworthy in the law
firm’s records is the Panamanian law firm’s records was that its role
was to set up money laundering for foreigners, to conceal their means of
getting money. But the oil industry doesn’t conceal it. The oil industry
declares all of the income it gets, and the mining industry declares all
the income that it gets from the Panamanian shipping companies, from the
Liberian shipping companies. But because Panama and Liberia don’t have
an income tax, there’s no tax liability for this. It’s stolen fair and
square from the tax collector, just like California Senator Hayakawa
said America had stolen Panama fair and square from Colombia.

PERIES: Wow. The big question here in all of these discussions and leaks
is what are the solutions to this problem, and is it attainable at all?

HUDSON: Well, the solution is to tax companies on their worldwide
earnings. If you know that a U.S. company like Standard Oil, Exxon now,
makes X billion dollars earnings, you simply rule that it doesn’t matter
whether you declare these in Panama or the United States. We’re going to
treat the income that you declare from your Panamanian shipping company
as if it is earned in the United States, and we’re going to tax it at
the U.S. rate.

However, this explains why there’s not going to be a solution to money
laundering. If you would solve the money laundering problem and tax
companies and their worldwide earnings, you would tax Apple on all the
income that it makes tax exempt in Ireland by using Ireland as a tax
avoidance center, you would take on the largest vested interests in the
United States – oil, gas and monopolies.

I don’t think any politician is strong enough to attract campaign
contributions from these main contributors and at the same time really
push to tax them. They’re going to go after the little guy who is trying
to walk through the loopholes that the oil industry created a century
ago. But it’s hard to go after the little guy and the small tax evaders
without catching the big fish. And the big fish are the biggest
corporations in the United States.

That’s why the problem is not going to be solved. It won’t be solved
largely because the United States wants to support the dollar by
attracting all of this crooked money, just like England wants to support
sterling by making itself the flight capital center for all of the
biggest criminals in the world, from the Russian kleptocrats to African
dictators and Asian money launderers.

The whole financial system basically has been criminalized in the
process of being militarized, to subsidize the fact that countries like
the United States and Britain have heavy military budgets. This is how
they finance their military budget – with money laundering by the
world’s criminal class. The byproduct is to leave the largest companies
tax exempt, from Apple to Exxon, right down the line.

PERIES: There’s a lot in there, Michael. Thank you so much for joining
us today, and we hope to have you back to unpack some of those very
important sections you were talking about in terms of solutions, as well
as how to get legally at some of the people involved in creating these
loopholes and evasions. I thank you so much for joining us.

HUDSON: Thanks a lot, Sharmini. It?s good to be here.

PERIES: And thank you for joining us on the Real News Network.

(2) Michael Hudson backs Sanders on Banks, against Paul Krugman

http://michael-hudson.com/2016/04/establishment-protection-of-big-banks/

Establishment Protection of Big Banks

By Michael Hudson

Wednesday, April 13, 2016 Interviews wall st

Permalink

JAISAL NOOR, TRNN: Welcome to the Real News Network. I’m Jaisal Noor in
Baltimore.

It’s been a tough week for Senator Bernie Sanders on the campaign trail,
despite his big win in Wisconsin on Tuesday, because it’s been marked by
fierce attacks on his economic plans. On Friday, New York Times’ Paul
Krugman pinned a scathing critique of Sanders for his slogans of
breaking up the banks because he says that won’t protect us from a
future crisis and for Sanders failing to provide details about how he
would go about this, when asked by the New York Daily News. Sanders met
with the Daily News on April 1st for an in depth interview for a range
of his policy positions. That interview’s been widely panned by the
corporate media which is especially significant ahead of the April 19th
New York primary.

Well now joining us to talk about this is Michael Hudson and Bill Black.
Michael Hudson is a distinguished Research Professor of Economics in
University of Missouri, Kansas City. His latest book is Killing the
Host: How Financial Parasites and Debt Bondage Destroy the Global
Economy. And joining us from Kansas City, Missouri is Bill Black. Bill
is an Associate Professor of Economics and Law at the University of
Missouri, Kansas City. He’s a white collar criminologist, financial
regulator, and author of The Best Way to Rob a Bank is to Own One, as
well as a regular contributor to the Real News.

So I want to thank you both for joining us and let’s start with you
Michael. So the New York Daily News is not a small paper. It has the
highest circulation out of any local daily in the country and there’s
been all this fallout from their interview, including most recently Paul
Krugman, who really went after Sanders for his policy positions on
breaking up the big banks as well as other things as well. We want to
get your response.

MICHAEL HUDSON: Well it’s obvious that supporters of Hillary are now
getting very worried. Sanders was sandbagged at the Daily News. One of
the reporters for the Daily News is also the co-host of Democracy Now.

NOOR: Juan Gonzales.

HUDSON: He said that the editorial page editor was giving him rapid fire
questions, wanted short answers, and then when Sanders gave the short
answer, the newspaper later made up a whole attack that was unjustified,
saying he didn’t give long answers – when he wasn’t given a chance to.
So it was really left to Paul Krugman to attack Sanders’ policy on the bank.

Now Krugman has always been a defender of the bank and always in denial
that banks can be crooked. A few years ago in Iceland, Iceland had a
problem. The banks were very crooked, they controlled the government
that was about to give enormous amounts of money to the banks. I had
gone over and met with the Prime Minister and former Prime Ministers and
convinced them not to pay Britain and the sort of crooked depositors.
They hired Krugman at a very high fee and gave him the handouts and he
said ‘no, the Icelandic banks are not crooked’. Iceland should really
bankrupt itself and pay for the Icesave and the British bank affiliates
that went under even though these were not bank branches but bank
affiliates.

The Icelanders were very disappointed because they thought that Krugman
really was a liberal. But he’s not a liberal when it comes to banking.
He’s very right-wing, and the very day after Sanders gave the Daily News
interview, the Wall Street Journal had a much better report explaining
just what Sanders’ position was with the banks. He said he wanted to
give the issue of closing the too big to fail banks to the Treasury, not
to the Fed.

When Krugman came out and said what Sanders is saying is inconceivable,
it’s just really wrong and a personal attack. The fact is that FDIC head
Sheila Bair had come out and in her memoirs that she wrote when she
left, she said how she tried to close down Citibank because this was the
crux of the junk mortgage boom. She wanted to close it down and she was
opposed by the Obama Administration.

Krugman said that the frauds were not in the banks. They were in the
non-bank things. And yet the fact is that if the frauds weren’t in the
bank then why did the Federal Reserve have to give 4.3 trillion dollars
of quantitative easing and what Randy Wray has calculated as 17 trillion
dollars’ worth of taking bad bank assets on. Everybody knew that the
banks were crooked because they called these loans "liars’ loans." The
liars were the banks, not the mortgagees. And they talked about NINJAS,
No Income No Job and no Assets. So the fact is, everybody knew about who
was sponsoring these mortgages except Krugman.

Krugman has had a problem with Sanders advisers all the way back. He’s
written that it’s impossible for banks to create credit. That they can
only act like savings banks and recycle money. He’s always accused
Modern Monetary Theorists, who are part of the UMKC, of being cranks.
And yet he’s never mentioned them in print. He thought he had a chance a
few years ago to defend his right-wing views by having a debate with an
Australian economist, Steve Keen, and your viewers can Google
Krugman-Keen and see the result of it. But Krugman just showed that he
really didn’t know what he was talking about when it comes to bank
credit and to monetary theory.

And that’s exactly why he’s been trotted forth as an opponent of Sanders
in here. Because he has credibility, but he doesn’t have any credibility
in bank theory or finance.

It’s very much like when Sanders has accused Wall Street and other
wealthy people of mind-control of the political process. The same thing
has happened in academia. They’ve bought control or they’ve subsidized
economists who really give the Wall Street line. And Krugman right down
the line supports the banks, supports Wall Street. He’s to the right of
Sheila Bair and other progressive Republicans who did try to stop what
was happening. We’re advocating exactly what Bernie Sanders is
advocating today; to break up the big banks and to treat them as what
they are, engaging in massive fraud.

NOOR: Bill I wanted to bring you into this and your response to Krugman.
In his piece, he writes, he attacks Sanders for his critique of Hillary
Clinton for taking money from Wall Street. Earlier this week he said
that made her unqualified because of all the corporate money that she’s
taken. He’s backed away from that. But I want to read you a bit of what
Krugman said. He said "it’s one thing for the Sanders campaign to point
out Hillary Clinton’s Wall Street connections which are real. Although
the questions are whether those have distorted her positions. A case the
campaign has never even tried to make." Can we get your response to that?

BILL BLACK: Well I’ve actually written 3 pieces this week that track
each of these subjects. In your lead-in you said despite his win in
Wisconsin he’s had these attacks. I would change that, because of his
win in Wisconsin that there’s a finally a note of desperation in the
Sanders campaign.

NOOR: You mean the Clinton campaign.

BLACK: The Clinton campaign. So let me take it in pieces in what Krugman
has said. As Michael Hudson was explaining, Krugman’s central point is,
he says it wasn’t big banks that caused the problem, it was little
banks. And then the examples he picked is Countrywide which is the
largest home lender in the world, which is kind of hilarious. But I’ve
also written a column this week on Citigroup which is by any measure a
massive Wall Street financial institution. Which not only made predatory
loans/fraudulent loans, but purchased and sold them. We’re talking about
hundreds of billions of dollars of loans that it knew to be fraudulent.
How did it know? Because its own senior people put this in writing. And
in particular to take on another [hat] that I have as one of the
founding members of Bank Whistleblowers United.

One of my co-founders is Richard Bowen. Senior Vice President, Chief
Risk Underwriter for Citi. Who put in writing to the absolute senior
management in Citi including Robert Ruben, that 80% of the loans that
Citi was selling on the secondary market, largely [inaud.]. It was
selling roughly 60 billion dollars a year of this stuff. 80% of it was
fraudulent. So Krugman is simply wrong. There was enormous criminal
activity and even the Obama Justice Department which refuses to
prosecute, consistently now uses the word fraud and toxic mortgages to
describe what was done.

NOOR: For full disclosure you are an adviser to Sanders. So we wanted to
get Michael Hudson back in this conversation.

HUDSON: Citigroup certainly is the bank that everybody had wanted to
close down. Sheila Bair gives all the reasons for this. Of course my old
boss at Chase Manhattan, Paul Volcker, was the person who was pushing
the too big to fail. So the important thing to realize is that Sanders
position is the normal position among people who know banking and who
see the need to reform. Krugman’s taking an extreme pro bank position
that is even to the right to progressive Republicans in the attacks that
he gives. The attacks basically are not warranted. That’s why I said
he’s sort of the Alan Greenspan of the left-wing. The go-to person when
the banks want somebody with credibility on the left to support the bank
position against the critics and essentially to do a hit job on the
critics. That’s what basically he’s been trying to do. He’s trotted out
to confuse the left, as if what Sanders is saying lacks credibility.
That’s simply not the case.

NOOR: And Bill, this isn’t Krugman’s first attack of course. You’ve been
writing, you’ve been responding to attacks by the likes of Krugman for
some time now. I’m sure we can expect more of it especially over the
next week. Give us your thoughts on how Sanders and Clinton compare on
this issue of big banks. I’ve been traveling around the country and
interviewing perspective Democratic voters and this is one of the
biggest issues that is affecting voters around the country is the
economy and people feel the banks are responsible and they want to see
the banks reigned in.

BLACK: Well Krugman is now basically serving as surrogate on this issue
for Hillary Clinton. I’ve just written an article which I explain his
over the top attack on Senator Sanders for how dare he complain about
the Clinton campaign taking massive funds from Wall Street. And in
particular the systemically dangerous banks that when, not if, the next
one fails will cause a global systemic crisis. You’ve just heard Krugman
doesn’t want anything done to these institutions. He wants them to be
allowed to operate with massive federal subsidies.

But I point out in this column by quoting Krugman extensively from past
pieces in which he says campaign contributions are the key corrupting
influence and that we have to deal with it. Well that’s what he used to
believe until he was supporting Hillary Clinton. Then apparently all of
that stuff became inoperative. So fundamentally, notice that Hillary
Clinton in the debates always answers, if the banks pose a system risk
then ‘I’ll deal with them’.

By definition the only way you get to be too big to fail, by definition
even the Federal Reserve says this, is if you pose a global systemic
risk. So we already know they pose a global systemic risk. But by saying
that you don’t necessarily pose any such risk, she has played into their
hands, there was just a court decision in favor of, Metropolitan Life,
saying that even though it was so large that it would cause a systemic
crisis were it to fail that that’s not the standard. That unless you can
prove that it’s actually about to fail that you can’t do anything about it.

Well at that point it’s too late. It’s absolutely useless. So Hillary
together with Paul Krugman mean A) they’re not going to try to take on
the systemically dangerous institutions, as you’ve noticed President
Obama has refused to do for 7 years. And B) because of the position
Krugman and Hillary are taking, they would lose the court cases because
they’re constantly giving ammunition to the opponents.

NOOR: Well I want to thank you both for joining us.

BLACK: Thank you.

HUDSON: Good to be here.

NOOR: And thank you for joining us at the Real News Network.

(3) Michael Hudson: Wall Street donors run the Gov't. Tim Geithner
should be in Jail

http://michael-hudson.com/2016/03/traumatized-worker-syndrome/

Traumatized Worker Syndrome

By Michael Hudson

Wednesday, March 30, 2016

CHRIS HEDGES: Hi, I’m Chris Hedges. Welcome to Days of Revolt.

Today we’re going to carry out part two of my discussion about where
we’re headed economically, with economist Michael Hudson. He’s worked on
Wall Street, taught economics, and is the author of Killing the Host:
How Financial Parasites and Debt Destroy the Global Economy. Welcome,
Michael. (Part One – The inversion of Classical Economics)

MICHAEL HUDSON: It’s good to be here.

HEDGES: So, we spoke in the first segment about the parasitic quality of
the banks, hedge funds and the speculative class that has in essence
cannibalized the country – including, interestingly, industry itself,
and forced down the throats of the American public an unsustainable debt
peonage, whether that’s through student loans, predatory credit card
interest rates where it’s that bait and switch – where you get zero
percent interest and next thing you know, you’re paying as high as 26
percent, 23 percent …

HUDSON: If you miss a payment.

HEDGES: If you miss a payment. Mortgages, with many houses now
underwater because of 2008. I want to look first at the self-identified
liberal class within the Democratic Party, including Barack Obama. It
often uses the language of economic justice, and will even chastise Wall
Street rhetorically, but has been as committed to this neoliberal
project as the Republicans.

HUDSON: The key of demagogic politics is to realize that the people who
are really backing you are your campaign funders. Your job as a
politician is to say, "I can deliver this constituency to you backers.
"Obama was a genius at doing what Donald Trump is trying to do today:
taking a constituency. That’s his column A: a focus group listing
everything the constituency wants. They want debt relief. They want
better jobs. They want higher minimum wage.

HEDGES: And not trade agreements like NAFTA and …

HUDSON: Right. And then column B, that he didn’t tell them, was what the
campaign backers on Wall Street want. Obama was picked essentially by
Robert Rubin, who then became head of Citibank after having come out of
the Goldman Sachs. Obama was picked by Rubin of Wall Street to promise
was he was going to really do. It was what any president today is going
to do: A politician’s job is to deliver whoever voted for you to your
backers, who are on Wall Street. Whether you are a Republican or a
Democrat, but especially if you are a Democrat – that’s really the Wall
Street wing of the American political system. The Republicans are for
the corporate monopoly, oil and gas wing of it.

As soon as Obama got in, [Hank] Paulson – the Republican Treasury
Secretary – was talking to Barney Frank and said, you know, we were
supposed to, under TARP, have some of the money to go for debt writedown.

HEDGES: Explain TARP.

HUDSON: TARP was Troubled Asset Relief Program. It was supposed to treat
banks as if they were troubled. If you’re a criminal and you’re stealing
from people, that was called "troubled." There’s a lawsuit recently in
in the news about a rich boy drove his car and killed four people. His
defense was, "It’s not my fault, I have affluenza. I’m so rich that I
don’t have a social sense. So of course I drove away. But I’m innocent,
because I’m rich. What do you expect?"

Essentially that’s the Goldman Sachs view of the economy. You cause
collateral damage all over, but that’s what Wall Street does. You can’t
punish them for it. They’re just doing what a predatory financial
institution does. So Obama said "No, , I’m not going to do that,"
[meaning write down the mortgage debts as he had promised voters in
Column A]. He came in and appointed Wall Street’s main lobbyist, Tim
Geithner, as Treasury Secretary.

HEDGES: You spend a lot of time in the book on him.

HUDSON: That’s right. Geithner appears in almost every dirty dealing
episode of the book. He was the bagman. He was the person who [Sheila
Baoir] accused of blocking the FDIC when it wanted to take over
Citibank, which not only was broke but was a criminalized organization.
It was [inaud.].

HEDGES: Explain just quickly why it was criminalized.

HUDSON: Well, Citibank …

HEDGES: Citibank, by the way, was not alone. There were other …

HUDSON: No, there were others. But …

HEDGES: Citibank was maybe the worst.

HUDSON: Citibank, along with Countrywide Financial, was making junk
mortgages. These were mortgages called NINJA. They were called liars’
loans, to people with no income, no jobs and no assets. You had this
movie, The Big Short, as if some genius on Wall Street discovered that
the mortgages were all going to go down. And you have the stories of
Queen Elizabeth going to the economist …

HEDGES: "How come none of you knew?"

HUDSON: Right. The fact is, if everybody on Wall Street called these
mortgages liars’ loans, if they knew that they’re made for NINJAs, for
people who can’t pay, all of Wall Street knew that it was fraud.

The key is that if you’re a really smart criminal, you have to plan to
get caught. The plan is how to beat the rap. On Wall Street, if you buy
garbage assets, how do you make the government bail you out? That was
what the president of the United States is for, whether it was Obama or
whether it would have been John McCain …

HEDGES: Or Bush.

HUDSON: Or whether it would be Hillary today, or Trump. Their job is to
bail out Wall Street and make the people pay, not Wall Street. Because
Wall Street are "the people" who select the politicians – who know where
their money is coming from. If you have a campaign contributor, no
matter whether it’s Wall Street, or locally if it’s a real estate
developer, you all know who your backers are.

The talent you need to have as a politician is to make the voters think
that you’re going to be supporting their interests …

HEDGES: And what’s that great Groucho Marx quote?

HUDSON: The secret of success is sincerity. If you can fake that, you’ve
got it made.

HEDGES: Well, and that’s kind of it. You know, there’s Ron Suskind in
his book, what’s it called? Confidence–.

HUDSON: Confidence Man.

HEDGES: Confidence Man. He interviews someone on Wall Street, and asks
why they’re so hostile to Obama when he’s so protective of Wall Street.
And the answer is, because if we keep being publicly hostile, he can
always do what we want.

HUDSON: This is like Uncle Remus and the Briar Patch, when Br’er Rabbit
keeps saying, don’t throw me into the briar patch. And finally the fox
throws him into the briar patch, and the rabbit runs away, singing "Born
and bred in the briar patch." He runs away and is happy. The moral is
that there’s a pretense that if a politician talks against Wall Street
and can vocalize people’s resentment, that he must understand them and
thus will support them.

HEDGES: Well, that’s what Hillary Clinton’s doing in spades.

HUDSON: That’s exactly it. There’s a movie, La dolce vita, by Fellini,
with Anita Ekberg. You have the Italian reporter Marcello go after
Ekberg, and then her boyfriend comes up to him and says, "I can
understand you." Then whomp, he hits him right in the face. That
basically is what we have here. The politician says to the voters, "I
feel your pain. I can understand you." And they think oh, he understands
it. Then the politician hits them in the face and backs Wall Street, and
tries to privatize pension funds, privatize Social Security. And doesn’t
send a single banker to jail, by appointing Justice Department people
who are vetted by Wall Street and treat them simply a "troubled" rich.

So essentially Wall Street campaign contributors have a veto over who
you’re going to appoint as Secretary of the Treasury. They want the …

HEDGES: Attorney General.

HUDSON: Yeah, Attorney General, to make sure that nobody has to pay the
price for financial crime. Then the Council of Economic Advisors comes
to assure people that Wall Street really is adding to the economy, and
if you can only do what the Federal Reserve is doing. So Janet Yellen
says, let’s give the banks more money, and the economy can borrow its
way out of debt … if only we can have enough quantitative easing.

So the Federal Reserve has given Wall Street $4.5 trillion. That $4.5
trillion could have been used to write down the debt. And then we
wouldn’t have a problem. Then everybody would have a lower costs of
living. The $4.5 trillion could have been spent into the economy.

HEDGES: We could have saved people from being foreclosed and driven from
their homes.

HUDSON: Yes. But that wasn’t what Obama did.

HEDGES: Even though he promised that he would. And then he turned
around, he earmarked some money to save people who were being pushed out
of their homes. And then he never spent it.

HUDSON: That’s right. It wasn’t spent. That’s what Niel Barofsky, the
SIGTARP head – Special Inspector General for TARP – found out. He said,
wait a minute, they’re not spending any of it. It’s a fraud. And he
wrote a whole book, Bailout, describing the lies Geithner told. Then,
when Geithner came out with his own autobiography, Barofsky reviewed it
and exposed him as a liar who should go to jail.

Geithner was suitably rewarded by getting a rich job on Wall Street. The
Japanese call that "descent from heaven." When you take your rewards,
having sold out the economy to your backers, you get a nice job and end
up rich for life.

HEDGES: So, let’s talk a bit about what this means for the future,
because there’s been no brakes put on this kind of criminal and
fraudulent behavior on the part of the speculative class. Bubbles have
been re-inflated with public funds. I think you had written an article
in Harper’s magazine before 2008 saying this – we’re all going to have a
big car wreck. Since we’re playing the game again, what’s going to
happen? Are they going to be able to go back and loot the U.S. Treasury
the way they did before?

HUDSON: What’s ahead first of all is that the economy hasn’t recovered
since 2008. People talk about that there’s been a recovery, but the
recovery has only been for the One Percent. The 99 Percent know they
haven’t recovered. That’s why they’re voting for Trump, and that’s why
they’re voting for Sanders. But they’re blaming themselves. There’s a
tendency of victims to blame themselves. And the other part of that …

HEDGES: But let’s be clear: The media doesn’t explain the economic
reality at all. They’re always talking about the recovery.

HUDSON: That’s the point. The result of the media telling people that is
to create a Stockholm syndrome: The victim, the kidnap victim,
identifies with the victimizer. The thinking is that if only we can give
more money to Wall Street, it will save us. So if the Federal Reserve
can only pump more money into the economy …

They talk about the Federal Reserve creating money with a helicopter.
But the Federal Reserve’s helicopter only drops money over Wall Street.
It doesn’t drop money over the economy. People don’t get it. The Fed
doesn’t say, "We’re going to add $200 to everybody’s checking account so
they can have more money and pay their debts." It’s only lending money
to Wall Street.

And what does Wall Street do? It lends out money. So the solution to the
debt problem that we’re in – debt deflation – is to lend even more money.

That’s what makes the economy a Ponzi scheme, as you mentioned at the
beginning of the first half of this interview. In a Ponzi scheme, people
seem to make a lot of money, but that’s because you’re really not making
profits. You’re just getting more and more people convinced that you’re
making money. And you’re paying the early entrants out of the money from
new subscribers. That’s what Bernie Madoff did. The whole economy has
become a Madoff scheme.

HEDGES: And largely through real estate, right?

HUDSON: Largely through real estate, because that’s the largest asset.

HEDGES: So the worth of your house ostensibly rises and rises and rises,
and you believe that you have created it – that this is a form of wealth
creation.

HUDSON: Here’s the problem that existed in 2008. Either Obama could have
saved the economy, or he could have saved Wall Street. He chose to save
Wall Street. And the only way to save Wall Street, if banks have made a
lot of bad loans, is to help them not go bankrupt. So what do you do?
You give them more money.

The theory, the pretense in the media, is that banks will make money by
lending to industry to build more factories and hire people.

HEDGES: And credit dried up for small businesses and consumers.

HUDSON: That’s right. Wall Street knew that the real estate market was
already loaned up. In other words, the game was over. Nobody could pay
any more of their income for rent or for mortgages. Banks couldn’t even
make more credit card loans. So they began to cancel their credit card
exposure. What they did was gamble on foreign currency.

HEDGES: And student debt.

HUDSON: And student debt.

HEDGES: Because it’s guaranteed.

HUDSON: That’s right. They make, the government …

HEDGES: I mean, the government guaranteed them.

HUDSON: Since the 2008 crash the government has guaranteed almost all
new mortgage loans. Up to 43% of the borrower’s income, that was
guaranteed. Student loans, all guaranteed. But basically the banks made
money abroad. If you could borrow at one-tenth of a percent from the
Federal Reserve, you could buy Brazilian loans, bonds paying 9% or more.
You could gamble on writing default swaps in Greece. And when Greece had
real problems, the fact that the German and French banks had made too
many loans to it, the IMF was going to write down the Greek debt. But
then Geithner got on the phone with Europe, and Obama went to the G20
meetings and said, "Look, you can’t write off the Greek debt, because
the American banks have essentially turned into horse race betters. We
have casino capitalism. They have bet and promised to guarantee, the
Greek bonds. If the Greek bonds are written down, the American banks
will go under. And if we go under, we promise we’re going to bring you
down too. We’re going to bring down the European banks. Do you really
want that to happen?"

So the gambles made by Wall Street ended up almost driving Greece out of
the European Union. Wall Street was willing to tear Europe apart
politically just for the Wall Street investment banks – basically four
banks – to make gains by insuring the Greek debt, by treating the
financial market like a horse race.

That’s where we are now. It’s not really about imperialism draining
foreign economies. It’s Wall Street making bets. And essentially it’s by
Wall Street running the European Central Bank. Just like Europe has to
do burden sharing in NATO, the financial ministries have to do burden
sharing with the U.S. Treasury.

HEDGES: So let’s talk a bit about what this means, where we’re headed.

HUDSON: It means that markets are not growing, because the American
consumer has to spend so much money paying the banks and paying taxes
that they don’t have enough money to buy more goods and services.

HEDGES: One of the things you pointed out in your book, which I didn’t
know, is that when we measure the economy we actually count the paying
off of debt, credit card debt, whatever it is, as a form of savings.

HUDSON: That’s right. After 2008 the savings rate jumped way up. But the
saving isn’t available. But to an accountant, if you owe less money,
then actually you’ve done the same as paying it out of saving. So we’re
in a savings economy. The savings rate in 2008 was zero. Actually, it
was  minus 2% when you take into account borrowing from foreigners. The
whole economy was essentially consumers maintaining their living
standards by running up their credit card debt, and by taking out what
Alan Greenspan called cashing out on your house’s rising value, by
taking out an equity mortgage loan. But that’s not really cash. That’s
taking on more debt.

So you had an inside-out vocabulary. America was going into debt
thinking it would get rich, and all of a sudden it finds, it’s in a
state of what you said, debt peonage, where the wage workers and others
have to pay any increase in wages they get; it goes to pay down …

HEDGES: Because you’re spending all of your income to service the
interest rather than paying off the principal. And that’s why wages have
been suppressed since the ‘70s. The speculative class on Wall Street
does not want people to be able to pay off their debt.

HUDSON: This was the one thing that Alan Greenspan contributed to
economic theory: the Traumatized Worker Syndrome. He said, the reason
you’ve had this huge productivity gain without any wage increase is
workers are afraid to go on strike, or even to complain about working
conditions, because they’re just one paycheck away from homelessness.

HEDGES: Which is true.

HUDSON: And if they miss a credit card payment, all of a sudden their
credit card fee escalates to 29%. Even if they’re late on a utility
bill, the bank will raise the fee.

HEDGES: So what does this mean? I mean, what’s going to happen?

HUDSON: It means a slow crash. It means what was …

HEDGES: Which we’ve already begun, haven’t we?

HUDSON: Yes. we’re in a slow crash now. All this was analyzed in the
1930s when it was called debt deflation by Irving Fisher. But debt
doesn’t appear in the textbooks. They talk about saving, but not debt.
The fact is, all money is debt of one form or another. The cash in your
pocket is a government debt, technically. It’s on the liabilities side
of the balance sheet. What people thought was an asset turns out to be
kept afloat by debt. But rather than the rising tide of debt raising all
boats, it raises the yachts, but the rest of the economy is underwater,
to make a metaphor.

HEDGES: So, spell it out for people. What’s going to – I mean, we’ve
lost control of this predatory or parasitic force.

HUDSON: Well, you can look at the future as what’s happening in Greece,
what happened in Russia after their traumatic shock therapy. America’s
in for shock therapy, no matter who wins the presidential …

HEDGES: So play it out for me. What’s it going to look like?

HUDSON: Well, more people are going to have higher and higher charges
for what they spend for medical care. More for schooling. More just to
break even. And they’re going to have to draw down their existing
savings, or they’re going to have to downsize, or they’re going to have
to default. The rate of default is still rising very sharply on student
loans. And these are loans you can’t wipe out in bankruptcy.

HEDGES: Not unless you’re dead. And it’ll go to your parents, if they’re
still around.

HUDSON: That’s the point. The parents have countersigned. Meanwhile, the
students who have taken out these loans are having to live at home with
the parents. They can’t afford to buy a house. And if you can’t buy a
house it’s really hard to get married. I was in China recently, and my
translator there said that women in China are looking for a husband who
can get his own house, because you need a house to have children. All
that has stopped here.

When you have this phenomenon in Greece, Russia or other places, you
have shrinking birth rates, rising mortality rates and disease rates,
shorter life spans. Latvia followed this policy and lost 20% of its
population since the late 1990s. You have a huge emigration from
Iceland, from Greece. There’s nowhere for Americans to emigrate to.

HEDGES: Right. And you say in the book that really, the only option left
is a form of debt slavery or revolt.

HUDSON: That’s exactly it. But the enzymes of the parasite have
inculcated via the control of the media tell people it’s not Wall
Street’s fault, it’s not the parasite’s fault, it’s your fault. The
victims haven’t been able to make enough money to pay the One Percent,
the victimizers. That’s financial affluenza after it kills an economy.

HEDGES: But is it working? I don’t think the lie of neoliberal economics
is being swallowed by larger segments of the population, including the
people gathered around Trump.

HUDSON: That’s right. They know that something’s wrong, but they don’t
know what it is, because nobody’s spelling out how the economy actually
works. That’s why I wrote my book, to say here’s what’s happening. The
reason I was able to warn about the crisis a year before it happened was
that I had the charts that were published in Harper’s. My charts were
cited in the Financial Times as the only charts by those who did foresee
the crisis and said just how and why it would happen.

Anyone who does Wall Street charts about the ability to pay sees that
this is what happened in the 1920s. Anybody who did charts like that can
tell that there’s an intersection, a breaking point, and there’s a
crisis. America now is having the same crisis that Argentina had, that
Greece had, that Latvia had, that Russia had. These economies are our
future. And it’s going to go down and down in a slow crash.

HEDGES: But could it go down and down, and what we end up with is a form
of neofeudalism, a rapaciously wealthy, oligarchic elite with a kind of
horrifying police state to keep us all in order?

HUDSON: This is exactly what happened in the Roman Empire.

HEDGES: Yes, it did.

HUDSON: You had the great Roman historians, Livy and Plutarch – they
blamed the decline of the Roman empire on the creditor class being
predatory, and the latifundia. The creditors took all money, and would
just buy more and more land, displacing the other people. The result in
Rome was a Dark Age, and that can last a very long time. The Dark Age is
what happens when the rentiers take over.

If you look back in the 1930s, Leon Trotsky said that fascism was the
inability of the socialist parties to come forth with an alternative. If
the socialist parties and media don’t come forth with an alternative to
this neofeudalism, you’re going to have a rollback to feudalism. But
instead of the military taking over the land, as occurred with the
Norman conquest, you take over the land financially. Finance has become
the new mode of warfare. Not militarily – except in Europe, of course –
but simply financially. You can achieve the takeover of land and the
takeover of companies by corporate raids.

The Wall Street vocabulary is one of conquest and wiping out. You’re
having a replay in the financial sphere of what feudalism was in the
military sphere.

HEDGES: And in essence, we become a kind of nation of sharecroppers.

HUDSON: That’s exactly right, having to shop at the company store.

HEDGES: At the company store.

HUDSON: Yes.

HEDGES: Well, that lays it out. I think it illustrates the point that we
need a vision to counter the vision of predatory, parasitic capitalism.
If we don’t get a vision very soon, we’re in for a dark age.

HUDSON: And the job of the politician is to promise the nice vision, and
then double-cross the constituents.

HEDGES: Well, so far unfortunately, they’ve done it very well. Thank
you, Michael.

HUDSON: It’s good to be here.

HEDGES: And thank you for watching Days of Revolt.

(4) Paul Krugman talks about Debt, but writes out the role of Banks -
Steve Keen


{visit the link to see the tables}

http://www.debtdeflation.com/blogs/2015/02/11/nobody-understands-debt-including-paul-Krugman/
http://www.forbes.com/sites/stevekeen/2015/02/10/nobody-understands-debt-including-paul-Krugman/#749c23e03ecb

Nobody understands debt–including Paul Krugman   By Steve Keen |
February 11, 2015 | Debtwatch

Paul Krugman has published a trio of blog posts on the issue of debt in
the last week: "Debt Is Money We Owe To Ourselves" (February 6th at
7.30am), "Debt: A Thought Experiment" (same day at 5.30pm), and finally
"Nobody Understands Debt" (February 9th in an Op Ed).

There is one truly remarkable thing about all three articles: not one of
them contains the word "Bank".

Now you may think it’s ridiculous that an economist could discuss the
macroeconomics of debt, not once but three times, and never even
consider the role of banks. But Krugman would tell you whyyou don’t need
to consider banks when talking about debt, and call you a "Banking
Mystic" if you persisted.

Well Krugman would be wrong, and you would be right. This is one of the
many times where "experts" in economics have it all wrong, and the
general public’s gut feelings about banks, debt and money are closer to
the truth. Bank lending is fundamentally important to the performance of
the economy, and it is also fundamentally different to lending between
individuals. But mainstream economics has convinced itself of the
opposite propositions—that lending (most of the time) has trivial
macroeconomic implications (the exception being during a "liquidity
trap"), and that bank lending to individuals is really no different to
lending between individuals.

Bunkum—and it’s easy to show why using that boring but vital tool of the
accountant, double-entry bookkeeping.

Imagine that you want to buy a new iPhone 6, but you don’t have the $299
Apple wants for it. There are two ways you can get the money: you can
borrow from a friend—who transfers money from her bank account to
yours—which we can call "Peer to Peer" lending. Or you can add to your
credit card debt with your bank—which obviously is "Bank Lending".

Are the two operations macroeconomically equivalent? Or if they are not,
are there rules that constrain bank lending so that it’s effectively
just the same as "peer to peer" lending? I’ll consider the first point
in this article and tackle the second in a later post.

If you borrow from a friend—let’s call you "Impatient" and your friend
"Patient" to borrow Krugman’s terminology—then from the situation, as
seen from the bank’s point of view, is as shown in Table 1. When you
borrow the money, Patient’s deposit account falls by $299, while yours
rises by $299. Then when you buy the iPhone, your account falls by $299,
and Apple’s rises by $299. Apple gets an extra $299 in income, but since
Patient’s bank account has fallen by that much, she is likely to spend
less over time, which will reduce someone else’s income by about as much
as Apple’s income rose.

Overall, the banks’ Liabilities—the deposit accounts of its
customers—don’t change in the aggregate, and neither do the bank’s Assets.

What if you get the $299 by dipping into your credit card limit? Then
the situation is as shown in Table 2. Patient is out of the picture
here: your borrowing from the bank has no effect on Patient’s bank
account (or her ability to shop). Your spending power has risen by $299
however, and you spend that on Apple—so your expenditure and Apple’s
income rises by $299, with no offsetting fall in expenditure by anyone else.

Overall, the banks Liabilities and Assets both rise by $299—a crucial
difference to the "Patient lends to Impatient" case. New money, new
demand and new income has been created. This is utterly different to
what happens with "Peer to Peer" lending.

This is only half the story however: the other half is what happens when
debt is repaid. Obviously for Impatient to repay, he is going to have to
save money by spending less after the extravagance of buying the iPhone
on credit. But when he does repay, the macroeconomic impact in the case
of "Peer to Peer" lending is zip: Impatient’s bank account falls by $299
and Patient’s rises by the same amount (I’m not ignoring interest
payments here by the way, just separating principal repayment from
interest payments). Again there is no change in the bank’s Assets or
Liabilities (see Table 3).

The situation is utterly different when a bank loan is repaid. As shown
in Table 4, the bank’s Assets and Liabilities both fall by $299. The
repayment of the debt has reduced the amount of money in
circulation—where money in our modern economy is almost exclusively the
sum of our bank accounts (cash accounts for a trivial percentage of the
total money supply). In this sense, the repayment of the debt has
destroyed money.

This is the crucial difference between bank lending and the "peer to
peer" vision of lending that mainstream economists like Krugman persist
with—despite the evidence and the admonition, from institutions like the
Bank of England, that they have got the mechanics and the importance of
bank lending all wrong. Because mainstream economists like Krugman
ignore bank lending, they ignore the biggest factor determining
macroeconomic performance. Recommended by Forbes

Bernanke dismissed Irving Fisher’s Debt-deflation Theory of Great
Depressions" with the cavalier statement that "Absent implausibly large
differences in marginal spending propensities among the groups, it was
suggested, pure redistributions should have no significant
macro-economic effects". That’s because he shares Krugman’s delusion of
treating bank lending as no different to "peer to peer" lending. A
simple look at the data in Figure 1 is enough to show how wrong they
are: the correlation between the annual change in private debt and the
level of unemployment since 1990 is -0.93—which I think one might call
significant. It has been higher since the crisis began at a veritably
perfect -0.975—which a superficial soul might interpret as evidence for
the liquidity trap explanation—but between 1990 and August 2007 it was
still -0.81).

Figure 1: Change in private debt drives the economy (correlation
coefficient =  -0.93)

image002Krugman is right on some points—the worry about the
intergenerational impact of government debt are, to use one of my
favourite Australian idioms, a furphy. But bank debt matters, and
Krugman shows that he (and the economic mainstream) understands debt
less than many non-economists when he leaves it out of his thinking.

No comments:

Post a Comment