photo credit: JosephLeonardo

Renegade Economists podcast

Professor Michael Hudson discusses the G20 plans (austerity for prosperity), natural monopolies as wealth extracting machines and China’s possible isolationist future in light of its increasingly useless trade surplus.

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Music by Lucky Dragon

Tohm Curtis

As per week #1, the assumptions are what make Economics the ‘School of Thumbs’. This week though in a Finance subject we looked at the ‘supply and demand’ model of interest rates. It was a curious exercise in skepticism vs. standardisation.

Basically it said, that Money Supply and Money Demand are inversely related to interest rates. The higher the interest rates, the less demand for borrowing funds, but the more funds lenders are willing to supply. So the RBA can influence interest rates to try and achieve an interest rate ‘Equilibrium’. They were suggesting that banks would get shy about lending funds as the interest rates were lowered.

This didn’t seem to reflect the real world at all, so I raised my hand and said ‘Does this model work in reality? I mean if you look at housing, the lower interest rates and higher demand push the asset prices up, so banks are more than compensated with the value of the interest rather than the interest rate?’

The (abridged) answer was ‘Ceterus Parabus’ – the model assumes that asset prices remain constant (they don’t). It actually helped me understand what Michael Hudson meant when he said ‘A house is worth what a bank is willing to lend for it.’ One could make the argument that as interest rates drop, the banks have to lend MORE money (increase supply) to inflate the asset prices to account for the drop in revenue.

My point rests though in the dangers of ‘standardisation’ in Education, that is there is no real time allocated to skeptical inquiry, most of my fellow students spend the lectures scrawling endless notes. The crucial omission that we assumed ‘Ceterus Parabus’ could very well have been missed by my diligent note taking peers – they could graduate into the real world thinking that the model actually worked.

I don’t know if I’m right or wrong, they don’t teach me that (yet), but the point is that the models and formulas and functions are emphasised often at the expense of discussing the soundness of the assumptions they are based on.

photo credit: hans s

Michael Hudson

As published in today’s Business Age Opinion section

HIGHER land and house prices typically lead to an increased supply of housing. Yet at the peak of Australia’s perennial housing affordability crisis, the Housing Industry Association declared that there would be a 13 per cent fall in housing starts this calendar year, compounding last year’s 18 per cent fall.

In light of massive rezonings in Victoria and improved planning bureaucracy in many states, this can only be seen as a warning that property insiders expect there to be a price crash.

The public face of the housing industry is quite different. So, what do property investors expect that the rest of the population does not?

Government spokesmen reflect assurances by bankers and their major category of customers – the real estate industry – that Australia’s economy is defying gravity. In reality, that is as impossible in economic life as it is in physical nature.

Property prices are defined by how much a bank will lend. Donald Trump claims that a man is worth what he can borrow. This usually depends on what a borrower can afford to pay, after meeting basic break-even needs (the cost of living, plus taxes). In the corporate sector, it means after-tax cash flow. So property prices are set by the banks, subject to the tax system.

The motto of real estate investors is that rent is for paying interest – and whatever the tax collector relinquishes is available to be capitalised into a bank loan as a flow of interest payments. The guiding idea is that affordability determines property prices. One example of how the tax system affects property prices is in its failure to distinguish land from capital improvements. Speculative withholding of prime locations from the market in an undeveloped or unsold state creates artificial scarcity. This raises prices.

Property speculators are able to afford this hoarding to the degree that the land’s potential site rent remains untaxed. Taxing the land would bring underutilised land and other property on to the market. It also would reduce the available free-lunch rent that is currently capitalised into bank loans to raise prices.

The myth is that higher property taxes increase the cost of housing and office space over time. The reality is that higher taxes would leave less site-rent to be pledged to banks – thereby reducing the financial cost of property ownership – while also enabling the government to shift the tax burden back off labour on to property, as used to be the case in Australia before the mid-1970s.

This explains why the financial lobby supports the real estate lobby in shaping public perceptions of the property market – along with government financial policy towards the finance, insurance and real estate sector.

Australia’s fiscal-financial system has become increasingly dysfunctional in giving tax preference to land-price ”capital” gains and hence property speculation rather than tangible capital formation. Instead of raising living standards by producing more, what passes as post-industrial ”wealth creation” takes the form of inflating asset prices on credit. The result is a bubble economy. And inasmuch as asset-price gains are fuelled by debt leveraging, wealth creation is more accurately viewed as debt creation.

The problem is that debts remain in place even as prices drop.

And they are dropping in response to the economy’s shrinking ability to pay, as more and more income is earmarked to pay debts run up in the past. This debt service is not available for spending on goods and services. The result is debt deflation. Lower spending on goods and services shrinks the domestic market (and also shrinks imports), leading to lower business profits and also lower business rentals. Lower rental income results in lower property prices – and at a point, property falls into negative equity: the mortgage debt exceeds the current market price that home owners or commercial investors can recover.

This is the end stage of debt-leveraged bubbles. In this respect it behoves Australians to look ahead. It seems that Australian property investors are also doing this. How else to explain the cutback in new building?

Michael Hudson is distinguished research professor at the University of Missouri.

Seats to Professor Michael Hudson’s presentations (Oct 14 – 27) are filling fast, with major PR next week to fill the remaining spots. The renowned US economist is set to leave ears burning on why a decade of record economic growth has left so many behind.

He has 3 presentations in Melbourne next week, followed by Canberra, Sydney and now Adelaide (via our friends at E.R.A). Lifting the Lid on the GFC – Wed Oct 14th will be the highlight.

Check all the details & RSVP immediately via our sister website www.prosper.org.au

The interest building is commensurate with Hudson’s extensive public record. His 1972 book Super Imperialism covered topics such as financing America’s wars with other nation’s resources, American strategy within the World Bank and the imperialism of US foreign aid. His 1977 Global Fracture gave insights on the source of the Middle East’s oil price shock and discussed in detail the new international economic order. More recently he has delivered stinging blows via his many online articles re the GFC, Obama’s financial reforms and the bankers deception of Iceland and Latvia.

On Monday evening (Oct 12th) make sure you tune into Phillip Adams – Late Night Live on Radio National at 10pm.

Hudson will also be interviewed on SKY News TV (7pm Monday). Our own Renegade Economists radio show will have an in depth interview on the Wed Oct 14th show. A raft of other interviews are lined up.

There are only a handful of seats left at Hudson’s Sydney talk (less than 10). In Melbourne we are closing in on 200 attendees for the Lifting the Lid on the GFC event at the Melbourne Town Hall (Wed Oct 14) with our own Bryan Kavanagh and the highly respected Steve Keen.

Make sure you hear Prof Hudson, a dynamic speaker who can make sense of why the GFC occurred. Has Australia defied global economic gravity?

photo credit: Search Engine People Blog

Renegade Economist Podcast 96

As broadcast on the mighty www.3cr.org.au – Wednesday July 1st.
Subscribe to the podcast

Show Notes:
Grand Theft Monopoly – Professor Michael Hudson excels in describing globalisation from a financial snipers perspective, analysing how real estate (land) is used in the game of currency siphoning out of Latvia, Eastern Europe and Russia. What does neo-liberalism deliver? Who is behind the controls? Also gold, white collar sub-prime crime and GW’s departing deception.

We challenge you to find a more succinct summary of globalisation and the Washington Consensus.

Download the episode. Part one of this interview can be found via the podcast.

Read more of Professor Hudson’s work at www.michael-hudson.com

October will be an interesting month with Hudson touring Australia.

Music

Malatu Astatke & The Heliocentrics – Phantom of the Panther

photo credit: Jesper Särnesjö

Renegade Economists Podcast 95

As broadcast on the mighty www.3cr.org.au on Wednesday June 24th.
Subscribe to the podcast

Show Notes:
Protecting the 1%: the grand theft continues as Prof Michael Hudson shines the spotlight on the financial warfare of today. Hear how the $12 trillion financial bailout is non-inflationary and how the pump priming has been replaced by the palm priming of the vested interests.

This is a must listen!

Read Hudson on Obama’s Financial Reforms.

Next week Hudson will discuss Latvia’s financial devastation through the prism of the Washington Consensus.

Music:
Logan Square (Rent’s Due) – Radius
Trouble Scene – M.W.D
Planetary Analysis – King Britt feat Rich Medina

Warm up by watching the above, then read the latest from Michael Hudson, who is writing up a storm on the inside motivations to banksters bailouts world-wide.

Michael Hudson

as published on Global Research

Banking shares began to plunge Friday morning after Senator Dodd, the Connecticut Democrat who is chairman of the banking committee, said in an interview with Bloomberg Television that he was concerned the government might end up nationalizing some lenders “at least for a short time.” Several other prominent policy makers – including Alan Greenspan, the former chairman of the Federal Reserve, and Senator Lindsey Graham of South Carolina – have echoed that view recently. (Eric Dash, “Growing Worry on Rescue Takes a Toll on Banks,” The New York Times, February 20, 2009)

How is it that Mr. Greenspan, free-market lobbyist for Wall Street, recently announced that he favored nationalization of America’s banks – and indeed, mainly the biggest and most powerful? Has he “gone left”? Or are we dealing with the most recent exercise in Orwellian doublethink?

The answer is that the rhetoric of “free markets,” “nationalization” and even “socialism” (as in “socializing the losses”) has been turned into the language of deception to help the financial sector mobilize government power to support its own special privileges. Having undermined the economy at large, Wall Street’s public relations think tanks are now dismantling the language itself.

The popular media should not let them get away with it.

Economic idealism from the left to the right wing of the political spectrum advocates a free market. But what does this mean? Is it what the classical economists advocated – a market free from monopoly power, business fraud, political insider dealing and special privileges for vested interests – a market protected by the rise in public regulation from the Sherman Anti-Trust law of 1890 to the Glass-Steagall Act and other New Deal legislation? Or is it a market free for predators to exploit victims without public regulation or economic policemen – the kind of free-for-all market that the Federal Reserve and Security and Exchange Commission (SEC) have created over the past decade or so? It seems incredible that people should accept today’s neoliberal idea of “market freedom” in the sense of neutering government watchdogs, Alan Greenspan-style, letting Angelo Mozilo at Countrywide, Hank Greenberg at AIG, Bernie Madoff, Citibank, Bear Stearns and Lehman Brothers operate freely enough to plunge the economy into crisis and then use Treasury bailout money to pay the highest salaries and bonuses in U.S. history.

Terms that are the antithesis of “free market” also are being turned into the opposite of what they historically have meant. Take today’s discussions about nationalizing the banks. For over a century nationalization has meant public takeover of monopolies or other sectors to operate them in the public interest rather than leaving them so special interests. But when neoliberals use the word “nationalization” they mean a bailout, a government giveaway to the financial interests.

We are dealing with an abuse of language of the kind that George Orwell described in 1984, a degradation of the vocabulary to mean the opposite of what it formerly meant in order to rewrite intellectual and political history along lines that serve the currently dominant vested interests: “The past was erased, the erasure was forgotten, the lie became truth.” Doublethink with regard to “nationalizing” or “socializing” the banks and other sectors is a travesty of political and economic discussion from the 17th through mid-20th centuries. Society’s basic grammar of thought, the vocabulary to discuss political and economic topics, is being turned inside-out in an effort to ward off discussion of the policy solutions posed by the classical economists and political philosophers that made Western civilization “Western.”

Today’s clash of civilization is not really with the Orient; it is with our own past, with the Enlightenment itself and its evolution into classical political economy and Progressive Era social reforms aimed at freeing society from the surviving trammels of European feudalism. What we are seeing is propaganda designed to deceive, to distract attention from economic reality so as to promote the property and financial interests from whose predatory grasp classical economists set out to free the world. What is being attempted is nothing less than an attempt to destroy the intellectual and moral edifice of what took Western civilization eight centuries to develop, from the 12th century Schoolmen discussing Just Price through 19th and 20th century classical economic value theory.

Any idea of “socialism from above,” in the sense of “socializing the risk,” is old-fashioned oligarchy – kleptocratic statism from above. Real nationalization occurs when governments act in the public interest to take over private property. The 19th-century program to nationalize the land (it was the first plank of the Communist Manifesto) did not mean anything remotely like the government taking over estates, paying off their mortgages at public expense and then giving it back to the former landlords free and clear of encumbrances and taxes. It meant taking the land and its rental income into the public domain, and leasing it out at a user fee ranging from actual operating cost to a subsidized rate or even freely as in the case of streets and roads.

Nationalizing the banks along these lines would mean that the government would supply the nation’s credit needs. The Treasury would become the source of new money, replacing commercial bank credit. Presumably this credit would be lent out for economically and socially productive purposes, not merely to inflate asset prices while loading down households and business with debt as has occurred under today’s commercial bank lending policies.

How Neoliberals falsify the West’s political history

The fact that today’s neoliberals claim to be the intellectual descendants of Adam Smith make it necessary to restore a more accurate historical perspective. Their concept of “free markets” is the antithesis of Smith’s. It is the opposite of that of the classical political economists down through John Stuart Mill, Karl Marx and the Progressive Era reforms that sought to create markets free of extractive rentier claims by special interests whose institutional power can be traced back to medieval Europe and its age of military conquest.

Economic writers from the 16th through 20th centuries recognized that free markets required government oversight to prevent monopoly pricing and other charges levied by special privilege. By contrast, today’s neoliberal ideologues are public relations advocates for vested interests to depict a “free market” is one free of government regulation, “free” of anti-trust protection, and even of protection against fraud, as evidenced by the SEC’s refusal to move against Madoff, Enron, Citibank et al.). The neoliberal ideal of free markets is thus basically that of a bank robber or embezzler, wishing for a world without police so as to be sufficiently free to siphon off other peoples’ money without constraint.

The Chicago Boys in Chile realized that markets free for predatory finance and insider privatization could only be imposed at gunpoint. These free-marketers closed down every economics department in Chile, every social science department outside of the Catholic University where the Chicago Boys held sway. Operation Condor arrested, exiled or murdered tens of thousands of academics, intellectuals, labor leaders and artists. Only by totalitarian control over the academic curriculum and public media backed by an active secret police and army could “free markets” neoliberal style be imposed. The resulting privatization at gunpoint became an exercise in what Marx called “primitive accumulation” – seizure of the public domain by political elites backed by force. It is a free market William-the-Conqueror or Yeltsin-kleptocrat style, with property parceled out to the companions of the political or military leader.

All this was just the opposite of the kind of free markets that Adam Smith had in mind when he warned that businessmen rarely get together but to plot ways to fix markets to their advantage. This is not a problem that troubled Mr. Greenspan or Mr. Bush. There really is no kinship between their neoliberal ideals and those of the Enlightenment political philosophers. For them to promote an idea of free markets as ones “free” for political insiders to pry away the public domain for themselves is to lower an intellectual Iron Curtain on the history of economic thought.

The classical economists and American Progressives envisioned markets free of economic rent and interest – free of rentier overhead charges and monopoly price gouging, free of land-rent, interest paid to bankers and wealthy financial institutions, and free of taxes to support an oligarchy. Governments were to base their tax systems on collecting the “free lunch” of economic rent, headed by that of favorable locations supplied by nature and given market value by public investment in transportation and other infrastructure, not by the efforts of landlords themselves.

The argument between Progressive Era reformers, socialists, anarchists and individualists thus turned on the political strategy of how best to free markets from debt and rent. Where they differed was on the best political means to achieve it, above all the role of the state. There was broad agreement that the state was controlled by vested interests inherited from feudal Europe’s military conquests and the world that was colonized by European military force. The political question at the turn of the 20th century was whether peaceful democratic reform could overcome the political and even military resistance wielded by the Old Regime using violence to retain its “rights.” The ensuing political revolutions were grounded in the Enlightenment, in the legal philosophy of men such as John Locke, political economists such as Adam Smith, John Stuart Mill and Marx. Power was to be used to free markets from the predatory property and financial systems inherited from feudalism. Markets were to be free of privilege and free lunches, so that people would obtain income and wealth only by their own labor and enterprise. This was the essence of the labor theory of value and its complement, the concept of economic rent as the excess of market price over socially necessary cost-value.

Although we now know that markets and prices, rent and interest, contractual formalities and nearly all the elements of economic enterprise originated in the “mixed economies” of Mesopotamia in the fourth millennium BC and continued throughout the mixed public/private economies of classical antiquity, the discussion was so politically polarized that the idea of a mixed economy with checks and balances received scant attention a century ago.

Individualists believed that all that shrinking central governments would shrink the control mechanism by which the vested interests extracted wealth without work or enterprise of their own. Socialists saw that a strong government was needed to protect society from the attempts of property and finance to use their gains to monopolize economic and political power. Both ends of the political spectrum aimed at the same objective – to bring prices down to actual costs of production. The common aim was to maximize economic efficiency so as to pass on the fruits of the Industrial and Agricultural Revolutions to the population at large. This required blocking the rentier class of interlopers from grabbing the public domain and controlling the allocation of resources. Socialists did not believe this could be done without taking the state’s political and legal power into their own hands. Marxists believed that a revolution was necessary to reclaim property rent for the public domain, and to enable governments to create their own credit rather than borrow at interest from commercial bankers and wealthy bondholders. The aim was not to create a bureaucracy but to free society from the surviving absentee ownership power of the vested property and financial interests.

All this history of economic thought has been as thoroughly expunged from today’s academic curriculum as it has from popular discussion. Few people remember the great debate at the turn of the 20th century: Would the world progress fairly quickly from Progressive Era reforms to outright socialism – public ownership of basic economic infrastructure, natural monopolies (including the banking system) and the land itself (and to Marxists, of industrial capital as well)? Or, could the liberal reformers of the day – individualists, land taxers, classical economists in the tradition of Mill, and American institutionalists such as Simon Patten – retain capitalism’s basic structure and private property ownership? If they could do so, they recognized that it would have to be in the context of regulating markets and introducing progressive taxation of wealth and income. This was the alternative to outright “state” ownership. Today’s extreme “free market” idea is a dumbed-down caricature of this position.

All sides viewed the government as society’s “brain,” its forward planning organ. Given the complexity of modern technology, humanity would shape its own evolution. Instead of evolution occurring by “primitive accumulation,” it could be planned deliberately. Individualists countered that no human planner was sufficiently imaginative to manage the complexity of markets, but endorsed the need to strip away all forms of unearned income – economic rent and the rise in land prices that Mill called the “unearned increment.” This involved government regulation to shape markets. A “free market” was an active political creation and required regulatory vigilance.

As public relations advocates for the vested interests and special rentier privilege, today’s “neoliberal” advocates of “free” markets seek to maximize economic rent – the free lunch of price in excess of cost-value, not to free markets from rentier charges. So misleading a pedigree only could be achieved by outright suppression of knowledge of what Locke, Smith and Mill really wrote. Attempts to regulate “free markets” and limit monopoly pricing and privilege are conflated with “socialism,” even with Soviet-style bureaucracy. The aim is to deter the analysis of what a “free market” really is: a market free of unnecessary costs: monopoly rents, property rents and financial charges for credit that governments can create freely.

Political reform to bring market prices in line with socially necessary cost-value was the great economic issue of the 19th century. The labor theory of intrinsic cost-value found its counterpart in the theory of economic rent: land rent, monopoly price gouging, interest and other returns to special privilege that increased market prices purely by institutional property claims. The discussion goes all the way back to the medieval Churchmen defining Just Price. The doctrine originally was applied to the proper fees that bankers could charge, and later was extended to land rent, then to the monopolies that governments created and sold off to creditors in an attempt to extricate themselves from debt.

Reformists and more radical socialists alike sought to free capitalism of its egregious inequities, above all its legacy from Europe’s Dark Age of military conquest when invading warlords seized lands and imposed an absentee landlord class to receive the rental income, which was used to finance wars of further land acquisition. As matters turned out, hopes that industrial capitalism could reform itself along progressive lines to purge itself of its legacy from feudalism have come crashing down. World War I hit the global economy like a comet, pushing it into a new trajectory and catalyzing its evolution into an unanticipated form of finance capitalism.

It was unanticipated largely because most reformers spent so much effort advocating progressive policies that they neglected what Thorstein Veblen called the vested interests. Their Counter-Enlightenment is creating a world that would have been deemed a dystopia a century ago – something so pessimistic that no futurist dared depict a world run by venal and corrupt bankers, protecting as their prime customers the monopolies, real estate speculators and hedge funds whose economic rent, financial gambling and asset-price inflation is turned into a flow of interest in today’s rentier economy. Instead of industrial capitalism increasing capital formation we are seeing finance capitalism strip capital, and instead of the promised world of leisure we are being drawn into one of debt peonage.

The financial travesty of democracy

The financial sector has redefined democracy by claiming claims that the Federal Reserve must be “independent” from democratically elected representatives, in order to act as the bank lobbyist in Washington. This makes the financial sector exempt from the democratic political process, despite the fact that today’s economic planning is now centralized in the banking system. The result is a regime of insider dealings and oligarchy – rule by the wealthy few.

The economic fallacy at work is that bank credit is a veritable factor of production, an almost Physiocratic source of fertility without which growth could not occur. The reality is that the monopoly right to create interest-bearing bank credit is a free transfer from society to a privileged elite. The moral is that when we see a “factor of production” that has no actual labor-cost of production, it is simply an institutional privilege.

So this brings us to the most recent debate about “nationalizing” or “socializing” the banks. The Troubled Asset Relief Program (TARP) so far has been used for the following uses that I think can be truly deemed anti-social, not “socialist” in any form.

By the end of last year, $20 billion was used to pay bonuses and salaries to financial mismanagers, despite the plunge of their banks into negative equity. And to protect their interests, these banks continued to pay lobbying fees to persuade legislators to give them yet more special privileges.

While Citibank and other major institutions threatened to bring the financial system crashing down by being “too big to fail,” over $100 billion of TARP funds was used to make them even bigger. Already teetering banks bought affiliates that had grown by making irresponsible and outright fraudulent loans. Bank of America bought Angelo Mozilo’s Countrywide Financial and Merrill Lynch, while JP Morgan Chase bought Bear Stearns and other big banks bought WaMu and Wachovia.

Today’s policy is to “rescue” these giant bank conglomerates by enabling them to “earn” their way out of debt – by selling yet more debt to an already over-indebted U.S. economy. The hope is to re-inflate real estate and other asset prices. But do we really want to let banks “pay back taxpayers” by engaging in yet more predatory financial practices vis-à-vis the economy at large? It threatens to maximize the margin of market price over direct costs of production, by building in higher financial charges. This is just the opposite policy from trying to bring prices for housing and infrastructure in line with technologically necessary costs. It certainly is not a policy to make the U.S. economy more globally competitive.

The Treasury’s plan to “socialize” the banks, insurance companies and other financial institutions is simply to step in and take bad loans off their books, shifting the loss onto the public sector. This is the antithesis of true nationalization or “socialization” of the financial system. The banks and insurance companies quickly got over their initial knee-jerk fear that a government bailout would occur on terms that would wipe out their bad management, along with the stockholders and bondholders who backed this bad management. The Treasury has assured these mismanagers that “socialism” for them is a free gift. The primacy of finance over the rest of the economy will be affirmed, leaving management in place and giving stockholders a chance to recover by earning more from the economy at large, with yet more tax favoritism. (This means yet heavier taxes shifted onto consumers, raising their living costs accordingly.)

The bulk of wealth under capitalism – as under feudalism –always has come primarily from the public domain, headed by the land and formerly public utilities, capped most recently by the Treasury’s debt-creating power. In effect, the Treasury creates a new asset ($11 trillion of new Treasury bonds and guarantees, e.g. the $5.2 trillion to Fannie and Freddie). Interest on these bonds is to be paid by new levies on labor, not on property. This is what is supposed to re-inflate housing, stock and bond prices – the money freed from property and corporate taxes will be available to be capitalized into yet new loans.

So the revenue hitherto paid as business taxes will still be paid – in the form of interest – while the former taxes will still be collected, but from labor. The fiscal-financial burden thus will be doubled. This is not a program to make the economy more competitive or raise living standards for most people. It is a program to polarize the U.S. economy even further between finance, insurance and real estate (FIRE) at the top and labor at the bottom.

Neoliberal denunciations of public regulation and taxation as “socialism” is really an attack on classical political economy – the “original” liberalism whose ideal was to free society from the parasitic legacy of feudalism. A truly socialized Treasury policy would be for banks to lend for productive purposes that contribute to real economic growth, not merely to increase overhead and inflate asset prices by enough to extract interest charges. Fiscal policy would aim to minimize rather than maximizing the price of home ownership and doing business, by basing the tax system on collecting the rent that is now being paid out as interest. Shifting the tax burden off wages and profits onto rent and interest was the core of classical political economy in the 18th and 19th centuries, as well as the Progressive Era and Social Democratic reform movements in the United States and Europe prior to World War I. But this doctrine and its reform program has been buried by the rhetorical smokescreen organized by financial lobbyists seeking to muddy the ideological waters sufficiently to mute popular opposition to today’s power grab by finance capital and monopoly capital. Their alternative to true nationalization and socialization of finance is debt peonage, oligarchy and neo-feudalism. They have called this program “free markets.”

Visit Michael Hudson’s site

Watch Michael Hudson blister Obama and his economic advisors on Democracy Now.

Digest the hard hitting statements then read Hudson’s Counterpunch piece:

Trying to Revive the Bubble Economy:
Obama’s Awful Financial Recovery Plan

By Michael Hudson

Martin Wolf started off his Financial Times column for February 11 with the bold question: “Has Barack Obama’s presidency already failed?” The stock market had a similar opinion, plunging 382 points. Having promised “change,” Mr. Obama is giving us more Clinton-Bush via Robert Rubin’s protégé, Tim Geithner. Tuesday’s $2.5 trillion Financial Stabilization Plan to re-inflate the Bubble Economy is basically an extension of the Bush-Paulson giveaway – yet more Rubinomics for financial insiders in the emerging Wall Street trusts.

The financial system is to be concentrated into a cartel of just a few giant conglomerates to act as the economy’s central planners and resource allocators. This makes banks the big winners in the game of “chicken” they’ve been playing with Washington, a shakedown holding the economy hostage. “Give us what we want or we’ll plunge the economy into financial crisis.” Washington has given them $9 trillion so far, with promises now of another $2 trillion– and still counting.

A true reform – one designed to undo the systemic market distortions that led to the real estate bubble – would have set out to reverse the Clinton-Rubin repeal of the Glass-Steagall Act so as to prevent the corrupting conflicts of interest that have resulted in vertical trusts such as Citibank and Bank of America/Countrywide/Merrill Lynch. By unleashing these conglomerate grupos (to use the term popularized under Pinochet with Chicago Boy direction – a dress rehearsal of the mass financial bankruptcies they caused in Chile by the end of the 1970s) the Clinton administration enabled banks to merge with junk mortgage companies, junk-money managers, fictitious property appraisal companies, and law-evasion firms all designed to package debts to investors who trusted them enough to let them rake off enough commissions and capital gains to make their managers the world’s highest-paid economic planners.

photo credit: James Willamor

Michael Hudson explores the analogous nature of Ponzi schemes and the property bubble. How is wealth created in the modern era? Through hard word, through who you know or what you ‘flip’?

December 23, 2008

Last week the Good Lord evidently realized that not enough people had been reading Hyman Minsky’s explanation of how financial cycles end in Ponzi schemes – the stage in which banks keep the boom going by lending their customers the money to pay interest and thus avoid default. So He sent Bernie Madoff to dominate the news for a week and give the mass media an opportunity to familiarize newspaper readers and TV watchers with just how Ponzi Schemes work. What Mr. Madoff did was, in a nutshell, what the economy as a whole has been doing under the moniker “wealth creation.”

If the media were able to wait until as late in the financial collapse as last week to provide helpful diagrams about how Ponzi schemes need to keep on growing exponentially, it is simply because bad foreign financial news is not deemed newsworthy in North America. But Europe has been having its own run-throughs, headed by Spain – which by no coincidence is now experiencing the biggest real estate bust outside of the post-Soviet economies.

The best case study occurred two years ago. On May 9, 2006, Spanish police raided 21 homes and offices of Afinsa Fienes Tangibles SA, the world’s largest postage-stamp dealer, and rival firm, Forum Filatélico. They charged eleven men with running a $6.4 billion pyramid scheme that took in some 343,000 investors – 1 percent of Spain’s entire population, making the fraud one of the largest in Spanish history.[1]

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