Sunday, September 21, 2008


Michael Hudson, Global Research - The White House committed at least half a trillion dollars more to re-inflate real estate prices in an attempt to support the market value junk mortgages - mortgages issued far beyond the ability of debtors to pay and far above the going market price of the collateral being pledged.

These billions of dollars were devoted to keeping a dream alive - the accounting fictions written down by companies that had entered an unreal world based on false accounting that nearly everyone in the financial sector knew to be fake. But they played along with buying and selling packaged mortgage junk because that was where the money was. As Charles Prince of Citibank put it, "As long as they're playing music, you have to get up and dance." Even after markets collapsed, fund managers who steered clear were blamed for not playing the game while it was going. I have friends on Wall Street who were fired for not matching the returns that their compatriots were making. And the biggest returns were to be made in trading in the economy's largest financial asset - mortgage debt. The mortgages packaged, owned or guaranteed by Fannie and Freddie alone exceeded the entire U.S. national debt - the cumulative deficits run up by the American Government since the nation won the Revolutionary War. . .

Instead of waking up the economy to reality, the government has thrown all its resources to promote the unreal dream that debts can be paid - if not by the debtors themselves, then by the government - "taxpayers," as the euphemism goes.

Overnight, the U.S. Treasury and Federal Reserve have radically changed the character of American capitalism. It is nothing less than a coup d'Etat for the class that FDR called "banksters." What has happened in the past two weeks threatens to change the coming century - irreversibly, if they can get away with it. This is the largest and most inequitable transfer of wealth since the land giveaways to the railroad barons during the Civil War era. . .

It turned out, inevitably, that some of the financial institutions that made billion-dollar gambles - usually in the form of a thousand million-dollar gambles in the course of a few minutes or so, to be precise - couldn't pay up. These gambles all occur in microseconds, at strokes of a keyboard almost without human interference. . .

The nearest analogy is the invasion of the Harvard Boys, World Bank and US AID. to Russia and other post-Soviet economies after the Soviet Union was dissolved, pressing free-market giveaways to create national kleptocracies. It should be a worrying sign to Americans that these kleptocrats have become the Founding Fortunes of their respective countries. We should bear in mind Aristotle's observation that democracy is the political stage immediately preceding oligarchy.

The financial machines that placed the trades that bankrupted A.I.G. were programmed by financial managers to act with the speed of light in conducting electronic trades often lasting only a few seconds each, millions of times a day. Only a machine could calculate mathematical probabilities factored in regarding the squiggles up and down of interest rates, exchange rates and stock and bonds prices - and prices for packaged mortgages. And the latter packages increasingly took the form of junk mortgages, pretending to be payable debts but in reality empty flak.

The machines employed by hedge funds in particular have given a new meaning to Casino Capitalism. That was long applied to speculators playing the stock market. It meant making cross bets, lose some and win some - and getting the government to bail out the non-payers. The twist in the past two weeks' turmoil is that the winners cannot collect on their bets unless the government pays the debts that the losers are unable to cover with their own money. . .

So why has the Treasury found it necessary to enter this picture at all? Why should these gamblers be bailed out, if they had enough to lose without having to become public wards by going on welfare? Hedge fund trading was limited to the very rich, for investment banks and other institutional investors. But it became one of the easiest ways to make money, loaning funds at interest for people to pay out of their computer-driven cross-trades. And almost as fast as it was made, this revenue was paid out in commissions, salaries and annual bonuses reminiscent of America's Gilded Age in the years prior to World War I - years before the income tax was introduced in 1913. The remarkable thing about all this money was that its recipients didn't even have to pay normal income tax on it. The government let them call it "capital gains," which meant that the money was taxed at only a fraction of the rate that incomes were taxed.

The pretense, of course, is that all this frenetic trading creates real "capital." . . . It is as much "capital" as the right to conduct a lottery and collect the winnings from the hopes of the losers. But then, casinos from Las Vegas to riverboats have become a major "growth industry," muddying the language of capital, growth and wealth itself. . .

What happened on September 18-19 took years of preparation, capped by a faux ideology crafted by public-relations think tanks to be broadcast under emergency conditions to panic Congress - and voters - right before the presidential election. This seems to be our September election surprise. Under staged crisis conditions, Pres. Bush and Treasury Secretary Paulson are now calling for the country to come together in a War on Defaulting Homeowners. This is said to be the only hope to "save the system." . . . The largest transformation of America's financial system since the Great Depression has been compressed into just two weeks, starting with the doubling of America's national debt on September 7 with the nationalization of Fannie Mae and Freddie Mac. . .

Remember when President Bush and Alan Greenspan informed the American people that there was no money left to pay Social Security (not to mention Medicare) because at some future date (a decade from now? 20 years? 40 years?) the system might run a deficit of what now seems to be merely a trivial trillion dollars spread over many, many years. The moral was that if we can't figure out how to pay, let's plow the program under right now.

Mr. Bush and Greenspan did have a helpful solution, of course. The Treasury could turn Social Security and medical insurance money over to Bear Stearns, Lehman Brothers and their brethren to invest at the "magic of compound interest."

What would have happened to U.S. Social Security had this been done? Perhaps we should view the past two weeks' events as having assigned to Wall Street gamblers all the money that has been set aside since the Greenspan Commission in 1983 shifted the tax burden onto FICA wage withholding. It is not retirees who are being rescued, but the Wall Street investors who signed papers saying that they could afford to lose their money. The Republican slogan this November should be "Gambling insurance, not health insurance.". . .

The theory of democracy rested on the assumption that voters would act in their self-interest. Market reformers made a kindred happy assumption that consumers, savers and investors would promote economic growth by acting with full knowledge and understanding of the dynamics at work. But the Invisible Hand turned out to be accounting fraud, junk mortgage lending, insider dealing and a failure to relate the soaring debt overhead to the ability of debtors to pay - all of this mess seemingly legitimized by computerized trading models, and now blessed by the Treasury.

Michael Hudson is President of The Institute for the Study of Long-Term Economic Trends, a Wall Street financial analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Super-Imperialism: The Economic Strategy of American Empire (1972 and 2003)


At September 21, 2008 4:09 PM, Anonymous Anonymous said...

And the love affair continues and deepens between Sam Smith and the moonbat-"nine-eleven-was-an-inside-job"-conspiradroids at GlobalFiction(dot)ca.

Mr. Smith, please come all the way out of the closet.

I recommend publishing content from Alex Jones, Michael Rivero and Jeff Rense. And perhaps a link to Coast-to-Coast-AM radio.

Here are some headlines you can use:

- The Jews Did It (whatever it is, doesn't matter, they did it)

- A FEMA Concentration Camp Is Coming To A Town Near You.

- Bush Is Planning A Coup And Dictatorship (oh, wait, you already use this one quite a lot: once a week if not more)

- Bush Wants To But A Behavior Control Chip In Your Brain (whoops, you already use variations on this theme as well)

Then you could start posting the Alien Abduction, Haunted Houses, Demon Possession stories.

It's definitely the way to go Sam. The American people love their B.S. science fiction style: from the easily debunked urban legend, "nine-eleven-was-an-inside-job", to aliens, demons and ghosts.

But you have to come all the way out of the closet. Be proud of your inner-moonbat!

At September 21, 2008 6:18 PM, Anonymous Anonymous said...

I forgot the most important all purpose headline to use while embracing your inner-moonbat:

The Illuminati-ZOG-Bilderberg-NWO-Trilateralist-CFR-Satanist clade did this, that or the other.

Doesn't matter what it is, just attribute it to one or more of the aforementioned "evil-doers" and you have yourself a full-on, authentic, moonbat-conspiradroid, divorced-from-reality, infotainment, "news" party!

Enjoy Mr. Smith.

At September 22, 2008 10:59 AM, Anonymous Anonymous said...

anon above, why don't you inform us all of what parts of conspiracy theory are true and what parts are moonbat. i mean, the moonbat stuff is inserted precisely to obfuscate, precisely to make the public turn away from ALL notions that powerful people get together to serve their own interests, which are diametrically opposed to the best interests of working people of the world, so why don't you sort it all out for us.

that would be helpful.

surely you don't believe that conspiracies DO NOT HAPPEN??????

if conspiracies do not happen, then why do we have laws against conspiracy and people in jail for being conspirators?

the bottom line is you do a very, very unhelpful thing to post a rant like yours, because if people don't start to realize that what is going on is NOT ineptitude, they will continue to find ways to excuse the inexcusable.

do you really think it's just a repeated pattern of incompetence and stupidity that just happens to keep increasing the power and wealth of a handful of interconnected individuals at the expense of 99.999999% of the worlds population??

"The patience of the oppressed has always been the most inexplicable, as well as probably the most important, fact in all history." - Author Amos Elon from The Pity of it All

methinks this patience would wear thinner if people would stop bashing the whole of conspiracy theory, just because some rats are using mis and disinformation tactics to prevent truth from being seen.

and btw, if you accept the government's official line about 9/11 - when it's a fact they have told outright lies and done all they could to prevent independent investigation the people of this country have every right to - then YOU are the one buying into the GOVERNMENT's conspiracy theory.


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