UPDATE:
Read and rec New Deal Democrat's diary above containing the text of the new IRC giveaway. It is unbelievable. Then come back and read this.
Michael Hudson's experience runs the gamut from serving as an economist for Chase Manhattan Bank to advising Dennis Kucinich on economic matters during the recent primary campaign. He is currently Distinguished Research Professor at the University of Missouri at Kansas City and the author of Super Imperialism: The Economic Strategy of American Empire (2002).
Hudson, along with Nouriel Roubini of New York University, was one of the first to predict the housing market crash and the collapse of Wall Street.
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.
Who is at fault?
Hudson doesn't lay the blame at the feet of some ultra-secret cabal of Masters of the Universe. Of course, fraud is an element:
On Sunday, September 7, the Treasury took on the $5.3 trillion mortgage exposure of Fannie Mae and Freddie Mac, whose heads already had been removed for accounting fraud. On Monday, September 15, Lehman Brothers went bankrupt, when prospective Wall Street buyers couldn’t gain any sense of reality from its financial books. On Wednesday the Federal Reserve agreed to make good for at least $85 billion in the just-pretend "insured" winnings owed to financial gamblers who bet on computer-driven trades in junk mortgages and bought counter-party coverage from the A.I.G. (the American Insurance Group, whose head Maurice Greenberg already had been removed a few years back for accounting fraud).
The ultimate cause, however, is a combination of unregulated greed and new trading capabilities made possible by increasingly powerful computers:
A kleptocratic class has taken over the economy to replace industrial capitalism. Franklin Roosevelt’s term "banksters" says it all in a nutshell. The economy has been captured – by an alien power, but not the usual suspects. Not socialism, workers or "big government," nor by industrial monopolists or even by the great banking families. Certainly not by Freemasons and Illuminati. (It would be wonderful if there were indeed some group operating with centuries of wisdom behind them, so at least someone at least had a plan.) Rather, the banksters have made a compact with an alien power –not Communists, Russians, Asians or Arabs. Not humans at all. The group’s cadre is a new breed of machine. It may sound like the Terminator movies, but computerized Machines have indeed taken over the world.
These machines, in the hands of people driven to drive returns ever higher, became weapons of rapid, mass destruction, racking up huge profits for awhile but eventually amassing almost unimaginable sums of debt. Now the tables are closing at the Wall Street Casino, and the hour of reckoning has come:
For the gaming tables to be closed and the money paid out, the losers must be bailed out – Fannie Mae, Freddie Mac, A.I.G. and who knows what to come? This is the only way to solve the problem of how companies that already have paid out their revenue to their managers and stockholders instead of putting it in reserves are to collect their winnings from insolvent debtors and insurance companies. These losers also have paid out their income to their financial managers and insiders (along with the usual patriotic contributions to the political candidates on the key committees in charge of deciding the nation’s financial structuring).
How did the bailout come about?
Hudson is not buying the line from Schumer that they were "stunned" when Congressional leaders met with Paulson on Wednesday night.
This has to be orchestrated well in advance. It is necessary to buy politicians and give them a plausible cover story (or at least a well-crafted set of poll-tested euphemisms) to explain to voters just why it was in the public interest to bail out gamblers. Good rhetoric is needed to explain why the government should let them go into a casino and let them keep all their winnings while using public funds to make good on the losses of their counterparties.
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." (What system is this? Not industrial capitalism, or even banking as we know it.) 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. (My computer’s spellchecker will not permit me to use the euphemism "conservatorship" that Mr. Paulson applied to bailing out the Fannie Mae and Freddie Mac fraudsters.)
What will this bailout accomplish?
Hudson advocates a government-madated writedown of homeowner mortgages to the point where the debtors can meet their payments with money left over for other needs and even a little savings. As long as average Americans are as over-burdened with debt as they are now, Hudson believes, the economy cannot more forward.
But instead of helping homeowners--which is what they are claiming to do--the Bush Administration and Congress are really going to do the opposite.
America has entered into a new war – a War to Save Computerized Derivative Traders. Like the Iraq war, it is based largely on fictions and entered into under seeming emergency conditions – to which the solution has little relation to the underlying cause of the problems. On financial security grounds the government is to make good on the collateralized debt obligations packaged (CDOs) that Warren Buffett has called "weapons of mass financial destruction."
Hardly by surprise, this giveaway of public money is being handled by the same group that warned the country so piously about weapons of mass destruction in Iraq. Pres. Bush and Treasury Secretary Paulson have piously announced that this is no time for partisan disagreements over this shift of public policy to favor creditors rather than debtors. There is no time to make the biggest bailout in election history an election issue. Not an appropriate time to debate whether it is a good thing to re-inflate housing prices to a level that will continue to oblige new home buyers to go so deeply into debt that they must pay some 40 percent of their take-home pay on housing.
Hudson is sure that this bailout will not save the American economy. To the contrary, it will further the destruction of the middle class by radically increasing debt burdens, public and private, to the point where the American economy and American workers will carry around a ball and chain for the forseeable future.
Read it all at Counterpunch.