"End of Wall Street Boom" - Must-read history

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Postby JackRiddler » Sun Feb 22, 2009 4:35 am


Thank you.

What does it mean when the Secretary starts pitching Treasuries to China?

Has the end arrived?

http://www.bloomberg.com/apps/news?pid= ... refer=home

Clinton Urges China to Keep Buying Treasuries (Update2)

By Indira Lakshmanan

Feb. 22 (Bloomberg) -- U.S. Secretary of State Hillary Clinton urged China to continue buying Treasury bonds to help finance President Barack Obama’s stimulus plan.

The two nations’ economies are intertwined and it wouldn’t be in China’s interest if the U.S. were unable to sell its government debt, Clinton said in an interview with Shanghai’s Dragon Television today. China knows it needs a healthy American economy as its biggest export market, she said, adding that the U.S. must take “drastic measures” to stimulate growth.

“We are truly going to rise or fall together,” Clinton said. “By continuing to support American treasury instruments, the Chinese are recognizing” that interconnection.

China, the largest holder of U.S. government debt, boosted purchases by 46 percent last year to a record $696.2 billion as the global recession spurred demand for the securities. The Chinese government said last week it plans to keep buying Treasuries, adding that future purchases will depend on the preservation of their value and the safety of the investment.

China continued to buy the U.S. debt amid a 27 percent increase in its holdings of foreign currencies in 2008. JPMorgan Chase & Co. predicted in a Feb. 6 report that China will keep buying Treasuries “not only for the near-term stability of the global financial system, but also because there is no viable and liquid alternative market in which to invest China’s massive and still growing reserves.”

Chinese attempts to diversify from Treasuries into more risk-oriented assets have not fared well. It has lost at least half of the $10.5 billion it invested in New York-based Blackstone, Morgan Stanley and TPG Inc. since mid-2007.

China’s currency reserves of $1.95 trillion are about 29 percent of the world total.

Flying Home

Clinton today wrapped up a weeklong trip to Asia, her first as Obama’s top diplomat, having already stopped in Japan, Indonesia and South Korea. She attended services at a state- sanctioned church, and met with community organizers before starting the trip home.

China and the U.S. will continue the bilateral strategic dialogue begun during the Bush administration, expanding it to include security and political issues, Clinton said yesterday after meeting with Chinese Foreign Minister Yang Jiechi.

Clinton will co-chair the dialogue on the U.S. side with Treasury Secretary Timothy Geithner, she said today.

To contact the reporters on this story: Indira Lakshmanan in Beijing at ilakshmanan@bloomberg.net
Last Updated: February 22, 2009 00:45 EST
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Postby JackRiddler » Sun Feb 22, 2009 4:38 am

(repeating on new page)

...In the Holy Name of Thread Consolidation...



Started by me:

Sun Jun 29, 2008 11:59 pm -- Dow at 36,000


Sun Sep 14, 2008 9:00 pm -- Lehman files! BoA buys Lynch! AIG begging Fed! All right now on CNBC.... the crash is on TODAY and 90 percent aren't really aware of it.


Fri Sep 19, 2008 12:30 pm -- Now I'm confused. Inflation, deflation or what? So, the government kind of just nationalized the financial sector, at any rate took on its debt with plenty of room to use its assets as collateral. You'd think that guarantees US government insolvency, foreign flight from T-bills, ultimately monetization of US government obligations, a dollar crash, and thus strong drivers toward hyperinflation. Possibly, commodity pricing in euros to follow. Meanwhile, the shell game with the real money has ended up with the richest few holding it, as expected. They don't want hyperinflation. In the real world, most people will be crushed under debt, unemployment will rise, consumer demand will fall, thus demand for commodities also. Investment in production will decline. Asset prices, such as on real estate, will continue to decline. This points to deflation. (SNIP etc.) So what's going to happen now? Inflation? Deflation?[/quote]
http://rigorousintuition.ca/board/viewt ... 868#216868


Sun Oct 05, 2008 8:23 pm -- Crisis a cover for mob-style "bust-out" by spooks? Well, the likely answer is: no shit! Anyone remember this item from Business Week more than two years ago? The White House authorized the intelligence czar (Negroponte at the time) discretion to grant secret waivers on all SEC rules for any company. National security apparently requires money laundering and cooked books. That would give incredible advantages to such a company in its dealings on the closed markets of derivatives. Wonder if any of the heavyweights involved in the current crisis are among the beneficiaries, and what impact this may have had? Was this the beginning of plunder operations in advance of the inevitable crash? Can companies who received such waivers still present cooked books as the derivatives now unwind? Will the DNI have the authority to block investigations of criminal behavior by protected financial players?
http://rigorousintuition.ca/board/viewt ... 561#220561


Sat Oct 11, 2008 4:00 pm -- History of Crude Oil Price, 1948-2008
http://rigorousintuition.ca/board/viewt ... oil+dollar


Mon Oct 20, 2008 10:57 am -- Hudson sums up crisis, plunder & bank takeover of US Licensed Kleptocracy for Years to Come -- The ABCs of Paulson's Bailout


Sat Oct 25, 2008 12:52 pm -- Dollar rising strongly - what does it mean? In the midst of a world crisis based on a debt-induced meltdown within the US FIRE sector, capital has been moving out of the securities markets but also showing a net movement into the dollar region, which now stands at 1.26 against the euro. The yen has also risen, however. What's going on?


Sat Oct 25, 2008 1:20 pm -- NYT: JPM to use bailout cash for acquisitions, not loans NYT reporter Nocera spied in on JPM Chase conference call. Some juicy new details that may surprise no one here, but it's always good to see the inevitable documented when it happens...


Thu Nov 13, 2008 10:49 am -- The Two Trillion Dollar Black Hole (articles by Pam Martens & Bloomberg...) The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral. Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return...
http://rigorousintuition.ca/board/viewt ... p?p=229226




Fri Sep 19, 2008 7:38 pm -- The Vampire, Struck by Sunlight Simplicity and directness would appear to be advisable, as we are all buried in a torrent of irrelevancies, self-justifications, explanations which explain nothing and serve only to confuse everyone (which is precisely their aim), and an unending stream of lies and half-truths. Perhaps it would be easier to think of it in the following terms, for vampire stories are very popular. The economy of the United States is disintegrating in the same way a vampire does when exposed to sunlight, and for the same reason.



Sat Oct 04, 2008 10:59 pm -- A primer on the Wall Street meltdown
By Walden Bello, Focus on the Global South September 25, 2008 -- The Wall Street meltdown is not only due to greed and to the lack of government regulation of a hyperactive sector. It stems from the crisis of overproduction that has plagued global capitalism since the mid-seventies.



Fri Oct 10, 2008 2:58 pm -- Dow gains 800 points in less than one hour... after having lost that amount in the course of the day



Thu Oct 23, 2008 12:24 pm -- Wall Street's 'Disaster Capitalism for Dummies' What's most amazing about this piece is that it appeared in the mainstream media by one of the regulars at MarketWatch.com.


MOST USEFUL OF ALL, thanks to anothershamus:

Wed Oct 22, 2008 10:46 pm -- The One Hundred Items To Disappear Off The Shelves First


Probably the PRETTIEST, also thanks to anothershamus:

Wed Jan 07, 2009 12:37 pm -- Graphing the economic crisis, notice a trend? Here are some graphs, find some more and post here.


And here's one I keep wanting to add a response to, from ninakat:

Mon Jan 19, 2009 9:52 pm -- Inflationists vs. Deflationists

which was prompted by her long list of competing quotes in this one:

INFLATIONISTS vs. DEFLATIONISTS -- a compendium in progress


And let's not forget the All-time Classic started by antiaristo, now at 31 pages:

Mon Oct 29, 2007 5:54 am
Federal Reserve losing control
http://rigorousintuition.ca/board/viewt ... sc&start=0



Mon Mar 10, 2008 -- NY Governor Spitzer Linked to Prostitution Ring See RI cooperative research unfold! Rough consensus is that he was taken down to remove possible threat to finance scam players, for example after his column in February... coincided with threat of crash that week averted by $200B Fed cash injection.
http://rigorousintuition.ca/board/viewt ... 90&start=0


Sun Feb 17, 2008 -- The Terrorists Still at Ground Zero, 7 World Trade Center Cockburn article on the ratings scammery and global protection rackets run by Moody's, S&P, Fitch, plus discussion...
http://rigorousintuition.ca/board/viewt ... ht=spitzer


DISCLAIMER -- Purpose is personal consolidation index, so it's easier to find threads about the financial meltdown I thought were interesting. Also, henceforth, I'll try to add cut-pasta articles only to this thread.

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Postby JackRiddler » Sun Feb 22, 2009 4:48 am


COMMENT (adapted from "Losing Control" thread):

We're not talking about conspiracy, we're talking about operations of class war. Capitalist finance is a highly centralized system.

Perhaps, in contemplating the trillions lost in equity by the patsy investors and depositors, and by the banks as institutions, one might not think too much of the dozens or hundreds of billions reaped in dollars by the movers and managers as individuals. Ironically enough, it's the equity that was largely a phantom of inflated valuations, and the dollars that still retain value, no matter where they landed. The bonus payments the Wall Street cliques gave themselves at the end of 2007 and again in 2008 sure look like peanuts -- what's $50 billion compared to the trillions in equity lost? -- but that's not at all how the recipients of these payments see it.

Do people exist who would watch whole nations burn, just to get a relative smidgen of plunder for themselves? Even to the lazy student of history, the answer is obvious. Not only do they exist, they've been a perpetual driving force. The more successful ones are honored with post-facto titles like 'the Great', 'the Terrible', 'the Butcher'. At a less grandiose level, we are all encouraged to behave in just this way: keep buying, keep working, don't question why the world burns or what our role in that may be.

Consider the poacher of the largest and most magnificient of all land creatures: the elephant. Who lives nine decades, who remembers everything he sees, who knows himself in the mirror, who moans with all the pleasures and pains of earthly sentience, of fate. He weighs four or six tons. Surely the poacher wouldn't kill this divinity just for a pair of lousy tusks that don't even weigh 200 pounds between them, and leave the hulking corpse on the savannah to rot, too much even to benefit the scavengers for long?


wintler2 wrote:i don't see evidence that any grouping is actually in control or is working to a long term plan. It is a scrum of theives and thugs, not a ballet of power and planning.

Please forgive me, I consider this to be a false dichotomy. Finance capitalism is a highly centralized system. The top players are few and have enormous weight to throw around. The dynamics of its crises are well-known as they have repeated themselves many times. The players are also experienced in the mechanics of its scams, even if these find different forms with each stage of development. They all try to make long-term plans, whether these work or not, even as they respond to short-term developments. That doesn't mean everything's predictable, of course, and no one group can ever hold certain control over events; not even if the entire financial class worked together could they do that, which is one reason why we're seeing this crisis. But between "a scrum" and "a ballet" there are many possibilities for planning, colluding and scamming. Thus Paulson, who installed a network of former Goldman Sachs colleagues at all of the key positions around him at the Treasury Department, was able to call nine bank presidents one day and sit down with all of them around the same table the next morning, when he gave each of their institutions a share in one-half of the first TARP tranche (about 150-200 billion dollars total). The ten men who met in October all know each other well, and one is Paulson's successor at Goldman Sachs. Together these institutions represent something like half or more of all of the derivative bets, half or more of all deposits and assets and liabilities. And most of the time, especially in the midst of crisis, they breathe together.
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Postby JackRiddler » Sun Feb 22, 2009 12:25 pm


This time Zadeh sums things up well and points to a credible course of action.


Weekend Edition
February 20 / 22, 2009

How the Current Financial Rescue Schemes are Following the Failed Model of the Hoover Administration

Herbert Hoover Copycats


Faced with the financial meltdown of the Great Depression, the Hoover administration created the Reconstruction Finance Corporation that poured taxpayers’ money into the coffers of the influential Wall Street banks in an effort to save them from bankruptcy. Like today’s Bush/Obama administrations, the Hoover administration used the “too-big-to-fail” scare tactic in order to justify the costly looting of the national treasury. All it did, however, was to simply postpone the day of reckoning: almost all of the banks failed after nearly three years of extremely costly bailouts schemes.

In a similar fashion, when in the mid- to late-1990s major banks in Japan faced huge losses following the bursting of the real estate and loan-pushing bubble in that country, the Japanese government embarked on a costly rescue plan of the troubled banks in the hope of “creating liquidity” and “revitalizing credit markets.” The results of the bailout plan have likewise been disastrous, a disaster that has come to be known as “Japan’s lost decade.”

Despite these painful and costly experiences, the Bush/Obama administrations (along with the U.S. Congress) are following similarly ruinous solutions that are just as doomed to fail. This is not because these administrations’ economic policy makers are unaware of the failed policies of the past. It is rather because they too function under the influence of the same powerful special interests that doomed the bailout policies of the Hoover and Japanese governments: the potent banking interests.

Despite its complexity, the fraudulently obfuscated and evaded solution to the currently crippled financial markets is not due to a lack of expertise or specialized technical know-how, as often claimed by economic policy makers of the Bush/Obama administrations. It is rather due to a shameful lack of political will—the solution is primarily political.

Specifically, it is due to government’s unwillingness to do what needs to be done: to remove the smokescreen that is suffocating the financial markets, open the books of the insolvent mega banks, declare them bankrupt, as they actually are, auction off their assets, and bring them under public ownership—since taxpayers have already paid for their net assets many times over.

To put it even more bluntly, the deepening and protraction of the crisis is largely due to policy makers’ subservience to the interests of Wall Street gamblers—shirking their responsibility to protect people’s interests.

Saying that the solution to the current financial crisis is simpler than it appears is not meant to downplay or make light of the problem. It is, rather, to point out that Wall Street gamblers have made the solution relatively simple by digging their own grave, doomed themselves to bankruptcy, thereby leaving nationalization as the only logical or viable solution.

This is no longer simply a radical, leftist or socialist demand. It is now demanded by many economists and financial experts on purely pragmatic or expediency grounds. For example, Joseph Stiglitz, the 2001 recipient of Nobel Prize in economics and former Chief Economist of the World Bank, points out:

“The fact of the matter is, the banks are in very bad shape. The U.S. government has poured in hundreds of billions of dollars to very little effect. It is very clear that the banks have failed. American citizens have become majority owners in a very large number of the major banks. But they have no control. Any system where there is a separation of ownership and control is a recipe for disaster. Nationalization is the only answer. These banks are effectively bankrupt.”

Likewise, Mike Whitney, a very incisive Wall Street observer, writes:

“Most people who've been following the financial crisis know what needs to be done. It's no secret. The insolvent banks have to be nationalized. They have to be taken over by the FDIC, the shareholders have to be wiped out, bondholders have to take a haircut, management has to be replaced and the bad assets have to be written down. There's no point in throwing public money down a rathole just to keep zombie banks on life support.”

In Europe, which is similarly mired in a huge financial swamp, some policy makers are now openly calling for “Chapter 11” and/or nationalization solution. For example, in an article published in the 12 February 2009 edition of Corriere Della Sera, the Italian Economy Minister Giulio Tremonti calls for a bankruptcy reorganization of the insolvent financial institutions:

"If the crisis is not a liquidity but an insolvency crisis..., the medicine is not merging failed banks with other failed banks, it is not in the switch or swap between private and public debt, it is not in creating artificial, additional private demand. If you are doped, the remedy is not more dope. . . . Saving everything is a divine mission. If one thinks to save everything, through the last resort of governments, through public debts, you end up with saving nothing and at the end, you even lose public budgets.”

As noted earlier, partisans of “bailout-the-banks-at-any-cost” use the “too-big-to-fail” scare tactic in order to justify trillions of giveaway bailout dollars. Disingenuously used for nearly 20 months since the financial bubble exploded in mid 2007, this rationale is now totally discredited, as the fraudulently shifting schemes of rescuing the insolvent banks have proven both ineffectual and dangerously costly—not only in terms of hollowing out our national treasury and condemning us to bankruptcy, but also in terms of further prolonging and deepening of the crisis.

Another bogus rationale for the shifting schemes of the bailout scam, according to its champions, is that “this is an altogether new and very complicated crisis.” Accordingly, they claim that “while we are committed to finding a solution, it will take a long time before we see a market turnaround because it is an unprecedented problem and may, therefore, involve lots of learning by doing”!

It is hard to say which is worse: (1) this is a sincere argument, that is, they are genuinely committed to finding a solution based on national interests but have not yet come up with one; or (2) they are disingenuous, and are deliberately engaged in obfuscating issues and confusing the people in order to protect the interests of Wall Street financial gamblers at the expense of national interests.

If they are right in their claim that they are genuinely committed to finding a solution based on national interests but have not yet found one (after nearly 20 months), then it is safe to say that they are a bunch of incompetent knotheads who are totally ignorant of the theoretical foundations and empirical lessons of bank failures and/or bank nationalizations, and should, therefore, not be at the helm of our economic decision-making apparatus. But if their argument is disingenuous, then they are playing politics with our national interests in order to serve special interests—a case of crime and punishment.

There are good reasons, however, to believe that the confusion and uncertainty that the Bush/Obama team of economic experts has created in the financial markets is largely due to these experts’ misplaced priorities and allegiance, not their “sincere but unsuccessful” efforts. It is a problem of having some huge elephants in our nation’s financial policy-making room. Mike Whitney aptly calls Treasury Secretary Tim Geithner “a Trojan Horse for the banking oligarchs”:

“The banking lobby has already set the agenda. All the hoopla about ‘financial rescue’ is just a smokescreen to hide the fact that the same scofflaws who ripped off investors for zillions of dollars are back for their next big sting; a quick vacuuming of the public till to save themselves from bankruptcy. It's a joke. Obama floated into office on a wave of Wall Street campaign contributions and now it's payback time. Prepare to get fleeced. Geithner is fine-tuning a ‘public-private’ partnership for his buddies so they can keep their fiefdom intact while shifting trillions of dollars of toxic assets onto the people's balance sheet. They've affixed themselves to Treasury like scabs on a leper. Geithner is ‘their guy,’ a Trojan horse for the banking oligarchs. He's already admitted that his main goal is to, ‘keep the banks in private hands.’ That says it all, doesn't it?”

Timothy Geithner, Henry Paulson, Ben Bernanke, Larry Summers, and their cohorts at the helm of the Bush/Obama financial decision making machine are very smart individuals. They are among top Wall Street masterminds. The problem is that, at the core, they are committed, first and foremost, to protecting the interests of Wall Street financial giants. Indeed, it is safe to say that they are disguised lobbyists of those financial firms. No matter how hard they try to camouflage their bailout schemes, or how many different names they use for those schemes, their starting point is always protection of the insolvent banks.

Just note the fact that while they have changed the name of their bailout scam a number of times, the primary objective has not changed. The initial bailout plan, which announced the giving away of $700 billion dollars of taxpayers’ money, was called Troubled Assets Rescue Plan (TARP).

Half way through TARP, that is, when it became clear that Wall Street gamblers were simply grabbing TARP money and hoarding it, Bush’s Treasury Secretary Henry Paulson repackaged the scheme and renamed it as taxpayers’ investment or purchase of “preferred shares of troubled institutions.” In plain language, this simply means paying “cash for trash,” as Michael Hudson, former Wall Street economist and Distinguished Research Professor at University of Missouri (Kansas City), aptly puts it. Furthermore, owning “preferred shares” of a bank means not having a say or an input in the control or management of the bank—that is, ownership without control.

As the American people have gradually become aware of and resistant to these fraudulent rescue plans, the schemers have become more cunning: they have now labeled the latest version of the bailout scam “private-public” investment partnership.

This “private-public” partnership scheme, as formally announced by the new Treasury Secretary Timothy Geithner on 10 February 2009, is designed to accomplish two things: first, to justify the giving away of the remainder of the TARP money; second, to pave the way for additional bailout giveaways—purportedly to the tune of $2.5 trillion.

Formally, the “private” component in this so-called partnership investment means that hedge funds, private equity funds, and investment banks would now join the government in purchasing the toxic assets of the troubled banks. While this is designed to show that “private participation” in the rescue scheme would diminish the need for public money and, accordingly, reduce taxpayers’ burden, in reality, it would not; because the projected private investment is conditioned upon public funding and/or guarantees of that investment. In other words, the so-called private participation in the bailout scam is essentially a roundabout way of public funding of the scam.

To camouflage this pile of dirt, as well as to underhandedly pave the way for asking additional $2.5 trillion of public money for Wall Street’s zombie banks, was bound to make the “private-public” partnership scheme vague and unpersuasive. Not surprisingly, the moment Geithner announced the plan the market stampeded, as investors clearly saw right through the gaping holes of the Machiavellian plan—by the time Geithner was done with his press conference, the Dow Jones stocks fell 382 points.

A government “of the people, by the people, for the people” would start from the goal of finding a solution to the financial crisis that is based on national interests, and then would look at the implications of such a solution for the insolvent banks. Instead, the Bush/Obama administrations start from the objective of saving the insolvent banks, and then look for a “solution” that would accommodate this objective!

When asked why he was selecting an economic team of neoliberal economists who played critical roles in bringing about the current financial meltdown, President Obama gave a most bogus, obfuscating and, uncharacteristically stupid, reason: “I have to choose from the pool of experts who know how financial markets work.”

Yes, Mr. President, they certainly know how Wall Street financial giants work. The problem is that they are disguised lobbyists of those financial giants.

There is strong evidence that not only does President Obama’s team of economic advisors owe their professional advancement to the Wall Street cartel of financial firms, but also the President himself is greatly indebted to the cartel for its behind-the-scene promotion of his presidential candidacy, and for their generous contributions to his campaign. Contrary to Barack Obama’s claim that his campaign was not funded by Washington lobbyists, Evidence shows that the campaign “received over $10 million in contributions from Wall Street, the largest contributors by far.”

According to Pam Martin, a Wall Street veteran of 21 years and now an investigative reporter, the top seven donors to Obama’s campaign were Wall Street financial giants. These seven (in order of money given) were:

“Goldman Sachs, UBS AG, Lehman Brothers, JP Morgan Chase, Citigroup, Morgan Stanley and Credit Suisse. There is also a large hedge fund, Citadel Investment Group, which is a major source of fee income to Wall Street. There are five large corporate law firms that are also registered lobbyists; and one is a corporate law firm that is no longer a registered lobbyist but does legal work for Wall Street. The cumulative total of these 14 contributors through February 1, 2008, was $2,872,128, and we're still in the primary season.”

Political and/or policy implications for the American people are clear: Wake up before it is too late.

If this sounds conceited or condescending, I apologize. I have no doubts that the people will eventually wake up to the tremors of this brutal economic crisis—as many who have lost their jobs and their homes already have. The important thing, however, is to wake up now; to wake up before it is too late—before the rapidly gaping cracks in our economy turn it into a sinking Titanic.

It is time to wake up now before Wall Street Financial Giants and their government—yes, it is primarily their government—destroy our economy and bankrupt our nation in their reckless commitment to rescue financial zombie firms at any price.

There is, however, no reasonable price that can rescue the insolvent Wall Street gamblers; they have simply accumulated too much bad debt to be bailed out. The only price seems to be the further hollowing out of our treasury, the mortgaging of our (and our children’s) future, the worsening and prolonging of the crisis and, ultimately, the complete breakdown of our economy—and very likely of the entire world.

So, once again, it is time to rise up before it is too late; to rise up and demand (not beg or appeal to politicians, which has been proven to be futile) people’s rightful ownership of the insolvent banks, as we have already paid for their net assets many times over.

It is equally important to demand nationalization of the Federal Reserve Bank (just as central banks are publicly-owned in most countries of the world). There is absolutely no reason for a private entity (called the Federal Reserve Bank) to be in charge of the indisputably most important national economic decision-making: creation, control and management of the nation’s money. It is utterly preposterous for the government to have granted a private bank the right to print our money, and then borrow it back from the bank at interest! (Interest payment on national debt is the third largest item, after military spending and Social Security outlays, in the Federal budget.)

Once the all-important task of money creation is brought under public control, and the insolvent Wall Street zombie banks are nationalized, the government can then use the publicly-owned banks and issue loans at reasonable rates, thereby unfreezing credit markets and rekindling investment and economic activity.

Ismael Hossein-zadeh, author of the recently published The Political Economy of U.S. Militarism (Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines, Iowa.
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Postby chiggerbit » Sun Feb 22, 2009 1:13 pm

Mike Whitney aptly calls Treasury Secretary Tim Geithner “a Trojan Horse for the banking oligarchs”

This is the guy who is supposed to be the expert of experts, who not only didn't pay taxes he owed, but put in a request and received from the IMF reimbursement for half of those taxes owed. What a sweet deal. There's a very rotten smell coming from his direction.
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Postby chiggerbit » Sun Feb 22, 2009 1:17 pm

Great article, Jack.

the Hoover administration created the Reconstruction Finance Corporation that poured taxpayers’ money into the coffers of the influential Wall Street banks in an effort to save them from bankruptcy.

I was totally unaware that Hoover had tried that.
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Postby bks » Sun Feb 22, 2009 1:44 pm

Fucking poachers.


Great point about the equity vs. dollars aspect of this scam, Jack.
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Postby JackRiddler » Sun Feb 22, 2009 2:38 pm


Three visual treatments.

The Crisis of Credit Visualized
http://video.google.com/videoplay?docid ... 2410693117
(See the actual site, but you can download it at the google link.)

Blow-by-blow pictogram animation summary (nice music) of the mechanics and money flows from 2002-2008. Most important to you media-addicted animals: FUN! Explains leveraging, CDOs, tranches, etc. Best of all is at the end, how the default wave starts and propagates. Guy did it as his graphics thesis, best I've seen for beginners. Rather unpleasant in its brief depiction of the poor "unreliable" families who get the subprime mortgages. Mostly ignores the deregulation that preceded and touched it all off, or the politics, thus too faux-neutral and respectful about motives and scammery. Which is why we have the following:

How Subprime Works in Stick Figures - Powerpoint
http://docs.google.com/TeamPresent?doci ... pauth=true

45 slides, very funny, ends with a big "fuck you" all around.

The following I can't recommend enough, because it summarizes the production economy and its relationship to ecology in 20 minutes, and for our purposes underlines the ultimate cause of all economic crisis: GROWTH IS NOT ETERNAL. You can't have that on the planet, and you certainly can't substitute for it by the miracle of compound interest either.

The Story of Stuff
Can also be downloaded at above as .mov, or below as .mp4.
http://video.google.com/videoplay?docid ... 6656656736

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Postby JackRiddler » Sun Feb 22, 2009 7:08 pm


As for the bizarre Bloomberg story above about Clinton pitching T-bills to China, some reference:

Treasury holders, 2007:

This has shifted, as we see in a table linked by jingofever. (Thanks!)

Foreign treasury holders, 2009:

This is like a chart of who really feels a tie to the US dollar.

The No. 1 foreign holder of USG debt, China (and that would mean the state and state enterprises, for the most part) jumped from ~480bn to ~700bn total treasury bond holdings in exactly one year (Dec07-Dec08). That's a ~220bn increase (~45%) in the midst of the worst possible crisis, and a doubling over the Jan 2007 level of just $~350bn. Either they're suckers for America, or they're worried about maintaining the stability of their enormous dollar reserves and assets. In for a dollar, in for ten!

But obviously their continued devotion to the T-bill is even more essential to the US, they could crash this country just by stopping. Does Clinton's pitch indicate maybe the Chinese have had enough of working for the US trade deficit and then investing it in the US federal deficit?

In the same period of Dec07-Dec08:

No. 2 Japan didn't budge an inch off its ~580bn in T-bill holdings, well down from the Jan. 2007 levels. Obviously they have had enough! (Hmm... Aren't they due for a "9/11"?)

UK-based holdings of T-bills more than doubled from ~160bn to 355bn, that's +180bn! As they say, if you're having eggs and ham, the chicken is involved but the pig is committed.

Next, "Carib Bnkng Ctrs" also threw in hard, jumping from 117bn to 213bn, meaning +96bn or more than +80%. Who this is exactly is always the big mystery. The Offshore Blofelds: Hedge funds? Foundations? Money launderers? Plunge-protection?*

No. 5, oil exporters jumped from 120ish to 180ish, we see they know they need America, while No. 6, the Brazilians also cut their T-bill holdings. No. 7, the Russians, went wild, almost tripling from 32bn to 86bn! Feeling insecure over there, I guess.

Then you have nice jumps of 10-30 billion each in additional bonds for various European nations, most dramatically more than 40bn up for Norway. Then comes Germany, which didn't budge. (Another enemy! The Axis returns!) And Israel tripled, from 5bn to 15bn.

Anyway, the UK is probably maxed out and soon to be bankrupt and Carib Bnkng Ctrs is a crapshoot, so China is essential! They must keep buying!

Tangent: check out this article from 2005, when the Caribs also jumped their T-bill holdings from 48 to 92bn in one year, even as all other categories declined and although this made no sense as a deal for hedge funds, due to the interest rates. The author figures this was plunge protection using a printing press. http://www.safehaven.com/showarticle.cfm?id=2764&pv=1

Last edited by JackRiddler on Mon Feb 23, 2009 1:41 am, edited 1 time in total.
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Postby §ê¢rꆧ » Mon Feb 23, 2009 5:17 am

Thanks for the three visual treatments, JR.

The Crisis of Credit Visualized was a great introduction the jargon of it all.

The How the Subprime Works in Stick Figures powerpoint was a hoot.

And the Story of Stuff is excellent; had seen that before but it's worth a second look for sure.
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Postby JackRiddler » Tue Feb 24, 2009 11:57 am


Pleased to be of service, secrets!


If it's possible, Michael Hudson has become the bard of the financial crisis. It sounds unlikely, but I find he brings poetry to the concepts. Perhaps that's how it is when theory coincides with clarity.

Now he analyzes what's coming next: the plan to "nationalize the banks" which in fact is just a process in which their debts are transferred to the people. Soon after "nationalization," they are sent out again as private entities on a plunder-tour, always searching for more ways to load more interest-carrying debt on the people (as though there will never be a limit).

Hudson outdoes himself again with a long view on the history of economic theory since the englightenment, and how the present crisis includes a Newspeak assault on the long-held meanings of basic concepts like "free market," "socialism" and "nationalization."

I think every word of this should be studied and passed on, but couldn't help bolding a couple of passages that just say it all.


February 23, 2009

What "Nationalize the Banks" and the "Free Market" Really Mean in Today's Looking-Glass World

The Language of Looting


"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 Alan 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 the old disciple of Ayn Rand gone Red in the night? Surely not.

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.

Exactly what does “a free market” 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 loot without hindrance or sanction, 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.

Doublethink and doubletalk 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 the editorial writers of the New York Times and Washington Post. 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.”

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website, mh@michael-hudson.com



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.
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Postby bks » Tue Feb 24, 2009 12:53 pm

Every one of his articles blows me away. When you have an education in this history, like Hudson does, you can see through the bullshit immediately and put your finger directly on the intentional criminality and intentional distortion of language.

Having to learn this on the fly, I find I'm constantly susceptible to swallowing official language as 'neutral' or merely 'descriptive' when in fact it's 100% normative. It's a real eye-opener.

Hudson is the reason people like Kucinich, and anyone to the left of him, will never be permitted anywhere near the true levers of power under the current system.
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Postby barracuda » Tue Feb 24, 2009 12:54 pm

JackRiddler wrote:What does it mean when the Secretary starts pitching Treasuries to China?

This thread at the Market Ticker forums suggsts a devious answer:

    IG was founded in China in the 1900s, then kicked out. In the early 90s, AIG wanted back in to China and China wanted to join the WTO. Greenspan made something like 35 trips to China negotiating the deal. China wanted the customary 50 percent ownership of AIG as a foreign company, but they had to give up all ownership to get into the WTO. Now AIG is the only 100 foreign-owned company operating in China. And the largest.

    This is where it gets bad.

    Basically, the Chinese are savers, so AIG captured almost all of China's private money, setting up a pension fund for the Chinese in the late 90s. They're like the Social Security system. AIG also insures China's own banking investments. When AIG faltered last fall, it almost brought down the Hong Kong Exchange.

    We immediately got our marching orders from China on the AIG bailouts.

    It amounts to the US paying Chinese pensions, with US pensioners savings.
The most dangerous traps are the ones you set for yourself. - Phillip Marlowe
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Postby Penguin » Tue Feb 24, 2009 12:58 pm

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Postby bks » Tue Feb 24, 2009 12:59 pm

barracuda wrote:
When AIG faltered last fall, it almost brought down the Hong Kong Exchange.
We immediately got our marching orders from China on the AIG bailouts.
It amounts to the US paying Chinese pensions, with US pensioners savings
. (truncated for better format)

In return for what, though, barracuda? The continued purchasing of US Treasuries? Something else?
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