Thursday, June 16, 2011

Michael Hudson — Free Money for Wall Street, Bupkis for Main Street


In the case of bailing out Wall Street – and thereby the wealthiest 1% of Americans – while saying there is no money for Social Security, Medicare or long-term public social spending and infrastructure investment, the beneficiaries are obvious. So are the losers. High finance means low wages, low employment, low industry and a shrinking economy under conditions where policy planning is centralized in hands of Wall Street and its political nominees rather than in more objective administrators.

Michael Hudson mentions MMT in this post, although he is out of paradigm when he speaks of losses being born by taxpayers or Treasury bonds paid out of future revenues.

Most scathing in this acerbic critique is his showing how Michelle Bachman gets the truth of the bailout, whereas the political class either doesn't or is returning the favor to big donors in the financial sector.

17 comments:

googleheim said...

from nyt :

The House approved large cuts in food aid for the poor and various agriculture programs on Thursday after a steely weeklong debate that pitted Democrats against Republicans, and farm-state members against those within their own party who vehemently oppose certain types of farm aid.

Matt Franko said...

Tom, Thanks

I want to look at Bachmanns quote:

" She complains that no one bothered to ask about the constitutionality of these extraordinary interventions into the financial markets. “During a recent hearing I asked Secretary [Timothy] Geithner three times where the constitution authorized the Treasury's actions [just [giving] the Treasury a $700 billion blank check], and his response was, ‘Well, Congress passed the law.’ …With TARP, the government blew through the Constitutional stop sign and decided ‘Whatever it takes, that's what we're going to do.’”

Tom, this statement doesnt even make sense, she is off the charts in terms of unintelligence.

She indicates that she believes Treasury gave Treasury a blank check? And where does the constitution allow this? But yet in the next para she realizes there was a Congressional vote on this becasue she indicates that she participated in it and voted against it. Bizarre statement. It is like she cannot see that Congress had a role in it. I have to agree with Geithners response that Congress authorized it. I'm not sure she is in firm control of all of her mental faculties here. Its like she thinks the constitution was violated because Treasury gave itself a blank check???? Whaaaaat??

Then she continues:

"A normal way that the American free market system has worked is that we have a process of unwinding. It’s called bankruptcy. It doesn't mean, necessarily, that the industry is eclipsed or that it's gone. Often times, the phoenix rises out of the ashes. [1]"

Bankruptcy is overseen by the courts, it is not a "free market", it is a major activity in the third branch of govt. It was created BY GOVERNMENT. She should know as she probably put a lot of people and families in it when she was a tax collector/ tax prosecutor for the Federal Govt. And this is not how banks are resolved anyways (thru bankruptcy code).

Then she talks about a "phoenix rises out of the ashes", now here she brings in a very pagan concept... very dark. You can almost see how these peoples zealous quest for political power just more or less destroys their brains... Resp,

Crake said...

Matt,

One hears libertarian constantly harping on messages like just let the market work and punish these companies and comments like people should just take care of themselves and not depend on civilization to provide them with jobs, etc. I think there attitude points to a defeated mentality.

This idea of their mentality hit home to me recently. I am in Texas, which is experiencing a severe drought. Looking around the landscape at many trees dying, ponds drying up, rivers and streams having little water, I started thinking about wild life. Think of the death and miserable lives wild life has to experience because of the drought and there is nothing wild life can do about it – nothing, it has to just endure and live with it.

But mankind is different. We have civilization and minds that should be able to make rationale decisions to change things when needed, to managed and direct resources to changing conditions to keep life good. But these libertarian types want none of that. They want us to just accept anything that happens because they seem to truly believe that whatever happens, no matter how harsh or bad it is, it is the best route because a free market only does good. They think if we have no collective say in how the economy is run, then by definition everything will be great, even misery and poverty are good because anything a free market does is good. Basically they are like overly religious people, who make statements like “it is God’s will and it is therefore good and we should not question” or “it happened for a reason we do not understand” when horrible disasters happen. And in turn, they call anything collective, like running a civilization to produce better results as bad, no matter how good those results would be. Basically, they want us to be like the wildlife, I highlighted above, and just accept our misfortune and live with it.

beowulf said...

Darrell Issa’s office in D.C. became the “staging area” for the fight against TARP. His staff put out the word that [Bill] Isaac would be available to meet with any member of Congress, Democrat or Republican, to discuss the crisis and the proposed bailout. Throughout the day, Isaac met with various groups of congressmen, not calling it quits until around 1:00AM Monday morning. For part of the day, he met with the Democratic Caucus alongside economists Jamie “Fed Killer” Galbraith and Dean Baker. In the end, he met with over 200 members of Congress, from both parties, of all political persuasions from left to right. He says he will never forget one meeting he had during which Jesse Jackson of Illinois and Maxine Waters of California sat together with several conservative Republicans, all united in their efforts to stop the bailout.
http://www.nakedcapitalism.com/2010/10/guest-post-bill-isaac-vs-hank-paulsons-bailout-machine-how-the-former-fdic-chairman-almost-stopped-tarp-%C2%BB.html

Laura said...

I was under the impression this was one area where MMTers agree with Austrians: no bailout.

'Phoenix rising out of the ashes' occurs regularly through history - what is the likelihood our corrupt political system will guide us gracefully out of the current malaise?

Crake,

You could just as well be describing Social Darwinism.

Crake said...

Laura,

I assume Austrians just would have let the banks and any counterparties to them fail.
What was MMT prescription for Lehman et al.? Government takeover of the books, with a transfer to a sound bank as the FDIC does with retail banks that fold?

Tom Hickey said...

Laura: "I was under the impression this was one area where MMTers agree with Austrians: no bailout."

MMT financial egal expert Bill Black emphasizes that the legal path to handling the issue was through resolution and the notion that it would have resulted in systemic failure is bogus.

Matt Franko said...

Crake,

Check out this archive from Sept 08 at Mikes blog here for a contemporaneous account of what he and Warren Mosler were thinking back during the crisis:

link_http://mikenormaneconomics.blogspot.com/2008_09_01_archive.html


also, I agree with what you and Laura wrote wrt the depravity of the economic policy makers, I will hopefully write a more thoughtful response here later.. Resp.

Matt Franko said...

Laura,

" MMTers agree with Austrians: no bailout."

From reading Mike and Warren back at the time the GFC was happening, and since this is the way I interpret at least their sort of 'combined' position on this:

1. As is their mandate, the fed should have lent to the investment banks/banks in an unlimited fashion, against appropriate collateral. This would have prevented Bear and Lehman and the resultant chaos. If there was fraud then suspected that could have been investigated and if any found then jail and perhaps an orderly resolution of the institution...

2. When policy makers saw a crash in AD, they should have IMMEDIATELY made a huge fiscal adjustment (1T tax holiday/0.5T to states) to offset the drop. This would have also prevented many of the problems that led to more "bailout" type actions...

3. At the risk of putting words in his mouth, I dont think Warren looks at what was done as a "bailout" as much as effectively a roundabout way of granting "regulatory forbearance". I dont think Mike or Warren really use the term "bailout" often if ever as a perjorative. The regulators could have just adjusted capital requirements down but instead chose to provide more capital via the TARP: this has the same result. The fact that the govt used that big 700B appropriation was a political mistake because the public thinks it is their tax dollars...

Bottom Line: "the bailout" could have been easily avoided if appropriate and timely action was taken by the govt right up front. So I dont see Mike or Warren getting too worked up about 'the bailout', other than pointing out some hypocritical behavior by folks around fiscal policy.

I dont think this is the "MMT Position", but perhaps just the take from in paradigm Mike and Warren over these crazy times... Resp.

Matt Franko said...

Crake,

"Basically they are like overly religious people, who make statements like “it is God’s will and it is therefore good and we should not question” "

To get back to you on this, as far as economic systems, what morons like Bachmann seem to be advocating for, results in exactly the opposite of the results that God achieved thru the promulgation of the "Mosaic laws" in the Hebrew Scriptures.

This from AE Knoch; that someone like Bachmann should reflect upon: "consider those admirable laws and institutions which Yahweh gave His people which effectually prevented the extremes of labor and luxury, of poverty and opulence which is one of the most distressing symptoms of the world's malady today."

So I dont know where Bachmann and Ryan (I am supposing they both consider themselves Christians) are coming from on economic policy outcomes for today. I have to agree with you that they seem to take yes an actual religious position on economic policies that by design lead to chaos and corruption and unnecessary hardships.

Here is an interesting passage:

"“See! I have taught you statutes and ordinances (Ed: Ooooh BIG GOVERNMENT!) just as Yahweh my Elohim had instructed me, for you to do thus within the land where you are entering to tenant it. And you must observe and obey them, for that is your wisdom and your understanding (Ed: Oh no, very un-Libertarian!) in the eyes of all the peoples who shall hear of all these statutes and will surely say: Surely this great nation is a people wise and understanding.” – Deuteronomy 4:5

Now, although Christians are not under law today per se (in the current administration of the grace of God) Paul never the less writes in Romans 2:

"14 For whenever they of the nations that have no law, by nature may be doing that which the law demands, these, having no law, are a law to themselves,
15 who are displaying the action of the law written in their hearts"

So I do not see the action of the law at work in either Bachmann (or Ryan) at this point, this while there are many alternative ways and political approaches available to us (the nations) today to achieve the same types of economic results that God once effected for His people thru the law.

And to top this off, at least Bachmann for sure (because I've heard it) can call in to any Christian radio show at virtually any time and get on the air promoting these depraved policies for extended segments, and the hosts (and probably most of the audiences) just EAT...IT...UP.

So yes Crake, the results of these depraved "religious" approaches to policy are disturbing and to me also seem like they are designed to degrade and damage humanity.

Resp,

Tom Hickey said...

Matt, as I recall you are right about MMT and the bailout wrt some MMT professionals. Others, like Randy Wray and Bill Black, were harsher in that they saw it as insolvency that should have been addressed legally with resolution instead of gimmicks like "stress tests" and changes to accounting rules to mask in the case of the TBTF's. Bill Black is really strong on this and both he and Randy are still calling for resolution of supposedly TBTF's that are insolvent. They have written recently calling for the resolution of BoA, for example, and say there is reason to believe that others are insolvent, too.

So it is true that on one hand some MMT folks say that the "bailout" could have been finessed, e.g., if Bernanke had done what Paulson had wanted and provided liquidity. But remember, Bernanke refused, saying it was a matter of solvency, which is fiscal, and that Congress had to address that. Bill says that this was the signal to send in the regulators and put institutions into resolution as required by law, when the chief regulators himself calls insolvency.

Laura said...

As I recall the crisis was presented as threatening the entire financial system, hence the need for government intervention. We can disagree whether to call it a bailout (or a cover-up), but I think these terms accurately describe what happened. There was a regulatory and market-based response that could have been followed, yet the decision was made to intervene in other ways. The leadership chose not to avail themselves of the laws and procedures that were in place and they chose not to allow the markets to self-correct.

Given the claims made by William Black that Tom mentioned, there is more reason to oppose the 'bailout'. There are banks that remain insolvent.

Perhaps it should be made clear what could have been done vis a vis what was done - and what the consequences would have been.

Matt Franko said...

Laura,

Yes I agree with what you are saying here basically, there were crimes committed imo or it at least looks like there were abuses that should get a lot of people thrown out of banking and mgmt of public companies for sure. Many, many people: jail or lifetime banishment imo for sure. And yes this is not happening to the degree that is called for imo too.

But policy makers are just sooo clueless. And you have to wonder how much of the expanded "bailout" actions (Automakers/AIG/Fannie/Freddie, etc..) would have been necessary if the Fed stepped up (btw which eventually they did for the FOREIGN BANKS! with UNLIMITED LIQUIDITY! no less) to provide liquidity and there was an appropriate immediate large fiscal response...

You have to remember just how truly baaad our policy makers have been throughout all of this...

Resp,

Tom Hickey said...

Bill Black, The False Dichotomy between Banking Honesty and a Sound Financial System

Tom Hickey said...

Bill Black, "The fraudulent lenders and the loan brokers they incentivized to engage in endemic fraud put the lies in the typical liar’s loan – in the loan application and the appraisal. That meant that millions of working class people were induced by the lenders’ and their agents’ frauds to purchase a home at a greatly inflated price that they could not afford." (citation above)

Dr. Housing Bubble: " The housing bubble of the last decade superseded this trend where incomes actually fell yet home prices went into a mania.  Not only did home prices inflate but also the cost of a college education, automobiles, and a variety of financed items entered unsupportable price ranges only because of their access to easy money.  As the 1920s taught us, unbridled greed and gambling does provide enough fodder to shut down the global system.  The fact that home prices now enter new post-bubble lows even after trillions of dollars in banking bailouts demonstrates the futility and graft of the current financial system.....

"You can dip a rotten apple in caramel but once the caramel is eaten you will still have the taste of a bitter fruit.  That is an apt description of the bailouts given to the banking sector.  The caramel has fallen off into the coffers of the financial system and now that the trillions of dollars are stripped off, we are still left with the glaring reality that home prices simply do not reflect underlying income trends in our country.  The last time housing values fell on a nationwide basis was during the Great Depression."

When the economy becomes a financial circus


'It's the demand, stupid.' Bubbles created in housing and other areas of consumer finance through imprudent and fraudulent lending have led to a situation in which household income is incapable of paying down the debt or affording to purchase that those prices without such lending.

Debts that cannot be paid, won't, and prices that are unaffordable will come down until they are. We have some way to go in resolving this crisis, which is a financial one, instead of the result of the business cycle that many mainstream economists are advising politicians it is.

Dr. Housing Bubble concludes, "Japan followed a similar path by bailing out their banking system and little demand for actual reform came from the people.  So here they are experiencing two lost decades.  What happens when banks do not acknowledge the facts is an odd form of financial kabuki theatre.  We now hear of multiple cases of blocks of REOs being sold to select investors without properties being issued to market.  In some cases properties are sold off the MLS to individuals who then quickly sell them for a fast profit.  How can we tell?  The same people that doctored financial statements and lied about practically everything are here running the system still.  The circus goes on and American households are facing lower incomes and home prices still continue to fall even in the face of all the bailouts.  Those putting on the financial circus still seem to have enough to put on a spectacle and try to obscure folks from paying attention to what is really going on."

Matt Franko said...

Tom,

We need enlightened leadership that understands how all of this works, to come in and set this right thru the fiscal channel. till then yes it is 'death by a thousand cuts' type of economy.

BTW, I saw a video of Bill Black from a while back (2011) on Yahoo tech ticker and boy was he 'in paradigm'. I think some of the MMTers at UKMC must have finally gotten thru to him, this was good to see. Ive been trying to find the link and put it up here with no luck. I will keep searching.

Hudson has a way to go out there still tho imo..

Resp,

googleheim said...

I remember that Mike Norman was all over this - bailout for those who create assets and jobs in USA ( big 3 auto, etc ) and not so much of a bailout of speculators.

He was on top of it