“Considering that there is an $800 billion giveaway, to be followed by another trillion and another trillion after that, this is the biggest giveaway since the land giveaway to the railroads in the mid-nineteenth century and just as that giveaway created a power elite that would rule America for a century and a half, this is creating a new power elite that has changed America from a democracy into an oligarchy. And as Aristotle said, ‘what is democracy but the stage immediately preceding oligarchy?’”From Michael Choussadofsky's Centre for Global Research, GlobalResearch.ca: Dr. Hudson is a Financial Economist and Historian. He is President of the Institute for the Study of Long-Term Economic Trend, a Wall Street Financial Analyst and Distinguished Research Professor of Economics at the University of Missouri, Kansas City. His 1972 book “Superimperialism: The Economic Strategy of American Empire” is among the first pubilications to critique how the United States exploited foreign economies through the IMF and World Bank. He is also author of “The Myth of Aid” and “Global Fracture: the New International Economic Order”. Dr. Hudson has written several articles on the recent Wall Street meltdown and Secretary of the Treasury Hank Paulson’s Plan. These articles have included, Financial Bailout: America’s Own Kleptocracy--the Largest Transformation of America’s Financial System since the Great Depression. The Paulson/Bernanke Bailout: Will the Cure Be Worst than the Disease? Financial Fraud: Mr. Paulson and the New Yazoo Land Scandal. And Thinking the Unthinkable: a Debt Write Down and Jubilee Year Clean Slate. The interviewer is GR's Bonnie Faulkner.
It starts well:
BF: Secretary of the Treasury Hank Paulson’s $700 billion so-called bailout, first called “The Plan”, was defeated in the House. Then a modified version called “Troubled Asset Rescue Plan or (TARP)” was passed by Congress in it’s “Emergency Economic Stabilization Act of 2008”. Still others refer to this legislation as “Cash for Trash”. What would you call it?And gets juicier and meatier and more trenchant as it goes along.
MH: Cash for trash is exactly what it was, and the emphasis should be placed on “Emergency “ for Emergency Plan. It was rushed through without giving any opportunity to debate. Dennis Kucinich protested, for instance, that this was the first time a major plan that was going to create the equivalent of 700 billionaires, people who are going to become the next power elite to govern America for the next century --that this act was done without any hearings, without specialists--despite hundreds and hundreds of major economists throughout the world saying that it was a disaster and a giveaway. It is cash for trash. It will not resolve the problems.
The dollar will plunge. The stock market already plunged.
It is purely a giveaway to Mr. Paulson’s colleagues on Wall Street and a giveaway to Mr. Obama’s and Mr. McCain’s campaign contributors. The Democrats were the major supporters of Mr. Paulson while even the Republicans sought to dissociate themselves from the plan so they couldn’t get blamed when the inevitable failure of the plan shows that all that was done was a giveaway of $700 billion to Mr. Paulson’s colleagues and pals on Wall Street.
It is relevant, and germaine, of course, because one of the foremost supporters, and advocates, for the plan is the all-but-President, Barack Obama. Dr. Hudson has a thing ot two to say on that score, too:
MH: Mr. Obama is the man who is giving it all way to Wall Street and his major campaign contributors. Look at what’s happening with Mr. Rubin, there’s no difference at all between his financial advisor Robert Rubin and the Treasury Secretary Hank Paulson.” Instead Mr. McCain shifted gears, reversed himself, gave in and said, “now I’m supporting the plan too”. So the result of the Friday debate, if you remember the first half hour, Mr. Lehrer kept trying to press both presidential candidates on ‘how do you feel about the bailout, what do you think? ‘Later, we discover that what the over-TRILLION-DOLLAR bail-out has bought, basically is "worthless junk."
And they talked about anything else. Mr. Lehrer tried to be more polite and finally he was laughing, and he said, “Aren’t either of you guys going to answer my question?” And they both of them said, “No.” Now when they refused to give their position to the bailout to the American people. When they refused to take a position on a plan that most voters “overwhelmingly” opposed and then they support the plan this shows they’re just in the hands of their financial backers.
BF: Now is the government buying real assets or just worthless toxic junk?
MH: Well no real assets will be bought at all, although the government will end up foreclosing on them. Let’s say what the real problem is: the real problem is that the volume of mortgage debt far exceeds the ability of debtors to pay and the willingness to pay. Mr. Paulson’s pretense, which is an absolute lie and which should lead him to criminal prosecution because he knows it’s a lie, is that the problem here is a liquidity problem. But its not a liquidity problem, it’s a bad debt problem. Suppose that people bought a house for $125,000 and have a full mortgage on it for that price and suppose the house has fallen to $80,000. I know a number of houses like that. I know a professor in western Illinois that had a house that she bought for $125,000.
The highest bid she has it on: $80,000, fully mortgaged. Dennis Kucinich tells me that the house next door to him in Cleveland, Ohio was bought for $125,000 and now it’s only worth $80,000. So this is typical. Now imagine a bank responding to a borrower who wants to say, “Well gee, I want to be able to pay my mortgage can you lend me enough money to pay my mortgage?” What bank can be expected, when already the house is 50% over-mortgaged… who is going to lend more mortgage than a property is worth? That era is over! No bank any longer is going to lend more money than a house is worth. And already Mr. Paulson said that 5 million Americans are in arrears and facing foreclosure.
The figure was then corrected by other economists to 10 million Americans in the coming year are going to lose their homes! Now no amount of liquidity is going to provide them with the money to stay in if already they can’t afford the mortgage. And in fact the government is now supposed to make money “quote” for taxpayers “unquote” by coming in and acting as debt collector. Now, in order to make money for taxpayers, the government now has to come in and say, “We’re going to enforce the Adjustable Rate Mortgages that are exploding in interest rates. You are now going to have to pay much higher interest rates. Penalty rates. Back fees and penalties or we’re going to throw you out of your house because we have to make money for the taxpayers. We are now the collecting agents not Countrywide Financial or Fannie Mae or Washington Mutual or the others.
So the debts of homeowners will remain in place. The debts of cities and municipalities will remain in the place and all that happens is that people who have the mortgages are supposed to be bailed out now because under Mr. Paulson’s plan as he wrote it and the plan that the house originally rejected, the terms were that the government would buy the bad mortgages and bad debts from the banks and other investors and insurance companies for what they had paid for them. In other words insurance companies will not take a loss for their bad investments. Banks won’t take a loss for their bad investments. Hedge funds won’t take a loss for their bad investments. Now how many of your listeners would love to be able to say, “geez I made a bad stock investment. I’d like the government to buy back these stocks that I bought that have gone down.”
That’s not what the government is doing because these aren’t the major campaign contributors. So this is the asymmetry. The inequity. And the irony is that the Democrats have supported this so strongly. A week ago last Thursday in the Wall Street Journal, Hillary Clinton of all people came out with a wonderful wonderful plan. She said that the government should insist on rewriting the bankruptcy laws. She said the government should rewrite the mortgages down to the current market price and the government should replace exploding interest rate mortgages with normal interest rates or the teaser rates that had been signed. So she obviously knew what the right thing to do was.
And that’s the plan that would have worked. And yet she went and voted for the plan as it came out of the Senate when they passed it on Thursday. So she met the criterion of evil that Milton described in Paradise Lost: somebody who knows the right thing and yet does the wrong thing knowingly. That is also the definition of a crime. A criminal has to knowingly and consciously be making a mistake. And Hillary, and the other Democrats, Obama… just about all the Democrats who supported the bill said, “We don’t like it. We know its wrong but we’re voting for it because it’s an Emergency and if we don’t vote for it the stock market will go down.” Well as you saw on Friday the stock market did go down and it will continue to go down because foreign investors realize that this money that is being given away is going to flow out of the country very quickly and that’s going to put downward pressure on the dollar. And even if housing prices only fall another 20% or so, if the dollar declines by more they’re going to take a heavy loss that they basically can’t afford to take.