Tuesday, July 31, 2012

Michael Hudson on fictitious capital

Hudson has a new book out called The Bubble and Beyond. Based on the following interview, I would say the book is probably worth reading.

Video: Michael Hudson, Fictitious Capital And Debt Cancellation

Posted on July 29, 2012

Dr Michael Hudson defined fictitious capital as a loan that cannot be repaid because the collateral is not there. He cited real estate fraud where ratings agencies intentionally gave false AAA ratings to Mortgage Backed Securities that in reality had little or no value. Today no one really knows what the value of any bank’s assets are really worth.

Fictitious theories of economics are driven by greed. Junk economics says it is fine to cut wages 30%, raise consumer taxes and fees, cut pensions. Social Security, Medicare and Food Stamps. Because we will inflate asset values owned by the 1% and let the 99% drown in the government debt we issue to save the uber rich. Dr Hudson specifically says that cutting wages 30% is the goal of Obama and Bernanke. As for prosecuting fraud, Hudson quoted his colleague Bill Black who said, “The only major case these guys ever prosecuted was Bernie Madoff who walked into a police station and said I surrender.”

He estimates the Shadow Banking system to be 15 trillion dollars. The SBS includes Hedge Funds, Money Market funds and Structured Investment Vehicles (SIVs) which can be used by banks. The SBS is designed to go around central bank monitoring.The SBS does not include the 800 trillion dollar plus Credit Default Swap and derivatives market. A CDS is a bet on the future value of a bond or commodity like corn, wheat or oil. It insures the buyer against a potential loss so it appears to function as insurance. It is unregulated so banks who sold hundreds of trillions of dollars in CDS do not have to set aside funds to pay claims. The bankers defaulted in the past and will do so again in the future. That was what the Bailout of AIG by the taxpayers was all about. Your paycheck is the guarantee for the 800 trillion dollars in potential losses.

Central banks are pumping money into the banks to make it appear that they are solvent so banks can pay on the loans they borrow from other banks. He says the Central banks like the Federal Reserve want to eventually cancel debts for the banks so the 1% lose nothing. But increased government debt will not (at least in their dreams) be cancelled as it will be pushed onto the 99%. This would allow the 1% to keep everything they have stolen from us.

Dr Hudson has called this the greatest financial fraud in history. more

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