[permaculture] Kohler: US finance is one big Ponzi scheme
nicholas at themediasociety.org
Mon Feb 9 23:53:10 EST 2009
* ***I dont think its just the US financial system... its a global
institution with the major nodes in Wall St, London etc etc
*26 . Kohler: US finance is one big Ponzi scheme*
Alan Kohler writes:*
Interest rate cuts -- tick. Quantitative easing -- tick. Fiscal stimulus --
tick. Next: bank bailout.
US Treasury secretary Timothy Geithner's Bank Bailout Mark III to be
unveiled tonight our time is now the entire focus of the financial markets
desperately seeking salvation. Nothing else has worked, so this one has to.
Or at least it has to not not work, as it were.
Mark III should at least be better than Mark II. Elizabeth Warren, the
Harvard law professor heading up the panel overseeing former Treasury
secretary Henry Paulson's Bank Bailout Marks I and II, has just revealed
that Paulson overpaid by $US78 billion for the troubled assets bought under
that scheme. And it didn't work anyway.
Now it seems Geithner's package will focus on guaranteeing the so-called
"toxic" assets rather than buying either the assets or the banks that own
And if there are any actual purchases, they'll be done by a new "aggregator
bank" in partnership with the private sector (assuming they can find some
parts of the private sector that are solvent).
The plan is also said to involve a big expansion of Federal Reserve
financing for securitised financial markets so that cash flows from new
loans can be bundled up and sold to investors.
In other words, and to sum up, the focus of official policy in the US now is
to keep the great Ponzi scheme of the US financial system going.
That it was, and is, a colossal Ponzi scheme there is no doubt: new money
continually fed the returns on old money. Securities like collateralised
debt obligations (CDOs) and synthetic CDOs, and CDOs of CDOs, were created
out of thin air and sold to simply keep the machine running.
And as with all Ponzi schemes, when the money stops flowing in there is
nothing but thin air.
The various versions of the Government bank bailouts, including the one to
be announced later today, all suffer from the fundamental problem that the
assets being valued and bought by the Government don't actually exist.
Of course Hank Paulson overpaid by $US78 billion for the first lot of TARP
assets -- that was the whole idea. If the Government doesn't overpay, the
plan doesn't work.
The real problem with the Paulson/Bush plan is that they lied about it,
trying to pretend that it was just a relief program for troubled assets, not
the propagation of a fraud.
Elizabeth Warren explained this in an interview on Sunday with Fox News. The
interview said: "As a taxpayer, I'm scandalised ... You would have to peel
me off the ceiling. Why in the world would we ever overpay for something ...
to the tune of $78 billion?":
WARREN: Well, this is the part that I'm a little upset about, about this
undertaking. And here's the deal – it's that there may have been a good
reason to pump an extra $78 billion into these banks.
INTERVIEWER: But nobody told us.
WARREN: But that's the deal. You've got to come clean about this. If what
we're going to do here is we're going to subsidise these banks, especially
with that kind of money, you're going to have to belly up and tell the
American people about it.
In other words -- there was good reason to overpay by $US78 billion, it's
just that they didn't come clean about it.
Can Timothy Geithner "comes clean" tonight? If he does, how does he avoid
either destroying the US banking and finance system, or buying it (on the
grounds that "you break it, you own it")?
In the UK and elsewhere in Europe, governments have readily nationalised
insolvent banks, but the assumption has been that the Bush Administration
was so ideologically opposed to that idea that it would do anything to avoid
it -- including lying about the nature of the TARP.
Maybe we'll find out tonight that it's not really about ideology, but the
amount. The US Government simply cannot afford to nationalise the US banks;
the best it can do is participate in an aggregator bank -- that is a "bad
bank" holding "toxic assets", mostly paid for by someone else -- and
otherwise provide guarantees in an attempt encourage confidence from private
One of the problems, it seems me, is the term "toxic assets" itself. It was
invented by the banks to give the impression that they had been poisoned --
that they're victims of some dastardly act by someone else.
They are not the victims, of course, but the perpetrators, and the so-called
toxic assets are the lingering evidence of a vast fraud, in which securities
were created against nothing and sold to investors stamped "AAA" by credit
rating agencies. It's like selling a bridge to a sucker.
The assets are only toxic if someone else pays anything resembling real
money for them, including the Government.
Tonight's bank bailout scheme by Timothy Geithner should actually involve
locking up the bankers beside Bernard Madoff, the only one of the current
crop of Wall Street crooks who has admitted to running a Ponzi scheme.
But Geithner won't do that. Instead he will give them all more money because
the Ponzi scheme can't be allowed to stop -- otherwise president Obama might
as well as hang on to his $US820 billion stimulus money, or rather, not
borrow it from China.
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