Our Orwellian World: The Language of Looting

What "Nationalize the Banks" and the "Free Market" Really Mean in Today's Looking-Glass World
The Language of Looting
By Michael Hudson

...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....

Read the rest of Michael Hudson's essay here.

Nassim Taleb Says "US Financial System Designed to Blow Up"

Nassim Taleb had an extraordinarily good interview on Bloomberg Television today.

It is worth it. The story on Bloomberg does not really capture what he said and how he said it.

Click here to See the Nassim Taleb On Bloomberg Television

The Fed's Balance Sheet Strategy to Support Qualitative Easing: A Synopsis

“They [the Fed's financial crisis programs] all make use of the asset side of
the Federal Reserve’s balance sheet. That is, each involves the Fed’s
authorities to extend credit or purchase securities.”

Ben Bernanke, London School of Economics, January 13, 2009

The Fed's strategy is to expand Balance Sheet and to change the mix of the financial assets it holds to stimulate specific troubled markets.

As you will recall, the Fed's Balance Sheet provides the backing for the US Dollar currency among other things, and traditionally has consisted of gold, US Treasury Debt, and the explicitly guaranteed debt of agencies like Ginnie Mae.

What the Fed is doing is expanding the assets on its Balance Sheet, which is quantitative easing, but is doing it by adding specifically targeted non-traditional assets.

The Bernake Fed distinguishes its own approach from the "quantitative easing" of the Bank of Japan. It is an expansion of the central bank's balance sheet, but in the case of the Fed, with a bias. Bernanke calls it 'credit easing' while we prefer to call it 'qualitative easing.'

The Fed is deciding specifically where and to whom to apply its qualitative easing.

This is the controversial part of the program, because the Fed no longer manages the money supply and interest rates, and the general health of the banking system, but targets specific markets and companies for its monetization efforts.

In effect, one might say that the Fed has begun to assume a central planning role for the economy that decides, with specifics, who fails and who survives to succeed. What is troubling in particular is that so far the Fed has retained the perogative to do this without disclosure of the specifics even to Congress.

Bernanke divides the use of balance sheet assets into three groups:

1. lending to financial institutions,

2. providing liquidity to key credit markets, and

3. purchasing longer-term securities.

What does "Buying Longer Term Securities" mean?

In November 2008, the Federal Reserve announced plans to purchase the direct
obligations of the housing-related government-sponsored enterprises (GSEs),
specifically Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. In
principle, the extra demand for these obligations is designed to increase the
price of the securities and thereby lower rates paid for mortgages.
Additionally, the Fed outlined plans to purchase mortgage-backed securities
backed by Fannie Mae, Freddie Mac, and Ginnie Mae. These actions were designed
to improve the availability of credit for the purchase of houses, therefore
supporting the housing markets and financial markets in general.

Source: The Federal Reserve

Europe to Push Broader Regulatory Agenda at G20

This is interesting because it tees up the European agenda ahead of the G20 meeting, and helps to highlight some points of contention between Europe and the Anglo-American financiers.

The IMF subject is a reflection of Europe's decentralized status. The ECB does not possess the broad powers of the Federal Reserve Bank, and there is a difference of opinion in Europe about its future role, and the centralization of power overall.

This is highly reminiscent of the US debate between the Federalists and the Jeffersonians.

MarketWatch
Europe supports broad financial regulation
By MarketWatch
12:42 p.m. EST Feb. 22, 2009

SAN FRANCISCO (MarketWatch) -- The European leaders of the Group of 20 called Sunday for more transparency and regulation of all financial markets, products and investors, including hedge funds, according to published reports.

Heads of state and finance ministers from France, Germany, Italy, the Netherlands, Spain, the United Kingdom, the Czech Republic and Luxembourg met in Berlin to come up with a European position ahead of the G20 summit in London scheduled for April 2...

Leaders also reportedly proposed increasing to $500 billion the International Monetary Fund's financial resources for crisis management, in light of problems recapitalizing banks in Central and Eastern Europe. The IMF now has $250 billion in resources and already used $50 billion.

The call for increased IMF funding follows remarks from French Finance Minister Christine Lagarde, who said Thursday that euro-zone countries should come to the aid of any troubled member-state and avoid IMF involvement, if a bailout becomes necessary....