Nomi Prins: "The real battle between the US and Russia is over the gateway countries in political flux. The real winners will be the private banks and oil companies that will reap the strategic benefits from gateway control over related markets and resources, supported by military and political might, and augmented with speculative capital for years to come. American and global citizens, oblivious to all this, will be the losers in this global shell game."

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Gateway Policies: ISIS, Obama and US Financial Boots-on-the-Ground

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Sunday, September 21, 2014 at 9:28PM                                                                                                    Original here

President Obama’s neo-Cold War is not about ideology or respect for borders. It is about money and global power. The current battle over control of gateway nations - strategic locations in which private firms can establish the equivalent of financial boots-on-the-ground - is being waged in the Middle East and Ukraine under the auspices of freedom and western capitalism (er, “democracy”). In these global gateways, private banks can infiltrate resource-rich locales fortified by political will, public aid and military support to garner lucrative market advantages. ISIS poses a threat to global gateway control that transcends any human casualties. That’s why Congress decided to authorize funds to fight ISIS despite the risk.

The common thread of today’s global gateway nations appears to be oil. But even more valuable are the multitude of financing deals that would accompany building new pipelines, arming allies, and reconstructing civil-war-torn countries. Indeed, hundreds of billions of dollars are at stake in America’s wars of  “principle.”

Middle-East Gateways: ISIS and Money

Obama’s recent public address on fighting ISIS  had a dash of economy sprinkled in. For him, US economic policy is foreign policy. It is also a product of an American political-financial expansionary land-and-resource grab that has been going on for decades. Obama’s execution may be far less authoritative than President Eisenhower’s. But his neo-financial Cold War has similar elements to those initiated by Eisenhower and the American banking elite in the 1950s when they collaborated to project American power into more countries, using the military and a combination of public and private capital, as tools.

The second World Bank President and 1950s Chairman of Chase Bank, John McCloy, and ascending and later Chase Chairman David Rockefeller both had aspirations to financially penetrate the Middle East. So did other major bankers. The US government and its banks first focused on Beirut as a gateway to the Middle East. Eisenhower dispatched military personnel to Beirut in 1958 not because he cared about the Lebanese, but because of the attractiveness of the country’s potential as a gateway to the region. By the 1970s, oil and money relationships between Chase and Saudi Arabia and Egypt grew, as they did with Iran and the Shah. Rockefeller's relationship with the Shah, who kept his family money with Chase, ignited the Iranian hostage crisis in 1979. Before that, the US government and its military contractors made billions of dollars from arms deals with Iran.

Citigroup opened its first Iraq branch in September 2013, ten years after George W. Bush began his Iraq War while facing a recessed American economy. A decade ago, the Bush administration selected JPM Chase to manage billions of dollars of financing for Iraq imports and exports. JPM Chase also opened a branch in Iraq last year to compete with Citigroup for current gains. Billions of dollars in new pipeline funding and other projects are now up for grabs in Iraq. If the US supports the Iraqi government (against ISIS), these banks, as well as oil and infrastructure-building companies are poised to get more of a chunk of that money. Citigroup is already a forerunner for arranging a $2 billion loan for Boeing Jets to Iraq. As Iraq's Deputy Transport Minister Bangen Rekani said in April, “We need a lot of funds...we’re in a race to complete the maximum number of projects in a short time.”

Regarding Syria, Obama’s plea for showing strength worked. Congress voted in rare bipartisan fashion to fund the moderate Syrian rebels or “free Syrian army rebels.” According to Defense Secretary Chuck Hagel, initial assistance would be “small arms, vehicles and basic equipment like communications, as well as tactical and strategic training.” That could just be the beginning. He also said, “as these forces prove their effectiveness on the battlefield, we would be prepared to provide increasingly sophisticated types of assistance."  We’ve been down this road before, positioning the military to gain financial access to an area relative to our competition. It’s lasted for years and killed thousands of people, while not accomplishing the stated goal of curtailing terrorist threats or activities.

It gets complicated from there. Moderate Syrian rebels have been fighting against Syrian President Bashar al-Assad, whom the US would support against ISIS. The US thinks these forces would cease fighting against al-Assad to fight ISIS instead, though the US claims it is not directly cooperating with  al-Assad.

Despite this, the US financial hope is that once the dust clears from all these regime changes we support militarily, there will be demand for massive reconstruction and resource extraction projects that our private banks can take care of alongside the IMF and World Bank. At a press conference in Beirut in June, World Bank President Jim Yong Kim told the international community that the World Bank would help to rebuild Syria (at a cost of $150 billion after an “internationally recognized government” was put in place) as well as Jordan, Lebanon, Turkey and Iraq during their 'recovery' from years of war. Mega reconstruction profits are at stake for private firms in symbiotic partnerships  with these international entities. So too, are the requirements for austerity and loosely regulated financial markets as the Western “reform” bargains that accompany them.

“Wars on terror” serve as a distraction in public and media discourse from a bipolar economy. The September releases of the US Census Report and the Federal Reserve Consumer Finance Survey revealed an ongoing trend toward greater income and wealth inequality. We remain 8 million jobs below pre-crisis levels, adjusted for population growth. Real wages have stagnated or declined. Employers have no incentive to provide well-paying jobs amidst ample desperation in the ranks of the unemployed. We are a mess at home.

Rather than deal with this, the US is trying to prevent terrorism from blocking private bank and corporate expansions and profit elsewhere. ISIS has already caused Iraq to delay its first mega project-finance deal. The $18 billion Basra-Aqaba oil pipeline would extend through Jordan to the Red Sea, pumping a million barrels of crude oil per day, as well as 258 million cubic feet of gas.  That’s a hefty financial incentive for which to use public funds.

Truth be told, the game of global gateway finance is a closed one. And there’s still Russia (and China) playing at the same table. In August 2014, Russia’s biggest oil company, Lukoil, estimated construction of the first branch of a pipeline to Iraq’s West Qurna-2 field at a cost of up to $1 billion. Lukoil holds a 75% stake in West Qurna-2 and has invested over $4 billion in the project, which is already producing more than 200,000 barrels of oil per day.

Cold-War Gateways: From Cuba to the Ukraine

The narrative of Russia's aggression vs. America’s fight for freedom dovetails with the turmoil going on in the Middle East. Both situations deflect attention from our country, which has greater inequality today than before Obama took office, despite a soaring stock market buoyed by the Fed's stimulus policy of pumping zero-interest rate money into banks providing them capital for all of these international adventures.

After Ukrainian President Poroshenko, a former banker and chocolate mogul, proclaimed the situation with Russia was much improved following his truce with Vladimir Putin, President Obama ratcheted up sanctions against Russia and corralled the rest of the Euro-squad to join him. This action was not about saving Kiev from pro-Russian rebels, but to reinforce the notion that the US is in financial control of the country. Poroshenko is no financial dummy, which is why he threw Putin and any potential Russian economic support under the bus, and high-tailed it to Washington for photo-ops and handouts.

These will come in the form of US government aid, more loans from the IMF and World Bank, plus complex transactions with US banks seeking more areas in which to funnel foreign capital, finance projects, and down the line, maybe securitize the resources of a new corner of the world and sell them to a fresh bunch of hungry speculators. The US has already provided $60 million in aid including food, body armor and communications equipment to the Ukraine to secure its place at this gateway table later.

Stepping back in time, my book, All the Presidents' Bankers illustrates how President Eisenhower's 1950s doctrine promoted a combination of US military and economic support to its non-communist allies. Aid from the then-new World Bank and IMF was provided in return for their commitment to provide open trade relationships and adapt policies advantageous to private western banks and corporations. The US government could thus achieve a dual military and financial stronghold. One such country was Cuba, which under Fulgencio Batista became a favorite spot from which to access Latin and South America. National City Bank (now Citigroup) established 11 branches in Havana alone, becoming Cuba’s principle US depository for American companies involved in the sugar industry and other businesses there. That changed with the Cuban revolution and Fidel Castro, who, in 1960, nationalized foreign bank assets. Bankers looked elsewhere to expand, as did the US government.

In Obama’s political-financial strategy, similar gateway strategies are in play. Obama, like all US presidents since Castro came into power, did the communist-bravado thing and extended sanctions. US bankers will reenter Cuba when US policy changes after Castro is truly gone, as they have during several periods before, notably when National City Bank sent an entourage of bankers led by Chairman Charles Mitchell in the 1920s to explore sugar, nickel, and other deals that eventually soured in the 1929 Crash.

The Ukraine is a modern Cuba with more lucrative resources. As with other US financial gateways, Obama supported the Ukraine faction amenable to financial relationships with the US and Europe relative to Russia. Ten years ago, the Bush administration supported Ukrainian leaders sympathizing with the US vs. Russia as well.  None of this was because of any purported interest in dispersing democracy, but because the right leadership offers more capital market, foreign investment and resource control opportunities to private US firms.

The Ukraine signed a $10 billion shale gas deal with US oil giant Chevron to explore its Olesky gas deposit around the time it expressed a desire for closer partnerships with the EU. Its ousted ex-President Viktor Yanukovych's decision to subsequently shun an EU trade agreement in favor of  Putin's offer of cheaper gas and a $15 billion aid package provoked internal unrest, as did its weak economy. The US denounced Russian-backed President Yanukovych, until he left his post, for he represented a potential loss of money, power and more financial access. Ukraine stands between Russian oil producers and European and Asian consumers, and is poised to profit from any growing energy demands from Western Europe, as could Western private firms.  It also serves as a potential financial out-post for US banks hunting for the next hot resource-saturated capital market.

Ironically, on September 17, 2014, the National Bank of Ukraine did a 180 spin on its economic forecasts and promised positive growth of 1% next year. The government said this economic expansion would come through more favorable corporate and income tax laws that would attract outside investors along the lines of what the US and IMF and World Bank has wanted. (More private relationships of bankers with these entities are in All the Presidents’ Bankers.) The Ukraine received two parts of a $17 billion IMF bailout this year with the IMF saying it may need $19 billion more. This means a greater call on Ukraine’s future revenues in return for austerity measures and deregulated financial markets to private foreign interests.

The real battle between the US and Russia is over the gateway countries in political flux. The real winners will be the private banks and oil companies that will reap the strategic benefits from gateway control over related markets and resources, supported by military and political might, and augmented with speculative capital for years to come. American and global citizens, oblivious to all this, will be the losers in this global shell game.

IF YOU REALLY WANT TO TRULY UNDERSTAND TODAY'S ECONOMICS, STAY AWAY FROM OBSOLETE TEXT BOOKS AND TURN TO THE FEW "OUTSIDE-THE-BOX ECONOMISTS WHO ARE ADDRESSING REAL ISSUES." PAUL CRAIG ROBERTS LISTS THEM FOR YOU HERE.

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Escape From Economics

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By Paul Craig Roberts | July 29, 2012 | Original here

Readers ask me from time to time to recommend a book from which they can learn about economics.

The problem with reading a book to learn economics that is taught in the universities and practiced in Washington is that economics is now a highly formalized subject based on abstract models and assumptions and has been mathematized. It is not that the subject is totally useless and without any applicability to real world problems. Rather, the problem is that the discipline both lags an ever-changing world and got some things wrong at the beginning. Consequently, learning economics places one inside a box where some of the tools and understanding provided are outdated and incorrect.

For example, every textbook will draw a picture of agriculture as the perfect example of competitive markets in which “no producer’s output is large enough to affect price.” This made sense when one-third of the US work force was on family farms. Today, American agriculture is dominated by corporations and agribusiness. Additionally, part of the disastrous financial deregulation pushed by no-think economists and special interests was the removal of position limits on speculators. Formerly, speculators smoothed agricultural and commodity markets by buying and selling in order to stabilize price over periods when supply and demand were out of balance. Now speculators can dominate markets and rig prices to the benefit of their profits.

There are many such examples where economics no longer speaks to the real world.

Two other examples will suffice:

Most intelligent people are aware that natural resources are finite, including the environment’s ability to absorb the wastes or pollution from productive activities (see for example, Jared Diamond, Collapse, 2005). But few economists are aware, because economists assume that man-made capital is a perfect substitute for nature’s capital. This assumption implies that there are no finite environmental limits to infinite economic growth. Lost in such a make-believe world, economists neglect the full cost of production and cannot tell if the value of the increases in GDP are greater or less than the full cost of producing it.

Economists have almost universally confused jobs offshoring with free trade. Economists have even managed to produce “studies” purporting to show that a domestic economy is benefitted by being turned into the GDP of some other country. Economists have managed to make this statement even while its absurdity is obvious to what remains of the US manufacturing, industrial, and professional skilled (software engineers, for example) workforce and to the cities and states whose tax bases have been devastated by the movement offshore of US jobs.

The few economists who have the intelligence to recognize that jobs offshoring is the antithesis of free trade are dismissed as “protectionists.” Economists are so dogmatic about free trade that they have even constructed a folk myth that the rise of the US economy was based on free trade. As Michael Hudson, an economist able to think outside the box has proven, there is not a scrap of evidence in behalf of this folk myth (see America’s Protectionist Takeoff 1815-1914).

My advice to readers who wish to develop economic comprehension is to begin with the outside-the-box economists who are addressing real issues. For example, Herman E. Daly and John B. Cobb’s For the Common Good is accessible to ordinary readers willing to take the effort to google the definitions of unfamiliar terms. However, the most important development in trade theory is not. Global Trade and Conflicting National Interests by Ralplh E. Gomory and William J. Baumol (MIT Press, 2000) is apparently even over the heads of professional economists, who prefer to babble on ignorantly about the “benefits of free trade” than to learn what they don’t know. Nevertheless, readers should understand that the case for free trade will never been the same after

its dissection by Gomory and Baumol.

With this preface to the column, I now turn to its subject: economist Michael Hudson. Hudson is totally outside the matrix in which economists imprison themselves. Hudson doesn’t live in the artificial reality of economists or shill for corporations and Wall Street.

A person can learn a lot from Hudson. His book, Trade, Development and Foreign Debt (2009) explains how foreign trade and economic development have been used to concentrate economic power in the hands of dominant nations. What is really going on is covered up with do-good verbiage and formal models. In reality, trade and development are ways to colonize countries that think they are independent. (Another good book on this subject is Michel Chossudovsky’s The Globalization of Poverty.)

Perhaps the best place to begin with Hudson is his latest book, The Bubble and Beyond, which should be available within a few days of the appearance of this column. In this book Hudson addresses the crisis in the economy and the crisis in the discipline of economics. From this book you can understand not only the crisis but also why economists have misdiagnosed the crisis and are applying incorrect remedies.

Hudson shows that a central problem is that economic theory ignores the role of debt in the economy. Economic theory also pretends that economic policy, such as the Federal Reserve’s monetary policy, serves the public’s interest rather than the interests of powerful private interests.

As Lenin and others predicted, industrial capitalism has turned into finance capitalism. Finance capitalism does not finance or create new real investments such as manufacturing facilities. Instead, finance capitalism functions as a rentier. It leverages debt and extracts interest payments (and today taxpayer bailouts for its over-leveraged gambles). Finance capitalism flourishes by converting more and more of society’s resources into payments to itself.

One result is that markets cease to expand and economies cease to grow as austerity is imposed to service the build-up in debt. Austerity pushes economies down as consumption and investment are cut back in order to service debt. Hudson concludes that the result is that bankers now receive the rents (a form of unearned income) that once flowed to the landed aristocracy. Unlike the aristocracy, who were dispossessed of their rents, the bankers have not been.

Hudson knows the history of economic thought and economic history. Reading The Bubble and Beyond lets readers see how economic ideas developed in ways that leave economists unable to perceive the real character of the problems that are challenging them. Trapped in the matrix that they have constructed for themselves, economists are unable to devise solutions.

Hudson writes that western economies are at a turning point. GDP growth consists increasingly of the build-up of financial overhead. The wealth gains are paper gains, not gains from real plant and equipment, and are increasingly concentrated in the hands of the one percent. Financial earnings are extracted from the earnings of tangible capital and labor. Matt Taibbi captured the point with his imagery of Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

My suggestion is that you read Hudson along with Taibbi’s Griftopia, Nomi Prins’ It Takes A Pillage, Gretchen Morgenson and Joshua Rosner’s Reckless Endangerment, and Daly and Cobb’s For the Common Good. Then if you ever do study economics, you will be armored against being ensnared in the matrix that produces economists as shills for finance capitalism, environmental destruction, and the offshoring of the economy.

Everyone always wants a solution. Hudson offers suggestions how to reconstruct the economy in order that it serves the needs of the 99% instead only of the needs of the 1%.

Get busy. Reading these books will do you much greater good than playing video games, watching TV or hanging out in bars. Our country needs a larger informed younger generation to replace the smaller informed older generation.

Note to readers: Accompanying my column today is an article in the guest section by Herman Daly (titled: (Nationalize Money, Not Banks”). For those looking for solutions to the banking crisis, this astute and highly experienced economist tells you what can be done. 

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The Crash of 1929 Was Just a Prelude: Truthout Interviews Whistleblower-Novelist Nomi Prins

Thursday 17 November 2011

by: Mark Karlin, Truthout | Interview 

Nomi Prins, author of "Black Tuesday."
(Photo: Official Nomi Prins Page)

Mark Karlin: Given your expertise in understanding the corruption of Wall Street, what did you find in the practices of the financial world leading up to the 1929 crash that presaged the 2007 crisis?

Nomi Prins: Into the crash of 1929, there were six big banks. Their leaders controlled most of the market activity, sat on each others' boards and owned large chunks of stock in each others' firms. They inflated the values of stocks through "trusts" (financial mechanisms by which many investors could "pool" together their money, and borrowed money, to purchase or sell various stocks in bulk).

These were further puffed up by a co-opted media and enabling political leaders (as depicted in "Black Tuesday.") Even as the crash happened, the biggest bankers thought they could contain it and could buoy stocks until the market settled, so they threw in their own (read: customers') money. That didn't work, of course. The financial markets and lending systems collapsed.

Today, we have six banks (mostly incarnations of the 1929 banks) that control the stock market, most mortgage lending, the bulk of deposits and nearly all derivatives activity. They inflated the housing market, in particular subprime loans, so they could stuff those loans into more complicated assets, borrowing hundreds of trillion of dollars against them, increased their risk through derivatives and spread them throughout the globe. When it became apparent these assets didn't have the value that banks said they did, the market, they got federally bailed out, while the Main Street economy sank.

MK: Why did you choose to write a novel that incorporates Wall Street malfeasance surrounding Black Tuesday instead of a nonfiction book?

NP: I'd always wanted to write both fiction and nonfiction. Ever since my debut story about a fish and a princess at age three, the left and right sides of my brain were engaged in tenuous warfare. Several decades later, after I completed my third nonfiction book, "It Takes a Pillage," the inevitability of the widespread economic collapse that I'd warned about in excessive detail, bore down on me. I'd worked over a decade in investment banking and been writing about if for nearly a decade. My brain was fried from all the documents and composite statistics. I wanted to write a novel - to develop complex characters - to tell a human story, to access the very heart of a very parallel historical period, through the heart of my protagonist, Leila Kahn.

Then I met a woman who'd live through those times, and she told me about her prudent father during the Depression. Leila's little sister, Rachel, is based on her. Leila herself came to me one night, when I was thinking about how we can often make very different choices depending on whether we listen to our hearts or our minds. The two men in her life, the banker and the laborer, represent those sides of her, in a time where nothing is black and white, but shades of gray.

MK: Does Leila symbolize the seeker of the American Dream running head-on into its dark underside?

NP: Yes, absolutely. There was a wondrous sense when immigrants came to the US, throughout the late 1800s and early 1900s, of an amazing America that held unlimited promise for all, a nation that welcomed all equally, where mere hard work and tenacity would lead to prosperity. Yet, what many found upon arrival was nothing like that.

Leila and her little sister Rachel live in a dilapidated fifth-floor walk-up apartment in a Lower East Side tenement building, sharing a two-room apartment with five people. Their lives are not easy. Her dying Aunt Rosa can't afford the medicine to soothe her pain. Her cousins work at the Fulton Street docks under unbearable conditions, while their bosses, as Nelson, Leila's boyfriend, says before his arrest, make money on their backs.

There was, and is, an upstairs/downstairs world in New York City, a major and visible class divide there, and throughout the country: that 99 vs. 1 percent gap. "Black Tuesday" focuses on the stark lifestyle and wealth difference between families, neighborhoods and ethnicities, the gap in what they sought, with what they found.

MK: The Glass-Steagall Act was passed in 1933 to try and prevent future market collapses. It was repealed in 1999 after Bill Clinton signed it into law. How significant was the repeal in leading to the 2007 near-Wall Street implosion?

NP: In order to avoid the disastrous co-mingling of customer deposits and accounts with the creation of risky securities, trusts and related trading, banks were separated via the Glass-Steagall Act of 1933 into commercial (dealing with the public's loans, deposits and the more productive use of capital) and speculative (securities creation and trading) arms.

The commercial banks received deposit backing from the newly created Federal Deposit Insurance Corporation (FDIC). And the banks that chose to focus on securities creation and trading - well, they were not provided government subsidies like today. Plus, the Securities and Exchange Commission (SEC) was created to ostensibly protect the public from securities fraud (though it has been useless at that recently.)

Due to the 1999 repeal of the Glass-Steagall Act, commercial and investment banking, and insurance companies, intertwined. Commercial banks were able to leverage (or borrow against "safer" positions more massively) because they owned that more "stable" fee-driven deposit and loan business They could thus create big new debt deals for their clients, create assets stuffed with anything from junk bonds to subprime loans, and load up on derivatives. Competition between banks became about who could leverage their simpler businesses, the most and the quickest. Investment banks, like Goldman, Lehman and Merrill that didn't have the depositor cushion, but wanted in on the same game, got the SEC to allow them to leverage the trading positions they did have, more. Repeal stoked the casino element of Wall Street, rendering productive financing less attractive.

MK: In your novel, the nefarious bank in question is led by a powerful mogul uncle who controls his nephew - a family-run financial firm, so to speak. How has the ownership of banks and financial firms changed since the crash of 1929?

NP: Back then, the Morgan Bank (fictionalized in my novel from a story perspective, but real) was a private elitist bank. Partners were handpicked by Jack Morgan (J.P. Morgan Jr.) and customer lists weren't public, nor were many deals. In "Black Tuesday," Roderick, the nephew, and Jack, the uncle, come to have very different reactions to the bank's secrecy.

Today, JPM Chase, which includes within its hierarchy the original Morgan bank, is similarly one of the most powerful banks in the world, though part-funded by public shares, rather than private ones.

The big banks, epitomized by Morgan Bank in 1929 and JPM Chase today - as well as others - are still run by entitled, privileged titans with disdain for containment by stricter laws. They travel in moneyed circles, have access to - or become - the most senior political leaders and, in general, are completely disconnected from the rest of the public. The only difference is that Morgan came into his position in the family bank through his father, whereas Jamie Dimon rose through the ranks of several banks before attaining his position; otherwise, they could be the same man, same bank, different time.

MK: In 1929, the US financial industry was much more confined to America. Now it is part of an international system that is much more interconnected. Your novel describes a Wall Street that seems quaint and much smaller in scale than what exists today. How has the international financial market in 2011 changed the way in which Wall Street functions?

NP: Today, individuals have more access to invest or "bet" in the market - e-trade or Charles Schwab accounts, and so forth. They never even have to sit down with a broker like they did back in 1929.

Additionally, many have 401K or various pension plans that invest in various stocks and securities for them.

In the 1920s, there were things called "trusts" through which people thought they could invest alongside the bigger, smarter financiers. Now, we have MSNBC, Fox Business and Jim Cramer talking about how small investors can become rich.

Then, certain Wall Street bankers and the equivalent of today's hedge and equity fund titans manipulated the market by having more access to information and the ability to maneuver bigger price swings since they controlled more of the trading volume. It's the same thing today, but additionally now with globalized programmed trading, the big volume trades cause tremendous market movements which can hurt the "little people" who don't know they are coming. Then, investors believed trusts (which were created by banks and stuffed with the stock of their preferred clients' companies) were surefire ways to make money because bankers said so. More recently, investors (including pension funds, municipalities and whole countries) believed AAA mortgage-related securities were surefire ways to make money because bankers and rating agencies said so.

MK: One financial tool that didn't exist in 1929 is the derivative. How has that "investment instrument" made Wall Street a much riskier enterprise?

NP: The advent of a whole slew of different derivatives, from interest rate to currency to credit and all sorts of tailored-made combinations in between, mostly over the past three decades, has infused the financial system with exponentially greater risk and less transparency, and much more dangerous interconnectivity amongst the largest financial players. As a result, global bank and political leaders can yell about how the entire system will implode absent certain bailouts, whether for Bank of America or the international speculators who bet against Greece thought the credit derivatives market, if certain things like debt-for-austerity programs aren't enacted.

Derivatives upped the ante of control that the largest financial players have over the entire system, as well as the ability for them to hold whole counties and populations hostage. In essence, there are more derivatives in the world than many multiples of global gross domestic product (GDP). That makes the global financial enterprise exceedingly risky. Put it this way: what happened with the collapse of finance that lead to the Great Depression, absent complex derivatives, is nothing compared to what could happen today.

MK: You and I have talked about Tom and Daisy Buchanan, wealthy characters in F. Scott Fitzgerald's "The Great Gatsby," who lived reckless lives of privilege and left ruined lives in their wake. How did that novel, published in 1925, influence "Black Tuesday"?

NP: Before contemplating "Black Tuesday," on a whim, I walked into my local library during Great Gatsby month. I got a copy of the classic, re-read it and decided that I didn't like any of the women in it. Plus, the notion of the "roaring 1920s" was about as fake as the Kardashians. There were some exceedingly wealthy people around, but mostly then, like now, the country was struggling - that's why the allure of the stock market sucked in investors that it shouldn't have, like Leila's uncle's partner.

The characters, Tom and Daisy Buchanan, were the quintessential representations of the 1920s vapid, partying, "good" life. Yet at the time, hosts of young women dreamt of being Daisy. Leila learned about high-society life from reading "The Great Gatsby," penned the year she came to America, but upon witnessing that life in Roderick's world, she is crushed by the dark criminality of it all. She even tells Roderick, who knows Fitzgerald, that he couldn't possibly understand the real world, her world, foreshadowing the parallel recklessness at the center of "Black Tuesday."

MK: Unrelated to your novel, but very much related to the subject at hand, is the question of Timothy Geithner. Is there some positive side to his being Secretary of the Treasury, or is he just Wall Street's man in the White House?

NP: Tim Geithner is a tool, literally. When Geithner took the Treasury helm, the amount of Treasury Security debt outstanding was $5.7 trillion (in tradable securities, and $591 billion in nonmarketable ones). In August 2008, just before the most powerful banks sucked the soul out of the country in every manner possible, it was  $4.9 trillion. Today, outstanding Treasury debt stands at $9.7 trillion (total debt $10.2 trillion). Most of that increase occurred under Geithner, though it started under Hank Paulson.

Geithner will keep pretending that this seismic debt increase was a requirement to fix our main economy, which continues to get crushed, ignoring mention that the biggest, most powerful banks were propped up by trillions of dollars of federal of subsidies. His being Treasury head is an inherent conflict of interest with his Wall Street alliances, just as then-Treasury Secretary Andrew Mellon, under President Coolidge prior to the 1929 crash, had an allegiance to the bankers, because he was one.

MK: Finally, do you think the Dodd-Frank Wall Street Reform and Consumer Protection Act will actually reform anything on Wall Street?

NP: No. The Dodd-Frank Act does not separate the banks, thereby, no matter what other minor cosmetic items it contains, or yet-to-be-lobbied-to-death practices it evokes, banks can still increase their risk-taking and influence upon the cushion of customers' money.

The Consumer Financial Protection Agency is a great idea, in theory - though it should be noted, there already was a consumer protection department within the Federal Reserve that was 100 percent ineffective as fraudulent mortgages were being stuffed into fraudulent assets and dispersed throughout the world. But, by virtue of its political proximity to the Federal Reserve, any alarm bells it rings will involve a bitter fight against a stronger opponent. Not appointing Elizabeth Warren to run it was a pretty big red flag. I have more confidence in the Occupy movement to bring attention to the myriad of slimy bank practices, like Bank of America's $5 debit fee, which was pushed back, though in order for even public outcry to be effective, it has to translate into real profit loss for the banks, and it has to be hypervigilant and aggressive - forever.

This work by Truthout is licensed under a Creative Commons Attribution-Noncommercial 3.0 United States License. 

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MARK KARLIN

Mark Karlin is the editor of BuzzFlash at Truthout. He served as editor and publisher of BuzzFlash for ten years before joining Truthout in 2010. BuzzFlash has won four Project Censored Awards.

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Comment from original site:

Swaps, treasury bills/bonds, exchanges, derivatives and prodigeous printing; it is all one big fraud that has resulted in what Marx called "ficticious Capital" (of no REAL value) of $700TRILLION (the known amount) which is ten times the estimated WORLD GDP of $70TRILLION (REAL value as determined by LABOUR content)

Now obviously something has to give; something WILL give!

If the l%, of which the bankers are a significant part, have their way, that something will be the basic needs of the 99%. Ie. the rheams of paper, electronic accounts &c, all fraudulent worthless rat bag of deceitful transactions will be off loaded on to the 99% in the biggest swindle of all times.

It has already begun! In Europe the European Centrale Banque in cahoots with International Monetary Fascists (IMF) and the large banks worldwide are restructuring all these frauds into "BAILOUTS" which then exchange into debts for workers and entrepereneurs to pay with their FUTURE REAL value added earnings in the form of taxes that will not then go to essentials for the common people. Goodbye to pensions, medical care, clean water, nutrititonal food. Iceland and Greece are already being crushed in the jaws of these vultures, Spain and Portugal feel the talons and even Italy, Austria and France feel their hot breath, a breath pungent with the stink of economic and social carrion!

Germany, North America do not be complacent; you too are in the sights of the monster.

So what is to be done?!

99% Occupiers, Hang tough! SAY NO! to "BAILOUTS, NO to regressive taxes, NO to wars (that littlr people die for while the l% reap profits, NO to environmental neglect that reduces the carriing capacity of earth for living things!

Be inclusive of all who suffer (or soon will)

If you hang on to your souls, and never give up, you have a world to WIN!!

IN SPAIN THE POPULATION TOOK TO THE STREETS IN 50 CITIES LAST SUNDAY TO PROTEST IMF-IMPOSED AUSTERITY MEASURES. IN THE U.S. THE PEOPLES' OWN GOVERNMENT IS MOVING TO IMPOSE THE VERY SAME AUSTERITY MEASURES, YET THE U.S. POPULATION'S REACTION IS "FIRST THEY CAME FOR THE WISCONSINANS BUT I DIDN'T LIVE IN WISCONSIN, SO I DIDN'T HAVE TO PROTEST..."

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AlterNet / By Nomi Prins

Dominique Strauss-Kahn Sits in Prison While the IMF Keeps Ravaging Entire Economies Every Day

The IMF can do far more damage trashing global economic well-being than the man behind the sex abuse scandal.


May 18, 2011  |  The sex scandal surrounding the head of the International Monetary Fund has thrust the organization into the media's glare. Yet, the man behind the scandal is far less relevant to trashing global economic well-being than is the institution itself.

Regardless of who takes over for the IMF's disgraced leader, Dominique Strauss-Kahn (DSK), it’s unlikely he or she will bring about a philosophical shift in the IMF’s MO. For the IMF doesn’t care what caused devastating financial hardship to its current "focus" countries like Ireland, Greece and Portugal, nor what deal is struck in return for its aid. Saving the superpower notion of Europe and the euro as a pan-European currency by bailing out (read: lending money in return for "austerity measures" and holding fire sales of national companies) is a goal bigger than DSK.

This ideal is more important to the IMF than the financial security of ordinary citizens. Thus, the IMF will remain the validating and financing arm of the European Union (EU) and maintain the euro’s cohesiveness, no matter the cost to ordinary people. By doing so, it will continue to create debt to pay for bank screw-ups and extract repayment from innocent local populations.

Indeed, any concerns about the IMF altering its method of swapping loans for austerity measures just because its chief is facing felony charges, were alleviated the day he was denied bail. On Monday, Portugal, the third European country in the past year to get a bailout, was approved for a 78-billion-euro rescue package. The price? Public spending cuts. The benefactors? The private Portuguese banks that turned around to raise cash backed by bailout-guarantees a moment later.

In Ireland, where a swish of hot money entered the country during the years leading up to the 2008 crisis, the $113 billion IMF/EU bailout did nothing to bring down the 14.7 percent unemployment rate, even as $23 billion of pension money was requested as a condition of the loan.

It’s the same story in Greece. There, the IMF has backed the EU in exacting austerity measures running the gamut from pension and wage cuts to privatization demands. To comply with its bailout agreement, Greece must continue to sell off its functioning and solvent national companies, such as its electric companies, to the highest international bidder. You know, the bidder that will care about what happens to the local cost of power. (Think Enron and California power plants a decade ago.)

But that’s what the IMF has always done. It provides loans at cheaper rates than countries would receive any other way during times of economic distress, in return for forcing them to open their economies to hot money looking for a good deal. This is based on the premise that public infrastructure and social safety nets are the cause of financial woes, and not the over-leveraged banks that funneled in the hot money to begin with.

As Andy Robinson, a journalist stationed in Athens, who writes for the Spanish paper, La Vanguardia, put it, “The IMF wants the country to sell off its grandmother’s silver to make room for more luxury beachfront hotels.”

Unfortunately for Greece, what the IMF wants more of, is exactly what caused its debt crisis -- hot money that turned cold. External investment banks and funds extracted profits from the country and then headed for the hills.

Three years ago, in May 2008, Bear Stearns was handed to JPM Chase on a Fed-backed platter in Phase I of the great US bank bailout and subsidization strategy. Meanwhile, the Greek finance ministry proudly proclaimed US investment interest (i.e. hot money from banks, hedge funds or private equity funds) was strengthening.

At the time, Greek Economic and Finance minister, George Alogoskoufis further noted, “international financial organizations, such as the International Monetary Fund, also acknowledged the significant progress made by the Greek economy.” At the time, he said “an international credit crisis has not affected the Greek banking system” and “that economic conditions would return to normality in 2009.”

It didn’t work out that way. Five months later, in October, 2008, the global banking crisis arrived in Greece. The Bank of Greece had to pony up 28 billion Euros to bail out its banks (for starters). Blindly optimistic, a month later, the Greek embassy promised that the country's economic growth would exceed the EU average for 2009-2010.

Then, things collapsed. By May, 2010, the EU and IMF pushed a $141 billion euro rescue package on Greece, with strings attached, but on the people of Greece, not the banks whose behavior trashed its economy. The result was widespread street protests.

Now, a year later, with the looming possibility of a default on it debt, and talk of more bailouts in the works, the Greek people are again taking to the streets.

The fact that public austerity measures don’t secure an economy remains lost on the IMF and EU. Instead, they want countries to sell whatever they can at rock bottom "crisis" prices, and extract the rest of the money to repay loans from citizens. The IMF and EU have just asked Italy and Spain to do more of this antiquated policy.

In retaliation, Spain’s population took to the streets in 50 cities last Sunday, protesting national austerity measures. Their chants made it clear they knew that the banks and enabling politicians caused their pain. Spanish banks are sitting on 113 billion euros of bad loans, an overhang from an international housing speculation boom gone wrong. The population faces a 21.3 percent unemployment rate, 40 percent among its youth. Austerity measures don’t create jobs.

This IMF notion of opening a countries’ doors to hot money to demonstrate economic worthiness is completely misguided. The flow of fast money does not, by any measure, help the well-being of a country's population at large. The recent uprising in Egypt, a country given gold stars by the IMF for opening its boundaries to unrestricted, irresponsible hot money to erect luxury condos and beachfront homes, is another obvious sign of this tactic’s failure.

And, yet, again and again, the IMF instills surefire economic destabilization through unaltered money-interested policies, sucking the financial life out of unarmed citizens. The IMF will soon choose a new leader to take the reigns from acting head and former JPM Chase chief economist, John Lipsky. There is talk that for the first time since its inception, this leader may come from outside the core European fold. Chances of that are remote. But, unfortunately, no matter who leads the IMF next, its legacy will continue to impart pain on the people of the countries it vows to assist. And that means more uprisings to come.

Nomi Prins is a senior fellow at the public policy center Demos and author of It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street.