The “Bloody Shakespearean” commentary on Michael Hudson’s interview with Ben Norton

With thanks to our writer, Jorge Vilches

Michael Hudson and I know each other somewhat and both share deep mutual respect. But we are not really “dear friends”, at least not in the Latin-culture sense which translated would mean we do not have a “family-type friendship bond ” or something to that extent. We haven´t ever met personally either and in-depth analysis of anything has been restricted to less than a half-dozen Skype meetings years ago concerning Michael´s book “ Killing The Host” and that is about it.  And although our intellectual roadways have occasionally crossed with comments from both while touching upon the same topics, we are not really ´colleagues´ because we belong to completely different ´leagues´.

In the best of cases some well-intentioned analysts may consider myself to be a reasonable student of whatever I decide to investigate. While Prof. Hudson – as humble as he is – obviously has a very well-earned miles-high standing in comparison. Of course, I also admire Michael Hudson because of his tenaciously valid and decades-long trajectory of prolific analysis and rock-solid conclusions. In comparison, I have absolutely no credentials and I am no match to MH either from the historical and/or financial perspectives, both of which are undoubtedly within his very well-acknowledged fields of expertise.

Still, as a dutifully focused and challenging student of history and finances, I very humbly dare to comment upon Prof. Hudson´s recent presentation on “How 4 US banks crashed in just 2 months”… and many more to come…in his dialogue with Ben Norton here at the Global South website.   And my “kamikaze” commentary is no more and no less than two-fold, both from a historical and also from a political perspective.

Please be advised that in medical terminology I consider the current financial situation to be “terminal” both for the US economy and the US dollar which will necessarily also have tremendous impact upon the rest of the world… possibly both negative and positive. And my interpretation is that Michael Hudson did not say – or imply — that same concept at least in so many words. But I certainly do, and what MH discusses and correctly describes in financial terms I believe will necessarily lead to such terminal political debacle, although apparently he may not agree. And that´s my point.

Ambrose Evans-Pritchard along these lines says lots in his “The Telegraph” – May 2 article with the title “Half of America’s banks are potentially insolvent” with the twin crashes in US commercial real estate and the US bond market thus leaving $9 trillion (Nine TRILLION dollars) uninsured deposits in the American banking system. Of course, with the current weak bank oversight, via e-banking facilities worldwide such deposits today can vanish in a matter of hours – also known as a ´bank run´ — with (almost) nowhere to hide. Most especially now that everybody knows that these “banks” currently have assets worth far less than their liabilities. Furthermore – and Michael would definitely agree with this — the signs of current worldwide de-dollarization are all around us now. So the Fed today has to either “try” to save the US banks or “try” to save the US dollar, but not both. It´d be mission impossible and no real tools available to do either, so it could very well be that both the banks and the dollar suffer the same fate. Please check out this article of mine published 8 (eight) long years ago namely ”Too Big for Fed: Have Central Banks Lost Control? ”

So in the above-referenced piece Michael concludes that, per the current US financial situation and the Fed-induced policies, US banks will end up consolidating into half a dozen ´too big too fail banks´ (sorta) to be openly and indefinitely supported by “the system”. In Michael´s own words he correctly believes that “… these are still the most troubled banks of all, except they have a government guarantee — just like Obama gave them — that no matter how much they lose, they will not lose any money. No matter how much the banks lose in negative net worth, it´s the economy that will lose (emphasis mine) not the banks. All of that became implicit when the Federal Reserve decided to help the banks that were insolvent in 2008 and 2009, to help them recover their net worth by quantitative easing…

Well, as long as interest rates were just about zero, you had free credit and you had a debt-fueled stock market boom, the biggest bond market boom in history, and a real estate boom.” But then the Fed … “decided that it was going to begin raising interest rates from 0% to 4%… with securities and mortgages and bonds that pay a very low interest rate so their price fell by 30%, maybe even 40%…” … “(So) just about every bank in the country moved into a negative equity position because all the banks have made fairly long-term loans.”

So agreed that the Fed created a $9 trillion worth of Federal Reserve balance sheet support of the banks to enable them to drive down interest rates to almost near zero, i.e. 0.1%. And I say that under current circumstances this necessarily means rampant inflation with direct impact on CPI which middle-class consumers will have to (supposedly) pay for where it hurts most in daily expenses. But I also say that this will not happen this time around. Let me explain.

So my commentary on Michael’s analysis is in historical terms, namely Shakesperean in that in “The Merchant of Venice“ money-lender Shylock — although entitled to a pound of flesh from Antonio – in the surgical process he still was not allowed to shed a single drop of his blood. And per my humble analysis that would be Michael´s “bloody Shakesperean” outcome as lots and lots of blood would be shed by a massive amount of people both in the US and also worldwide thus triggering an absolutely uncontainable revolution. Why so ?

Well for two good reasons I believe. Reason #1 is that only middle classes anywhere save US dollars so in this case it would be dozens of jeopardized trillions of dollars ´owned´ by many hundreds of millions of middle class members. And Reason #2 is historical: any and every single transforming revolution in the history of mankind has been made by middle classes not by rich people and not by the poor as many would have us believe. It´s always been the middle classes pushing for change, not anyone else something with which I imagine Prof. Hudson would surely agree.

Shakespeare expert Dennis Abrams goes further adding that “(for) Elizabethan audiences living in a period of heavy inflation and soaring debt, Antonio’s looming sacrifice must have seemed a particularly vivid metaphor for those real-life debtors who were sent by bloodsucking creditors to notorious London jails such as Newgate and Ludgate. And the insistent sacrificial metaphors for Shakespeare’s play begin to seem frighteningly real as Shylock’s demand reaches a fever pitch.”  https://theplaystheblog.wordpress.com/2012/07/12/shed-thou-no-blood-nor-cut-thou-less-nor-more-but-just-a-pound-of-flesh/

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The current situation is already just as large – and as bad — as the 2007-2008 Great Financial Crisis. JPMorgan has taken over The First Republic Bank while it´s actually ranked by regulators as the riskiest bank in the United States. So imagine. And about one quarter of the entire FDIC deposit insurance bail-out fund has already been spent for the time being only to save three regional banks as we now see the crisis spreading larger and further.

Michael Hudson adds that… “the government (now) says that no bank depositor, no financial investor will lose any money. We promise you that the economy will lose money, not the banks, not the financial sector. We promise you that if we have to pay more money to support the financial sector, we’re willing to cut back Social Security. We’re willing to get rid of Medicaid and Medicare We’re going to get rid of social spending because the economy needs the banks not to lose any money, because to us politicians they’re our campaign contributors. They’re who we really work for and protect. That’s our job as politicians.”

I say instead that middle classes will realize – and suffer – what MH correctly describes… but will not accept it.

MH says :… “ The government has said that no matter how much money the banks lose, even if Chase and Citibank are insolvent, because after all, they also hold long-term mortgages and long-term loans and long-term securities. But no matter what, we’re going to create enough money to bail them out…. And the economy will lose money…” so be it to the tune of 9 Trillion dollars… but I say the middle class will not politically accept that because as Michael yet again correctly foresees… “… all of this is unsustainable, and we’ve reached the point of unsustainability…” with essentially the government itself and indirectly its so-called “regulators” working for the banks and against middle classes. “ The existing financial system cannot survive in the way that it is now structured, because it makes any increase in interest rates drive banks insolvent. And the government has said “ We’re not going to support the small banks, we’re not going to support the local commercial banks or the smaller revenue banks. They’re not our campaign contributors.”

I say middle classes this time around – with everything to lose — will not put up with such nonsense either.

“ So the government has basically announced, if you want to keep your money safe, move it to one of the five big systemically important banks. ´Systemically important´ means that it’s a bank that controls government policy of the financial sector in its own favor…. And you want to be part of a system where the banks in which you have your deposits are in control of who gets elected in government to appoint who becomes the Federal Reserve regulator and the various bank agency regulators.”

But then Ben Norton points out in the same interview that “… The four big banks that contributed the most to try to save First Republic Bank — the ´systemically important´ banks — have 58% exposure to $247 Trillion in derivatives…” To which Michael Hudson responded “ The Treasury Secretary’s job is to protect the big (American) banks… just like it did with the case of Greece” a few years ago.

I say that US middle classes might not have moved a finger to avoid Greece and the Greeks from going under… but there will be blood in the streets a-la-The Merchant of Venice if this time around it´s THEM that get to lose, in many cases everything. Perils, discomfort, mishaps and wars are okay if far away from the US middle class territory, but NOT in my back-yard.

Michael adds that the Secretary of the US Treasury thinks pretty much that …” just as we’re supporting an unsupportable loser in Ukraine, we’re going to support the unsupportable losers, seemingly, in the American banks. We will do whatever it takes so that the big banks do not lose money, even though they’ve made a bad bet, a bet that would have lost all the money, a bet that would have left them insolvent, a bet that would have led them to be taken over by the FDIC and turned from a private bank into a government bank.”

I do not believe that US middle classes will put up with that this time around either.

MH adds: “ So the bottom line is that the whole U.S. economy is being sacrificed to banks that have made bets.

So if there are only four or five systemically important banks — meaning banks that we’re not going to let go under — and no matter how much they lose, you won’t lose your money in these banks, well, that means, hey, folks, take your money out of your local bank and put it in one of the big banks, because they’re now running things.”

I say many/most middle classes will not be quick enough to move their “money” around from their current banks and thus will get caught. There will be blood in the streets.

MH responds by saying… “But for the bank depositors and for the public to be quiescent, they have to be stupid”

But I do not think that this time around they´d be THAT stupid simply because – I repeat – there should be 1930-style blood in the streets, or maybe worse than that.

I have no technical objections or disagreement with MH on issues regarding finances or economics.

I do have a different political outlook and, of course, my guess is as good as his.

In conclusion, please allow me to leave on record my unlimited respect and gratitude to Michael Hudson, a brilliant historian and experienced economist also author of many best-selling books which we, and I, have all enjoyed and learned lots from.

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Featured Image:  Bank run on the Tennessee Hermitage National Bank, 1930 November 14