Mr. Paulson¹s Deceptive Speech

Michael Hudson

Yesterday, November 20, Treasury Secretary Henry Paulson presented so deceptive a speech at The Ronald Reagan Presidential Library in Simi Valley, California, that was that its false framing of Washington's financial giveaway to Wall Street deserves to be enshrined in the annals of Orwellian doublethink.

What prompted the speech seems have been Congressional criticism of Mr. Paulson¹s bait-and-switch transfer of public funds to Wall Street, and the Federal Reserve¹s transfer of an amount twice as high as Congress's $700 billion. His most urgent aim was to ward off accusations that the Treasury and Federal Reserve have acted illegally. Federal law, and in particular the Anti-Deficiency Act, prohibits Treasury from spending money, lending money, and guaranteeing or buying assets without Congressional approval. The Federal Reserve can and does lend on a secured basis, but only if it expects not to realize losses. (Italics added.)

But Congress did not approve the Treasury's $250 billion of preferred stock investments in Wall Street banks. The happy recipients, their stockholders and officers evidently worried precisely that this "investment" would end up taking losses. That is why the Treasury stands in
back of bona fide creditors. That is why preferred stock was preferred by existing stockholders to loans and guarantees (which have priority in case of bankruptcy), not to mention the conditions that Congress thought it had laid down calling for these institutions to renegotiate mortgages to bring them in line with the debtor's ability to pay.

The Fed has refused to let Congress know any details ­ any details at all ­ about its cash-for-trash swaps with these institutions. This is what has concerns Congress, and what has prompted Bloomberg to bring a lawsuit in order to discover and publicize the details. It is not hard to'see why this curiosity exists. The only reasonable explanation as to why investment banks, American International Group (A.I.G.) and commercial banks apparently headed by Citibank (whose shares plunged yet another 30 percent during Wednesday and Thursday) have turned over a trillion dollars worth of illiquid mortgage securities, junk bonds and who knows what other junk to the Fed is to avoid taking a loss on these bad loans and investments. As Mr. Paulson explained matters, ³the Federal Reserve has statutory authority to lend against a pool of mortgage loans on a fully secured basis. The Fed was able to assist the JPMorgan purchase because they believed that there was a reasonable prospect of avoiding losses.

What time frame are we talking about here? Evidently one in which Mr. Paulson will have left the administration, sticking his successor with the losses and, presumably, the blame.

Everything seems to have been unexpected to Mr. Paulson ­ as if ignorance is a defence. When I came to Washington in 2006, he reminisced, markets were benign. We were still in Alan Greenspan's idea that inflating asset prices on credit constitutes wealth creation. At that time I myself was only one of many who warned that the real estate market had come to rest on a foundation of junk mortgage lending. Every banker with whom I spoke at the time knew this. But most were still seeking to make hay while the making was good, and it was still quite good ­ for the banks, that is. Matters were not benign for the increasingly debt-ridden U.S. economy, but at least they were rosy for Wall Street. Bank executives were paying themselves enormous
salaries and even larger stock options. Meanwhile, the smarter money managers were beginning to shift their funds out of the U.S. economy in a wave of capital flight of a magnitude not seen since Russia in the mid-1990s.

Acting as if all this could not have been foreseen, Mr. Paulson assured his mistake-friendly audience, There was no playbook for responding to a once or twice in a hundred year event.² A kind of random historical earthquake seems to have been at work, a financial San Andreas fault. Mr. Paulson then trivialized this, however, with the euphemism "housing correction."

The key is, what is to be corrected? Is it not the financial market itself?

Mr. Paulson then set about dissembling the character of the U.S. and global financial system. "Our financial system," he claimed, "is built on the hard work of our citizens; it is built on the savings of our citizens."

This is where he seeks to spread the disinformation that the explosion of debt that now burdens the U.S. economy has not been the case of Americans saving. It is the result of autonomous credit-creation by the commercial banking system. The basic financial principle of modern banking is that loans create deposits. The bank loan comes first ­ then the deposit or saving.

Here's how it works. A bank's marketing department seeks to drum up customers for debt. A borrower will go into a bank and sign a promissory note, and the bank then creates a checking account in the amount that is stipulated. The note calls for a specific rate of interest to be paid ­ a
rate much higher than that which the bank can borrow from the Federal Reserve or in the money market in general. One benchmark global rate to bankers is the London Interbank Borrowing Overnight Rate (LIBOR), and the other is the Federal Reserve's discount rate to banks. (Japanese banks also provided loans to large financial institutions at under 1% per year,
spurring the international carry trade, borrowing cheap in yen and then converting the funds into other currencies and lending at a higher rate.)

None of this involves saving. It involves credit creation in which banks have a legal monopoly, with funding monetized by the U.S, Japanese and other major foreign central banks. This free credit creation is at the root of the problem, not the natural growth of savings.

What have banks done with this credit-creating privilege? Nearly all their loans have been to enable buyers to purchase assets (real estate, stocks and bonds or entire companies) already in place, or to enable hedge funds to play the mathematical games that have come to characterize today¹s casino capitalism. Mr. Paulson depicts the resulting financial system as being essential for the good functioning of "Main Street." But surely he must know some lawyer who might explain to him that only very, very wealthy speculators are allowed to play the hedge fund game of financial derivatives that lies at the heart of today's financial breakdown and negative equity
for banks that have made bad gambles. The legal reality is that in order to invest in hedge funds and similar casino capitalism gambles (or in Broadway plays and other high-risk ventures, for that matter), prospective financiers must sign releases attesting to the fact that they can afford to lose their money.

"If the financial system were allowed to collapse,"Mr. Paulson warned, "it is the American people who would pay the price. This has never been just about the banks; it has always been about continued prosperity and opportunity for all Americans." Not really. Wall Street hardly is so altruistic. It has increasingly made its money off Americans, by engaging in increasingly predatory, extractive lending to the economy. That is what has caused the U.S. debt burden to soar so far ahead of the ability of debtors to pay. It also is what is now diverting spending away from consumption and (for companies) new capital investment to pay creditors.

Not content with misrepresenting how the U.S. economy works, Mr. Paulson then drew a picture of the global economy that also is a travesty. "The world was awash in money looking for higher return," he explained, "and much of this money was invested in U.S. assets."

Well, not exactly. The world economy has been awash in the U.S. payments deficit, which has swollen the reserves of central banks in the creditor nations from Asia to Western Europe. These central banks have recycled $4 trillion their dollar inflows to the United States under dollar
hegemony. Rather than seeking a "higher return," central banks have found themselves o liged to invest in low-yielding U.S. Treasury securities, or somewhat higher Fannie Mae and Freddie Mac securities. These returns are much lower than U.S. investors have sought in buying up foreign companies and their stocks, whose price appreciation far exceeded the rate that foreign economies were able to recoup on their dollar recycling to the United States.

Mr. Paulson wants above all to deter foreign economies from breaking away from this dysfunctional system. The second important priority, he explained to his Reagan Library audience, must be continued reform of the International Financial Institutions like the World Bank and the IMF to allow for greater participation of developing nations.² The aim here is to make the financial sector's lobbying control over the world¹s financial system global. A final reform priority must be consistent liberalization of policies on trade and investment, with an emphasis on avoiding new protectionist measures and achieving a breakthrough in the Doha
round of global trade talk.

New protectionist measures! Even as U.S. auto companies are advocating special subsidies for the U.S. auto industry in Detroit and pursuing beggar-my-neighbor financial policies (let foreign banks and economies absorb the financial loss from playing in the Wall Street casino),
foreign countries are not to develop a financial system more highly regulated, an agriculture more aimed at feeding their own people. They are not to block capital outflows from the United States based on ³free² credit creation to buy out their commanding heights as the IMF imposes austerity plans and forced privatization sell-offs on Third World and post-Soviet countries while cutting taxes at home in the face of an escalating U.S. trade deficit and rising foreign military spending.

Mr. Paulson's speech looks like a major salvo in the Bush Administration's attempt to make both the Wall Street bailout and the U.S. predatory finance irreversible, while the government replaces public debt (Treasury bonds) for Wall Street's bad gambles. His errors are calculated to
misinform, as are most lobbying efforts by the banking and financial sector. One can only hope that Congress will question his testimony that has repeatedly followed this line with more acumen than prompted its earlier acceptance of the Treasury's bailout act. It's time to clean up this act.

Is an International Financial Conspiracy Driving World Events? By Richard C. Cook

URL of this article: www.globalresearch.ca/index.php?context=va&aid=8450

Global Research, March 27, 2008

"They make a desolation and call it peace." -Tacitus Was Alan Greenspan really as dumb as he looks in creating the late housing bubble that threatens to bring the entire Western debt-based economy crashing down? Was something as easy to foresee as this really the trigger for a meltdown that could destroy the world's financial system? Or was it done, perhaps, "accidentally on purpose"? And if so, why? Let's turn to the U.S. personage that conspiracy theorists most often mention as being at the epicenter of whatever elite plan is reputed to exist. This would be David Rockefeller, the 92-year-old multibillionaire godfather of the world's financial elite. The lengthy Wikipedia article on Rockefeller provides the following version of a celebrated statement he allegedly made in an opening speech at the Bilderberg conference in Baden-Baden, Germany, in June 1991: "We are grateful to the Washington Post, the New York Times, Time magazine, and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during these years. But the world is now more sophisticated and prepared to march towards a world government which will never again know war, but only peace and prosperity for the whole of humanity. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in the past centuries." This speech was made 17 years ago. It came at the beginning in the U.S. of the Bill Clinton administration. Rockefeller speaks of an "us." This "us," he says, has been having meetings for almost 40 years. If you add the 17 years since he gave the speech it was 57 years ago—two full generations. Not only has "us" developed a "plan for the world," but the attempt to "develop" the plan has evidently been successful, at least in Rockefeller's mind. The ultimate goal of "us" is to create "the supranational sovereignty of an intellectual elite and world bankers." This will lead, he says, toward a "world government which will never again know war." Just as an intellectual exercise, let's assume that David Rockefeller is as important and powerful a person as he seems to think he is. Let's give the man some credit and assume that he and "us" have in fact succeeded to a degree. This would mean that the major decisions and events since Rockefeller gave the speech in 1991 have probably also been part of the plan or that they have at least represented its features and intent. Therefore by examining these decisions and events we can determine whether in fact Rockefeller is being truthful in his assessment that the Utopia he has in mind is on its way or has at least come closer to being realized. In no particular order, some of these decisions and events are as follows: The implementation of the North American Free Trade Agreement by the Bill Clinton and George W. Bush administrations has led to the elimination of millions of U.S. manufacturing jobs as well as the destruction of U.S. family farming in favor of global agribusiness. Similar free trade agreements, including those under the auspices of the World Trade Organization, have led to export of millions of additional manufacturing jobs to China and elsewhere. Average family income in the U.S. has steadily eroded while the share of the nation's wealth held by the richest income brackets has soared. Some Wall Street hedge fund managers are making $1 billion a year while the number of homeless, including war veterans, pushes a million. The housing bubble has led to a huge inflation of real estate prices in the U.S. Millions of homes are falling into the hands of the bankers through foreclosure. The cost of land and rentals has further decimated family agriculture as well as small business. Rising property taxes based on inflated land assessments have forced millions of lower-and middle-income people and elderly out of their homes. The fact that bankers now control national monetary systems in their entirety, under laws where money is introduced only through lending at interest, has resulted in a massive debt pyramid that is teetering on collapse. This "monetarist" system was pioneered by Rockefeller-family funded economists at the University of Chicago. The rub is that when the pyramid comes down and everyone goes bankrupt the banks which have been creating money "out of thin air" will then be able to seize valuable assets for pennies on the dollar, as J.P. Morgan Chase is preparing to do with the businesses owned by Carlyle Capital. Meaningful regulation of the financial industry has been abandoned by government, and any politician that stands in the way, such as Eliot Spitzer, is destroyed. The total tax burden on Americans from federal, state, and local governments now exceeds forty percent of income and is rising. Today, with a recession starting, the Democratic-controlled Congress, while supporting the minuscule "stimulus" rebate, is hypocritically raising taxes further, even for middle-income earners. Back taxes, along with student loans, can no longer be eliminated by bankruptcy protection. Gasoline prices are soaring even as companies like Exxon-Mobil are recording record profits. Other commodity prices are going up steadily, including food prices, with some countries starting to experience near-famine conditions. 40 million people in America are officially classified as "food insecure." Corporate control of water and mineral resources has removed much of what is available from the public commons, and the deregulation of energy production has led to huge increases in the costs of electricity in many areas. The destruction of family farming in the U.S. by NAFTA (along with family farming in Mexico and Canada) has been mirrored by policies toward other nations on the part of the International Monetary Fund and World Bank. Around the world, due to pressure from the "Washington consensus," local food self-sufficiency has been replaced by raising of crops primarily for export. Migration off the land has fed the population of huge slums around the cities of underdeveloped countries. Since the 1980s the U.S. has been fighting wars throughout the world either directly or by proxy. The former Yugoslavia was dismembered by NATO. Under cover of 9/11 and by utilizing off-the-shelf plans, the U.S. is now engaged in the military conquest and permanent military occupation of the Middle East. A worldwide encirclement of Russia and China by U.S. and NATO forces is underway, and a new push to militarize space has begun. The Western powers are clearly preparing for at least the possibility of another world war. The expansion of the U.S. military empire abroad is mirrored by the creation of a totalitarian system of surveillance at home, whereby the activities of private citizens are spied upon and tracked by technology and systems which have been put into place under the heading of the "War on Terror." Human microchip implants for tracking purposes are starting to be used. The military-industrial complex has become the nation's largest and most successful industry with tens of thousands of planners engaged in devising new and better ways, both overt and covert, to destroy both foreign and domestic "enemies." Meanwhile, the U.S. has the largest prison population of any country on earth. Plus everyday life for millions of people is a crushing burden of government, insurance, and financial fees, charges, and paperwork. And the simplest business transactions are burdened by rake-offs for legions of accountants, lawyers, bureaucrats, brokers, speculators, and middlemen. Finally, the deteriorating conditions of everyday life have given rise to an extraordinary level of stress-related disease, as well as epidemic alcohol and drug addiction. Governments themselves around the world engage in drug trafficking. Instead of working to lower stress levels, public policy is skewed in favor of an enormous prescription drug industry that grows rich off the declining level of health through treatment of symptoms rather than causes. Many of these heavily-advertised medications themselves have devastating side-effects. This list should at least give us enough to go on in order to ask a hard question. Assuming again that all these things are parts of the elitist plan which Mr. Rockefeller boasts to have been developing, isn't it a little strange that the means which have been selected to achieve "peace and prosperity for the whole of humanity" involve so much violence, deception, oppression, exploitation, graft, and theft? In fact it looks to me as though "our plan for the world" is one that is based on genocide, world war, police control of populations, and seizure of the world's resources by the financial elite and their puppet politicians and military forces. In particular, could there be a better way to accomplish all this than what appears to be a concentrated plan to remove from people everywhere in the world the ability to raise their own food? After all, genocide by starvation may be slow, but it is very effective. Especially when it can be blamed on "market forces." And can it be that the "us" which is doing all these things, including the great David Rockefeller himself, are just criminals who have somehow taken over the seats of power? If so, they are criminals who have done everything they can to watch their backs and cover their tracks, including a chokehold over the educational system and the monopolistic mainstream media. One thing is certain: The voters of America have never knowingly agreed to any of this. Richard C. Cook is a former U.S. federal government analyst, whose career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, NASA, and the U.S. Treasury Department. His articles on economics, politics, and space policy have appeared on numerous websites. His book on monetary reform entitled We Hold These Truths: The Promise of Monetary Reform is in preparation. He is also the author of Challenger Revealed: An Insider's Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age, called by one reviewer, "the most important spaceflight book of the last twenty years." His website is at www.richardccook.com.

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