QE3 Another Fed Give Away to the Banks
Michael Hudson interviewed by Paul Jay | 25.09.2012 12:03 | Analysis | Public sector cuts | World
Ben Bernanke, the head of the Federal Reserve, announced a few days ago QE3, quantitative easing three, and now he says they're going to continue to buy assets, multibillion dollars of purchases, until the unemployment rate goes down. He was then followed by the European Central Bank and the central bank of Japan
Ben Bernanke, the head of the Federal Reserve, announced a few days ago QE3, quantitative easing three, and now he says they're going to continue to buy assets, multibillion dollars of purchases, until the unemployment rate goes down. He was then followed by the European Central Bank and the central bank of Japan that are introducing their own monetary stimulus policies.
Now joining us to discuss how effective all this might be is Michael Hudson. Michael's a former Wall Street financial analyst and now a distinguished research professor of economics at the University of Missouri–Kansas City. And his latest book just out is The Bubble and Beyond. Thanks very much for joining us, Michael.
MICHAEL HUDSON, RESEARCH PROFESSOR, UMKC: Thank you very much, Paul.
JAY: So for those that haven't followed this, explain what QE3 is, and then let's talk about whether you think it might be effective.
HUDSON: QE3 was basically a program for the Federal Reserve to give money to the banks until Beethoven writes his 10th Symphony. There is no connection to employment whatsoever.
The QE2 was $800 billion, and all of QE2 was used by the banks to speculate on foreign currencies and interest rate arbitrage. Most was used—lent to the BRIC countries—Brazil, Russia, India, and China. You could—the banks borrowed 0.25 percent and lent money to Brazil at 11 percent and pocketed the interest rate arbitrage. All this $800 billion, so much went out that it pushed up the value of Brazil's cruzeiro, so that banks made a foreign exchange profit on top of the interest rate arbitrage. None of this money went into the U.S. economy.
And in today—when Bernanke was told that, he argued, well, we have to give the banks enough money so they can be lending out for real estate again. This was absolute nonsense. Today's Wall Street Journal has a chart: "Mortgage loans fall to 16-year low". The chart shows that the banks have lent less and less in mortgage refinancing. So the banks have not lent the money either for mortgages—.
JAY: Okay. Back up just one step. So what is supposed to be Bernanke's logic? If, I mean, they buy assets from the banks, essentially, bonds of various kinds. Is that right? And the theory Bernanke gives is this gives liquidity to the banks so that they're going to loan money to small businesses and such and that's supposed to create jobs. I mean, that's what he says publicly anyway.
HUDSON: Right. The cover story of the giveaway to the banks is that if the Federal Reserve makes loans to the banks, unlimited amounts more than $800 billion for QE2, the banks will have enough money that they can afford to lend more mortgage money to bid up real estate prices to try to reinflate the bubble and that they can lend to small businesses. The reality is that ever since QE1 and QE2, every time there's a loan, the banks reduce their loans to businesses, they reduce their mortgage loans, there's less mortgage refinancing, and in fact, the banks use the money to gamble, mainly abroad in foreign currency and interest rate arbitrage, trying to earn the money back by lending to Brazil, Russia, India, and China.
JAY: Right. And is part of the issue here is that the underlying—or at least one of the underlying issues is there's still so lack—there's such a lack of real demand in the economy that they don't see—they'd have no inducement to make these loans, so it's better to go speculate?
HUDSON: Well, the question is: what is demand? Certainly, small business wants to borrow. There are a lot of small businessmen that are able to borrow. The banks say: I'm sorry, we're only lending to the big companies that have assets to foreclose upon. We're not in the business of lending to expand production. We're not in the business of lending to employ labor. That's not what banks do. We lend against collateral, and your collateral mainly is real estate, and real estate is still so much a negative equity that we're not going to lend. And, in fact, if you look at the statistics that have been quoted, the banks have lent less on real estate each year, even on credit cards. The banks have very sharply reduced their credit card exposure by 22 percent in the last few years, so that they're not lending to the U.S. economy at all. This is all just a fiction, that the banks are going to lend.
JAY: Okay. So Bernanke sees this. I mean, it was clear from QE1 and QE2 that it didn't have this employment effect, and he can see that. So I guess my question is: is jobs really the objective, or are they worried about another major financial collapse and this is actually more about the financial system stability than it is about jobs, even though they use that language?
HUDSON: They are worried about Mr. Obama's job. The Wall Street Journal pointed out today that for the first time—in the past, the Federal Reserve has always flooded the economy with money whenever a Republican president was up for reelection. So they used to joke that the Federal Reserve was the 13th—the 13th district was the Republican National Committee. This is the first time that the Federal Reserve is flooding money trying to get a Democrat reelected. So the objective is not jobs for employees; it's jobs, really, for the current administration and its campaign contributors.
JAY: But for it to have that effect of reelecting President Obama, it would have to have some impact on people's lives. I mean, there have to be some effect of all this liquidity in terms of jobs or something, or otherwise why would anyone reelect President Obama?
HUDSON: Well, the liquidity is not going into the U.S. economy, it's not going into the industrial market, it's not going to small business, it's not going to real estate. And all of this is available every quarter in the Federal Reserve's own balance sheets of U.S. economy. They trace what the banks are lending for, and it's not to create jobs. Once again, that's not what banks do.
JAY: So this is what I'm getting at, then, then. For Bernanke to throw more money at the banks this way—and what I'm asking is is 'cause they fear a really deep global recession, given what's happening in Europe and other—you know, in general a slowdown, and somehow they're throwing money into banks 'cause they're worried about banking collapse more than jobs. I mean, do you think what I'm saying makes sense?
HUDSON: No, it's not a bank. The banks are in no danger of collapse for the insured things. The banks that are in danger are the five big banks that made huge derivative gambles. Eighty percent of the derivatives are done by the five largest banks, and they are—they've made a big gamble that stock markets and real estate prices are going to go up.
But at the same time, the banks are looking forward to a depression. For them, the financial crisis we're having today in Greece and the eurozone is a bonanza for the banks. In fact, yesterday's Financial Times came out and had the head of the privatization unit in Greece saying he's now offering a bonanza to the creditors, European creditors, to come and buy Greece's oil and gas rights and its export sectors and tourism sectors.
And The New York Times yesterday pointed out that all of the €31.5 billion in new aid is not going to be spent on the Greek people any more than the American QE3 is spent here; it's going to be given to the Greek banks to help pull them out of their negative equity and all of their bad real estate mortgages. And that really is the same situation here.
The big banks weren't able to stick all of their customers and their counterparties with all of the junk mortgages that they bought, and they're still stuck with the junk mortgages that they thought they could cheat their customers on. So you're bailing out their ability, really, to profiteer off the economy and sell all of the junk mortgages that they've got from Countrywide Financial and the other big fraudulent, criminalized financial agencies.
So what is happening is just it's as if the crooks have taken over the economy and are trying to bail themselves out of the mess that they're in, so that they can somehow re-bid up real estate prices to restore the happy bubble economy that led to all these problems to begin with. So it's just let us do it all over again. And, of course, the end of this will be yet another bailout in QE4 and QE5, and we're still going to be waiting for Beethoven to write the 10th Symphony.
JAY: Thanks for joining us, Michael.
HUDSON: Thank you.
JAY: And thank you for joining us on The Real News Network. And if you'd like to see more interviews like this, there's a "Donate" button somewhere around this player, 'cause if you don't click on that, we can't do this.
therealnews.com
http://ccs.ukzn.ac.za/default.asp?2,40,5,2751
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=8853
Michael Hudson is a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971).
Now joining us to discuss how effective all this might be is Michael Hudson. Michael's a former Wall Street financial analyst and now a distinguished research professor of economics at the University of Missouri–Kansas City. And his latest book just out is The Bubble and Beyond. Thanks very much for joining us, Michael.
MICHAEL HUDSON, RESEARCH PROFESSOR, UMKC: Thank you very much, Paul.
JAY: So for those that haven't followed this, explain what QE3 is, and then let's talk about whether you think it might be effective.
HUDSON: QE3 was basically a program for the Federal Reserve to give money to the banks until Beethoven writes his 10th Symphony. There is no connection to employment whatsoever.
The QE2 was $800 billion, and all of QE2 was used by the banks to speculate on foreign currencies and interest rate arbitrage. Most was used—lent to the BRIC countries—Brazil, Russia, India, and China. You could—the banks borrowed 0.25 percent and lent money to Brazil at 11 percent and pocketed the interest rate arbitrage. All this $800 billion, so much went out that it pushed up the value of Brazil's cruzeiro, so that banks made a foreign exchange profit on top of the interest rate arbitrage. None of this money went into the U.S. economy.
And in today—when Bernanke was told that, he argued, well, we have to give the banks enough money so they can be lending out for real estate again. This was absolute nonsense. Today's Wall Street Journal has a chart: "Mortgage loans fall to 16-year low". The chart shows that the banks have lent less and less in mortgage refinancing. So the banks have not lent the money either for mortgages—.
JAY: Okay. Back up just one step. So what is supposed to be Bernanke's logic? If, I mean, they buy assets from the banks, essentially, bonds of various kinds. Is that right? And the theory Bernanke gives is this gives liquidity to the banks so that they're going to loan money to small businesses and such and that's supposed to create jobs. I mean, that's what he says publicly anyway.
HUDSON: Right. The cover story of the giveaway to the banks is that if the Federal Reserve makes loans to the banks, unlimited amounts more than $800 billion for QE2, the banks will have enough money that they can afford to lend more mortgage money to bid up real estate prices to try to reinflate the bubble and that they can lend to small businesses. The reality is that ever since QE1 and QE2, every time there's a loan, the banks reduce their loans to businesses, they reduce their mortgage loans, there's less mortgage refinancing, and in fact, the banks use the money to gamble, mainly abroad in foreign currency and interest rate arbitrage, trying to earn the money back by lending to Brazil, Russia, India, and China.
JAY: Right. And is part of the issue here is that the underlying—or at least one of the underlying issues is there's still so lack—there's such a lack of real demand in the economy that they don't see—they'd have no inducement to make these loans, so it's better to go speculate?
HUDSON: Well, the question is: what is demand? Certainly, small business wants to borrow. There are a lot of small businessmen that are able to borrow. The banks say: I'm sorry, we're only lending to the big companies that have assets to foreclose upon. We're not in the business of lending to expand production. We're not in the business of lending to employ labor. That's not what banks do. We lend against collateral, and your collateral mainly is real estate, and real estate is still so much a negative equity that we're not going to lend. And, in fact, if you look at the statistics that have been quoted, the banks have lent less on real estate each year, even on credit cards. The banks have very sharply reduced their credit card exposure by 22 percent in the last few years, so that they're not lending to the U.S. economy at all. This is all just a fiction, that the banks are going to lend.
JAY: Okay. So Bernanke sees this. I mean, it was clear from QE1 and QE2 that it didn't have this employment effect, and he can see that. So I guess my question is: is jobs really the objective, or are they worried about another major financial collapse and this is actually more about the financial system stability than it is about jobs, even though they use that language?
HUDSON: They are worried about Mr. Obama's job. The Wall Street Journal pointed out today that for the first time—in the past, the Federal Reserve has always flooded the economy with money whenever a Republican president was up for reelection. So they used to joke that the Federal Reserve was the 13th—the 13th district was the Republican National Committee. This is the first time that the Federal Reserve is flooding money trying to get a Democrat reelected. So the objective is not jobs for employees; it's jobs, really, for the current administration and its campaign contributors.
JAY: But for it to have that effect of reelecting President Obama, it would have to have some impact on people's lives. I mean, there have to be some effect of all this liquidity in terms of jobs or something, or otherwise why would anyone reelect President Obama?
HUDSON: Well, the liquidity is not going into the U.S. economy, it's not going into the industrial market, it's not going to small business, it's not going to real estate. And all of this is available every quarter in the Federal Reserve's own balance sheets of U.S. economy. They trace what the banks are lending for, and it's not to create jobs. Once again, that's not what banks do.
JAY: So this is what I'm getting at, then, then. For Bernanke to throw more money at the banks this way—and what I'm asking is is 'cause they fear a really deep global recession, given what's happening in Europe and other—you know, in general a slowdown, and somehow they're throwing money into banks 'cause they're worried about banking collapse more than jobs. I mean, do you think what I'm saying makes sense?
HUDSON: No, it's not a bank. The banks are in no danger of collapse for the insured things. The banks that are in danger are the five big banks that made huge derivative gambles. Eighty percent of the derivatives are done by the five largest banks, and they are—they've made a big gamble that stock markets and real estate prices are going to go up.
But at the same time, the banks are looking forward to a depression. For them, the financial crisis we're having today in Greece and the eurozone is a bonanza for the banks. In fact, yesterday's Financial Times came out and had the head of the privatization unit in Greece saying he's now offering a bonanza to the creditors, European creditors, to come and buy Greece's oil and gas rights and its export sectors and tourism sectors.
And The New York Times yesterday pointed out that all of the €31.5 billion in new aid is not going to be spent on the Greek people any more than the American QE3 is spent here; it's going to be given to the Greek banks to help pull them out of their negative equity and all of their bad real estate mortgages. And that really is the same situation here.
The big banks weren't able to stick all of their customers and their counterparties with all of the junk mortgages that they bought, and they're still stuck with the junk mortgages that they thought they could cheat their customers on. So you're bailing out their ability, really, to profiteer off the economy and sell all of the junk mortgages that they've got from Countrywide Financial and the other big fraudulent, criminalized financial agencies.
So what is happening is just it's as if the crooks have taken over the economy and are trying to bail themselves out of the mess that they're in, so that they can somehow re-bid up real estate prices to restore the happy bubble economy that led to all these problems to begin with. So it's just let us do it all over again. And, of course, the end of this will be yet another bailout in QE4 and QE5, and we're still going to be waiting for Beethoven to write the 10th Symphony.
JAY: Thanks for joining us, Michael.
HUDSON: Thank you.
JAY: And thank you for joining us on The Real News Network. And if you'd like to see more interviews like this, there's a "Donate" button somewhere around this player, 'cause if you don't click on that, we can't do this.
therealnews.com
http://ccs.ukzn.ac.za/default.asp?2,40,5,2751 http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=8853 Michael Hudson is a Wall Street Financial Analyst, Distinguished Research Professor of Economics at the University of Missouri, Kansas City and author of Super-Imperialism: The Economic Strategy of American Empire (1968 & 2003), Trade, Development and Foreign Debt (1992 & 2009) and of The Myth of Aid (1971).
Michael Hudson interviewed by Paul Jay
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25.09.2012 14:11
President questions events of the Holocaust, and skirts questions on homosexuality and his comments about 'wiping Israel off the map'
Says Osama bin Laden should have received a transparent trial
In true Mahmoud Ahmadinejad fashion, the Iranian president dodged and danced around questions relating to Israel, homosexuality and the Holocaust during an interview coinciding with his visit to the UN General Assembly.
Tough talk: Iranian President Mahmoud Ahmadinejad condemned the anti-Muslim film that has sparked outrage across the Muslim world, and questioned the events of the Holocaust in a contentious CNN interview
He spoke to CNN’s Piers Morgan in an extensive meeting that got heated at times, with the Iranian leader calling homosexuality 'ugly.'
Morgan twice involved Ahmadinejad’s children in his questions, asking him what he would do if one of them was gay - and asking how he would feel if one of them were dating a Jew.
On the topic of homosexuality, Ahmadinejad answered Morgan's questions with more questions, saying: 'Do you believe that anyone has given birth through homosexuality? Homosexuality ceases procreation.
'Who has said that if you like or believe in doing something ugly, and others do not accept your behaviour, they're denying your freedom? Who says that? Perhaps in a country they wish to legitimise stealing.'
Iran's government accused of controlling internet access as it prepares to switch citizens' networks to 'improve security'
Ahmadinejad saved the most tense criticism for Israel, whom he accused of 'occupying' and imposing wars while addressing his famous quote that Israel should be 'wiped off the map.'
'When we say 'to be wiped,' we say for occupation to be wiped off from this world. For war-seeking to [be] wiped off and eradicated, the killing of women and children to be eradicated.'
'What does this have to do with the occupation of Palestine?... If a historical event had indeed taken place," he began, before Morgan cut him off and moved him along to the next topic.
Ahmadinejad also questioned the events of the Holocaust, telling Morgan: 'Your assumption is this event took place. Where did it take place? Who were the individuals responsible for this event?
Sit-down: Morgan twice involved Ahmadinejad¿s children in his questions, asking him what he would do if one of them was gay - and asking how he would feel if one of them were dating a Jew
He told Morgan that terror leader Osama bin Laden should have been given a transparent trial, not death by the Navy SEAL raid authorised by President Obama.
When asked about the series of protests sparked by the film in the Muslim world, Ahmadinejad called the protests ‘ugly,’ but slammed the video itself as an 'abuse of freedom.'
He told Morgan: 'Fundamentally, first of all, any action that is provocative, offends the religious thoughts and feelings of any people, we condemn.'
Ahmadinejad added: 'Likewise, we condemn any type of extremism. Of course, what took place was ugly. Offending the Holy Prophet is quite ugly. This has very little or nothing to do with freedom and freedom of speech.
'This is the weakness of and the abuse of freedom, and in many places it is a crime. It shouldn't take place and I do hope the day will come in which politicians will not seek to offend those whom others hold holy,' said Ahmadinejad.
But Ahmadinejad's fiery remarks did not end with the CNN interview.
Sign of the times? Iran's President Mahmoud Ahmadinejad gestures as he attends the high level meeting on rule of law in the United Nations General Assembly
On Monday afternoon, the Israeli delegation to the annual UN General Assembly rose from their seats and walked out as Iranian Ahmadinejad began his speech by saying that the country had 'no roots' in the Middle East and would be 'eliminated.'
Flashing the peace sign on several occasions, Ahmadinejad refused to speak of the state of Israel by name and instead referred only to the 'Zionists'.
He told the UN conference in New York that Iran is unconcerned by Israeli threats of attack but prepared to defend itself.
Ahmadinejad also said that it was not too late for dialogue with the United States to resolve differences.
Defiance: Israeli delegates walk out of the United Nations General Assembly as Iranian President Mahmoud Ahmadinejad approaches the podium to speak at the high level meeting
Meanwhile angry protests were taking place outside the Warwick Hotel at West 54th Street in Manhattan over its decision to allow Ahmadinejad to stay during his visit.
Israeli Prime Minister Benjamin Netanyahu has hinted Israel could strike Iran's nuclear sites and has criticized President Obama's position that sanctions and diplomacy should be given more time to stop Iran from acquiring nuclear weapons.
Iran denies that it is seeking nuclear arms and says its atomic work is peaceful, aimed at generating electricity.
'Fundamentally we do not take seriously the threats of the Zionists. ... We have all the defensive means at our disposal and we are ready to defend ourselves,' Ahmadinejad told reporters.
'While we are fully ready to defend ourselves, we do not take such threats seriously,' he said, speaking through an interpreter.
Anger on the streets: Demonstrators participate in a rally against the Iranian President Mahmoud Ahmadinejad near the Warwick New York Hotel where the controversial leader is staying at while in New York
Controversial guest: Posters denouncing the Warwick Hotel in Manhattan for hosting Iranian President Ahmadinejad
He also said that Iran is neutral in the Syrian civil war, and denied that Tehran is providing weapons or training to the government of President Bashar Assad.
Ahmadinejad said: 'We like and love both sides, and we see both sides as brothers.'
He referred to the conflict in Syria as 'tribal' fighting and said that international 'meddling from the outside has made the situation even harder'.
It was Ahmadinejad's eighth visit to the UN gathering held each September, which he cited as proof that he is open to understanding other countries' views.
In spite of his assertions on the importance of dialogue and respect for others, Ahmadinejad presented a hard line in many areas.
Outrage: Osborn Holmstrand, 73, of Sweden, protests outside the Warwick Hotel where the Iranian president is staying while at the UN
Protection: Police barricades surround the Warwick Hotel which has been the site of angry protests because of their decision to allow Ahmadinejad to stay
He refused to speak of the state of Israel by name and instead referred only to the 'Zionists,' and when asked about author Salman Rushdie he made no attempt to distance himself from recent renewed threats on the author's life emanating from an Iranian semi-official religious foundation.
He said: 'If he is in the U.S., you should not broadcast it for his own safety.'
Rushdie, an Indian-born British novelist who has nothing to do with the video, was condemned to death in 1989 by Khomeini, Iran's late leader, over his novel The Satanic Verses, saying its depiction of the Prophet Mohammad was blasphemous.
Ahmadinejad said this would be his last trip to New York as president of Iran, because his term is ending and he is barred from seeking a third consecutive term.
But he did not rule out staying active in Iranian politics and said he might return as part of future Iranian delegations to New York.
Global meeting: Iran's President Mahmoud Ahmadinejad addresses diplomats during the high-level meeting of the General Assembly on the Rule of Law at the United Nations headquarters in New York
Security: Flanked by a guard, Ahmadinejad speaks to the UN where he said Iran's nuclear program was peaceful
Pleasantries: Ahmadinejad meets Ban Ki-Moon, Secretary-General of the United Nations, who warned him against incendiary rhetoric over the Middle East
Ahmadinejad alluded to his previous rejection of Israel's right to exist. 'Iran has been around for the last seven, 10 thousand years. They (the Israelis) have been occupying those territories for the last 60 to 70 years, with the support and force of the Westerners. They have no roots there in history,' he said.
The modern state of Israel was founded in 1948.
'We do believe that they have found themselves at a dead end and they are seeking new adventures in order to escape this dead end. Iran will not be damaged with foreign bombs,' Ahmadinejad said, referring to Israel.
'We don't even count them as any part of any equation for Iran. During a historical phase, they represent minimal disturbances that come into the picture and are then eliminated,' Ahmadinejad added.
In 2005, Ahmadinejad called Israel a 'tumor' and echoed the words of the former Iranian Supreme Leader, Ayatollah Ruhollah Khomeini, by saying that Israel should be wiped off the map.
Amir Ali Hajizadeh, a brigadier general in Iran's Islamic Revolutionary Guard Corps, was quoted on Sunday as saying that Iran could launch a pre-emptive strike on Israel if it was sure the Jewish state was preparing to attack it.
Hajizadeh said any attack on Iranian soil could trigger 'World War III'.
Ahmadinejad said the nuclear issue was one ultimately between the United States and Iran, and must be resolved with negotiations.
'The nuclear issue is not a problem. But the approach of the United States on Iran is important. We are ready for dialogue, for a fundamental resolution of the problems, but under conditions that are based on fairness and mutual respect,' he said.
'We are not expecting a 33-year-old problem between the United States and Iran to be resolved in a speedy fashion. But there is no other way besides dialogue.'
Iran has held several rounds of talks this year on its nuclear issue with six world powers.
The six are the permanent members of the UN Security Council - the United States, Russia, China, France and Britain - as well as Germany.
The six powers are represented by EU foreign policy chief Catherine Ashton.
Protest: New York Council Speaker Christine Quinn speaks at the Iran180 press conference outside the UN Headquarters in New York to denounce the country's nuclear program
Ring of steel: New York Police officers gather near United Nations headquarters today as more than 120 heads of state meet this week for the 61st session of the UN General Assembly
Ahmadinejad also addressed the issue of a California-made anti-Islam video, The Innocence of Muslims, that has sparked anti-American protests around the Muslim world.
He appeared to reject Washington's position that while it condemns the video's content, freedom of expression must be upheld.
'Freedoms must not interfere with the freedoms of others,' Ahmadinejad said. 'If someone insults, what would you do? ... Is insulting other people not a form of crime?'
Since the controversy over the video erupted this month, some Muslim leaders have reiterated calls for a UN measure outlawing insults to Islam and blasphemy in general.
OB1
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