Wednesday, May 10, 2023

4 US Banks Crash in Two Months; Banking Crisis Explained, by Michael Hudson - The Unz Review

BEN NORTON: Hi, everyone. I’m Ben Norton, and this is Geopolitical Economy Report. Today, I have the pleasure of being joined by Michael Hudson, the brilliant economist and author of many books.

Michael is also the co-host of a program here, Geopolitical Economy Hour, that he does every two weeks with friend of the show Radhika Desai. I will link to that show in the description below.

I had Michael on in March to discuss the collapse of three U.S. banks in just one week. That was Silicon Valley Bank, Signature Bank and Silvergate Bank. And yet the crisis has continued since then.

And I knew I needed to bring back Michael to talk about the latest developments.

In just two months, four banks in the United States have collapsed. And we now see the latest example this May is First Republic Bank, which is the second biggest bank in U.S. history to collapse, went down and was taken over by J.P. Morgan.............

Full text at link below......

........ So, JPMorgan Chase wants us to think that we’ve gone through the worst, that the solution has been pretty much solved. What do you say in response to Jamie Dimon?

MICHAEL HUDSON: Well, all of the banks have suffered the same problem that began with Silicon Valley Bank and the other banks that have gone under.

All of the banks have seen the market price of their mortgage loans and their government securities fall by a large amount, so much that the amount of the decline in their assets has wiped out the equivalent of their net worth.

So they’re in negative equity. They’re technically insolvent, except that the government doesn’t ask the banks to report what is the actual market price of your assets.

That’s a secret. And it’s a secret because if people could see the market price of the assets and what their liabilities, they’d see that their net worth is worse than that of the average homeless person on the New York subways.

And so they just don’t do that.

The fact is that we’re still in the problem that the Federal Reserve painted itself into when it moved to zero interest rates. Any increase in interest rates causes a crash in real estate and bond prices and implicitly stock prices.

And if the government doesn’t bail out the banks, they’re going to be insolvent, like somebody who’s bet the fortune at a racetrack or a casino and has lost their money.

So of course [Dimon] is going to say everything’s okay now.

But what that means is, well, it’ll be okay if the depositors leave their money in the banks and their savings accounts that are paying 0.2% and don’t go to an investment bank or broker and buy government money market funds or Treasury bills.

If they don’t go to Vanguard or one of these companies that’ll set up an account for them to buy Treasury bonds or local government funds, and are willing to give up the money in the banks and let the banks make money off the financial distress, not themselves, then everything will be okay.

But for the bank depositors and for the public to be quiescent, they have to be stupid. And that’s the role of The New York Times and The Washington Post and the other media.

You’ve got to have a financially stupid public. And the best way to do it is to have the university courses teach stupid economics, like that’s what Chicago School is all about, the economic curriculum in the United States.

Don’t look at debt problems. They don’t look at balance sheet problems. None of the problems that are occurring today appear in the economic curriculum that people have to learn in order to see how the economy works.

It’s all a mythology. It’s a fairytale. And you could say it’s sort of the superstition of our time. I won’t dignify it by calling it a religion, even though many banks look like the ancient Greek and Roman temples.

It’s really just a superstition that the financial system works to help the economy instead of, how can we make money from the economy by taking over the government and capturing the whole government, not only the regulators.