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Burger
Geregistreerd: 1 oktober 2008
Berichten: 102
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Madoff's Ponzi scheme
Citaat:
Michael Hudson on Madoff and Ponzi
Hudson cuts through the fog on economics and finance and provides relevant historical perspective - currently in his latest article titled "Wealth Creation, or a Ponzi Scheme?" He explains how "financial cycles end in Ponzi schemes" with Madoff one example among many. "What (he) did was, in a nutshell, what the economy as a whole has been doing under the moniker (of) 'wealth creation.' " From that perspective, Madoff's scheme was pocket change, but try finding that said in the dominant media.
He and Charles Ponzi sold "hope, pandering to peoples' unrealistic desire to believe that a new way to make easy gains had been discovered, with no visible upper limit (on how long they) can persist in excess of the economy's own rate of growth."
Hudson explains that governments are instrumental in creating bubbles. They "need to be orchestrated by opinion makers, topped by public officials giving a patina of confidence." Alan Greenspan was America's lead "bubblemeister" much like Robert Walpole was for Britain during the early 18th century South Sea Bubble, and the same story is repeated throughout history.
"Today's balance sheets confuse bubble wealth with real capital formation" so that "investments (are what) accountants say they are." The same holds for "asset and debt values, given today's leeway for financial fiction." As a result, financial dealings became "decoupled from the 'real' economy." We live in a world of illusions. Media touts, government spokespeople and Fed chairmen effectively sell them, and everything works well until it doesn't.
Hudson shows how different "the actual economy is from what economic textbooks (and classical Adam Smith economics) teach. The recent stock market and real estate bubbles are much like pyramid schemes...." Money pours in from pension plans, mutual funds, and bank credit for real estate to bid up prices.
Something is terribly wrong. Value is divorced from "price, windfall and capital gains as distinct from earned income." Also, "market prices rise and fall," but debt remains. When it can't be repaid, "savings are wiped out" much like today.
"Instead of reducing the debt overhead by earning their way out of (it), economies (like America) have sought to inflate" as a way to do it - but not by the conventional inflation of creating higher prices and wages. It's by "asset-price creation," and America took the lead in doing it.
After Nixon closed the gold window in 1971, "The US economy (became) unique in being able to create credit and foreign debt" with no limit. The result has been "unparalleled" debt growth "relative to income, production and wages."
Madoff is one actor (a bit player) in a greater scheme with government in the lead role. It "replaced industrial growth with purely financial wealth creation in the form of a real estate, stock market" and other asset class bubbles. Classical economics got turned on it head. Losses since mid-2007 are off the charts - at least $7.7 trillion and rising from real estate, financial assets, life insurance and pension fund reserves. Trillions more disappeared earlier - at least $4 trillion from 1998 - 2002, more still from "pump and dump" schemes, plus countless billions from foreign wars and huge amounts of waste, fraud and abuse, all down a black hole and unaccounted for.
The financial system alone accounts for many lost trillions. As Hudson puts it: "Property and credit have become costs instead of a benefit, institutional forms of rent and interest-extracting overhead rather than helpful inputs." Things reached their mathematical limits. The economy is in free fall. Contagion is spreading globally. An economic dark age approaches, and ordinary Americans now suffer for their government's (and Wall Street's) crimes with no end of pain in sight. Madoff just played the game until he gave it up when his operation collapsed. When the government collapses, we print more money. When it happens to Wall Street, we give it to them.
When homeowners are foreclosed, workers laid off, sick people aren't treated, poverty and hunger increase, homelessness reaches record levels, and the American dream becomes a nightmare, no help like that is forthcoming.
Madoff will be prosecuted in federal court. He was charged with one count of securities fraud that carries a maximum 20 year sentence and $5 million fine. Because of his influence and connections, expect much less than that, incarceration (if any) in a minimum security ("country club") prison, and after the commotion subsides, a quiet early release or eleventh-hour Marc Rich-type pardon.
Compare that to the mandatory minimum five year hard time sentence for possessing five grams (less than one-fifth of an ounce) of crack cocaine - harming no one but the person involved, usually a black teenager. For 50 grams (less than two ounces), it's ten years hard time - no reprieves, early releases, eleventh hour pardons, or judicial fairness for persons with no influence or connections.
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Ofwel: hoe de regering en Wall Street elkaar de hand boven het hoofd houden.
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“De gezellig pruttelende boemeltrein der hypocrieten sjokt, als een meanderende lintworm, met vrolijke beginselloosheid gestaag voort”
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28 december 2008, 16:51
