Interview with Wayne Madsen, an investigative journalist; Max Keiser, a financial journalist and Dr. Roger von Hanwehr, managing director of Arcxeon International
Financial crisis in the US is entering its third year, but recent studies show that many of the country's cities and rescued banks are facing bankruptcy while the rich keep getting richer.
The following is the transcript of Press TV's interview with investigative journalist Wayne Madsen, Max Keiser, a financial journalist and Roger von Hanwehr, managing director of Arcxeon International.
Press TV: Why hasn't the bail-out program worked for the rescued banks that are now facing bankruptcy again?
Madsen: I think that is a mere fact that [US] President [Barack] Obama has surrounded himself in his administration with all these economic advisors, who came out mostly from Goldman Sachs, this is one of the companies responsible for this economic meltdown. So, he is getting advice from the people who are part of the problem and not the people who can solve this problem.
We have President Obama, who should be doing what [former US President] Franklin Roosevelt did and using the bully pulpit of the White House not to have little teas and luncheons with CEOs, but to be giving them orders. He is the president of the United States and he is basically allowing the Wall Street fat cats to dictate the policy and we see how that policy is working out.
Today, we were told that 50 million Americans - up 10 million -- are now without health insurance. What was that Obama all cared about? All that was something crafted by the insurance companies in Wall Street, the Big Farmer, the big HMOs and this is what we are left with. More people are uninsured, because again that policy was crafted by people who are very close to these Wall Street barons and tycoons.
Press TV: Max Keiser, same question to you.
Keiser: Well, I think if we take a step back and look at the big picture here you have to understand that the American economic and monetary policies are structured in a way where the Chairman of the Federal Reserve bank is looking at asset prices and trying to stimulate asset prices as opposed to looking at jobs and trying to stimulate jobs. So all he looks at are those house prices. He's trying to get those house prices up by flooding the economy with more money. But every time he floods the economy with more money, or debt actually, the banks turn around and say we just discovered another one or two trillion dollars in bad debt that we had kept off our balance sheet.
Therefore, that money just ends up circulating on Wall Street making a lot of people on Wall Street a lot of money. Now during this period of time the Fed's balance sheet has expanded toward many trillions of dollars and is set to expand by many more trillions of dollars as this catastrophe continues to unfold. But at its core, at its root is the fundamental question of whether the policy makers in Washington are there to promote and help asset prices or if they are there to promote jobs. They have decided to promote asset prices and particularly with houses and to sacrifice jobs. If you sacrifice jobs, you sacrifice savings you sacrifice capital formation and you sacrifice much of what has held the economy together for a long time. So they are basically sacrificing the economy trying to stimulate the housing market and the speculation in the housing market.
Press TV: The US Treasury Secretary Tim Geithner says bank bailouts will bring capital back into the financial system so the banks could lend again, but then the statistics come out that the US bank lending has fallen at the fastest rate in history. What are the banks doing with the money?
Madsen: That is a good question and I know Max has been on this since I heard the term financial terrorists on Wall Street. We are told that small businesses create most of the jobs, but we hear that small businesses cannot get the credit form the banks to even think about creating more jobs and employing more people with new start-up. So, in my opinion there is a weird alchemy going on at Wall Street. They are trying to create something but we see nothing. We do not see jobs being created.
I spoke to somebody in northern Alabama yesterday. Unemployment there is at 33 percent. It is so bad that young people graduating from high school have no other choice but to join the military. That is pretty good for the Pentagon and its recruiting numbers that also creates more cannon for these senseless wars that the United States has engaged in overseas. It does nothing to create jobs.
I remember [when] president Obama was in India, he said all exporting jobs to India will create more jobs in the United States. I do not know what planet this guy is from, but that is not creating more jobs, that is exporting mostly white collar high-tech jobs to places like India. We see this across the board with this administration's policy which is more concerned about the interests of Wall Street than the interest of Main Street. We see what is happening to Main Street. We know this.
I talked to a top consultant to the Democratic Party and he threw his hands up and verified there is going to be a city after city, county after county and state after state, declaring bankruptcy and what we are going to see is what is happening in Europe now in Greece, Ireland, Spain and France and what is happening here in the United State, state by state, city by city.
Press TV: Max Keiser, why is that happening? Why are these municipal defaults that are leading to over hundred cities facing possible bankruptcy next year?
Keiser: Let me just go back for a second again talking about the Geithner comment that he's trying to create jobs. Of course the treasury and the Fed created quantitative easing I and quantitative easing II and the latest round of quantitative easing, which was putting something like 650 billon into the economy. But this money goes into the banks and the reason it doesn't go into the general economy is because the banks at the same time disclose that we have another trillion dollars in bad debt tied to the real estate market. By the way they can't get the real estate market going because now they are embroiled in a massive foreclosure fraud where banks like Bank of America sold trillions of dollars of fraudulent mortgages throughout the system, which is yet another layer of debt. So this colossal debt monster keeps unfolding and it gets large and larger.
To get to your question about municipalities and states, they are simply just going bankrupt because the people have lost their jobs and there is no tax base. They are shrinking. Also, if you look at some of the investigative reporting done by folks like Mat Taibbi over at Rolling Stone, he did a fantastic report last year about how the banks on Wall Street like the Goldman Sachs and the JP Morgans have gone into these municipalities and have constructed debt for equity swaps, destroyed the local economies, and left them with ten times more debt than they had to begin with, and then left town leaving these poor counties on the hook with all this debt just to create fees for the banks on Wall Street who are by the way going to be enjoying record bonuses again this year more than 140bn dollars; record bonuses. This is in the face of the 50 million people now who don't have health insurance, and the record poverty rates and all the rest of it in the US that shows that the US is sliding down to a 2nd, 3rd world status.
Press TV: Dr. Von Hanwehr, we talked about the troubled banks, the possibility of them facing bankruptcy again and we talked about the cities facing bankruptcy too. Looking at the banks, and then the cities: this means defaulting on loans. If it does, where's the oversight, or were loans given initially without a careful look at the respective ledgers?
Von Hanwehr: Certainly from the standpoint of recent loans, the bank failures are partially due to these. Many of those are reprocessed loans in regional areas of the US where there is great economic weakness and the underlying reasons why loans default which include unemployment, lack of monetary velocity in the economy and inadequate level of infusion of capital into the circulating consumer exchange elements of the economy at the bottom tier, those loans will always be bad in those regions. There is a massive jump in the foreclosure and the market home prices are plummeting for the fourth month in row and thus these loans essentially cannot be improved upon and these were loans that were not in the worst class, or not considered to be in the worst class loan statures during the 2008 crisis.
So these loans essentially cannot be absorbed by the system, but the underlying weakness of the banks is that the monetary infusion that the Fed undertook to bolster the major banks in New York, Chicago San Francisco and elsewhere didn't trickle down to smaller banks.
You asked the question earlier, “What happens to all the infusion of the capital?” The answer is it seeks maxim returns. So one the reasons we have low monetary velocity in the US is that one of the infused capital makes its way into bubbles on foreign markets in emerging economies. It leaves the US rather rapidly. With respect to industry, with respect to hedge funds, with respect to other concentration of capitals endowments and so on, they are hoarding capitals, they are unwinding precisions on Wall Street and they are maintaining the reserves either in cash, in gold or in fixed assets such as real estate. So one of the reasons you see these problems with medium and small tier banks is that the infusion of capital from the bail-outs is not making its way down to the fundamental bottom tier of consumer economy.
Press TV: Max Keiser, do you agree with that? Could you expand on that a bit further because obviously we want to break it down into a common way of application such as why the bigger banks are not trickling down to the smaller banks?
Keiser: Sure, I would also add that another major component is the level of fraud in the system, in the area of the foreclosure fraud that is enveloping banks like Bank of America that is currently being investigated and is subject to a law suit. This is trillions of dollars worth of paper that they fraudulently wrote. This is not helping to supply the velocity of money that's being mentioned when you have the major banks embroiled in lawsuits tied to their fraud in perpetrating this massive misrepresentation of their balance sheets and their regulators. So in other words every quarter that we now know that is happening with the investigations with the Lehman Brothers, this is a problem that is systemic throughout the banking system.
When it's time to report liabilities at the end of the quarter, banks reciprocate by hiding liabilities on each others' balance sheets for two or three days to avoid scrutiny by the regulators. They called it a Repo 105, which is one name for it. I call I peeka-boo accounting. It's another way banks commit fraud; the biggest banks on Wall Street. And until of course these bankers are prosecuted and put in jail as we saw during the S and L crisis were more than 1500 of them went to jail, they will continue to pray on the economy and will continue to destroy the economy as part of their need to pay themselves bonuses tied to what is essentially fraudulent behavior. They are committing fraud.
Press TV: There is a widening gap between the rich and poor in the US. Forty percent of the population in America which is 120 million people owns less than one percent of the whole nation's wealth? How do you explain that?
Madsen: I think it is all part of the steady drift of the United States into a corporate fascist type society. We have seen that through history before, when very small elite has most of the wealth. I would also point out that there is also another 600-pound gorilla out there. According to this Democratic Party economic advisor I spoke to, the commercial real estate market, when it collapses, is going to compound the problem. Right now a block from where I am sitting, there is a building that was once worth $60 million is now valued at $30 million.
When we see the commercial real estate market collapse, it is going to make the residential real estate market pale, in comparison with that collapse and this promise is just going to keep compounding and instead of the president calling for a Roosevelt-type new deal, he is offering the American people nothing more than a war deal, which is going to increase the gap between very small elite that has all the money and the shrinking middle class.
The middle class, I am afraid, in the United States is not going to exist in another 5 years and everybody is going to be driven down to the lower poor class and they are going to be working, as many people do, maybe 2 or 3 minimum-wage jobs just to feed their families.
Press TV: But was it the lower class part of the reason why the economy is collapsing now is due to these people who defaulted on their home loans?
b>Von Hanwehr: It is not as simple as only the element of loans although home loans were the reflection of the underlying macro-economic weakness of the US picture. Certainly what you can see are corporation again showing profitability across the boards as they move jobs overseas, as they move industrial capacity and infrastructure overseas because the growth of the middle class in Asia by 2015 will equal that of the middle class here in north America and Europe; that is to say the total size of the middle class. When you couple that to India and Brazil, much of the buying power at the consumer level is rapidly moving offshore. We are talking about the manufacturing capabilities that don't relate to toys or clothes but related to semi-conductor and heavy machinery; we are talking about a major relocation of the US industrial and technical know-how into rapidly growing bubble-prone economies around the world where the buying power will be located. Essentially, the US economy is being marginalized and no wealth is being created, that is the other element of low monetary velocity equation.
Press TV: In January 20, 2010 there was an interview with the US Treasury Secretary Geithner. He said the expected cost of the crisis was 200bn lower than what they had anticipated. He also said that this money can be used to meet the US economic challenges. Now we have this ratification of an 84bn dollar nuclear renovation upgrade that taxpayers have to pay. What does that say about priorities?
Keiser: Well, first of all you have to understand Geithner's comments. He using the prism of his accounting methodology, which is corrupt. You can't take anything that Geithner says on board as representative of anything meaningful or truthful. And to get back to a point that was just made about the rise of the middle class. In Asia, of course this middle class is going to continue to put pressure on things on demand like oil, which means the US consumer (middle class) is going to be squeezed again because oil prices will go up in this stagflationary environment of rising oil prices while wages are going lower. So this is putting the US citizens into even a greater bind. But to finish off on Geithner, again he is fronting for Wall Street. He's not in the service of the US population. He is not representative of the US population in any way. Geithner and Bernanke are representatives of Wall Street. They do Wall Street's biding and there's nothing we should hear from him or the statistics that come out of Washington to interpret that in any way; hence, again it's just massive fraud. This is a situation that is hard to imagine how it will be rectified without a major civil unrest or social unrest in the US. I'll put it that way.
Press TV: With banks defaulting, cities going bankrupt, the gap between the rich and poor widening, what options are left for the US president?
Madsen: What I like to see Obama do, and I do not think he is going to do, is that he may be in the beginning of the year change a lot of people in the administration. We may see some changes in the White House, but it is clear that he should dump [Treasury Secretary Tim] Geithner. Actually the types of people he should be surrounding himself with are people like former Labor Secretary under [former President] Bill Clinton, Robert Reich, who has some different ideas about what to do altogether, but it may not be what Wall Street wants to hear, but I think he has got really fundamentally changed the people who are around him. [But they are] getting ready Larry Summers and bringing in [former White House Chief Economic Adviser] Gene Sperling. What does that do? That is just the same type of people we have seen before, showing for the special interests on Wall Street.
I would note that in the recent movie Wall Street 2, Gorden Gekko, who was the villain in the original Wall Street, is let out of the jail and he is doing speeches before campuses and he says, “You know, they put me away originally for what is perfectly legal today.” I think that points to the regulatory problems, the Securities and Exchange Commission has not provided oversight. We did not see anything out of Fannie Mae or Freddie Mac and their internal audit mechanisms were non-existent pretty much and so we have seen no regulation from the regulators, because the regulators have turned into nothing more than yes men and yes women.
Press TV: Banks defaulting, cities going bankrupt, the gap between the rich and poor widening: What options are left for the US president?
Von Hanwehr: Dr. Woodworks, Franklin D. Roosevelt, public works, rather than infusing cash into the major banks and into the interbank system, let's infuse cash directly into pockets of average Americans. Start a jobs program for rebuilding US infrastructure, just like Roosevelt did. Bring wage returns and revenue income directly into pockets of Americans, tie it to housing, improve the grassroots of consumer economy at the core functional level, and put the money where the greatest misery is so that the psychological element of the recession is reversed. That is critical; much of this is psychological as well. Re-infuse the credit capabilities at the small bank level not at the large banks level and do that through regulatory Federal mechanism. Force it. Don't allow the infusion of bailout capital or printing the new monetary loads of dollars that immediately float to other markets of the world.
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