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, which he does every two weeks with friend of the show Radhika Desai. 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. 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.
On International Workers’ Day, the First Republic Bank became the second largest bank to fail in US history. The USD 233 billion institution was seized by the government and sold to banking behemoth JPMorgan Chase. First Republic is the third bank to fail in the US since March, surpassing the spectacular failure of Silicon Valley Bank (SVB) on March 10. SVB’s depositors were bailed out by the US government to the tune of USD 151 billion. Up until May 1, SVB had been the second largest bank failure in the history of the country. Capitalists in the United States did not predict that this title would be usurped less than two months later.
When current US Treasury Secretary Janet Yellen served as chair of the Federal Reserve in 2017, she confidently predicted that there would not be another financial crisis “in our lifetimes”. Less than six years later, in March 2023, three US banks collapsed in just one week. Silicon Valley Bank and Signature Bank were the second- and third-largest banks to go under in US history. And after they crashed, the government immediately bailed out their wealthy depositors. Among the main beneficiaries of this bailout were billionaires and big corporations. The government’s Federal Deposit Insurance Corporation (FDIC) insures US bank deposits up to $250,000 per customer.
In March 2020, as the first wave of coronavirus infections all but shut down the U.S. economy, Congress responded with rare speed, passing a $2.2 trillion relief package called the CARES Act. The centerpiece of the law was an emergency payment to over 150 million American households that needed help. Congress used a simple filter to determine who was eligible for assistance: The full $1,200 was limited to single taxpayers who’d reported $75,000 a year or less in income on their previous tax return. Married couples got $2,400 if they had reported less than $150,000 in income. Money was sent automatically to those who qualified. Ira Rennert, worth $3.7 billion according to Forbes, did not appear to need the cash infusion offered by the CARES Act.
The report shows that utilities wielded political power to secure beneficial tax-code changes in the CARES Act but defied calls to grant their own customers temporary relief. Instead, 16 utilities suspended or canceled electric service to nearly 1 million households between February 2020 and June 2021, leaving people without hot water, refrigeration, air conditioning and medical devices.
When the Dodd Frank Act was passed in 2010, President Obama triumphantly declared, “No more bailouts!” But what the Act actually said was that the next time the banks failed, they would be subject to “bail ins” – the funds of their creditors, including their large depositors, would be tapped to cover their bad loans. Then bail-ins were tried in Europe. The results were disastrous. Many economists in the US and Europe argued that the next time the banks failed, they should be nationalized – taken over by the government as public utilities. But that opportunity was lost when, in September 2019 and again in March 2020, Wall Street banks were quietly bailed out from a liquidity crisis in the repo market that could otherwise have bankrupted them.
Over the last decade, Congress’s approval ratings have hovered around the mid-teens or low 20s, reflecting the reality that our representatives in Washington, D.C., serve the needs of big donors while throwing an occasional rhetorical bone to the “essential” workers who actually make the country function. Congress’s handling of the current crisis of the pandemic is unlikely to improve its ratings. Working Americans are facing an unprecedented disaster. Before the virus hit, half of them lived paycheck to paycheck and didn’t have $400 saved for an emergency. Now they have been ordered to stay home. Many have no income while their rents, utility bills, student loans, and credit card debts are accruing. The small businesses—restaurants, gyms, and stores—that provide half of the nation’s jobs were ordered to shut down. Their rents are accruing. And with no income coming in, many have little chance of repaying what they owe when the economy reopens.
One of the readers of this blog recently asked me my views on topics such as the call by some left economists for a general debt forgiveness (Debt Jubilee), on Modern Money Theory (MMT or sometimes referred to as ‘Magical Money Tree’), and the Federal Reserve bank (central bank) pre-emptive bail outs of banks and non-banks underway and whether the latter will succeed in generating an economic recovery from the current deep Coronaviral impacted US economy. What follows are some of my quick reflections and commentary on these topics. My views on monetary policy are somewhat summarized by the argument that in the current era of finance capitalism dominance, monetary policy has been the first and foremost choice of capitalist governments and policymakers.
Congress seems to be at war with the states. Only $150 billion of its nearly $3 trillion coronavirus relief package – a mere 5% – has been allocated to the 50 states; and they are not allowed to use it where they need it most, to plug the holes in their budgets caused by the mandatory shutdown. On April 22, Senate Majority Leader Mitch McConnell said he was opposed to additional federal aid to the states, and that his preference was to allow states to go bankrupt. No such threat looms over the banks, which have made out extremely well in this crisis. The Federal Reserve has dropped interest rates to 0.25%, eliminated reserve requirements, and relaxed capital requirements. Banks can now borrow effectively for free, without restrictions on the money’s use.
The coronavirus depression is fast becoming as deep as the Great Depression. The federal government’s response has been too little, too late. While sickness and death spread, while unemployment and small business failures soar, while health care and essential workers lack personal protective equipment (PPE), Congress is in recess until May 4. The childlike dummy, Donald Trump, spouts bad advice daily in his televised briefings. Thursday he said we could beat the coronavirus by injecting disinfectants or somehow shining ultraviolet radiation inside our bodies. Meanwhile, the presumptive Democratic nominee, Joe Biden, is MIA. Is he sitting on a park bench somewhere feeding bread crumbs to pigeons? Since the lockdown started five weeks ago, 26 million people have applied for unemployment insurance.
With allegations that major banks shuffled Paycheck Protection Program applications to prioritize larger loan amounts and bigger businesses, Main Street businesses are furious. This possibility points to a clear design flaw in the program that tried to use the private lending market, already rife with discrimination and putting profits over all, as the mechanism for small business relief. Small businesses are demanding that any new funding must come directly to them via subsidies, not loans, and it must prioritize those who were left out. Business owners of color are particularly vulnerable to discrimination in the lending system. A report from the Center for Responsible Lending shows that a large majority of minority owned businesses, including 95 percent of Black business owners...
As Americans across the country peeked at their federally stimulated bank accounts last week, Dr. David R. Williams of Harvard University issued an urgent call to action. As chair of the Department of Social and Behavioral Sciences in Harvard’s public health school, Williams focuses on the effects of discrimination and social influences on health. “The striking disparities we are seeing are not a result of the families who are experiencing them,” Williams said in a national press briefing. “Instead they are a result of longstanding policies. Coronavirus is highlighting this for us.” That concept was echoed over and over by historians speaking to Billy Penn about what the federal stimulus funds could mean for communities of color in Philadelphia.
Hospitals overflowing with sick and dying patients. Overworked staff risking their lives wearing garbage bags as makeshift protective equipment against an invisible but deadly virus. Refrigerated containers left outside medical facilities, filling with the dead. Mass graves being dug in the city. It is like something out of a horror movie. But it is very real and is happening right now in America. “We are doing the best we can,” Derrick Smith, a certified registered nurse anesthetist in New York City told MintPress last week, “but people are dying left and right, no exaggeration.” “I’ve never imagined or seen our healthcare system take such a beating before,” he said. “This is something that none of us have ever really seen.”
Washington — Faced with a crash in mail volume and revenue due to closures to battle the coronavirus pandemic—right when the country needs the Postal Service the most to help get vital food, medicine, and other life-saving goods to everyone—Postmaster General Megan Brennan asked Congress for a combination of $75 billion in cash and credit to keep going through the financial disaster. Her April 9 video briefing request, to the House Oversight and Government Reform Committee, which handles postal legislation, drew immediate support from the nation’s two big postal unions, the Letter Carriers (NALC) and the Postal Workers (APWU). And even GOP President Donald Trump’s Postal Board of Governors backed it. “It is vitally important to the American people that the next stimulus package provides funding to the Postal Service sufficient to maintain a revenue stream that allows them to continue operations through this pandemic crisis,” NALC President Fredric Rolando e-mailed on April 10.
With the economy grinding to a halt due to the social distancing measures and emergency lockdowns imposed in order to fight COVID-19, more than a million of Canadians have lost their jobs and are filing for employment insurance. This poses a unique danger to tenants. A half century of housing and tax policies that discriminate against tenants has highly stratified who rents and who owns their accommodations by income — as of 2016, the average household income of Canadian homeowners was nearly double that of renters. Many tenants are now, or soon will be, having to choose between buying groceries and paying rent, as the government’s support programs exclude a great deal of people.