The Global Financial Crisis

The following are notes from a 78 minute long Public Lecture delivered in Montreal, Canada on January 14, 2009 by economics professor and author Michel Chossudovsky. Below these notes you will find a link to an article describing some of the "architects of the economic collapse" also written by Chossudovsky. Chossudovsky is director of the award-winning Centre for Research on Globalization. He is also the author of The Globalization of Poverty and the New World Order, America's War on Terrorism and other books. A video of the Public Lecture is available at various places online.

NOTES taken by Geraldine Perry of Public Lecture

War and globalization are symptoms of the same problem which has its roots in the current financial system. The same political and economic actors are instrumental in fostering both war and globalization of poverty.

Thus the war in the Middle East is essentially a war of economic and political conquest (Gaza for example has significant natural gas reserves). It can be said that the current financial crisis is likewise a war of economic conquest.

Broadly speaking, we are currently dealing with five “power centers”as follows:

1. Wall Street and the financial establishment - which in recent years has gained massive strength through the development of a whole gamut of new financial instruments centered around derivatives, aided by an increasingly favorable regulatory environment.

2. The Anglo-American oil conglomerates (which help determine foreign policy, as well as energy supplies and prices that are set by relative handful of people at the NYMEX and other stock exchanges around the world - and then wildly inflated through speculation)

3. The Anglo-American military industrial complex consisting of defense contractors, now representing over 1/3 of GDP

4. Bio-tech conglomerates which own intellectual property rights over genetic material. These conglomerates are integrated with the defense establishment because they provide biological weapons on contract.

5. Media/communications conglomerates which are crucial in framing our understanding of what's happening. These conglomerates have a way of turning the meaning of events upside down.

The theory of the business cycle has no bearing on reality and will not get us out of the current crisis due to the fact that money markets are heavily manipulated – particularly through derivatives. This manipulation allows speculative attacks on targeted companies, and all this is aided by constantly changing policy and regulatory environments.

(Editorial comment: The Bank of International Settlements has long operated as the global casino through which the derivatives trade has traveled and mushroomed, creating a "shadow banking system" in the process. Estimates are that this banking system now has hundreds of trillions of dollars of "off-balance sheet" debt which must be unwound and settled before any semblance of economic stability can return.)

The financial economy (run by the financial establishment and compliant politicians) has in a sense the ability to trigger the bankruptcy of the REAL economy companies, trigger foreclosures, move the value of stocks at will, and paralyze credit, as is happening now.

The following is one illustration of the wealth that is extracted from the real economy through manipulation of the financial economy: There is about a 90-95% mark-up of all goods manufactured in China which are sold in the U.S. So something a company buys for $1 in China it then can sell for $10 in the U.S. This then increases the U.S. GDP by $9.

What we're seeing is a cumulative process – it is NOT immediately visible, and it has been going on at least 10 years in developed countries. And it is likely to accelerate dramatically in those countries in the near future.

We now have a monumental confrontation between finance capital and REAL economy capital, together with a struggle between competing conglomerates.

We're dealing with a MAJOR transformation within the financial system, and the most massive upward transfer of wealth in history. It is also the most serious crisis the world has ever faced.

The “strong economic medicine” applied to the “developing world” in the 1980s is now going to be applied around the world.

During the 1980s the IMF offered “structural adjustment loans” to poor countries in which the IMF dictated the requirements the country in question had to agree to in order to get the loan. These requirements included such things as:

  • close schools and hospitals, reduce services overall in order to release funds to repay debts to foreign banks and investors
  • Privatize services and infrastructure by allowing foreign investors to purchase electric, water and energy companies along with various natural resources
  • elimination of agricultural subsidies that support local products, while increasing subsidies for export crops
  • adherence to debt-servicing obligations

The terms of these loans were such that over time the debt went up so fast that even the interest could not be paid, enabling creditors (investors) more and more power and authority by which to dictate policy. So for example a country that borrowed $100 million would owe $200 million. There was no way to pay such a loan, and affected countries would keep going deeper into debt until they had to declare bankruptcy at which point the creditors would essentially be able to buy up assets for “a dime on a dollar.”

This process did not just apply to developing countries but to the developed world as well. From the 1990s forward, developed countries were characterized by recession, the decline and demise of social programs, and the rise of “public/private partnerships” and civilian surveillance the world over.

In the developed world, Wall Street functioned in a manner very similar to the way the IMF functioned in the developing world. Moreover, the debt-rating agencies employed by Wall Street were not interested in debt per se. What they WERE – and ARE - interested in is whether policy makers obey orders by implementing “austerity measures.”

One example of how it all works:

In the fall of 1997, Alan Greenspan gave a speech in which he said that a “virus” had infected the Asian markets, even though Asia was booming at the time, triggering lengthy discussions about the “Asian Miracle.” Immediately after Greenspan's speech the propaganda apparatus of financial news commentators did an about face and began spreading Greenspan's notion of an Asian “virus”.

By December of the same year, and with 37,000 troops to back them up, the U.S. Embassy for North Korea demanded the firing of the North Korean Finance Minister because the U.S. wanted to implement certain protections in the foreign currency markets. The U.S. Embassy THEN installed a former IMF bank official whom they took to Washington to draw up an “agreement” which the North Koreans were “invited” to sign.

Immediately after signing, a total collapse of the money markets occurred and allowed for the actual takeover of the Korean economy by foreign investors. These investors took over the most profitable assets for hundreds of millions of dollars, and then got subsidies of BILLIONS of dollars to cover non-performing loans, etc. (The old dime- on-a-dollar concept)

All of this was VERY carefully manipulated. (More detail in Chossudovsky's Globalization of Poverty).

The above is essentially the model envisaged for the North American Economy – namely that the financial institutions want to buy out the REAL economy and all its capabilities.

(Editorial comment: Given the state of our public debt, one might consider that this activity closely resembles debt-restructuring due to bankruptcy.)

Importantly all this massive wealth is NOT acquired through capital accumulations – but rather through manipulation of capital markets, which allow windfall profits through speculation.

The 1999 Gramm/Leach/Bliley Act repealed key provisions of the 1935 Glass Steagal Act, by removing the wall of separation between commercial banks and investment banking activities. This allowed for:

The creation of “supermarket” banks; establishment of hedge funds which totally escaped regulations; increased movement of banks offshore; expansion of the type of environment that favors money laundering - and escape from taxation.

While there are different “colors” of money (for example “black money” is made by escaping taxation) the financial institutions make the bulk of their money from “dirty money” - primarily dealing narcotics, child/sex labor, black market sale of human organs, etc – that has been laundered through various mechanisms.

Interesting and perhaps telling aside: Prior to 9-11, the Afghan Taliban had succeeded in decreasing Afghan opium trade by 95%. Since the U.S. Occupation, opium production has increased 35x's and Afghanistan is now the world's top producer of opium.

The “Rescue Operations” now in progress are basically handouts to the large financial institutions as we all know.

Because of the way our money is created, all new expenditures – whether for building roads or to “pay” for universal health care or whatever – will only contribute to our spiraling public debt – and this in turn MUST result in massive slashing of public expenditures (with the exception of defense, which is needed to enforce increasingly unpopular “austerity measures”).

We're dealing with a MAJOR upheaval in the financial structure of the economy – and a Massive restructuring of the REAL economy. As in the 3rd world, and North Korea, this will entail a ratcheting up of the on-going privatization of the social structure, the virtually uncontrollable sale of state assets to the financial structure, and an increasing transfer of policy-making power to the financial sector.

(Editorial comment: The root problem is the way our money is created!)

Who Are the Architects of Economic Collapse?

Excerpts from an excellent article by Michel Chossudovsky providing an overview of "the most serious economic crisis in world history" and how the crisis impacts governments and ordinary people, together with an extended discussion of the key architects.

''. . .The "bailout" proposed by the US Treasury does not constitute a "solution" to the crisis. In fact quite the opposite: it is the cause of further collapse. It triggers an unprecedented concentration of wealth, which in turn contributes to widening economic and social inequalities both within and between nations.
''The levels of indebtedness have skyrocketed. Industrial corporations are driven into bankruptcy, taken over by the global financial institutions. Credit, namely the supply of loanable funds, which constitutes the lifeline of production and investment, is controlled by a handful of financial conglomerates. . . .
''We are dealing with an absurd circular relationship: To finance the bailout, Washington must borrow from the banks, which are the recipients of the bailout.
''The US administration is financing its own indebtedness.
''Federal, State and municipal governments are increasingly in a straight jacket, under the tight control of the global financial conglomerates. Increasingly, the creditors call the shots on government reform.
''The bailout is conducive to the consolidation and centralization of banking power, which in turn backlashes on real economic activity, leading to a string of bankruptcies and mass unemployment. . ."