Pope Francis has been called “the revolutionary Pope.” Before he became Pope Francis, he was a Jesuit Cardinal in Argentina named Jorge Mario Bergoglio, the son of a rail worker. Moments after his election, he made history by taking on the name Francis, after Saint Francis of Assisi, the leader of a rival order known to have shunned wealth to live in poverty.
Pope Francis’ June 2015 encyclical is called “Praised Be,” a title based on an ancient song attributed to St. Francis. Most papal encyclicals are addressed only to Roman Catholics, but this one is addressed to the world. And while its main focus is considered to be climate change, its 184 pages cover much more than that. Among other sweeping reforms, it calls for a radical overhaul of the banking system. It states in Section IV:
Today, in view of the common good, there is urgent need for politics and economics to enter into a frank dialogue in the service of life, especially human life. Saving banks at any cost, making the public pay the price, forgoing a firm commitment to reviewing and reforming the entire system, only reaffirms the absolute power of a financial system, a power which has no future and will only give rise to new crises after a slow, costly and only apparent recovery. The financial crisis of 2007-08 provided an opportunity to develop a new economy, more attentive to ethical principles, and new ways of regulating speculative financial practices and virtual wealth. But the response to the crisis did not include rethinking the outdated criteria which continue to rule the world.
. . . A strategy for real change calls for rethinking processes in their entirety, for it is not enough to include a few superficial ecological considerations while failing to question the logic which underlies present-day culture.
Iceland’s Fair Value Vultures
The New Bank Disaster
Olafur Arnarson, Michael Hudson and Gunnar Tomasson*
The problem of bank loans gone bad, especially those with government-guarantees such as U.S. student loans and Fannie Mae mortgages, has thrown into question just what should be a “fair value” for these debt obligations. Should “fair value” reflect what debtors can pay – that is, pay without going bankrupt? Or is it fair for banks and even vulture funds to get whatever they can squeeze out of debtors?
The answer will depend largely on the degree to which governments back the claims of creditors. The legal definition of how much can be squeezed out is becoming a political issue pulling national governments, the IMF, ECB and other financial agencies into a conflict pitting banks, vulture funds and debt-strapped populations against each other.
This polarizing issue has now broken out especially in Iceland. The country is now suffering a second round of economic and financial distress stemming from the collapse of its banking system in October 2008. That crisis caused a huge loss of savings not only for domestic citizens but also for international creditors such as Deutsche Bank, Barclay’s and their institutional clients.
Stuck with bad loans and bonds from bankrupt issuers, foreign investors in the old banks sold their bonds and other claims for pennies on the dollar to buyers whose web sites described themselves as “specializing in distressed assets,” commonly known as vulture funds. (Persistent rumors suggest that some of these are working with the previous owners of the failed Icelandic banks, operating out of offshore banking and tax havens and currently under investigation by a Special Prosecutor.)
At the time when those bonds were sold in the market, Iceland’s government owned 100% of all three new banks. Representing the national interest, it intended for the banks to pass on to the debtors the write-downs at which they discounted the assets they bought from the old banks. This was supposed to be what “fair value” meant: the low market valuation at that time. It was supposed to take account of the reasonable ability of households and businesses to pay back loans that had become unpayable as the currency had collapsed and import prices had risen accordingly.
The IMF entered the picture in November 2008, advising the government to reconstruct the banking system in a way that “includes measures to ensure fair valuation of assets [and] maximize asset recovery.” The government created three “good” new banks from the ruins of its failed banks, transferring loans from the old to the new banks at a discount of up to 70 percent to reflect their fair value, based on independent third party valuation.
The vultures became owners of two out of three new Icelandic banks. On IMF advice the government negotiated an agreement so loose as to give them a hunting license on Icelandic households and businesses. The new banks acted much as U.S. collection agencies do when they buy bad credit-card debts, bank loans or unpaid bills from retailers at 30% of face value and then hound the debtors to squeeze out as much as they can, by hook or by crook.
These scavengers of the financial system are the bane of many states. But there is now a danger of their rising to the top of the international legal pyramid, to a point where they are in a position to oppress entire national economies.
Read more here…
Because I’m tired of you people spreading untruths
Since people continue to spread the factually dubious statement that Iceland “told creditors & IMF to go jump, nationalised banks, arrested the fraudsters, gave debt relief and is now growing very strongly, thanks” I find I have to write this here thing.
(This specific example comes from twitter but is almost identical, word for word, to the standard ‘Iceland is an economic utopia’ mantra that is being repeated ad nauseam.)
Because, for some reason, people won’t believe Icelanders when they say that the above is not quite the reality as most Icelanders experience it.
1. Iceland told IMF to go jump, go away, left the IMF program etc.
No it didn’t. Just look at the IMF’s country overview page for Iceland and read the reports.
(Too much to read? Well, boohoo. Don’t claim to know what Iceland’s and IMF’s relationship is until you have.)
Even a cursory look should tell you that Iceland didn’t throw the IMF out of the country and that the IMF’s praise for Iceland and our government is effusive and that Iceland followed the IMF’s advice to a tee. There are other details there, if you read through the archives, that are interesting, such as the fact that in several cases, especially when it came to the banks, Iceland actually went further along the libertarian axis than the IMF recommended.
Read more at link in title…
Virtually ALL of the Big Banks’ Profits Come from Taxpayer Bailouts and Subsidies
The Big Banks “Would Just About Break Even In the Absence of Corporate Welfare”
The government has propped up the big banks for years through massive, never-ending bailouts and subsidies. Bloomberg noted last year that 77% of JP Morgan’s net income comes from government subsidies.
Bloomberg reported yesterday:
What if we told you that, by our calculations, the largest U.S. banks aren’t really profitable at all? What if the billions of dollars they allegedly earn for their shareholders were almost entirely a gift from U.S. taxpayers?
Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers — Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz — put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.
Small as it might sound, 0.8 percentage point makes a big difference. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of$83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.
The top five banks — JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. – – account for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits (see tables for data on individual banks). In other words, the banks occupying the commanding heights of the U.S. financial industry — with almost $9 trillion in assets, more than half the size of the U.S. economy — would just about break even in the absence of corporate welfare.
Read more at Washington’s Blog…
|The Revolution Devalued? What the Venezuelan Currency Change Signifies|
|Written by Clifton Ross|
|Wednesday, 13 February 2013 22:01|
After months of rumors in opposition circles of a forthcoming devaluation, and denials of the rumor by Bolivarian government officials, the Venezuelan bolívar was finally devalued by 47% on February 8th. Even though devaluation has become a fairly regular event, especially since currency controls were put in place in 2003, this devaluation has a potentially far greater significance for the future of the Bolivarian Revolution than the previous economic measures and an undeniably greater immediate impact on the base of support for the Bolivarian government.
The reasons for the devaluation are many and complex. Some analysts argue that that the devaluation is aimed at controlling inflation (Venezuela’s, at 20% last year, is the highest in Latin America) while others, like economist Pedro Palma, argue that it will increase inflation. The devaluation will certainly help the government’s balance sheet and effectively reduce its deficit and it will also bring the official exchange rate a bit closer to that of the “parallel” or black market rate. The devaluation will also likely address the problem of scarcity and shortages of basic goods.
Vice-President Nicolas Maduro explained the devaluation by saying that the root of the problem is speculation and a conspiracy of foreign, and internal enemies, to destroy the process of change in the country by creating scarcity through hoarding or withholding essential goods. Such activity in the business sector aims at raising prices and increasing profits at the same time the government attempts to maintain low “solidarity” prices to keep essential commodities affordable to the poor and working people.
Read more at Upside Down World…
Nobel Laureate economist Joseph Stiglitz characterizes the Spanish bank bailout as “voodoo economics” that is certain “to “fail.” New York Timeseconomic analyst Andrew Ross Sorkin agrees: “By now it should be apparent that the bailout has failed—or at least on its way to failing.” And columnist and Nobel Prize-winning economist Paul Krugman bemoans that Europe (and the U.S.) “are repeating ancient mistakes” and asks, “why does no one learn from them?”
Indeed, at first glance, the European Union’s response to the economic chaos gripping the continent does seem a combination of profound delusion, and what a British reporter called “sado-monetarism”—endless cutbacks, savage austerity, and widespread layoffs.
But whether something “works” or not depends on what you do for a living.
If you work at a regular job, you are in deep trouble. Spanish unemployment is at 25 percent—much higher in the country’s southern regions—and 50 percent among young people. In one way or other, those figures—albeit not quite as high—are replicated across the Euro Zone, particularly in those countries that have sipped from Circe’s bailout cup: Ireland, Portugal, and Greece.
But if you are Josef Ackermann heading up the Deutsche Bank, you earned an 8 million Euro bonus in 2012, because you successfully manipulated the past four years of economic meltdown to make the bank bigger and more powerful than it was before the 2008 crash. In 2009, when people were losing their jobs, their homes, and their pensions, Deutsche Bank’s profits soared 67 percent, eventually raking in almost 8 billion Euros for 2011. The bank took a hit in 2012, but the Spanish bailout will help recoup Deutsche Bank’s losses from its gambling spree in Spanish real estate.
And, just in case you thought irony was dead, it was the Spanish housing bubble that tanked that country’s economy—at the time Madrid’s debt was among the lowest in the Euro Zone—and German banks (as well as Dutch, French, British and Austrian) financed that bubble. German Banks also financed the real estate bubble that crashed Ireland’s economy. Some 60 percent of Deutsche Bank’s income is foreign based.
Beyond Fossilized Paradigms: Futureconomics of Food
The economics of the future is based on people and biodiversity – not fossil fuels, toxic chemicals and monocultures.
New Delhi, India – The economic crisis, the ecological crisis and the food crisis are a reflection of an outmoded and fossilized economic paradigm – a paradigm that grew out of mobilizing resources for the war by creating the category of economic “growth” and is rooted in the age of oil and fossil fuels. It is fossilized both because it is obsolete, and because it is a product of the age of fossil fuels. We need to move beyond this fossilized paradigm if we are to address the economic and ecological crisis.Rice terraces near the Drukgyel Dzong, Paro Valley, Bhutan. (Photo: Blaine Harrington)
Economy and ecology have the same roots “oikos” – meaning home – both our planetary home, the Earth, and our home where we live our everyday lives in family and community.
But economy strayed from ecology, forgot the home and focused on the market. An artificial “production boundary” was created to measure Gross Domestic Product (GDP). The production boundary defined work and production for sustenance as non-production and non-work – “if you produce what you consume, then you don’t produce”. In one fell swoop, nature’s work in providing goods and services disappeared. The production and work of sustenance economies disappeared, the work of hundreds of millions of women disappeared.
On April 2, 2012, the United Nations held a High Level Meeting on Wellbeing and Happiness: Defining a new Economic Paradigm to implement resolution 65/309 [PDF], adopted unanimously by the General Assembly in July 2011 – conscious that the pursuit of happiness is a fundamental human goal and “recognising that the gross domestic product does not adequately reflect the happiness and well-being of people”. The meeting was hosted by the tiny Himalayan Kingdom of Bhutan. Bhutan has given up the false categories of GNP and GDP, and replaced them with the category of “gross national happiness” which measures the wellbeing of nature and society.
Iceland’s President Explains Why The World Needs To Rethink Its Addiction To Finance Adam Taylor | Apr. 15, 2012, 12:57 PM | Business Insider
This links to the full transcript of an interview with Ólafur Ragnar Grímsson, who has been President of Iceland since 1996, and announced last month he would be running for a fifth term. This is a phenomenal account of a President’s integrity, clear thinking and courage. The following is a short excerpt but the full four-page article is well worth reading for an inspiring example of what’s possible and an insightful account of what’s happening instead.
. . .
But once I had analyzed every aspect of it, it boiled to the fundamental choice of the interest of the financial market on one hand, and the democratic will of the people on the other, and rarely in history — but it does happen — do we come to such crossroads that we are forced to choose.
And my answer was clearly, not only with respect to the democratic structure of Iceland, but also with respect to Europe’s contribution to the world. What is our primary legacy to countries and nations in modern times? Is the European democracy the right of the people? Capitalistic financial markets can exist in many other parts of the world, even without democracy. So in my opinion, Europe is and should be more about democracy than about financial markets. Based with this choice, it was in the end, clear that I had to choose democracy.
. . .
Read more: Business Insider: Iceland’s President
From Naked Capitalism, Matt Stoller on Why Ron Paul Challenges Liberals. I filed this under economics rather than politics because it focuses on US economic history in relation to libertarians. I don’t agree with all of Matt Stoller’s positions: for instance that Lincoln was an explicitly anti-racist President. Howard Zinn presents evidence that Lincoln was forced to be an abolitionist in order to defend the same Union that had protected the institution of slavery in the Constitution (prompting Northern secession movements against the Fugitive Slave Act.) Stoller also states that the reasons Ron Paul will work with anyone to roll back American Empire, audit the Fed or end the drug war has “nothing to do with creating a more socially just and equitable society.” Since he doesn’t bother to qualify this, I have to assume that the nefarious newsletter notes outweigh 20 years in Congress, 30 years as a doctor, 50 years as a husband and father, and 80 years as an individual. Ron Paul has a rich history of contributions to a more socially just and equitable society, for a secret white supremacist. If only all white supremacists did such a good job of playing the double agent. But Stoller’s article is great background for those who don’t know the history of US economics and for those who do:
“The most perplexing character in Congress, ideologically speaking, is Ron Paul. This is a guy who exists in the Republican Party as a staunch opponent of American empire and big finance. His ideas on the Federal Reserve have taken some hold recently, and he has taken powerful runs at the Presidency on the obscure topic of monetary policy. He doesn’t play by standard political rules, so while old newsletters bearing his name showcase obvious white supremacy, he is also the only prominent politician, let alone Presidential candidate, saying that the drug war has racist origins. You cannot honestly look at this figure without acknowledging both elements, as well as his opposition to war, the Federal government, and the Federal Reserve. And as I’ve drilled into Paul’s ideas, his ideas forced me to acknowledge some deep contradictions in American liberalism (pointed out years ago by Christopher Laesch) and what is a long-standing, disturbing, and unacknowledged affinity liberals have with centralized war financing. So while I have my views of Ron Paul, I believe that the anger he inspires comes not from his positions, but from the tensions that modern American liberals bear within their own worldview.”
Read more here…