Traumatized Worker Syndrome

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CHRIS HEDGES: Hi, I’m Chris Hedges. Welcome to Days of Revolt.

Today we’re going to carry out part two of my discussion about where we’re headed economically, with economist Michael Hudson. He’s worked on Wall Street, taught economics, and is the author of Killing the Host: How Financial Parasites and Debt Destroy the Global Economy. Welcome, Michael. (Part One – The inversion of Classical Economics)

MICHAEL HUDSON: It’s good to be here.

HEDGES: So, we spoke in the first segment about the parasitic quality of the banks, hedge funds and the speculative class that has in essence cannibalized the country – including, interestingly, industry itself, and forced down the throats of the American public an unsustainable debt peonage, whether that’s through student loans, predatory credit card interest rates where it’s that bait and switch – where you get zero percent interest and next thing you know, you’re paying as high as 26 percent, 23 percent …

HUDSON: If you miss a payment.

HEDGES: If you miss a payment. Mortgages, with many houses now underwater because of 2008. I want to look first at the self-identified liberal class within the Democratic Party, including Barack Obama. It often uses the language of economic justice, and will even chastise Wall Street rhetorically, but has been as committed to this neoliberal project as the Republicans.

HUDSON: The key of demagogic politics is to realize that the people who are really backing you are your campaign funders. Your job as a politician is to say, “I can deliver this constituency to you backers. “Obama was a genius at doing what Donald Trump is trying to do today: taking a constituency. That’s his column A: a focus group listing everything the constituency wants. They want debt relief. They want better jobs. They want higher minimum wage.

HEDGES: And not trade agreements like NAFTA and …

HUDSON: Right. And then column B, that he didn’t tell them, was what the campaign backers on Wall Street want. Obama was picked essentially by Robert Rubin, who then became head of Citibank after having come out of the Goldman Sachs. Obama was picked by Rubin of Wall Street to promise was he was going to really do. It was what any president today is going to do: A politician’s job is to deliver whoever voted for you to your backers, who are on Wall Street. Whether you are a Republican or a Democrat, but especially if you are a Democrat – that’s really the Wall Street wing of the American political system. The Republicans are for the corporate monopoly, oil and gas wing of it.

As soon as Obama got in, [Hank] Paulson – the Republican Treasury Secretary – was talking to Barney Frank and said, you know, we were supposed to, under TARP, have some of the money to go for debt writedown.


HUDSON: TARP was Troubled Asset Relief Program. It was supposed to treat banks as if they were troubled. If you’re a criminal and you’re stealing from people, that was called “troubled.” There’s a lawsuit recently in in the news about a rich boy drove his car and killed four people. His defense was, “It’s not my fault, I have affluenza. I’m so rich that I don’t have a social sense. So of course I drove away. But I’m innocent, because I’m rich. What do you expect?”

Essentially that’s the Goldman Sachs view of the economy. You cause collateral damage all over, but that’s what Wall Street does. You can’t punish them for it. They’re just doing what a predatory financial institution does. So Obama said “No, , I’m not going to do that,” [meaning write down the mortgage debts as he had promised voters in Column A]. He came in and appointed Wall Street’s main lobbyist, Tim Geithner, as Treasury Secretary.

HEDGES: You spend a lot of time in the book on him.

HUDSON: That’s right. Geithner appears in almost every dirty dealing episode of the book. He was the bagman. He was the person who [Sheila Baoir] accused of blocking the FDIC when it wanted to take over Citibank, which not only was broke but was a criminalized organization. It was [inaud.].

HEDGES: Explain just quickly why it was criminalized.

HUDSON: Well, Citibank …

HEDGES: Citibank, by the way, was not alone. There were other …

HUDSON: No, there were others. But …

HEDGES: Citibank was maybe the worst.

HUDSON: Citibank, along with Countrywide Financial, was making junk mortgages. These were mortgages called NINJA. They were called liars’ loans, to people with no income, no jobs and no assets. You had this movie, The Big Short, as if some genius on Wall Street discovered that the mortgages were all going to go down. And you have the stories of Queen Elizabeth going to the economist …

HEDGES: “How come none of you knew?”

HUDSON: Right. The fact is, if everybody on Wall Street called these mortgages liars’ loans, if they knew that they’re made for NINJAs, for people who can’t pay, all of Wall Street knew that it was fraud.

The key is that if you’re a really smart criminal, you have to plan to get caught. The plan is how to beat the rap. On Wall Street, if you buy garbage assets, how do you make the government bail you out? That was what the president of the United States is for, whether it was Obama or whether it would have been John McCain …

HEDGES: Or Bush.

HUDSON: Or whether it would be Hillary today, or Trump. Their job is to bail out Wall Street and make the people pay, not Wall Street. Because Wall Street are “the people” who select the politicians – who know where their money is coming from. If you have a campaign contributor, no matter whether it’s Wall Street, or locally if it’s a real estate developer, you all know who your backers are.

The talent you need to have as a politician is to make the voters think that you’re going to be supporting their interests …

HEDGES: And what’s that great Groucho Marx quote?

HUDSON: The secret of success is sincerity. If you can fake that, you’ve got it made.

HEDGES: Well, and that’s kind of it. You know, there’s Ron Suskind in his book, what’s it called? Confidence–.

HUDSON: Confidence Man.

HEDGES: Confidence Man. He interviews someone on Wall Street, and asks why they’re so hostile to Obama when he’s so protective of Wall Street. And the answer is, because if we keep being publicly hostile, he can always do what we want.

HUDSON: This is like Uncle Remus and the Briar Patch, when Br’er Rabbit keeps saying, don’t throw me into the briar patch. And finally the fox throws him into the briar patch, and the rabbit runs away, singing “Born and bred in the briar patch.” He runs away and is happy. The moral is that there’s a pretense that if a politician talks against Wall Street and can vocalize people’s resentment, that he must understand them and thus will support them.

HEDGES: Well, that’s what Hillary Clinton’s doing in spades.

HUDSON: That’s exactly it. There’s a movie, La dolce vita, by Fellini, with Anita Ekberg. You have the Italian reporter Marcello go after Ekberg, and then her boyfriend comes up to him and says, “I can understand you.” Then whomp, he hits him right in the face. That basically is what we have here. The politician says to the voters, “I feel your pain. I can understand you.” And they think oh, he understands it. Then the politician hits them in the face and backs Wall Street, and tries to privatize pension funds, privatize Social Security. And doesn’t send a single banker to jail, by appointing Justice Department people who are vetted by Wall Street and treat them simply a “troubled” rich.

So essentially Wall Street campaign contributors have a veto over who you’re going to appoint as Secretary of the Treasury. They want the …

HEDGES: Attorney General.

HUDSON: Yeah, Attorney General, to make sure that nobody has to pay the price for financial crime. Then the Council of Economic Advisors comes to assure people that Wall Street really is adding to the economy, and if you can only do what the Federal Reserve is doing. So Janet Yellen says, let’s give the banks more money, and the economy can borrow its way out of debt … if only we can have enough quantitative easing.

So the Federal Reserve has given Wall Street $4.5 trillion. That $4.5 trillion could have been used to write down the debt. And then we wouldn’t have a problem. Then everybody would have a lower costs of living. The $4.5 trillion could have been spent into the economy.

HEDGES: We could have saved people from being foreclosed and driven from their homes.

HUDSON: Yes. But that wasn’t what Obama did.

HEDGES: Even though he promised that he would. And then he turned around, he earmarked some money to save people who were being pushed out of their homes. And then he never spent it.

HUDSON: That’s right. It wasn’t spent. That’s what Niel Barofsky, the SIGTARP head – Special Inspector General for TARP – found out. He said, wait a minute, they’re not spending any of it. It’s a fraud. And he wrote a whole book, Bailout, describing the lies Geithner told. Then, when Geithner came out with his own autobiography, Barofsky reviewed it and exposed him as a liar who should go to jail.

Geithner was suitably rewarded by getting a rich job on Wall Street. The Japanese call that “descent from heaven.” When you take your rewards, having sold out the economy to your backers, you get a nice job and end up rich for life.

HEDGES: So, let’s talk a bit about what this means for the future, because there’s been no brakes put on this kind of criminal and fraudulent behavior on the part of the speculative class. Bubbles have been re-inflated with public funds. I think you had written an article in Harper’s magazine before 2008 saying this – we’re all going to have a big car wreck. Since we’re playing the game again, what’s going to happen? Are they going to be able to go back and loot the U.S. Treasury the way they did before?

HUDSON: What’s ahead first of all is that the economy hasn’t recovered since 2008. People talk about that there’s been a recovery, but the recovery has only been for the One Percent. The 99 Percent know they haven’t recovered. That’s why they’re voting for Trump, and that’s why they’re voting for Sanders. But they’re blaming themselves. There’s a tendency of victims to blame themselves. And the other part of that …

HEDGES: But let’s be clear: The media doesn’t explain the economic reality at all. They’re always talking about the recovery.

HUDSON: That’s the point. The result of the media telling people that is to create a Stockholm syndrome: The victim, the kidnap victim, identifies with the victimizer. The thinking is that if only we can give more money to Wall Street, it will save us. So if the Federal Reserve can only pump more money into the economy …

They talk about the Federal Reserve creating money with a helicopter. But the Federal Reserve’s helicopter only drops money over Wall Street. It doesn’t drop money over the economy. People don’t get it. The Fed doesn’t say, “We’re going to add $200 to everybody’s checking account so they can have more money and pay their debts.” It’s only lending money to Wall Street.

And what does Wall Street do? It lends out money. So the solution to the debt problem that we’re in – debt deflation – is to lend even more money.

That’s what makes the economy a Ponzi scheme, as you mentioned at the beginning of the first half of this interview. In a Ponzi scheme, people seem to make a lot of money, but that’s because you’re really not making profits. You’re just getting more and more people convinced that you’re making money. And you’re paying the early entrants out of the money from new subscribers. That’s what Bernie Madoff did. The whole economy has become a Madoff scheme.

HEDGES: And largely through real estate, right?

HUDSON: Largely through real estate, because that’s the largest asset.

HEDGES: So the worth of your house ostensibly rises and rises and rises, and you believe that you have created it – that this is a form of wealth creation.

HUDSON: Here’s the problem that existed in 2008. Either Obama could have saved the economy, or he could have saved Wall Street. He chose to save Wall Street. And the only way to save Wall Street, if banks have made a lot of bad loans, is to help them not go bankrupt. So what do you do? You give them more money.

The theory, the pretense in the media, is that banks will make money by lending to industry to build more factories and hire people.

HEDGES: And credit dried up for small businesses and consumers.

HUDSON: That’s right. Wall Street knew that the real estate market was already loaned up. In other words, the game was over. Nobody could pay any more of their income for rent or for mortgages. Banks couldn’t even make more credit card loans. So they began to cancel their credit card exposure. What they did was gamble on foreign currency.

HEDGES: And student debt.

HUDSON: And student debt.

HEDGES: Because it’s guaranteed.

HUDSON: That’s right. They make, the government …

HEDGES: I mean, the government guaranteed them.

HUDSON: Since the 2008 crash the government has guaranteed almost all new mortgage loans. Up to 43% of the borrower’s income, that was guaranteed. Student loans, all guaranteed. But basically the banks made money abroad. If you could borrow at one-tenth of a percent from the Federal Reserve, you could buy Brazilian loans, bonds paying 9% or more. You could gamble on writing default swaps in Greece.
And when Greece had real problems, the fact that the German and French banks had made too many loans to it, the IMF was going to write down the Greek debt. But then Geithner got on the phone with Europe, and Obama went to the G20 meetings and said, “Look, you can’t write off the Greek debt, because the American banks have essentially turned into horse race betters. We have casino capitalism. They have bet and promised to guarantee, the Greek bonds. If the Greek bonds are written down, the American banks will go under. And if we go under, we promise we’re going to bring you down too. We’re going to bring down the European banks. Do you really want that to happen?”

So the gambles made by Wall Street ended up almost driving Greece out of the European Union. Wall Street was willing to tear Europe apart politically just for the Wall Street investment banks – basically four banks – to make gains by insuring the Greek debt, by treating the financial market like a horse race.

That’s where we are now. It’s not really about imperialism draining foreign economies. It’s Wall Street making bets. And essentially it’s by Wall Street running the European Central Bank. Just like Europe has to do burden sharing in NATO, the financial ministries have to do burden sharing with the U.S. Treasury.

HEDGES: So let’s talk a bit about what this means, where we’re headed.

HUDSON: It means that markets are not growing, because the American consumer has to spend so much money paying the banks and paying taxes that they don’t have enough money to buy more goods and services.

HEDGES: One of the things you pointed out in your book, which I didn’t know, is that when we measure the economy we actually count the paying off of debt, credit card debt, whatever it is, as a form of savings.

HUDSON: That’s right. After 2008 the savings rate jumped way up. But the saving isn’t available. But to an accountant, if you owe less money, then actually you’ve done the same as paying it out of saving. So we’re in a savings economy. The savings rate in 2008 was zero. Actually, it was  minus 2% when you take into account borrowing from foreigners. The whole economy was essentially consumers maintaining their living standards by running up their credit card debt, and by taking out what Alan Greenspan called cashing out on your house’s rising value, by taking out an equity mortgage loan. But that’s not really cash. That’s taking on more debt.
So you had an inside-out vocabulary. America was going into debt thinking it would get rich, and all of a sudden it finds, it’s in a state of what you said, debt peonage, where the wage workers and others have to pay any increase in wages they get; it goes to pay down …

HEDGES: Because you’re spending all of your income to service the interest rather than paying off the principal. And that’s why wages have been suppressed since the ‘70s. The speculative class on Wall Street does not want people to be able to pay off their debt.

HUDSON: This was the one thing that Alan Greenspan contributed to economic theory: the Traumatized Worker Syndrome. He said, the reason you’ve had this huge productivity gain without any wage increase is workers are afraid to go on strike, or even to complain about working conditions, because they’re just one paycheck away from homelessness.

HEDGES: Which is true.

HUDSON: And if they miss a credit card payment, all of a sudden their credit card fee escalates to 29%. Even if they’re late on a utility bill, the bank will raise the fee.

HEDGES: So what does this mean? I mean, what’s going to happen?

HUDSON: It means a slow crash. It means what was …

HEDGES: Which we’ve already begun, haven’t we?

HUDSON: Yes. we’re in a slow crash now. All this was analyzed in the 1930s when it was called debt deflation by Irving Fisher. But debt doesn’t appear in the textbooks. They talk about saving, but not debt. The fact is, all money is debt of one form or another. The cash in your pocket is a government debt, technically. It’s on the liabilities side of the balance sheet. What people thought was an asset turns out to be kept afloat by debt. But rather than the rising tide of debt raising all boats, it raises the yachts, but the rest of the economy is underwater, to make a metaphor.

HEDGES: So, spell it out for people. What’s going to – I mean, we’ve lost control of this predatory or parasitic force.

HUDSON: Well, you can look at the future as what’s happening in Greece, what happened in Russia after their traumatic shock therapy. America’s in for shock therapy, no matter who wins the presidential …

HEDGES: So play it out for me. What’s it going to look like?

HUDSON: Well, more people are going to have higher and higher charges for what they spend for medical care. More for schooling. More just to break even. And they’re going to have to draw down their existing savings, or they’re going to have to downsize, or they’re going to have to default. The rate of default is still rising very sharply on student loans. And these are loans you can’t wipe out in bankruptcy.

HEDGES: Not unless you’re dead. And it’ll go to your parents, if they’re still around.

HUDSON: That’s the point. The parents have countersigned. Meanwhile, the students who have taken out these loans are having to live at home with the parents. They can’t afford to buy a house. And if you can’t buy a house it’s really hard to get married. I was in China recently, and my translator there said that women in China are looking for a husband who can get his own house, because you need a house to have children. All that has stopped here.

When you have this phenomenon in Greece, Russia or other places, you have shrinking birth rates, rising mortality rates and disease rates, shorter life spans. Latvia followed this policy and lost 20% of its population since the late 1990s. You have a huge emigration from Iceland, from Greece. There’s nowhere for Americans to emigrate to.

HEDGES: Right. And you say in the book that really, the only option left is a form of debt slavery or revolt.

HUDSON: That’s exactly it. But the enzymes of the parasite have inculcated via the control of the media tell people it’s not Wall Street’s fault, it’s not the parasite’s fault, it’s your fault. The victims haven’t been able to make enough money to pay the One Percent, the victimizers. That’s financial affluenza after it kills an economy.

HEDGES: But is it working? I don’t think the lie of neoliberal economics is being swallowed by larger segments of the population, including the people gathered around Trump.

HUDSON: That’s right. They know that something’s wrong, but they don’t know what it is, because nobody’s spelling out how the economy actually works. That’s why I wrote my book, to say here’s what’s happening. The reason I was able to warn about the crisis a year before it happened was that I had the charts that were published in Harper’s. My charts were cited in the Financial Times as the only charts by those who did foresee the crisis and said just how and why it would happen.

Anyone who does Wall Street charts about the ability to pay sees that this is what happened in the 1920s. Anybody who did charts like that can tell that there’s an intersection, a breaking point, and there’s a crisis. America now is having the same crisis that Argentina had, that Greece had, that Latvia had, that Russia had. These economies are our future. And it’s going to go down and down in a slow crash.

HEDGES: But could it go down and down, and what we end up with is a form of neofeudalism, a rapaciously wealthy, oligarchic elite with a kind of horrifying police state to keep us all in order?

HUDSON: This is exactly what happened in the Roman Empire.

HEDGES: Yes, it did.

HUDSON: You had the great Roman historians, Livy and Plutarch – they blamed the decline of the Roman empire on the creditor class being predatory, and the latifundia. The creditors took all money, and would just buy more and more land, displacing the other people. The result in Rome was a Dark Age, and that can last a very long time. The Dark Age is what happens when the rentiers take over.

If you look back in the 1930s, Leon Trotsky said that fascism was the inability of the socialist parties to come forth with an alternative. If the socialist parties and media don’t come forth with an alternative to this neofeudalism, you’re going to have a rollback to feudalism. But instead of the military taking over the land, as occurred with the Norman conquest, you take over the land financially. Finance has become the new mode of warfare. Not militarily – except in Europe, of course – but simply financially. You can achieve the takeover of land and the takeover of companies by corporate raids.

The Wall Street vocabulary is one of conquest and wiping out. You’re having a replay in the financial sphere of what feudalism was in the military sphere.

HEDGES: And in essence, we become a kind of nation of sharecroppers.

HUDSON: That’s exactly right, having to shop at the company store.

HEDGES: At the company store.


HEDGES: Well, that lays it out. I think it illustrates the point that we need a vision to counter the vision of predatory, parasitic capitalism. If we don’t get a vision very soon, we’re in for a dark age.

HUDSON: And the job of the politician is to promise the nice vision, and then double-cross the constituents.

HEDGES: Well, so far unfortunately, they’ve done it very well. Thank you, Michael.

HUDSON: It’s good to be here.

HEDGES: And thank you for watching Days of Revolt.