And if you’re a wealthy depositor, you’re smart enough to know that, — Well, when the banks move into negative equity, they can’t cover the deposits. We’d better pull our deposits out now. And instead of making 0.2%, we want to make 4% also. That’s what the Federal Reserve has done for us.
So the Federal Reserve had painted itself into a corner during quantitative easing. By lowering interest rates to just about zero, the Fed has guaranteed that if you ever move out of this position, if you ever go beyond the Obama policy of saving the banks by inflating the capital markets, then you’re going to drive the capital markets bankrupt, insolvent.
So we’re now finally facing the insolvency that Obama and Trump and Biden early on were able to avoid. And it’s just a seventh-grader, well, maybe an eighth-grader, could have done the arithmetic.
Anybody who compares the market price of bank assets to the acquisition price and realizes, well, banks have lost 30 or 40% of their asset values, their deposits are high, anyone doing this is going to say, let’s take our money out of the banks and make a lot more money by buying government two-year notes or ten-year treasuries and lock in these high interest rates now.


And that’s exactly what’s happening. And the newspapers say, — Well, this is such a surprise. Who could have guessed?
And of course they’re moving it into banks like Chase Manhattan or Citibank, which indeed, as Pam Martens said, are serial abusers and violators of regulations.
Of course they’re moving there because the government says, — No bank depositor, no financial investor will lose any money. We promise you that the economy will lose money, not the banks, not the financial sector.
We promise you that if we have to pay more money to support the financial sector, we’re willing to cut back Social Security. We’re willing to get rid of Medicaid and Medicaid.
We’re going to get rid of social spending because the economy needs the banks not to lose any money, because that’s, to us politicians, they’re our campaign contributors. They’re who we’re really working for. They’re who we’re protecting. That’s our job as politicians.


And it’s just amazing that nobody is just coming right out and saying this except the few people that are carefully avoided by The New York Times, The Washington Post, and the usual suspects when it comes to saying there’s no problem at all.
So why do they go to Chase?
Because the government has said, — No matter how much money the banks lose, even if Chase and Citibank are insolvent, because after all, they have long-term mortgages, they have long-term loans, they have long-term securities, but no matter what, we’re going to create enough money to bail them out.
Well how much money are we talking about?
Well what has been pushing up all of the prices of the mortgages and the stocks and the government bonds that the banks hold was this $9 trillion in quantitative easing. To make the banks whole from the loss, the government will have to create suddenly another $9 trillion.


The entire economy will not only move into what Mr. Powell calls a recession, but a deep depression, a total financial collapse.
And that’s obviously, it’s almost inconceivable that that can happen, but as long as the government says no bank depositor will lose money, the government will pay. Well, somebody has to lose money, and who do you think it’s going to be, whether it’s the Biden administration or the next Republican administration?
The economy will lose money. This is not only the disaster of Fed mismanagement, because the Fed is managing a financial system that has been privatized and financialized and debt leveraged to the point where it is unsustainable.
And the government and the media are not confronting the fact that the existing debt overhead of the banking system and the financial system and the private capital, that all of this is unsustainable, and we’ve reached the point of unsustainability.
Well, if eighth graders can see that the banks are insolvent, even investors and even some economists can do the mathematics and see how insolvent they are and realize that we’d better take our money and run.
So you’re now having the wealthiest 1% of the country taking their money and running, and that’s what’s causing this problem.
You can expect the wealthiest 1% to contribute very heavily to the 2024 presidential campaign.


BEN NORTON: Very well said. And Michael, I want to emphasize how this highlights regulatory capture.
So you talk about how essentially the so-called regulators are working for the banks.
Now the irony is that, as Wall Street on Parade pointed out, JPMorgan has been rated by regulators to be the riskiest bank in the United States. It’s also the largest bank, and it just swallowed up First Republic Bank.
Now, this also violates antitrust laws. That’s what’s so incredible.
So not only is the US government further empowering and enlarging this risky bank, but antitrust laws say that a financial institution that holds more than 10% of all of the insured deposits in the US cannot expand further and buy up another bank.

讽刺的是,正如《华尔街巡游》(Wall Street on Parade)所指出的那样,摩根大通被监管机构评为美国风险最高的银行。它也是(美国)最大的银行,刚刚吞并了第一共和银行。

Obviously JPMorgan, as the largest bank, has significantly more than 10% of insured deposits in the US. So now it’s growing even further in violation of the antitrust laws on the books.
And again, I want to highlight this fact, that the FDIC’s deposit insurance fund, according to its filings at the end of 2022, had $128 billion. And in just two months, it’s already spent $35 billion.
So about one quarter of the entire deposit insurance fund to bail out these banks, Silicon Valley Bank, Signature Bank, First Republic Bank. And now we see this crisis spreading further.
So who is watching the watchmen? Who is regulating the regulators? I mean, they’re working for the banks, clearly.


MICHAEL HUDSON: I think you’re missing the point to put the blame on the regulators. The problem’s not that the banks control the regulators and regulatory capture. They’ve captured the government. And it’s the government that appoints the regulators.
So you can’t just blame the regulators, because if the government has been captured by the financial sector, then they’re just going to appoint new regulators who’ve gone to the same business school and have been brainwashed in the same neoliberal “Chicago School” economics that would do exactly the same as the regulators are doing now.
The regulators can only regulate within the existing legal system and the existing political system. They can’t change the political system. And the problem is systemic itself.
The existing financial system cannot survive in the way that it is now structured, because it makes any increase in interest rates drive banks insolvent.
And the government has said, — We’re not going to support the small banks, we’re not going to support the local commercial banks or the smaller revenue banks. They’re not our campaign contributors.


We know who the campaign contributors are. The Citibank, Chase Manhattan, they’re the big financial firms and the private capital firms.
So the government has basically announced, if you want to keep your money safe, move it to one of the five big systemically important banks. “Systemically important” means, it’s a bank that controls government policy of the financial sector in its own favor.
And you want to be part of a system where the banks [in which] you have your deposits are in control of who gets elected in government to appoint who becomes the Federal Reserve regulator and the various bank agency regulators.
That’s what President Biden says is the key to American democracy. Not realizing the semantic terminological distinction between democracy and oligarchy.


BEN NORTON: Yeah, very well said. And I’ve mentioned, we both have mentioned a few times here, Wall Street on Parade, the amazing financial blog by Pam Martens and Russ Martens.
I highly recommend everyone checking out their website. I’ve invited them on before, but unfortunately they don’t do interviews.
But Michael, they published another article that discussed the $247 trillion in derivatives that 25 U.S. banks are exposed to.
And they speculated that one of the reasons, in March, that these large banks, 11 big banks in the U.S., deposited $30 billion in First Republic Bank to try to save it.
Now, at the time that was portrayed as this great benevolent act by these large banks to try to prevent First Republic Bank from going under.


But Wall Street on Parade speculates that actually one of the reasons they did that was to try to save themselves over their exposure to $247 trillion in derivatives.
And they pointed out that the four big banks that contributed the most to try to save First Republic Bank, the systemically important banks, have 58% of the $247 trillion in derivatives.
So that means that they have over $140 trillion worth of derivatives. I mean, just saying that number sounds just unfathomable. It sounds like we’re talking about imaginary figures.
But what we’re essentially seeing is that the entire U.S. financial system is a big casino. And there are bets that are several times the size of the entire U.S. GDP in the U.S. banking system.
I mean, what’s going to happen with these derivatives?


MICHAEL HUDSON: Well, I describe what has happened before in Killing The Host. Remember when Greece elected the Syriza party, and it was obvious that Greece could not pay the $50 billion in foreign debt that it had.
And there was a lot of pressure by the incoming government, Varoufakis and others, saying, you’ve got to write down the debts.
And the European Central Bank was all set to write down the debts. The head of the IMF pointed out that the Greek billionaires actually had $50 billion of their own money stashed in Switzerland, of tax avoidance money.
And this $50 billion could have been grabbed by the government and used to repay Greece’s foreign debt.
Well, they were about to write down the debt when President Obama sent his Treasury Secretary, Tim Geithner, over. Obama made a speech, Geithner made a speech. I quote them in Killing The Host.


He said to Europe, — No, no, you can’t let Greece let these bonds go under and default, because the American banks have made such a big bet on derivatives that they would lose money, and you Europeans have to lose the money, not America. That’s how our democracy works.
And so the Europeans said, — Okay, we will make Europe lose money, we’ll make Greece go bankrupt, just so that your American banks, who’ve contributed the most money to Mr. Obama’s presidential campaign, will not have to lose a single penny on their bad derivatives, because now they’re good derivatives because we’ve destroyed the Greek population to help you.
This was probably the most vicious of all of Obama’s actions, apart from the destruction of Libya.
What had happened to Greece under the Syriza government and the bankruptcy is exactly what’s happening on a vastly increased scale today.


The Treasury Secretary’s job is to protect the big banks.
And Ms. Yellen has said, — Just as we’re supporting an unsupportable loser in Ukraine, we’re going to support the unsupportable losers, seemingly, in the American banks.
We will do whatever it takes so that the big banks do not lose money, even though they’ve made a bad bet, a bet that would have lost all the money, a bet that would have left them insolvent, a bet that would have led them to be taken over by the FDIC and turned from a private bank into a government bank.
We’re going to prevent that, because that would be socialism. And that’s what we’re fighting against in America, just as we’re fighting against that in Europe.
So you’re having, I won’t characterize what kind of a political system we’re under, but the Treasury Secretary, the Treasury as a whole, has been just as captured by the financial sector as the Federal Reserve.


And you want to look at the Treasury as the bad guys in this. You want to look at the people who are working under Ms. Yellen.
And I think that Pam Martens makes this very clear when she goes through all of the balance sheet maneuverability for this.
When I have a question, I’ve called her to ask for explanations. I mean, you’re right. Her site is the go-to site for this.
So the bottom line is, the whole U.S. economy is being sacrificed to banks that have made bets, and they’ve been bad bets.
Their bets have gone wrong, and they’re bailed out by the Treasury, saying, — Even if you make bad bets, no matter what, we’re going to rescue you, no matter what it takes for the economy at large.
That is the hard iron fist of the financial system controlling the economy as today’s central planner.


BEN NORTON: Yeah, and we now see that this crisis that we’ve seen in the U.S. banking system is spreading, especially to medium-sized banks.
The latest reports show that PacWest is on the verge of collapsing. Also Western Alliance is being targeted and their stocks are falling very rapidly.
And once again, to go back to Wall Street on Parade, they specifically single out short sellers. They say short sellers are targeting these banks because they can see that they could potentially be the next banks to go down.
And they’re trying to make money off of this.
And over at Wall Street on Parade, Pam Martens and Russ Martens argued that the U.S. government is putting its own national security at risk, the stability of the financial system at risk, by not suspending the short selling of federally insured banks.
So what do you think about this argument that short sellers should not be allowed to do this because they’re helping to fuel the collapse of these banks in order to profit from it?