Regulars of this blog will know that 31st January 2011 was my deadline for finishing my new book, THE GLOBAL MINOTAUR: America, the True Oirigns of the Financial Crisis, and the Future of the World Economy. Well, I missed my deadline. By two hours and thirty six minutes! As deadline misses come, it was not a bad one. While still in a state of euphoria, for having defeated my beast, I thought it appopriate to post some extracts. Those of you who know nothing about my Minotaur, might as well begin at the beginning. In this, earlier, post I explain what the Minotaur symbolises and why its allegorical power can throw light on our current travails. Today, I am posting parts of Chapter 8, whose title is: “The Handmaidens Strike Back”.The preceding chapters told the story of the Global Plan (1947-1971) , of how its unravelling led to a wilful disintegration of the world economy, of how a Global Minotaur emerged from the ashes of the Global Plan, of how it dominated the world economy and, lastly, how it crashed and burnt in 2008. The following extracts tell a story of how the Minotaur’s handmaidens, which had tended to its every need while it was alive and kicking, went into business for themselves, after 2008 and the Minotaur‘s mortal wounding.
Prelude: The Global Minotaur’s glittering triumph
In the aftermath of the Crash of 1929, the world understood that, in a time of Crisis, the state (the Fed and the Treasury) must step in as the lender of last resort. In the era of the Global Minotaur a new dictum was needed: The United States had become the spender of first resort. Its trade deficit became the steam engine that pulled world output and trade out of the 1970s mire. Its budget deficit and banking sector acted like a magnet that stimulated the capital inflows necessary to keep Wall Street buoyant and the US deficits satiated. It is no wonder that, when the Minotaur was wounded mortally in 2008, the world ended up in another mire.
While its supremacy held sway, the Global Minotaur performed the duties its minders had planned for it to perfection. From 1975 onwards, America’s twin deficits gathered pace (with the sole exception of a dip during President Clinton’s second term). As for its effects on America’s relative economic position, the wilful “disintegration in the world economy”, that occurred in the 1970s and early 1980s, had painful effects for all: GDP growth fell all over the world but, notably, it fell more in Europe and Japan than in the United States. It was the prelude to America’s revitalised hegemony. For while in the 1960s, US growth trailed behind that of its protégés, in the 1970s and 1980s America caught up. And once the 1990s came, it powered ahead. The Global Minotaur had worked its legendary magic.
THE HANDMAIDENS STRIKE BACK (Extracts from Chapter 8 of THE GLOBAL MINOTAUR)
With a little help from my friends: The Geithner-Summers Plan
If Crises are the future’s laboratories, the chief experimenters who try out different ‘treatments’ play a central role in the outcome. Following the Crash of 2008 such experiments shaped its aftermath; what I called bankruptocracy. No better example can be had of these audacious experimental methods than the famous Geithner-Summers Plan.
Failure pays: Nothing perseveres like privilege’s determination to reproduce itself. During the Global Minotaur‘s days Larry Summers (President Clinton’s Secretary of the Treasury) gave the green light to the complete deregulation of Wall Street. At the time Timothy Geithner was his Undersecretary. So, who was to be summoned to clean up the mess they had a major hand in creating when President Obama came to power eight years later? Summers and Geithner of course! The explanation? Who else could be trusted with such a big job and all the privileges it brought to its bearers? Once capitalism grows sufficiently complex, failure pays. Every crisis boosts the incumbent’s power because they appear to the public as the only good candidates for mopping up the mess. The trouble is that the ‘solutions’ implemented by the original creators of the problem create even more centralisation and complexity which, in turn, further boosts the culprits’ indispensability…
The Geithner-Summers Plan started life in February 2009 and constituted President Obama’s $1 trillion package for saving the banks from the worthless CDOs in which they were drowning. The problem with an asset that no one wants to buy is that it has no… price. The honest thing to do would have been to force the banks to write the CDOs off as bad investments. But if their did that, their losses would greatly exceed their assets and all banks would have to file for bankruptcy.
One solution would be to have the taxpayer, or the Fed, ‘buy’ these ‘assets’ at made up prices that would be just high enough to prevent across the board bank failures. This what Secretary Paulson had in mind, albeit never secured enough money from Congress to implement. So, after the change of government, the ball fell in Geithner’s and Summers’ court. And they decided that they would try something new out; a brilliant idea that would create a marketplace for these defunct CDOs and save the taxpayer the cost of bailing the banks out, again.
Their idea was simple: To set up, in partnership with banks, hedge funds, pension funds etc. a simulated market for the toxic CDOs that would yield simulated prices which could, then, be used to re-write the banks’ accounts. Here is how it was meant to work: Suppose Bank B owns a CDO, let’s call it c, that B bought for $100, of which $40 was B‘s own money and the remaining $60 was leverage (i.e. a sum that B somehow borrowed in order to purchase c). B‘s problem is that, after 2008, it cannot sell c for more than $5. Given that its vaults are full of such CDOs, if it sells each below $60, it will have to file for bankruptcy, as the sale will not even yield enough to pay its debt of $40 per CDO (i.e. a case of negative equity). Thus, B does nothing, holds on to c, and faces a slow death by a thousand cuts as investors, deterred by B‘s inability to rid itself of the toxic CDOs, dump B‘s shares whose value in the stock exchange falls and falls and falls. Every penny the state throws at it to keep it alive, B hoards in desperation. Thus, the great bail out sums given to the banks never found their way to businesses that needed loans to buy machinery or customers that want to finance the purchase of a new home. And this made a bad recession worse.
Enter the Geithner-Summers Plan which created an account, let’s call it A, that could be used by some hedge or pension fund, call it H, to bid for c. Account A would amount to a total of, say $60 (the lowest amount that B will accept to sell c at) as follows: Hedge fund H contributes $5 to A and so does the US Treasury. The $50 difference comes in the form of a loan from the Fed. The next step involves the hedge or pension fund, our H, to participate in a government organised auction for B‘s c; an auction in which the highest bidder wins c.
By definition, this auction must have a reservation (or minimum) price of no less than $60 (which is the minimum B must sell c for if it is to avoid bankruptcy). Suppose that H bids $60 and wins. Then B gets its $60 which it returns to its creditor (recall that B had borrowed $60 to buy c in the first place) and, while B loses its own equity in c, it lives to profit another day. As for hedge fund H, its payout depends on how much it can sell c for. Let’s look now at two scenarios; a good and a bad one for H.
In the good scenario case, hedge fund H discovers that, a few weeks after it purchased c for $60 (to which it only contributed $5), its value has risen to, say, $80, as the simulated market begins to take off and speculators join in. Of that $80, H owes $50 to the Fed and must share the remaining equity ($30) with its partner, the US Treasury. This leaves H with $15. Not bad. A $5 investment became a $15 revenue. And if H purchases a million of these CDOs, its net gain will be a cool $10 million.
In the case of the bad scenario, H stands to lose its investment (the $5) but nothing beyond that. Suppose, for instance, that it can only sell CDO c, which it bought for $60 using account A, for $30. Then, H will still owe $50 to the Fed on a revenue of only $30. Normally, it would be $20 out of pocket (as would the Treasury). However, the $50 loan by the Fed to H is what is known as a non-recourse loan; which means that the Fed keeps the money from H‘s sale of c but has no way of getting the rest of its money (the $20 of outstanding loans) back from H.
In short, if things work out well the fund managers stand to make a net gain of $10 from a $5 investment (a 200% return) whereas if they do not they will only lose their initial $5. Thus, the Geithner-Summers Plan was portrayed as a brilliant scheme by which the government encouraged to hedge and pension fund managers to take some risk in the context of a government designed and administered game that might work; one in which everyone wins – the banks (who would have rid themselves of the hated CDOs), the hedge and pension funds that would make a cool 200% rate of return, and the government which would recoup its bail out money.
It all sounds impressive. Until one asks the question: What smart fund manager would predict that the probability of the good scenario materialising is better than around one third? Who would think that there is more than one chance in three that the duff CDO would sell for more than $60, given that now no one wants to touch the toxic CDO for more than $5 now? Who would participate in this simulated market? Committing $1 trillion to a program founded on pure, unsubstantiated optimism seems quite odd.
Were Tim Geithner and Larry Summers, two of the smartest people in the US administration, foolhardy? Of course not. Their Plan was brilliant but not for the stated purpose. While its stated purpose was to motivate hedge and pension funds to buy the banks’ burnt out toxic money, the CDOs, a closer look, as we just saw, reveals that prudent hedge and pension fund managers would not play any part in it. So, did Geithner and Summers not know that? Of course they did. Who, then, did they count on to bid for the banks’ toxic derivatives, if the hedge and pension funds were certain to stay away? The ground-shattering answer is: The banks themselves!
Here is what was really intended (and, unsurprisingly, happened): Consider Bank B again. It is desperate to get CDO c off its balance sheet. The Geithner-Summers Plan then comes along. Bank B immediately sets up its own hedge fund, H’, using some of the money that the Fed and the US Treasury has already lent it in a previous bail out. H’ then partakes of the Plan, helps create a new account A’, comprising $100 (of which H’ contributes $7, the Treasury chips in another $7 and the Fed loans $86) and then immediately bids $100 for its very own c. In this manner, it has rid itself of the $100 toxic CDO once and for all at a cost of only $7, which was itself a government handout!
It was a devilish plan for allowing the banks to get away with figurative murder. However, the significance of the subterfuge in the Geithner-Summers Plan goes well beyond its ethical or even fiscal implications. The Paulson Plan that preceded it was a crude but honest attempt to hand cash over to the banks no-questions-asked. In contrast, Geithner and Summers tried something different: to allow Wall Street to imagine that its cherished financialisation could rise Phoenix-like from its ashes on the strength of a government-sanctioned plan for creating new derivatives; new forms of private money underwritten by taxpayers’ public money.
In essence, the administration allowed the Global Minotaur‘s staunchest and ugliest handmaiden to make a mighty come back after the beast’s fall from grace. It was only one move of many that politicians made along a path which, ironically, led them to their own disempowerment. By arming the hand of the bankrupt banks, they deprived themselves of any serious room for effective policy making. Once Wall Street’s powers had been restored, politics lost its capacity to rein in the ongoing Crisis.
Europe’s version of the Geithner-Summers Plan
Europe’s Crisis, which comes into its own in the next chapter, has its own special peculiarities. However, it is instructive to take a quick look at the incredible hold that the toxic derivatives had over the imagination of European institutions. In a continent that was, purportedly, scornful of American-sourced CDOs, it is fascinating to find that, when the European Union (EU) decided to create a loan facility for its fiscally stressed member-states (e.g. Ireland, Portugal, Spain), it found its inspiration in the structure of the dreaded CDOs.
In May 2010 the EU created a so-called Special Purpose Vehicle (SPV). Its purpose to borrow on behalf of solvent eurozone countries and lend to the rest who had been frozen out of the money markets, thus avoiding defaults on state debts that would have decimated the banks which, in turn, had loaned large amounts to these states.
The SPV, later named EFSF (the European Financial Stability Facility), was meant as a temporary fund. As the euro crisis deepened, it was decided that it would evolve, by 2013, into a permanent institution called EFSM (the European Financial Stability Mechanism). The idea was to borrow, on behalf of the eurozone, €440 billion to be lent to the illiquid, and possibly, insolvent members-states.
Two features of the EFSF make it a fascinating example of bankruptocracy. The first feature, into which I delve in the next chapter, is that the EFSF is raising money to bail out not Ireland, Portugal etc. but Europe’s failing banks. The second feature, which is more pertinent here, is that the EFSF is borrowing money by issuing toxic eurobonds. That is, bonds that are structured in a manner identical to the errant CDOs of yesteryear.
Recall how Wall Street’s CDOs bundled together slices of different mortgages (prime and subprime ones), each bearing different interest rates and default risks. And, moreover, that the mix was truly toxic, or explosive, because if one slice within a given CDO went bad (e.g. Jack defaulted on his loan), that increased the risk of a default by the next slice (e.g. Jill would default because her chances of losing her job, and defaulting, increased when Jack lost his job and home).
Similarly with the EFSF bonds issued, for example, for lending to the Irish state which, in December 2010, came to verge of bankruptcy, having failed to find the money to repay, as promised, its private banks’ debts. The EFSF loans for Ireland were raised from the money markets by the EFSF on the strength of guarantees issued by the remaining 15 eurozone states, in proportion to their GDP (17 member-states minus Greece, which had already been frozen out of the marketplace in May of 2010, minus Ireland). The total sum raised was then cut up in small ‘packets’, each containing a slice that was guaranteed by Germany, another slice by France, another by… Portugal. Now, given that each country had different degrees of creditworthiness, each was charged a different interest rate. Lastly, these ‘packets’ were sold off as bonds, mostly to Asian investors and Europe’s own (quasi-bankrupted) banks.
Now, suppose what happens if Portugal too is forced to exit the money markets, just like Greece and Ireland did before. One reason why this may well happen (if it has not happened already, by the time you are reading this), is the very fact that Portugal, already on the verge, was just forced to borrow, at high interest rates, on Ireland’s behalf! Speculators may well buy CDSs, that will pay them if Portugal defaults, and the rise in the price of these CDSs may push the interest rates Portugal must pay for new loans to a level that is unsustainable. Thus, Portugal goes to the EFSF cap in hand!
The EFSF will then have to issue new debts, on behalf of the remaining eurozone countries, to help Portugal. This means that, with Portugal out of that group, a greater burden will be shared by the 14 countries remaining to guarantee the EFSF’s bonds. How will markets react? By focusing immediately on the new ‘marginal’ country: the one that is currently borrowing at the highest interest rates within the EFSF in order to loan the money to Greece, Ireland and, now, Portugal: Spain! At once, Spain’s own interest rates will rise until Madrid is also pushed out of the markets. Then there will be 13 countries left to borrow of EFSF’s behalf and the markets will focus on the newer ‘marginal’ country. And so on, until the band of nations within the EFSF is so small that they cannot bear the burden of total debt on their shoulders (even if they wish to).
In the next chapter I employ the metaphor of a group of stricken mountaineers, held together by a single rope, and falling off the mountain’s face one after the other until the strongest members also fall, unable to withstand the weight of all the rest. Seen through this prism, the EFSF’s brief begins to look desperate. Its bonds have bundled together different kinds of guarantees (offered by each individual state) in ways that remain woefully opaque. This is precisely how the CDOs came to life prior to 2008, featuring two deadly sins:
First, structuring the EFSF bonds like the CDOs that caused such problems for the world economy seems, at the very least, careless. One immediate repercussion of its CDo-reliance is that the EFSF must borrow €440 but only hand over loans worth at most €250. The remaining €220 billion must sit idly by gathering dust! Why? Because investors know that the bonds they are buying are toxic and will only buy them if the EFSF keeps a lot of money on hold to repay them in case of a default by Portugal or some other eurozone member-state. It is, in short, a highly inefficient way of pooling debts.
Secondly, this type of political intervention, just like the Geithner-Summers Plan in the United States, not only absolved the principle of CDOs (and by extension its Wall Street progenitors) but, more importantly, allowed banks, insurance companies, hedge funds etc. to create new forms of private money. Like the Crash of 2008 had never happened! In the United States, we already saw how the Geithner-Summers Plan created new derivatives and, thus, pumped new private money, underwritten by good old public money, into Wall Street. In Europe, something equally sinister occurred.
When it became clear that EFSF-style interventions to bail out countries like Greece and Ireland would be financed by toxic eurobonds, and given that the markets were not convinced for one moment that they would, in the end, effectively deal with these states’ solvency issues, banks and hedge funds grasped with both hands the opportunity to turn the uncertainty about the euro into another betting spree. This is precisely what they did: They took out bets, in the form of CDSs, against European member-state bonds (e.g. Greece’s, Ireland’s, Spain’s, Italy’s). In the end, both the toxic EFSF eurobonds and this voluminous output of fresh CDSs constitutes a new round of unsustainable private money generation. When the latest pile of private money turns to ashes too, as it certainly will, what next for Europe?
Biting the hand that saved them: The ugliest handmaiden at its boldest
The very essence of the Geithner-Summers Plan, both in its original and its European incarnations, was a vindication of Wall Street’s private money formation. Rather than broadcasting a resounding ‘Never Again!’ message, our political leaders effectively signalled to the banks that it was business as usual. Moreover, it was business as usual with public funds. Karl Marx once mused that history repeats itself, only the second time as farce. So, whereas prior to 2008 Wall Street was creating its synthetic financial products on its own, perhaps with the government turning a blind eye, following the 2008 meltdown it does so with massive government (American and European) subsidies.
In summary, as early as in February of 2009, the Obama administration blew a breezy wind into Wall Street sails by engineering a new marketplace for the old derivatives (which were replete with poor’s people’s mortgage debts). The medium of exchange in this new marketplace was a mixture of the old (refloated) derivatives and new ones (based not on poor people’s mortgages but on the taxes of those who could not avoid paying them; often the same poor people, that is). Thus, many of the banks toxic assets were moved off the banks’ accounts while the production of new private toxic money took another turn. A year and a half later, the Europeans as if not to be outdone, followed suit with EFSF-style debt issues and bank bail outs, contributing too to a new wave of highly toxic financial ‘products’.
Once the banks’ balance sheets were cleansed of most of the toxic CDOs, Wall Street used some of the proceeds, and some of the bail out money from the various waves of assistance received from the state, to pay the government back. Of course, when I say they paid the government loans back, I am committing a gross exaggeration. What they returned was only a tiny fraction of what the Treasury and the Fed had given them. For the vast bulk of the bail outs came in the form of gargantuan, but unreported, guarantees. They were never repaid. Nor was the gigantic cost of the Geithner-Summers Plan reimbursed. Least of all, the banks never even acknowledged the hundreds of billions of their shares and other assets purchased by the Fed under the table in a show of solidarity with Wall Street (which is known as quantitative easing). That none of that will ever be repaid either is a foregone conclusion.
In short, first the banks were empowered (by the taxpayer) to return to their racket of creating private toxic money and then they repaid a smidgeon of their debts to the government; a sum high enough to legitimise the fresh bonuses of their managers. Once the bonuses started flowing again, and the stock exchange recovered, the press began waxing lyrical about the recession’s end. The economy, we were told, was growing again. The Press, commentators, economists, Wall Street experts, almost everyone, seemed to be releasing a collective sigh of relief that the end of the world was averted. Although most serious voices speak the language of caution, and some worry loudly about a double-dip recession, the conventional wisdom is that we are out of woods. And yet, unemployment is as high as ever, house foreclosures or repossessions continue unabated, real wages remain catatonic.
In political terms, our governments have clearly capitulated well and truly to the failed banks. And as is usually the case with capitulations to sinister characters, no one thanked the capitulator. Indeed, the Geithner-Summers Plan increased the banks’ blackmailing power vis-à-vis the state. While President Obama’s administration was busily accepting the Wall Street mantra on no fully blown nationalisations (i.e. the bogus argument that recapitalising banks by means of temporary nationalisations, as in Sweden in 1993, would quash the public’s confidence in the financial system, thus creating more instability which, in turn, might jeopardise any eventual recovery), the Street’s banks were already plotting against the administration, intent on using their renewed financial vigour to promote Obama’s political opponents (who offered them promises of offensively light regulation).
This twist took on added significance in January 2010 when the US Supreme Court, with a 5-4 vote, overturned the Tillman Act of 1907, which President Teddy Roosevelt had passed in a bid to ban corporations from using their cash to buy political influence. On that fateful Thursday the floodgates of Wall Street money were flung open as the Court ruled that the managers of a corporation can decide, without consulting with anyone, to write out a cheque to the politician that offers them the best deal, especially regarding regulation of the financial sector in the aftermath of 2008.
President Obama’s reaction to this ‘betrayal’ was to use his anger smartly: He empowered Paul Volcker, who is still going strong in his eighties, to author the regulatory legislation under which Wall Street will have to labour in the future. And to write it in such a manner as to tighten the authorities’ grip over Wall Street in important ways. Volcker, in his new capacity as head of the Economic Recovery Advisory Board (ERAB), came up with the Volcker Rule which the administration promised to push through Congress. The Volcker Rule revives the New Dealers‘ Glass-Steagall Act, which Larry Summers had done away with in the 1990s. It prohibits banks from doubling in derivatives and other exotic financial products. Volcker’s basic idea is that banks which accept deposits and are insured against failure by the state ought not be allowed to participate in either the stock market or the derivatives’ trade.
Having to face one of the Global Minotaur‘s early prophets, and minder during its 1980s adolescence (recall Volcker’s role in Chapter 3), gave Wall Street bankers a few sleepless nights. But they did not last long. By January 2011, Volcker was retired, as was his committee. It is clear that the brief moment when Wall Street was weak enough to be forced into significant concessions, had passed. The Minotaur‘s most unsightly handmaiden had been emancipated. The question that now remains is: How will it manage without the Global Minotaur? We shall leave aside such speculation for the book’s end.
The return of predatory governance, vacuous economics and the curious tragedy of market fundamentalism
Free market fundamentalism, both at the level of political ideas and of economic theory, has already featured as one of our Minotaur‘s handmaidens (see Chapter 5). In a sense, it functioned in ways not different to how Marxism was employed under the Soviet regime: More honoured in the breach than in the observance! In both historic junctures, lofty ideals, underpinned by fascinating economic treatises, were utilised for baser purposes: To legitimise a particular social group’s usurpation of power and wealth.
Conquering the state apparatus on behalf of the high and mighty was a well established pattern in America before 1929 (recall Chapter 2). The Crash of 1929 was the nemesis that history unleashed against a society which had allowed itself to be preyed upon by a predator state; one initially captured by the robber barons, then by the new corporate magnates and, soon after, by Wall Street.
After the New Deal and World War II engendered the Global Plan, a new socio-economic realignment saw to a more inclusive compact between the corporations, government and working Americans. It lasted a couple of decades that almost everyone still remembers as capitalism’s Golden Age. However, when the Global Plan collapsed in 1971, and both the American and the world economies were wilfully disintegrated, in order to pave the ground for the Global Minotaur, the post-war compact broke down.
It was no accident. Its dismantling, as we have seen, was a prerequisite for attracting to the United States the capital inflows that would keep the twin deficits forever on the rise. Its implosion was a requirement for the domination of the Global Minotaur. But who benefitted really from the beast? The top earners, the parts of American society that worked in or around the financial institutions, the fossil fuel industry, the industrial sectors attached to the military-industrial complex (mainly the electronics, IT-related, aeronautical and mechanical engineering sectors). It also benefitted those lucky enough to own part of Wal-Mart type of highly exploitative firms. The Minotaur worked for them. And free market fundamentalism was its ideological handmaiden.
As for the actual ideals underpinning free market fundamentalism, their fate was identical to that of Marxism in Moscow: they became the first victims of its political champions’ rise to power. Indeed, when in 1980 Ronald Reagan entered the White House, he spoke the language of supply side economics, balanced budgets, the withering of big government (ironically, an expression first coined by Marx) etc. etc. However, after a few months of toying with such policies, and once unemployment skyrocketed in 1981, Reagan performed an abrupt a U-turn (just like Lenin had done by adopting his New Economic Policy the moment he discovered that socialising the factories did not work as well as planned): The President, instead of shrinking government and balancing the budget, put his foot on the accelerator. The twin deficits ballooned and, as a result of his unbridled Keynesian practices, unemployment shrank and the Global Minotaur was on its merry way.
After the Crash of 2008, three things changed. First, the Minotaur was laying in its Labyrinth wounded, too unwell to keep consuming enough of the surplus outputs of Europe, Japan, China and South East Asia to prevent their economies from stalling. Secondly, the financial markets had collapsed and the private money they had created was gone, dust carried away by the Crisis’ powerful winds. Thirdly, politicians were either emboldened or were replaced by fresh stock promising to rein in the Minotaur‘s handmaidens.
Of these three effects of 2008, only the first is still with us. Both in America and in Europe, the politicians who wanted to stand on their two feet and face down the fallen Minotaur‘s handmaidens, hesitated. While they were dithering, other, less scrupulous politicians, sprang to action: Their first step was to utilise the freshly minted public money that were pouring into the banks to keep them alive in order to allow Wall Street and the rest of the world’s banks to start pumping out even newer forms of toxic private money. Once that racket had been re-established to an extent sufficient for the purposes of restoring the banks’ political power, the politicians who wanted to make a difference realised it was too late. And so they recoiled, preferring to live to fight another day than to put up a futile fight.
Epilogue: The worst of both worlds
What happens when the handmaidens take over, once their bullying master is taken ill? It depends on the handmaidens. Unfortunately, the ones we are saddled with rule in a manner that preserves the worst aspects of the Global Minotaur‘s rule (the inequities, the boorishness and the instability) without providing the world with the important function it served: to keep generating sufficient overall demand for Europe’s and Asia’s surplus output by recycling the world’s surpluses.
Up until 2008, while international trade imbalances were growing unstoppably, the Global Minotaur was attracting sufficient capital from across the world to recycle other people’s surpluses and, therefore, to keep them re-materialising year in year out. Additionally, Wall Street, on the back of these inflows, generated its private money which, subsequently, provided the world with the mammoth liquidity that allowed a steady increase in aggregate surpluses. An unsteady, and unsustainable, racket it certainly was but, at least, while it lasted, there was a certain logic to it.
Nowadays, the Minotaur cannot perform this balancing act anymore. The American economy is running at far less than full capacity, unemployment is eating into demand for goods, houses and services, and Wall Street, while in full recovery-mode courtesy of the captured political personnel, finds it impossible to generate enough of the private money of yesteryear to fuel another consumer and investment boom; the boom that Europe, Japan and even China must have in order to return to a sustainable growth path.
We are, essentially, ruled by the Minotaur‘s handmaidens without benefitting from the beast’s stabilising influences. If the pre-2008 period was unsustainable, the post-2008 period is replete with tensions that threaten future generations with tumult that the mind refuses to envision.
 The Treasury’s equity contribution of the $5 would actually come from something called TARP (the Troubled Assets Relief Program) whereas the Fed’s $50 would come from the FDIC (the Federal Deposit Insurance Corporation founded by the New Dealers, as part of the Glass-Steagall Act of 1933, in order to guarantee to depositors their saving in case of a bank failure). The Geithner-Summers Plan set aside $150 billion for TARP, $820 billion for FDIC and expected the private sector (hedge and pension funds) to chip in $30 billion of their own money.
 If the good scenario materialises, H‘s net equals $10. If the bad good scenario materialises, H’s net returns are -$5. The ‘distance’ between these two numbers is $15. Should it take part in this simulated market gain? Simple calculation suggests that H stands to gain only if the probability of the good scenario is better than the possible loss ($5) divided by that ‘distance’.
 Henry Kissinger reportedly once said that Summers “…ought to be given a White House post in which he was charged with shooting down or fixing bad ideas.”
 Moreover, if by some miracle its subsidiary H’ can sell c for more than $100, it will stand to gain an extra sum.
 The plan was that the EU’s own budget would chip in another €60 billion and the IMF a further €250 from the IMF, bringing the total package up to €750 billion.
 The idea of the neoliberal predator state is due to James Galbraith. See his The Predator State: How conservatives abandoned the free market and why liberals should too, Free Press, 2008.
 Though it would be offensive to the black community and to other minorities to call the 1950s and 1960s a ‘Golden Age’, it is still true that the stable growth of that era enabled the Civil Rights movement to rise up when it did, and to make its voice felt.
 The reader may object that China is in fine working order. In the next chapter I shall argue that it is not. Its growth is predicated upon unsustainable stimuli that do not have the power to create the long term demand that will keep it going.