An Exchange with Michael Hudson
on the Role of the Banks

Edward J. Dodson

[2009]

During 2009, University of California economics professor Mason Gaffney provided his analysis of the current financial crisis to an online discussion group in which economist Michael Hudson and I also participate. Later, the transcript of this exchange appeared on another discussion group's email distribution (Norman Kurland's list set up to discuss and advance the binary economic principles and policies initially developed by Louis Kelso and Mortimer J. Adler). Michael was quoted as referring to Mason Gaffney and to me as "two Georgist nuts."

Whether or not I qualify as a "Georgist nut" as asserted by Michael Hudson, I leave to others to conclude. My long association with Mason Gaffney and familiarity with his research and writing long ago convinced me he possesses a profound understanding of economic theory and political economy. My association with Michael Hudson goes back to the 1990s,when Michael was engaged by the board of the Henry George School of Social Science in New York to work under the direction of a board member, Si Winters, on a book project, and subsequently to peform certain research. As time went on, this association soured. Michael resorted to personal attacks on those who chose not to support a continued relationship and the funding of his activities. Michael has stated on numerous occasions he belief that the movement initiated by Henry George was gradually taken over by defenders of monopolistic finance capitalism and by individuals who embraced the radical individualism espoused by the likes of Albert Jay Nock and Ayn Rand. The practical result, Michael concludes, is that the few Georgist organizations with any financial assets abandoned the interests of working people in favor of a defense of property. This is not the place for an extended discussion of the history of the Georgist movement and organizations or the merits, if any, of Michael's assertions. Readers interested in the complexity of the issues involved are referred to the numerous articles addressing these matters available in the online library of the School of Cooperative Individualism.

The transcript of the exchanges between Mason Gaffney, Michael Hudson and me are reproduced below. Despite Michael's resort to personal attacks, I believe the discussion has some importance to those of us who sincerely seek systemic reforms, reforms that will yield sustainable economic growth and a more just distribution of wealth and income.


******

Opening Comments by Michael Hudson

How bank credit absorbs the rent: The Financial Business Plan to Devour the Economic Surplus
.... All economic history may be viewed as a rivalry among various classes and groups to see who will end up with the economic surplus. In archaic society, the chieftain¹s households (evolving into the palace and into temples) received the surplus. From the military conquests of medieval Europe through World War I, landlords possessed the economy¹s largest asset: land, extracting land rent.
.... Since the 20th century, the financial sector has sought to end up with the surplus, but absorbing the government¹s tax revenue (via public debt) and the land¹s rental flow (via mortgage interest) as well as corporate profits (by "financializing" industry).

How banks create credit to absorb rent, and end up losing money by not seeing that their financial behavior causes an economic downturn

Mason Gaffney:
....My impression is that quite a few Georgists do believe banks create money out of thin air; at least, I see that alleged frequently in these exchanges, by various people. I believe that is Zarlenga¹s position, and he has recruited a large group from the Georgist lists. It is worth talking about. I believe it is an error.
.... 1. If banks really had the power to print money, as implied, they would never go broke. And yet some do, sometimes en masse.

Answer by Michael Hudson:
.... OK, let¹s start with Mason¹s first confusion. I will avoid his rhetoric and so won¹t call it a "lie," because a lie is deliberate. Mason is honestly ignorant when it comes to distinguishing money from CREDIT. (That¹s what I wrote; credit, not money! As we will see, the difference is important.) To understand this, one needs to know how to read a balance sheet.
.... Banks create CREDIT, not "money," which only the government can create or accept in taxes. A bank loan is an asset, offset on the other side of the balance sheet by a debt.
.... If the borrower doesn't repay the debt, then the bank's asset is wiped out proportionally. This either reduces reserves or pushes the bank into negative equity.
.... This is what has happened to the banks, and to traders. Mason is utterly unaware of what it means that Glass-Steagall was repealed in 1999. It meant that banks branch out into other business besides taking deposits and creating credit. They started to enter into derivatives and options putting risky bets on which way interest rates, exchange rates and asset prices would move. Many banks lost out (as did Schalkenbach, I¹m told, year after year in investing its endowment funds), and were wiped out. So banks ³going broke en masse² stemmed largely from their excursion into non-banking operations.

Comment by Ed Dodson:
....How true. Bankers have never been particularly good business persons. Those that stick to very prudent investment and lending practices generally survive the economic busts. However, their profits are always moderate and their stock values rarely generate significant gains to equity speculators.

Answer by Michael Hudson:
.... But loan officers are paid bonuses simply on their loan volume, not their quality. They got rich making bad loans and sticking the US Treasury (aka "taxpayers") with the junk. Once you take over the government, you¹re in a position to clean up. That¹s what an oligarchy means.

Mason Gaffney:
.... 2. If this power were a privilege there would be few or no new banks or competitive institutions; yet there are many. There are privileges involved, as in most businesses (alas); but to call the whole of banking a privilege is too sweeping, hence misleading.

Answer by Michael Hudson:
.... At issue here is "what is privilege." The privilege of starting a bank can be obtained with a license. Likewise, Nic Tideman has written clearly that economic rent is a payment for privilege, by definition. Rent-yielding assets real estate, monopolies or financial privileges can be bought and sold. This doesn't make their unearned rental income "earned." When people refer to "banking" they refer to this credit-creation. The bank privilege to which I refer (and to which Stephen Zarlenga refers) is the ability to create credit that takes the form of interest-bearing debt, a financial claim that can be enforced in the public courts, and to borrow from the Fed and most recently, to get bailed out for one's losses.

Comment by Ed Dodson:
.... Agree. Until Reagan came along there was at least reasonably good regulation that evolved as a result of the 1930s banking panic. That part of deregulation that permitted the banks (and savings banks) to compete with the money market funds was late in coming, which really destroyed thousands of savings banks and some commercial banks. The other part of deregulation that made sense (to me, in any event) was allowing banks to operate in multiple geographies, which is an effective strategy for diversifying risk.

Answer by Michael Hudson:
.... Financial deregulation extended bank privilege to create a vertical trusts. This was a "privilege" to profiteer from the inherent conflict of interest between investment banking and commercial deposit banking. This privilege proved remunerative by legalizing financial fraud. It was the privilege of being exempt from the regulations that had been put in place over many generations.
.... Re geographic extension of banking, Mr. Greenspan claimed that there might be localized bubbles, but an economy-wide bubble couldn¹t exist. So geography making the same mistake everywhere was supposed to counter risk. It ended up getting a nationwide federal bailout, paid by US taxpayers throughout the land.

Mason Gaffney:
.... 3. The money (demand deposits) they create is a bank liability, payable on demand.

Comment by Ed Dodson:
.... Yes, which puts the pressure on the banks as lenders or investors to match the duration of their liabilities with that of loans made. This is one reason why most banks began to sell their mortgage loans into the secondary market or pool than together as collateral for mortgage-backed securities. They could hold the MBS as an asset ready for sale (which lowered the reserve requirements imposed) because the MBS became as liquid as any bond.

Answer by Michael Hudson:
.... Well, that was the cover story: to "match" the time frame. We now know what the real reason was: Banks sold their junk because it was worthless and they could sell it at a high price, cheating the buyers. As Gretchen Morgenson of the New York Times has described in her articles over the past year, commercial banks and their associated mortgage lenders such as Countrywide, Washington Mutual, Citibank, etc. worked with Wall Street packagers such as Bear Stearns, Lehman Bros. etc. to sell this fraudulent junk to institutional investors here and abroad.
.... Countrywide¹s Angelo Mozilo told Fannie Mae and Freddie Mac that they were "losing market share" and being left out of they didn¹t join in the fraudulent practice. So they joined in. This had nothing to do with "lowering mortgage costs" by "making mortgages more liquid." It enabled crooked banks to move junk mortgages off their books, sticking German land banks, pension funds, mutual funds and enabling hedge funds to bet that these CDOs were junk, buy cheap insurance from A.I.G., and then get the US Treasury to bail out AIG to pay the winners on Wall Street who knew all along that these mortgages were junk.

Mason Gaffney:
.... 4. Banks borrow short (from their depositors) at low or zero interest rates, and lend long, living on the spread between interest rates.

Answer by Michael Hudson:
.... This is the "Georgist error." It imagines a long-gone world, not today¹s world. Mason imagines that banks make loans out of deposits. But in (3) above he just said that banks CREATE deposits in the process of making a loan that is, they must find a borrower (say, Donald Trump) who signs an IOU (a mortgage agreement) and the bank credits his account with a deposit. An asset and debit are created simultaneously. It¹s not out of "thin air," but out of a few strokes on a computer keyboard. So you could say that it¹s electronic.
.... There is no prior deposit here. We¹re not talking about gold coinage being lent out.

Comment by Ed Dodson:
.... On this point, Mase, there is a fine art to balancing the various risks. When I managed the mortgage program for a Philadelphia bank years ago, the way this exposure was managed was to cap our mortgage loan portfolio at 10% of all bank assets. To keep this level constant we sold portions of the portfolio in the secondary market from time to time. The other way the banks began to mitigate interest rate risk was to offer adjustable rate mortgage loans.

Answer by Michael Hudson:
.... All this logic is irrelevant if you fail to acknowledge that banks create credit. That is not true of savings banks and S&Ls, which had 100% reserves.
.... In practice, banks sought to buy interest-rate derivatives. The market was entirely fraudulent, dominated by AIG and the bankrupt Wall Street firms that used junk mathematics models to insure and value junk mortgages.
.... SOMEBODY must bear the cost of an interest-bearing claim falling in price when interest rates rise.
.... Who?

Mason Gaffney:
.... 5. It is inherently a very risky business, and needs to be regulated to keep banks from lending very long, e.g. on mortgages.

Answer by Michael Hudson:
.... This reminds me of the WC Fields movie, where someone is joining a card game with Fields. "Is this a game of chance?" the mark asks. "Not the way we play it, no," Fields replies. Banks now are covered from risk by the "too big to fail" doctrine that rationalizes public giveaways.
.... Mason is trying to provide an apologetics for banks by saying that interest is a reward for risk. This idea was controverted pretty well back in the 13th century. For the last 800 years, critics have pointed out that banks make revenue (economic rent, from their monopoly privilege) far in excess of actual risks.
.... If you have any doubt, take a look at Wall Street salaries and bonuses.
.... Mason¹s obscurantism fails to distinguish the socially and economically necessary costs of providing credit (cost of production) with the price charged for this.
.... To understand the difference between (market) price and intrinsic (cost) value, one must know classical economics. That¹s what Adam Smith, Ricardo, J.S. Mill and Marx were all about.

Comment by Ed Dodson:
.... There is much room for discussion over how much regulation is needed. My view is that the key regulator is, in fact, the Financial Accounting Standards Board (FASB). FAS rulings allowed banks holding portfolios of low yielding mortgage loan portfolios to amortize losses over the remaining life of loans as payments came in, rather than having to mark these assets to market value. This was necessary to prevent many more banks from becoming insolvent in the late 1980s, and periodic marking down of assets that have lost market value creates its own chaos in interest rate environments that move up and down quickly. Should banks have to book income one quarter and losses on the same assets the next?

Answer by Michael Hudson:
.... Bank lobbyists have brought pressure to de-tooth meaningful FASB accounting standards. The result is "mark to model" science fiction instead of mark-to-market accounting.

Mason Gaffney:
.... 6. Trouble arises from moral hazard, when some higher power (or kept politician) insures depositors but fails to regulate quality of credit. This has occurred cyclically every 18 years or so over several centuries, in sync with land booms. It is a real problem.

Answer by Michael Hudson:
.... I think you¹re getting to see why Mason so passionately opposed my research from his perch at RSF. "Moral hazard" isn¹t the planet Jupiter, which does revolve around the sun every 18 years or so, like clockwork. There¹s a causal sequence at work here.
.... It wasn¹t the planet Jupiter that caused this collapse. It was Alan Greenspan and his neoliberal backers, serving as the proverbial useful idiots for the financial sector in deregulating their gambles. If you trace the financial diagnosis of these cycles as Marx did you will see a buildup of credit beyond the ability of debtors to pay. In the past, bad debts were wiped out in a convulsion of bankruptcy that wiped out the counterpart savings as well.
.... What makes today¹s financial bubble different is that the government did NOT let the bad debts wipe out bad savings. The Treasury printed new bonds (trillions and trillions of dollars of them) in "cash for trash" swaps. So instead of bad debts wiping out a corresponding volume of assets on the other side of the balance sheet, the losses are transferred from the bad creditors to taxpayers.

Comment by Ed Dodson:
.... Part of the problem is that commissions are paid to some loan officers based on loan volume generated and not on the performance of the loans. My former bank had a loan committee charged with approving any loan over a certain amount. Mortgage brokers need to be licensed, regulated and required to maintain minimum capital (or insurance to meet any loan repurchase obligations). Within the mortgage banking firms, loan originators should be paid a commission only after the loan performs for a period of time that confirms the creditworthiness of the borrower. At Fannie Mae, our guideline was that if the loan performed for 3 years, we would not question the decision even if the loan defaulted (other than looking for outright misrepresentation or fraud).
.... What we know is that the current level of deposit insurance protects the relatively well off. We need a serious debate over what the appropriate level of deposit insurance ought to be and what restrictions on bank investments and lending should be imposed as a quid pro quo for this protection.

Answer by Michael Hudson:
.... We now know that Fannie Mae became drawn into the criminalized operations of Countrywide, WaMu etc.
.... As the Fed documented, about one-sixth of mortgagees kept current by borrowing the interest. This is what Hyman Minsky calls the "Ponzi" phase of the credit cycle.
.... Fannie Mae paid Washington lobbyists to craft rhetorical cover stories to distract attention from how the market actually was operating.

Mason Gaffney:
.... 7. The problem in #6 is soluble by a combo of lvt and regulating the quality of bank credit.

Answer by Michael Hudson:
.... This is really crazy. Today, the rental flow or market value of nearly all homes and commercial office buildings has been pledged to the banks as interest. The rental income has been collateralized and earmarked in advance to pay mortgage interest.
.... The same income cannot be paid to the banks and ALSO paid to the tax collector. If the federal or local governments were to impose land-value taxation, every mortgage in the country and hence, every bank would be wiped out.
.... Not that I¹m against this, mind you. I¹m all for a Clean Slate. But for Georgists, my point is that IN ORDER TO get an LVT, you have to accept the fact of writing off the banks and the economy¹s debt overhead.
.... This has been my position for the past fifty years. It explains my argument with Georgists in a nutshell. It¹s that simple.

Comment by Ed Dodson:
.... First things first, Mase. If we can get the regulators to prohibit or significantly restrict extending credit for the purchase or refinancing of land value we would achieve two constructive outcomes. The demand side pressure on land markets to recover their upward climb would be slowed. And, banks would not be exposed to the loss of collateral values on property loans. On commercial property, there are effective underwriting standards that are reliable if adhered to. At Fannie Mae, our financing to developers of residential condominiums and apartment buildings limited financing to developers with strong financials and imposed high debt service coverage ratio requirements and that virtually prevented bad loans from being made.

Answer by Michael Hudson:
.... The important point to give a sense of proportion for this discussion is that real estate price increases are basically attributable to the land¹s site value. Buildings wear out, so "land" includes the economy¹s general FIRE-sector context that determines property prices. In fact, it is normal in today¹s (2009) market for commercial buildings to be sold at as little as half what it would cost to build them afresh. So it¹s the land and its economic environment that rises and falls in market price.
.... A large part of the mortgage market is by speculators. The whole reason WHY they are willing to turn over the entire rental flow to the banks is that they hope to come out with a "capital" gain really a land-price gain resulting from systematic asset-price inflation as official policy. The mortgage banker¹s aim is to absorb the entire land rent and even more, if possible. If borrowers are willing to pay a premium for anticipated price-rises for property, they will borrow more, and hence pay the banks more interest.

Mason Gaffney:
.... 8. To sell and apply the solution in #7 it is best to understand banking, its rationales and its weaknesses. This is hindered by misstating what banks do.

Answer by Michael Hudson:
.... This is my point. Mason and the Georgists whom he's misled mis-state what banks do, and hence do not realize that the main opponent to LVT is the FIRE sector together finance and insurance as well as real estate. On the landlord's back sits the mortgage banker.
.... Michael Flurscheim wrote all about this in his 1902 Clue to the Economic Labyrinth, (published in Perth, Australia, although Flurscheim was more active in New Zealand), explaining why he had to break from Henry George. My AJES article on political critics of George explain how this was perceived in George¹s lifetime. His response was an emotional fury leading him to expel everyone from his party who brought up this inconvenient truth about how balance sheets and banking work.

Comment by Ed Dodson:
.... Thanks for that, Mase. Over the years I have tried my best to convey in some detail how the banking business works -- when it is done according to prudent risk-taking. I will say this about Fannie Mae (and this applies to Freddie Mac as well). Those of us who worked in the trenches generating loan volume and fee income gradually were made to feel that the ultimate profitability of the company was in the hands of the small group of people in Washington who manned our trading desk, who were charged with hedging and arbitrage functions, buying and selling bonds, MBS and portions of our loan portfolio. For the GSEs and the banks, one of the great risks associated with all of this was regulatory accounting risk.

Answer by Michael Hudson:
.... So let¹s look at this from the fraudster's perspective. To succeed in the fraud, you need to subvert the regulatory agencies. This was done by taking out junk-insurance from A.I.G. and others. The pretense was that by everybody "hedging" their bets, there would be no losses to be suffered beyond the few that would be "dispersed." In fact, the losses ended up being concentrated in the US Treasury as bailer-out "lender" of last resort. These Treasury TARP "loans" and the Federal Reserve's accepting junk mortgages at its cash-for-trash window were the logical culmination of the deregulatory scam. It only could have worked by confusing the public as to just WHAT the banks were in fact trying to do. The scheme ONLY works when a widespread deception succeeds. This involves corrupting the business-educational system as well as the understanding of congressional lawmakers. That is the job for lobbyists. Hence, the government bailout and stock purchases into the banks under Bush-Obama permits the banks to continue to hire lobbyists to spread disinformation and buy congressional vote by contributing to campaigns and more egregious forms of institutionalized political bribery.

Mason Gaffney:
.... 9. Another solution might be to socialize banking. It is worth considering, but if it is done on the basis of misunderstanding banking and its relation to land booms, it is not likely to work out well. The history of John Law, Bank of France, and the Mississippi Bubble is a cautionary tale; Ben Bernanke and the Fed, in modern institutions, are in danger of making parallel errors.

Answer by Michael Hudson:
.... Socialization of banking would mean socializing the credit, debt and money functions. It does NOT mean what Mr. Obama has done socializing the losses by bailing out the private, privileged bankers at public expense. It would entail a prior write-off of bad debts.
.... As Sumerian, Egyptian and Babylonian and other Near Eastern experience shows from antiquity, the advantage of having the public sector as creditor is that it can cancel debts when they grow unpayably high. It¹s much harder politically to cancel debts owed to private-sector creditors. This is the major reason why credit and money creation should be viewed as a public utility and concentrated in the public sector. But this logical conclusion to the above argument explains why Georgism opposes it, having deteriorated into the condition of lobbyists for the banks and other rentiers. Not the first time a good ideal (re-socializing the rent) has been turned on its head.

Comment by Ed Dodson:
.... My preference is to return to a system of deposit banks on the order of the original Bank of Amsterdam. My reading of how this bank operated for many decades (before its directors got greedy and began issuing bank notes not backed by specie) was to stimulate a long period of non-inflationary global economic growth. If such a parallel system was established, this might just invoke Gresham's Law in reverse: good money would drive out bad.

Answer by Michael Hudson:
.... This is Stephen¹s 100% reserve proposal. But Wall Street¹s motto might well be stated as "bad money is our business." That¹s the problem! I don¹t think it¹s helpful to propose an idealized solution without acknowledging the problems in its way the corruption of securities-rating agencies, George W. Bush's blockage of state attorneys general bringing fraud charges against Countrywide and other mortgage lenders.

Mason Gaffney:
.... 10. Another solution, which I have floated several times, is to base property taxes on the owner¹s equity, and tax separately the recorded debt instruments that are liens on the title.

Answer by Michael Hudson:
.... So what happens when defaults occur? Banks would raise the objection that this will add to the cost of property and mortgages. It would be "taxing the tax" as it were. Why not simply tax the land¹s rent in the first place?

Comment by Ed Dodson:
.... I am not clear on what the market effects of this idea would be, so I will have to read what you have to say on the subject in more detail. The issue arises of whether to rely on nominal equity (i.e., based on the original purchase price or appraised value) or actual equity (i.e., which would require annual reappraisal of properties). It strikes me as requiring a level of reporting by mortgage servicers to taxing bodies that imposes some serious programming changes to mortgage servicing systems.

Mason Gaffney:
.... As to the problem of rent being pledged to bankers, some comments on that:
.... a. Legally, property taxes are generally senior to mortgage claims

Answer by Michael Hudson:
.... But look at what¹s happened today. Banks made bad loans, sent the debtors foreclosure letters, the houses are vacant, then they¹re stripped or turned into crack houses.
.... The only way localities can collect is to do what Cleveland¹s mayor did: Declare the bank foreclosure to have created a "public nuisance," and fine the bank the social costs of restoring the destroyed property. In political reality, the decline in property prices creates pressure to CUT PROPERTY TAXES so as to enable strapped debtors to avoid foreclosure.

Mason Gaffney:
.... b. Ergo, it is the banker who should worry that the rent is already pledged to the fisc. High rates of land taxation will go far towards chilling mortgage loans based on speculative land values (especially if the tax base is the selling price of land and not just the current rent)

Answer by Michael Hudson:
.... Yes, bankers "worry that the rent is already pledged to the fisc." Their response is to lobby AGAINST land taxation. They have succeeded since 1930 in reducing real estate taxes from 67% to 17% of state and local budgets (NIPA Table 3.3). This is why Georgist advocacy of a LVT is in vain unless it confronts the fact that as the primary recipient of land rent, the financial sector is its main adversary.
.... Beyond "chilling mortgage loans," high land taxation will lead to loan defaults and widespread bankruptcy, bringing down banks as well as their customers.
.... It does not help to draw up a scenario that STARTS from the position, "Suppose a homeowner owns the property free and clear." Homeowners and commercial investors alike need loans to borrow the purchase price under today¹s economic conditions. So the STARTING point is for prospective buyers to bid against each other, with the winner being the one who pledges the property¹s entire rental income (specifically, its groundrent) to pay the interest to the bank to acquire the mortgage.

Mason Gaffney:
.... c. Historically, organized bankers have worked around the problem in "b" in various ways: i. By holding down property tax rates

Answer by Michael Hudson:
.... Yes, this is my point. This puts their interest diametrically opposed to LVT.

Mason Gaffney:
.... ii. By persuading people to assess land on its current rent rather than its speculative price

Answer by Michael Hudson:
.... Not at all. The essence of the real estate bubble that so enriched Wall Street was for people to pay a premium over and above the current rental value, based on their hope of flipping the property later on to the proverbial ³greater fool² at an even higher price.
.... Banks went so far as to create "negative mortgages," where the interest was automatically added on to the principal, or where the bank absorbed the owner¹s equity so that at a point (supposed to be when the current owners died) the bank would become the property owner, not the heirs who otherwise would have inherited the house.
.... To understand this, one needs to understand how the ratio of (1) the capitalized value of rent in the numerator exceeds (2) the ACTUAL market price, where the owner pays a premium over what the rental value will justify. This situation occurs for instance when a speculator buys an apartment or office building, and pays more for the mortgage, operating costs and taxes than the tenant pays in rent.

Mason Gaffney:
.... iii. By devices like the ³Municipal Bankruptcy Act² of 1938 or so that let muni¹s stiff THEIR creditors so private mortgagees could pick up the pieces.

Answer by Michael Hudson:
.... This explains the present pressure on the Treasury to provide guarantees for municipal bond defaults (but probably NOT defaults in local public pension plans, which are unfunded). It¹s a giveaway to bond investors.

Mason Gaffney:
.... iv. By becoming creditors of the muni¹s themselves, and getting the bonds exempt from property taxes and their income exempt from income taxes

Answer by Michael Hudson:
.... This explains the point I¹ve been making: The financial sector¹s strategy is to make itself tax-exempt and also that of its major customers, so that the entire economic surplus can be absorbed as an interest charge. This is the logical objective of the financial sector: to "capitalize" the entire economic surplus into loans, at which point the entire surplus will be paid to the financial sector as interest. As Simon Patten pointed out, if you control just ONE monopoly in a generally monopolized economy, the monopoly rent that is closed off will be taken by the other, surviving monopolies.
.... Georgists (one of Mason¹s California Talibani) dealt with Patten¹s criticism in Andelson¹s "Critics of Henry George" travesty by making the absurd claim that Patten hadn¹t read George. (My AJES article provides a corrective. Many of you on this list have said that you¹ll address my points. Not a single one has. So like Oedipus, you put out your eyes rather than dealing with the seemingly obvious financial reality around you.)
.... Land rent is paid to the financial sector. That¹s its "business plan."
.... What then is the "tax plan" of would-be land taxers wanting to create a fairer economy?

Mason Gaffney:
.... d. Item c-iv above tells us that the problem is bigger than merely diverting rents from private to governmental hands. The governments must be sanely run, too. Their economic advisers must have better judgment than we have seen for quite a while.

Answer by Michael Hudson:
.... Well, the whole point here is that the democratic reform process of the past two centuries has fallen back, and democracy is yielding to oligarchy. The government planners know just what they are doing: they¹re appointed with Wall Street approval, to promote its interests and its business plan, mainly to monopolize the economic surplus in the hands of a narrow oligarchy.

Comment by Ed Dodson:
.... I concur. These are complex issues all subject to the law of unforeseen consequences (i.e., policies implemented despite even readily apparent contradictory outcomes). By not adopting full LVT, every level of government, every type of authority, enacts a long list of measures without regard to the systemic implications.

Answer by Michael Hudson:
.... The task of economic apologetics (post-classical economics) is to depict the obviously impoverishing results of oligarchy and financial fraud as "unforeseen." This is what one reads in every news report by the major media these days. "To everyone's surprise Š" "unforeseen downturn Š" "disappointing new statistics Š" etc.
.... As Upton Sinclair (I think) quipped, to be a successful economist working for Wall Street or Congress, it is necessary not to understand how the economy actually works.
.... Neoliberal economists break up the economic system and look only at the parts.