Glocal Econ 9: Ponzi Schemes and Petrodollars

Questions for Chapter 20: Hedge Funds and Derivatives: A Horse of a Different Color

1. What’s the difference between a hedge fund and a margin account? How do hedge funds make “absolute returns” (like absolute numbers in math) that make a profit whether the change in the market is positive or negative?
2. Where does the money in hedge funds come from? Who controls them and from where? How does their location benefit them and harm us? What’s the relationship between the modern hedge fund and the “pooling” of the 1920’s? What percentage of daily trading in equity markets are they responsible for?
3. How many hedge funds are registered in the Cayman Islands out of how many in total? What does the Cayman Island registration give them?
4. How do derivatives relate to hedge funds? What are they? What is the form called a “put” or a “call”? Are most of these available to ordinary people?
5. How did Glass-Steagall and the Commodities Futures Trading Commission protect ordinary market participants? How did derivative traders get around the regulators?
6. John Heofle called the derivatives market “the last gasp of a financial bubble.” Do you agree? Explain how money created by loans on a computer screen can be “borrowed” from the bank even though it’s been lent out.
7. What is a “notional value?” How many times the US GDP is the notional value of the derivatives market? How many times the global GDP? Is this a harmless thing, since it’s just funny money, or does it have real world consequences?
8. How many commercial and savings banks are there in the US? How many hold 97% of derivatives?
9. George Soros is the mentor of Jeffrey Sachs, author of The End of Poverty, who is in turn mentor to Bono. Is he really a benign philanthrope, as he’s portrayed, when he collapsed the currencies of Great Britain and Italy in a single day? Was this to show the danger and destructive power of the system? What about the Asian currency crisis?
10. If assets (houses) are taken off the books by paying off mortgages through self-directed IRAs, will it bankrupt the banks? How are banks keeping their “underwater” mortgages from defaulting while cashing in on high-equity properties? Are our banks already zombies, the walking dead among us?
11. When houses default, who has paid more for them, the buyer who put down 10% or the bank that created the loan out of 10% of the other 85% – paying 8.5%? Who should retain ownership in the case of a dispute?
12. When Wall Street wins, who are the biggest losers? What were the twin weapons used by the British Empire to colonize the world? What has the first one morphed into? What’s the first step of this process?

Section III Enslaved By Debt: The Bankers’ Net Spreads Over the Globe

Chapter 21: Goodbye Yellow Brick Road: From Gold Reserves to Petrodollars

1. What two US presidents took the dollar off the gold standard and for what reasons? Who was the last president to take a real stand against business and banking interests and how did he do it? What was his foreign policy in Latin America? What other monetary policy might he have been considering, had he lived?
2. As we commemorate the 10th anniversary of 9-11, how was “Operation Northwoods” a chilling premonition?
3. How are “floating” currencies vulnerable to devaluation attacks? How did Bretton Woods address this? What is a “peg”? How did the US dollar substitute for gold for awhile? How did France and later Great Britain deplete the US gold supplies?
4. Describe Professor Antal Fekete’s scathing criticism of taking the dollar off the gold standard. What problems, however, did the gold standard create in international trade? What is gold responsible for historically? What are its environmental and human rights impacts currently?
5. How were nations resistant to floating exchange rates coerced into it? What suspicious event created the conditions that forced countries into debt, and who engineered it? Describe John Perkins’ account of the event.
6. What was the US dollar now backed by? How did this affect trade around the world? Did the IMF give good advice to “negative trade balance” countries to “unpeg” their currency from the dollar?
7. What are the hazards of pegging to the dollar? Define “capital flight” and “vulture capitalists.” Describe the third alternative and how it helped China escape the 1998 Asian crisis.
8. Discussion Question: Are there alternatives to any of these? Should countries have two separate currencies – one for internal trade and one for international trade? Does there need to be a currency for international trade or should goods be traded directly, ensuring a trade balance?
9. By what percentage did the price of oil increase in the 1970’s? How do “red elephant projects” in Third World countries relate to petrodollars? How did things change in 1973? What is “stability” a code word for?
10. Discuss the difference between a country and a corporation in terms of debts, liabilities, accountability and profits.
11. How much did Fed president Volcker raise interest rates by within a few weeks? To what level did they go? What was this in reaction to? What was the impact globally?
12. What was the role of the IMF? What happened simultaneously in the US? How did the petrodollar cause the US to become a consumer/debtor nation where “we make dollars and other countries make things that dollars can buy?” By 2006 how much foreign capital did the US need to bring in daily to fund its debt?

Chapter 22 The Tequila Trap: The Real Story Behind the Illegal Alien Invasion

1. How was Mexico destroyed, first militarily and then economically? What drove the twentieth-century assault on Mexico? Elaborate on the mechanism by which its thriving economy was crippled through raids on its dollar-pegged currency.
2. What did President Portillo do in response? What did Henry Kissinger’s consulting firm design? Is it well known, do you think, that the similar Versailles reparations process in 1920 propelled Germany into starting WWII?
3. After NAFTA eliminated all protections against foreign investment why did President Zedillo devalue the peso and allow it to float? What did that lead to? What suspicious activity preceded the collapse and who engineered the Mexican bailout? Where did US taxpayer money go? Sound familiar?
4. What was the big payoff that had Wall St. popping champagne corks? What are the affects of the austerity measures that David Peterson lists in “Militant Capitalism?” Contrast the debt in 1995 to the previous century and a half.
5. Discussion question: What can we learn from the Mexican depression about how to protect our businesses and assets when the artificially inflated dollar finally pops? Is the “Tequila Trap,” as Henry C. K. Liu calls it, suicidal for everyone – both countries and corporations? Why weren’t those who sounded the warnings listened to, and is there any way to change that?
6. What does the media blame currency crises on? Who actually engineers them and for what purpose? What happens to producers when a currency is devalued?
7. Describe “sovereign credit.” What are the pros and cons of it?