Transcription
There are more and more signs that we may be on the precipice of another major financial crisis. The former CEO of the Wall Street Bank, Goldman Sachs, warned in an interview on Bloomberg that he can smell another financial crisis on the horizon.
Now, where exactly could this crisis come from? Well, some financial analysts are worried about the private credit industry in the US, which has exploded in recent years because after the 2008 crash, banks were more heavily regulated, so more and more firms on Wall Street began to lend to private companies and the private credit industry ballooned. It is now a $3 trillion industry, yet it is not regulated and many of these private credit firms have given bad loans to bad companies that are now defaulting.
We published a short video explaining the issue with the private credit industry and the fears of a new financial crisis. However, that video is just a brief introduction to the problem. I thought it would be important to go into further detail explaining the very real danger here and I thought the perfect guest to interview to help us understand this would be the economist Michael Hudson. Michael is the author of many books including Killing the Host, How Financial Parasites and Debt Destroy the Global Economy. So, here we're going to play some highlights of our interview and then we'll go straight to the discussion.
You then begin to have private capital take over companies and make money by essentially looting them. Thames Water in England is typical of how you loot a company. Hospitals for instance were a target of these private equity companies. Private equity proceeded to bankrupt whole swaths of the American economy and new word was added to the English language, "enshitification". Just cutting back the quality of what companies were doing, slashing expenses, working labor harder, making them work overtime. So, the financial system has have been turned into a predatory system and all of this enormous growth in financial wealth since 2009 has accrued to the financial and real estate sector to the dominated by the wealthiest 10% of the population. The 40% of the American population doesn't have any savings at all. They're living on the brink and now that with the costs are going up, they're having to fall further and further behind on their credit card debt, their personal debt, their automobile debt, student loans especially, but as long as the credit card companies will lend the consumers the money to the credit to remain current on their obligations and not have to pay penalty fees, then you're going to be able to keep the Ponzi scheme going. A Ponzi scheme is you need more and more money paid into it to keep the exponential growth right growing.
Michael, thanks for joining us today. It's always a pleasure having you. Let's talk about the real possibility of a new financial crisis. If you read financial media outlets like Bloomberg and the Financial Times, they have been warning a lot recently of the possibility of a new financial crisis and it could potentially start in the private credit industry, which is seeing all of these problems and rising default rates and it could spread. This could be contagion that spreads to the banking sector and other industries and then you also have the AI bubble and the war in Iran and the energy shock. There's so much we're going to talk about today, but let's just start by talking about this crisis. Do you think we could be on the verge of another major financial crash?
Yes, the whole problem stems exactly from 2008 or more particularly 2009 when President Obama took office and his solution to the junk mortgage crisis, the bank fraud crisis was to turn the economy into a Ponzi scheme. That was he needed to bail out the banks. The banks had made so many fraudulent and bad loans that exceeded the ability of these banks to collect on their high interest junk mortgages that had been given that they the bank major banking companies were in negative equity. What was the solution? The solution was a zero interest rate policy, ZIRP. The Federal Reserve lowered interest rates from the high crisis levels in 2008 and 9 way down to 0.1%, which is what banks could borrow for and the Federal Reserve was able to create electronic money on its computers to lend to the banks at a very low interest rates and said, "Well, banks, you have as much money as you want at 0.1% that we are providing you to lend out to the economy to support the price of real estate, stocks and bonds so that we will restore the negative equity that the reckless banking sector has created."
Well, the result is that the banks did two things. One, they could simply leave the 1% 0.1% money they borrowed with the Federal Reserve, make a few percentage points for nothing in their sleep by just leaving it with the Federal Reserve because the Federal Reserve said, "Our job is to transfer money from the private economy into the banking sector to rescue the financial sector because that's what central banks do. We represent the commercial banks. So, we're going to begin paying interest on the bank reserves that never did the Fed hadn't done before. But all the rest of the money, we want you to lend out to the economy to you make as much interest rate margin the the increase in what you charge to borrowers over what you can borrow the cost of your borrowing from us, that's almost nothing nothing."
Well, the banks weren't set up to evaluate loans to, you know, particular companies specifically. They the banks usually make money on collateral being pledged for their loans. The bank credit isn't extended in the United States or Britain to finance industrial capital investment. That's the job of the stock market if anything or of companies to reinvest their earnings. Banks lend money for assets, real estate, stocks and bonds already issued, already in existence. So, they lent money out to near intermediaries saying, "You do the job of you find the companies to take over. You then begin to have private capital take over companies and make money by essentially looting them. Thames Water in England is typical how you loot a company. Hospitals for instance were a target of these private equity companies. They would go to a hospital saying, "Sell off your real estate to a separate entity and then you you agree to use the the capital gains, the money that you make selling the real estate, pay a special dividend and now instead of owning the real estate, you will now be paying rent on a long-term lease for the real estate and you'll pay we'll lend you the money for this and you'll be paying us credit management fees, late fee penalties and the result is that a lot of hospitals went bankrupt. The private equity proceeded to bankrupt whole swaths of the American economy and new word was added to the English language, "enshitification". Just cutting back the quality of what companies were doing, slashing expenses, working labor harder, making them work overtime, cutting when there was an attrition of the labor force, when workers left, you let the remaining workers pick up all of the slack. Productivity went up. So, you had you had an extractive predatory financial system in the United States.
Well, meanwhile, this predatory financial system was making so many gains for the the companies that were financialized and using their profits not to invest in new capital formation and new factories and means of production. All that was done abroad, was sent to China and other Asian countries. 94% 92 to 94% of corporate cash flow, profits and all surplus they had was spent either on dividend payouts or buying their own stocks. So, you had companies creating the stock market boom as by buying their own stocks back to push up the price so that the earnings they had would be spread over a shrinking and shrinking number of shares making the illusion of increasing earnings per earnings per share. The earnings weren't really earned. When you make money in your sleep, it's not an earned. It's economic rent meaning unearned capital that you make in predatory ways. So the financial system is been turned into a predatory system and all of this enormous growth in financial wealth since 2009 has accrued to the financial and real estate sector to the dominated by the wealthiest 10% of the population. The 40% of the American population doesn't have any savings at all. They're living on the brink. And now that with the costs are going up, they're having to fall further and further behind on their credit card debt, their personal debt, their uh automobile debt, uh student loans especially. Uh so they're not able to pay and the bottom 60 to 80% is finds itself hardly increased at all. What used to be the middle class isn't really in the middle anymore. This turns out the middle class people are wage earners just like the blue collar earnings earners. They're all they all have to pay rising costs for either for rent or for their mortgages to buy uh homes that are in whose price is inflated by the low interest rates that enable a larger and larger debt to be created on the basis of these low interest rates. Well, now that interest rates are going up, you can imagine the cost squeeze. There's a huge wave of defaults happening all the way from consumers, the polite word for wage earners in America, to corporations that are that are being squeezed. And so this is all part of the backwash that there it being a Ponzi scheme, essentially the way that you enable the economy to keep paying its debts is you lend the debtor the money to pay the interest. That's what credit card holders do. They they will send in the pay a monthly payment due on their credit card and their credit card debt is going to go up and up and up and with it their monthly payments. But as long as the credit card companies will lend the consumers the money to the credit to remain current on their obligations and not have to pay penalty fees, then you're going to be able to keep the Ponzi scheme going. A Ponzi scheme is you need more and more money paid into it to keep the exponential growth rate growing. The same thing happens for corporations. As corporate sales fall off as labor squeezed, if if in the United States wage earners have to spend more money on gasoline, on electricity prices that are going up partly as a result of gas prices, on all of these monopolized expenses, then they're going to have less and less money to spend on the goods that they produce. And that means that companies that produce goods and services for sale in the United States are going to have lower sales and lower profits out of which to pay the rising debts and the interest on their carrying charges that they are mounting up and that are being increased as the economy is pushed into financial crisis as a result of the move to a war economy. It means that they're going to be layoffs, that companies are going to be closing down. Farmers cannot afford to do farming anymore. Chemical companies cannot afford to produce what they were producing before. Electric companies cannot afford to pay the higher prices for their gas or or oil without regulatory agencies increasing their electric rates. They're going to be and that means that firms using electricity are going to have to close down their offices. There's we're in for the equivalent of what was the Great Depression. And depressions are not inflationary. They're deflationary. That's what nobody seems to get. They think, oh, if interest rates go up, then wealthy people who have a bond are not going to be able to buy as many goods and services as they could. And we have to stabilize their purchasing power of their credit by lowering the purchasing power of labor. The economy is to be sacrificed to the financial sector. That's what neoliberalism is all about. That's what finance capitalism is all about and make it so different from industrial capitalism. We're in a post-industrial society and that's a financial society run by the banks through the their control of the central banks which are controlled by the government that is whose campaign are is financed by contributors from the finance and the real estate sector. So it's all sort of a self-feeding circular flow and Ponzi schemes always end in a crash. That's what's leading other other investors to try to withdraw from the American and European economies, but where can they withdraw to? That's the problem. What can they do?
Yeah, I'd like to talk about the US government's response or lack of response to all of this because we've seen that the Trump administration has been completely in bed with the finance industry. One of the biggest donors to Trump's 2024 presidential campaign was the highest paid corporate executive on Wall Street, Stephen Schwarzman, the CEO of Blackstone, which is the largest alternative asset manager in the world. And Blackstone has a massive private equity arm. And Trump's friends and donors on Wall Street pressured him to sign an executive order in August 2025 that is so cynical. It is titled Democratizing Access to Alternative Assets for 401k Investors. And it makes it seem like this is something that is helping average workers who are saving for their retirement in their 401k plan. But in reality, what this was was an attempt by Wall Street to provide exit liquidity and dump these horrible toxic assets on average people because it was very clear in Wall Street, you know, in the months leading up to this crisis. Everyone could see that there was there was so many bad loans that had been made by these private credit and private equity funds and they were looking for someone to hold the bag. So Trump comes in and says, oh, we're going to democratize access. And there are reports that some of these financial firms are actually paying wealth managers and they're paying financial advisers to pressure average people to invest in some private credit funds saying, look, you can get 10% per year on this fund and supposedly it's not risky. I mean, there are so many similarities to what happened with the collateralized debt obligations, the CDOs, that were just bundled together all of these mortgage-backed securities in the lead-up to the 2007-2008 financial crisis. Back then, these credit rating agencies said that all of these MBSs and CDOs were great. They were risk-free. They were triple-A rated and obviously it was all junk. And what we see today with the widespread use of some of these apps like for instance Robinhood, there are a lot of average people, especially young men, who are basically just gambling their savings away and trying to engage in risky derivatives and all this stuff. And some of them have been buying up you know, ETFs of some of these private credit funds. And basically the more sophisticated financial analysts and firms on Wall Street are just trying to dump all of this stuff on average people. And what's so disgusting is that the White House was facilitating this in the lead-up to this crisis that a lot of people could see coming. How do you how do you see it?
Well, that's exactly what's been happening, Ben. When a investment firm deals with an investor and primarily what you call average people are very largely pension funds. We're having pension fund capitalism being used to bail out the Ponzi scheme. In other words, when invest a company sees an investor or fund manager come in, what do they think? How can I make money off these people? Well, right now the main the wealthiest funds like Blackstone think it's not that how can we make money? We know that we're entering a depression period where we can't make money really. There's not going to be much more to be made. That's a market's gone as high as it can be. But what we can do is minimize the losses. What we want to do is avoid making loss. But there're going to be losses. What do we do? Let's make labor pay for them. Let's Let's turn the economy in of pension of pension fund managers and the average people into suckers. The suckers who bought Donald Trump's cryptocurrency fund and Melania fund, you know, that went up to huge amount and then collapsed 95%. Donald Trump had a company that made Donald Trump watches. And you know, you talk about lowering the consumer prices that he promised to do. The watches that were sold at huge prices, at maybe $10,000, the price for Donald Trump watches has fallen 95%. You know, talk about lowering prices for consumers. All of these were con games. The financial system has been turned into a confidence game of how do you get American consumers to have the confidence to be willing to risk their money in a Wall Street consume casino where the casino always wins and the players lose on balance because that's why they bought created the casinos in the first place. That's uh the game. Well, Wall Street is that kind of a consumer game. If you can convince people that high Look at the high interest you're making, uh you'll ignore the fact that you're going to lose your capital. Yes, you'll make 10% interest and then lose all of the money that you've done. When I was in Russia in 1994, you know, on taking the subway, I'd see all of these >> [snorts] >> advertisements along the subway, you can make 33%, you know, on your savings by putting the money in such and such a bank. The people There was all a huge scam. And Albania had, I think, the leading type scam had the whole economy of consumers the the largest single investment by consumers and savers were in a a basically a Ponzi scheme. That was all wiped out. So, what we're seeing is the Albanianization of the American economy. Uh it'll it'll sort of look like Russia under Yeltsin. It's It's You're guaranteed to lose your capital, but if you can only think tunnel vision for the short term, then you'll think, "Well, I made 10% for a while." That's the That's the policy and it's it's pension fund capitalism was always an attempt to withhold wages to provide to the financial sector to financialize pension systems instead of a pay-as-you-go system or instead of a public pension system. So, the whole way in which the American pensions have been financialized and American savings have been financialized by predatory private capital firms is exploitative from the beginning. That's the model. Create a bubble, sell it at the top, and then sell the all of the assets and stocks and bonds and other financial claims that are where your assets, sell them to labor. Sell them to the pension funds and tell them that all that this is the way to save the economy and to get rich themselves. Get Get rich by in the short run by losing all your money in the medium term. That's what it happens in crisis.
Yeah, very well said, Michael. And I want to talk about the situation overall in the US economy because what we're seeing, the energy crisis due to this US war of aggression in Iran causing oil prices to skyrocket. Now we're seeing this crisis in private credit. Well, we've also seen several other major problems with the US economy recently. You may have seen this chart going around that shows that now the 10% richest Americans make up half of the spending in the economy. And of course, the US economy is deindustrialized and driven largely by consumption. And Bloomberg published an article back in October warning of charts that are haunting Wall Street. And one of these charts shows the famous K-shaped economy where in 2020 you have a recession due to the pandemic. And then since then, the S&P 500, the most important stock market index, has skyrocketed. And 90% of stocks held in the US are owned by the richest 10% of the population. So, the rich have gotten much, much richer. Meanwhile, expected financial situations of average people have gotten worse and worse. So, the rich have gotten much richer and they're driving economic growth and they think things are going well. But the vast majority of people are suffering. There was another incredible chart using data from the Federal Reserve that looks at the share of the US population in economic expansion. And you could see that as of the end of 2025, only about 20% of the US population is living in a local economy that actually is growing. That is to say that if we take out the small minority of places like Silicon Valley and Wall Street, the US is in a recession. The the vast majority of the population, but of course, most of this growth, this so-called growth, it's it's being driven by the AI bubble. This economist at Harvard found that in the first half of 2025, 92% of GDP growth came from investment in information processing equipment and software, which is largely AI. And we know that a lot of this is being driven by this crazy circular investment scheme where these AI companies like OpenAI that are not making money, that have trillions of dollars in obligations they have to pay despite the fact that they're not making money. And yet, they're all investing in each other. And Nvidia is the only company that's really profiting because Nvidia is selling the digital shovels in this digital gold rush, if you will. And Nvidia needs these AI companies to keep buying its chips, but many of these AI companies are not making money. And if they stop buying Nvidia chips, then Nvidia stops you know, having stops breaking records with its net income, which means that Nvidia stock will fall, which will pop the AI bubble. And the AI bubble is the only thing that's actually keeping the US economy growing in scare quotes because the vast majority of the population is in recession. So, then you can throw in the war in Iran, the energy crisis, the oil shock, the private credit crisis. I mean, to me it seems like this is the perfect storm. There are so many cascading crises and I'm really worried about where this could all lead. How do you see it?
There There There are two dynamics that you mentioned. The immediate dynamic is Nvidia, whose chips are made in Taiwan using liquefied helium to make them. You have to have liquefied helium at a very low temperature to solidify the silions the silicon so that the ultraviolet ray doesn't just sort of diffuse and spread out because it's the chips too warm. So, there's going to be a problem in chip supply now that Cutter is no longer able to supply Taiwan with the helium. But on the larger basis, all of this projected increase in automatic intelligence, I prefer that term to artificial. It's really automatic mechanized system, electronically mechanized. All of this requires huge supercomputing complexes run by electricity. But the electricity prices The electricity is limited by the amount of that can be generated by America's electric utilities. And there's been hardly any increase in America's capacity to produce electricity so that as new demand for electricity is added, the price of electricity has gone up to everybody. Already, states are trying to block new AI investments and systems in their territories because they know that this would force all of the electric and gas and price oil prices for their voters way up. So, almost all of the big AI companies have been investing in the Arab OPEC countries because that's where the oil has been producing. Well, Iran has been focusing on bombing these specifically these American AI investments in OPEC countries in the Middle East saying, "In In order to defend ourselves against the fact that the Sunni Arab countries are in a symbiotic relationship with the United States and back the United States and wanting to attack us. We're going we're demanding that they end their economic linkages with the United States specifically with America's AI industry, but also they have to begin selling off their bonds and their dollar holdings in the United States. So, you're having that. You're having the fact that where on Earth is the electricity going to come to enable these AI companies to expand their activities to make the profits that will justify their stock prices going up. There's no way that you can see that they can create enough of a supply to have the growing market that's projected. So, you if you have GDP falling and the stock market going up, something has to give at some point. The the stock market has been decoupled from industrial investment, from AI investment, from capital investment in general. That's the difference between finance capitalism and industrial capitalism. It's that the financial sector has a life of and dynamics of its own and these dynamics are purely mathematical independent of productivity in no linkage with the ability to produce and the ability of the population to buy the products that it produces. It's it's decoupled and that there's the illusion is that somehow the stock market going up that the interest what is pushing GDP up in America recently? Well, when home prices increase, that's counted as an increase 5% of GDP is the rise of what homeowners believe their apartments would rent for. Interest payments to the banks that are going way up are treated as GDP. When credit card companies impose penalty fees raising the charge to 30% 31% per year, all of that's called providing a financial service as part of GDP. What counts as American GDP is largely financial illusion as if all of this financial sector is actually a product and a part of a productive economy instead of predatory overhead that is reducing the economy's productive capacity and hence its consumption capacity and hence the real economy. So, you have finance is a fictitious economy purely mathematical gamed economy casino Ponzi scheme and you have the real productive economy that's shrinking. Some that's what the K K-shaped economy is, good term for it. And that's exactly what we're in, but there's no economic theory mainstream theory that has acknowledged all this, although in a way this is what classical economics warned against. It's what David Ricardo warned against. It's what the classical economists of the 19th century right down through Marx warned against and all of what the 19th century saw initially seeing the problem was land rent is now the problem of money rent. You could say of of privatizing the monetary and financial system in a predatory way in the century since World War I ended.
Well, I think that's a great note to end on, Michael. Of course, as we see more developments on Wall Street and potentially more crises, we definitely will have you back to help us understand everything that's happening. It's always a pleasure. Thanks for joining us.
Well, thanks. I think it's going to be evolving rapidly week month by month month and almost week by week from here on in.