If Karl Marx gave us capitalism’s big picture in the 1880s with Das Kapital, and Rosa Luxemburg followed up in 1913 with The Accumulation of Capital, ex-Wall Street “renegade” Nomi Prins strives to update political economy critiques with her 358-page Collusion, How Central Bankers Rigged the World (Nation Books).
Collusion exposes a form of monetary magical thinking that is the economic equivalent to Kellyanne Conway’s “alternative facts.” According to Prins, capitalism has become a house of cards. Central bankers’ egregiously reckless “conjured-money scheme,” she maintains, is based not on such tangible investments as factories, but on “purchasing bonds or securities (or stocks).” Another financial crash looms.
Prins has worked for Goldman Sachs, Lehman Brothers, Chase Manhattan Bank, and Bear Stearns in London. After experiencing a change of heart, Prins became a what could be described as a “class traitor,” and began to report on fiscal fiascoes for The New York Times, Forbes, and Fortune. Her books include All the Presidents’ Bankers, Other People’s Money and It Takes a Pillage. She has appeared on CNBC, MSNBC, C-SPAN, Fox News and other outlets.
I heard Prins speak during her book tour at a Los Angeles forum presented by progressive movie/TV agent Paul Alan Smith, and later spoke with her via phone shortly before her departure for the United Kingdom to debate her book before the British parliament and speak at the London School of Economics.
Q: In Collusion, are you arguing that central bankers play the dominant role in global economics?
Prins: A dominant role in global finance. Bankers are playing an increasingly large role by virtue of being able to fabricate or conjure trillions and trillions of dollars of cheap money, and basically decide where it goes. [Whether it’s] the financial system, banks, or stock market, it’s not physical, it’s not like a hard asset, or a development or infrastructure project. They’ve been able to facilitate this rush of money into the banking system and beyond.
This began as an “emergency” measure to stabilize the banking system in the Federal Reserve Act. But what the Fed and other central banks have done in the wake of the 2008 financial crisis is well beyond emergency measures. We’re talking about a ten-year ongoing policy of creating trillions of dollars and diverting them into the wealthier countries, the wealthier companies, the banking system, and the financial markets in which most people don’t even participate.
Q: What, if anything, is backing this manufactured money? How is the value of this “conjured money” derived?
Prins: It really has no value. It’s not derived or connected to anything that’s real. Because the dollar is the reserve currency of the world, the United States is supposed to be strong enough to withstand major crises, but basically it’s a confidence game and to the extent that there’s confidence in what the Fed is producing, the value of the dollar or other currencies, then the game continues.
We’ve gone off any standard by which there is a hard asset or production attached to the value of money, for example the gold standard. At other times we had major labor unions working with industry producing things you could physically touch, or building highways. The money fabricated in the last ten years flies in the face of these old concepts of what an economy really is: A place where people gather together to use or trade what they actually produce.
Q: Collusion is critical of central banks making low or no interest loans to big banks, financial markets and corporations. At the same time, was cheap money likewise available to ordinary workers?
Prins: Absolutely not. Because of this cheap money policy, common citizens don’t receive interest payments on their savings. We’re talking about very close to zero percent interest. If you factor in the fees for the privilege of keeping deposits in these large financial institutions, real citizens pay 24 percent interest to give their money to the banks, for which they’re receiving basically zero.
Q: You contend that those banks and other institutions deemed “too big to fail” during the 2008 financial crisis have since then become even bigger and that another collapse is inevitable. How will this one be different?
Prins: It’s the magnitude. Since 2008 these central banks have allocated 21 trillion dollars electronically to helping private banking systems, corporations, etc. People have been left out in the cold; inequality has increased and wages have not remotely moved. So if we have another financial crisis, it’s coming from a higher height than in 2008.
Q: What might happen for this crisis to not take place?
Prins: Banks would have to be strongly regulated rather than deregulated. [We need] a strict tightening up of people’s deposits, debt creation, asset creation, speculation, stock transactions, so when things fall apart there isn’t another repeat of bankers going to their governments asking for bailouts, handouts or subsidies. The other thing is to have more public banks so we’re able to deflect money into real productive uses and local economies, so real things are being produced.
Also the Fed itself should be regulated. There should be more auditing. These are undemocratic, unelected, supposedly independent but hyper-political entities that have the ability to manufacture money. That needs to be examined. We have the ability to reduce the crisis’ impact before the impact hits.
Q: What should we expect for NAFTA and trade deals going forward? What do you make of Trump’s protectionism?
Prins: Trade wars hurt people on both sides of the divide. The better thing is to negotiate trade agreements that benefit more workers, more production, that are more of an equal sharing instead of hierarchical trade agreements. Countries could work together instead of just unilaterally walking out or being bullied into decisions that are “pro-America.”
Q: You served on an advisory council created in 2011 by Senator Bernie Sanders to reform the Federal Reserve. What lessons do you draw from that?
Prins: If we had taken the money that was given originally as a bailout and made those homeowners whole on their underwater mortgages—particularly because many of those mortgages were provided under false pretenses—that would have been a way cheaper way to deal with it. Forgiving student debt would be a way cheaper way of enhancing the economy going forward rather than saddling students with debt because the inflation of university prices have become so ridiculous. If student loans were subsidized by the money given to the financial system, we’d also have more doctors, engineers and more workers able to participate in our economy.
The ongoing subsidy for the financial system could have been diverted in a way that would have strengthened people, Main Street, the foundational economy and ultimately reduced the risk that now continues to prevail in the system. It’s all gone into the financial structures rather than into real people.
The third edition of The Hawaii Movie and Television Book, co-authored by L.A.-based film historian/reviewer Ed Rampell, is now available.