As if Poverty and Debt Will Make Us Rich

BY RON JACOBS
JULY 8, 2022

Photograph Source: Jay Tamboli – CC BY 2.0

I’ve been the president of my union local since May 2021. A couple weeks ago we shook hands with the negotiating team for the City of Burlington, Vermont on a contract that beat most everyone’s expectations. Some of the highlights are a minimum 12% wage increase over the first two years and the first paid family leave clause in any municipal contract in Vermont. Meanwhile, another set of negotiations with the local school district seem to be heading in the opposite direction. Sitting in these two different negotiations while also reading economist Michael Hudson’s latest book, The Destiny of Civilization: Finance Capitalism, Industrial Capitalism, or Socialism, provides me with a unique vantage point regarding that destination. Working people carry on their lives knowing on some level that it could all go to hell no matter how much they are getting paid. At the same time, they seem to still believe enough in the ability of US capitalism to adjust itself, thereby making the future less intimidating than it would be with no such faith.

While both sides in the negotiations attempted to predict the future of the economy over the next four years, Hudson’s warnings that the basis of the current phase of capitalism resides in the creation of debt and the manipulation of that debt by the financial industry loomed ominously in my brain. Indeed, the very fact that an economic entity that produces nothing but debt for most of the world’s people is considered an industry should be ominous enough. Yet, cities, corporations, individuals with retirement accounts and students with student loans stumble on, borrowing and processing debt as if it were a promise of a better future instead of just a promissory note. Then again, what other choices do they have?

That question is not necessarily answered in Hudson’s text. What is answered, however, is how the world economy—especially that part of it tied into Washington and Wall Street—got to this point. Originally presented as a series of lectures at China’s Global University for Sustainability, The Destiny of Civilization is a fairly plainspoken and incredibly astute history of US capitalism, especially in its most recent phase known as neoliberalism. It is also an economic textbook of a kind one will rarely see in any university economics syllabus today.

Hudson’s fundamental argument is that the US-led capitalist economy is a a rentier economy; an economy based on the accumulation of income received without actually working or providing intrinsic value. This is the essence of feudalism, where the noblemen extracted goods, labor, money and other benefits from those who lived on and farmed the land (peasants or serfs, if you will) claimed by nobility. This often left the peasantry with little to no food after he paid his fee/rent to the aristocrat that claimed the land. When capitalism began to create its won wealth for the early capitalists, some of the latter’s earliest actions were to create laws taxing this unearned income. This allowed them to build infrastructure and ultimately provide public services for those the capitalists hired. According to Hudson, the capitalists wished to tax the rentier economy—nobility, landlords, etc.–out of existence. Unfortunately for the working people of the world, this did not occur. Instead, as the biggest capitalists accumulated more and more wealth through their exploitation of labor and their influence in government, they became the new rentier class. Their agenda included first and foremost an end to taxes on their wealth.

This brings us to today, when governments of the democracies are nothing but tools of the wealthy and the fire sale on public infrastructure is still raging. Schools, health care, roadways, parks, even the military and law enforcement; everything is on the block and those with the highest bid have no shame in taking it for their own. To destroy or privatize and sell back to those who created it as they see fit. The role that government once played in preventing this dictatorship of wealth is gone for all practical purposes. Hudson explains why and how this occurred. In doing so, he uses the words of Adam Smith, John Stuart Mill and others associated with the theories of capitalism to prove his point (and theirs) that the current system we know as neoliberalism is not the same system those writers had in mind. It is, however, what socialists like Rosa Luxemburg predicted would occur as the process of financialization assumed its current dominant position in the world capitalist economy. We know from looking around us that it is an economy enforced by wars, but also through loans and other economic tools designed to impoverish whole nations; something Hudson calls financial conquest. As he writes, these tools are presented to the loan recipients as if their impoverishment will make them rich.

Part of Hudson’s intentions seems to be to warn the Chinese of the pitfalls untaxed and unearned income can bring. It is his contention that China would be smart to maintain control of certain parts of its economy—resources, infrastructure creation including education and health care, even housing—and to fight against those in its wealthy class who want to privatize these things. Hudson argues is this that gives China its economic power. Likewise, it is this which makes the US consider China its enemy. The billionaire class that now owns the White House and Congress has no interest in allowing the US government to tax their gross accumulation of wealth, not to rebuild highways or educate its citizens. Their motivation is greed and the current system feeds that greed beyond what us regular folk can even begin to comprehend.

The Destiny of Civilization is an important book that should not be ignored. Forward thinking faculty should introduce it into their courses—economics, history, wherever they can fit it. More importantly, the rest of us should also read it. The analysis it provides is concise, clearly written, and one of the most important one can find anywhere. This is how the US economy really works. At home and abroad. The fact that it doesn’t work for working people, middle class citizens, or the youth doesn’t mean it will change or go away because it doesn’t work. As Hudson makes clear, it works precisely for those who created it and that doesn’t include you or me. The future can be a continuation of the neoliberal nightmare we are in, a fascist nightmare of which we caught a glimpse of under Trump, or a socialist and democratic society that works towards sustaining the world and its people, not impoverishing the lot of them for the benefit of the very few.


Ron Jacobs is the author of Daydream Sunset: Sixties Counterculture in the Seventies published by CounterPunch Books. His latest offering is a pamphlet titled Capitalism: Is the Problem. He lives in Vermont. He can be reached at: ronj1955@gmail.com.

The Beasts of Nuclear Proliferation

BY BINOY KAMPMARK  JULY 8, 2022 JULY 8, 2022

Ohio Class nuclear-powered submarine. Photo: US Navy.

When faced with the option of acquiring nuclear technology, states have rarely refused.  Since the splitting of the atom and the deployment of atomic weapons in war, the acquisition of a nuclear capacity has been a dream.  Those who did acquire it, in turn, tried to restrict others from joining what has become, over the years, an exclusive club guarded by self-justified psychosis.

Members of the nuclear club engage in an elaborate ceremonial in claiming that their nuclear weapons inventory will eventually be emptied.  Non-nuclear weapons states allied to such powers go along with appearances, taking comfort that nuclear weapons states will offer them an umbrella of security.

This insane hypocrisy underlines such arrangements as the Treaty on the Non-Proliferation of Nuclear Weapons.  Central to the document is the discouragement of non-nuclear weapons states from weaponizing nuclear technology as long as members of the nuclear club pursue “good-faith” disarmament negotiations. While it is true to say that the NPT probably prevented a speedier, less infectious spread of the nuclear virus, it remains a constipated regime of imperfections that has merely delayed proliferation.

Most tellingly of all, most non-nuclear weapon states have complied with their undertakings.  Nuclear weapons states have not, disregarding serious multilateral nuclear disarmament.  Nor do they have an incentive to alter current arrangements, given that any changes to the NPT can only take place with the unanimous support of the three treaty depositories: Russia, the United Kingdom and the United States.

The NPT supporters pour scorn at alternative approaches to nuclear weapons, such as the Treaty on the Prohibition of Nuclear Weapons (TPNW), which had its first meeting of state parties in Vienna from June 21 to 23.  While the Albanese government did send Susan Templeman MP to the meeting as an observer, Canberra has remained consistently opposed to the TPNW as a threat to the accepted disarmament and NPT framework.  Dated and spurious concepts such as extended nuclear deterrence and the interoperability of Australian and US military systems tend to be common justifications.

The AUKUS security partnership that was announced in September 2021 by Australia, the United States and the United Kingdom, has muddied the pool of non-proliferation.  A central component of the agreement is a promise to share nuclear propulsion technology with Australia, enabling it to acquire eight nuclear submarines to be supposedly built in Adelaide, South Australia.  While much of this is wishful thinking (Australia has no expertise in the field, and will have to rely wholeheartedly on expertise from the other two), the glaring problem in the arrangement is what it does to non-proliferation arrangements.

While the previous Australian Prime Minister Scott Morrison was ignorantly confident that the agreement would comply with Australia’s own non-proliferation commitments, such confidence is misplaced.  For one thing, Article III of the NPT exempts naval reactors from nuclear safeguards, which threatens a pillar of the regime, namely, limiting the production and use of highly enriched uranium (HEU) which can be used, in turn, to make nuclear weapons.

Non-proliferation experts have not been enthusiastic with these promised new beasts for the Royal Australian Navy.  Daryl G. Kimball, director of the Arms Control Association, notes the salient difference between deepening defence cooperation on the one hand with allies and proliferating “sensitive HEU nuclear propulsion tech in contravention of US and global nonpro principles.”

Hans Kristensen, director of the Nuclear Information Project at the Federation of American Scientists, greeted AUKUS with much gloom when it was announced.  Its provisions on nuclear technology would “further intensify the arms race in the region and the dynamics that fuel military competition.”

The International Atomic Energy Agency’s Director General Rafael Mariano Grossi is visiting Australia to discuss the issue of safeguards regarding nuclear material used for naval propulsion.  This is nothing short of problematic, given that IAEA inspectors are unable to inspect such material for extended periods of time when the vessel is at sea.

Grossi, in mild understatement, calls this “quite complex”, though is keen to accommodate Australian commitments to non-proliferation alongside the acquisition of nuclear technology.  “There is a period of 18 months which was given by the three partners – the United States, United Kingdom and Australia – to define how the project is going to be implemented but, already we have started this interaction, this joint work of technical levels so that we can reconcile both things.”

In a statement made prior to Grossi’s visit, Foreign Minister Penny Wong reiterated Australia’s “longstanding” support of the “IAEA’s mission to harness the peaceful use of nuclear technology in areas like medicine, industrial processes and environmental monitoring, as well as upholding the international nuclear non-proliferation regime.”

This world as described by Senator Wong is distinctly pre-AUKUS.  Despite promises of “open and transparent engagement with the IAEA on nuclear safeguards”, the whinnying horse of proliferation has bolted from the stable. Assurances to avoid the future development of an Australian nuclear weapons capability or a national nuclear fuel cycle also ring hollow.

The precedent of permitting Australia to be the only non-nuclear weapons state with HEU-propelled technology is also seismic on another level.  There will be nothing stopping China and Russia doing what the United States and the UK promise to do: proliferate naval reactor technology and long-range missiles with a nuclear capability.

Binoy Kampmark was a Commonwealth Scholar at Selwyn College, Cambridge. He lectures at RMIT University, Melbourne. Email: bkampmark@gmail.com

15 Years of Failed Experiments: Myths and Facts About the Israeli Siege on Gaza

BY RAMZY BAROUD  JULY 8, 2022 JULY 8, 2022

Image by Patrick Perkins.

15 years have passed since Israel imposed a total siege on the Gaza Strip, subjecting nearly two million Palestinians to one of the longest and most cruel politically-motivated blockades in history.

The Israeli government had then justified its siege as the only way to protect Israel from Palestinian “terrorism and rocket attacks”. This remains the official Israeli line until this day. Not many Israelis – certainly not in government, media or even ordinary people – would argue that Israel today is safer than it was prior to June 2007.

It is widely understood that Israel has imposed the siege as a response to the Hamas takeover of the Strip, following a brief and violent confrontation between the two main Palestinian political rivals, Hamas, which currently rules Gaza, and Fatah, which dominates the Palestinian Authority in the occupied West Bank.

However, the isolation of Gaza was planned years before the Hamas-Fatah clash, or even the Hamas’ legislative election victory of January 2006. Late Israeli Prime Minister Ariel Sharon was determined to redeploy Israeli forces out of Gaza, years prior to these dates.

What finally culminated in the Israeli Disengagement from Gaza in August-September 2005 was proposed by Sharon in 2003, approved by his government in 2004 and finally adopted by the Knesset in February 2005.

The ‘disengagement’ was an Israeli tactic that aimed at removing a few thousand illegal Jewish settlers out of Gaza – to other illegal Jewish settlements in the West Bank – while redeploying the Israeli army from crowded Gaza population centers to the border areas. This was the actual start of the Gaza siege.

The above assertion was even clear to James Wolfensohn, who was appointed by the Quartet on the Middle East as the Special Envoy for Gaza Disengagement. In 2010, he reached a similar conclusion: “Gaza had been effectively sealed off from the outside world since the Israeli disengagement … and the humanitarian and economic consequences for the Palestinian population were profound.”

The ultimate motive behind the ‘disengagement’ was not Israel’s security, or even to starve Gazans as a form of collective punishment. The latter was one natural outcome of a much more sinister political plot, as communicated by Sharon’s own senior advisor at the time, Dov Weisglass. In an interview with the Israeli newspaper Haaretz, in October 2004, Weisglass put it plainly: “The significance of the disengagement plan is the freezing of the peace process.” How?

“When you freeze (the peace) process, you prevent the establishment of a Palestinian state, and you prevent a discussion on the refugees, the borders and Jerusalem,” according to Weisglass. Not only was this Israel’s ultimate motive behind the disengagement and subsequent siege on Gaza but, according to the seasoned Israeli politician, it was all done “with a presidential blessing and the ratification of both houses of Congress.” The President in question here is no other than US president at the time, George W. Bush.

All of this had taken place before Palestine’s legislative elections, Hamas’ victory and the Hamas-Fatah clash. The latter merely served as a convenient justification to what had already been discussed, ‘ratified’ and implemented.

For Israel, the siege has been a political ploy, which acquired additional meaning and value as time passed. In response to the accusation that Israel was starving Palestinians in Gaza, Weisglass was very quick to muster an answer: “The idea is to put the Palestinians on a diet, but not to make them die of hunger.”

What was then understood as a facetious, albeit thoughtless statement, turned out to be actual Israeli policy, as indicated in a 2008 report, which was made available in 2012. Thanks to the Israeli human rights organization Gisha, the “redlines (for) food consumption in the Gaza Strip” – composed by the Israeli Coordinator of Government Activities in the Territories – was made public. It emerged that Israel was calculating the minimum number of calories necessary to keep Gaza’s population alive, a number that is “adjusted to culture and experience” in the Strip.

The rest is history. Gaza’s suffering is absolute. 98 percent of the Strip’s water is undrinkable. Hospitals lack essential supplies and life-saving medications. Movement in and out of the Strip is practically prohibited, with minor exceptions.

Still, Israel has failed miserably in achieving any of its objectives. Tel Aviv hoped that the ‘disengagement’ would compel the international community to redefine the legal status of the Israeli occupation of Gaza. Despite Washington’s pressure, that never happened. Gaza remains part of the Occupied Palestinian Territories as defined in international law.

Even the September 2007 Israeli designation of Gaza as an “enemy entity” and a “hostile territory” changed little, except that it allowed the Israeli government to declare several devastating wars on the Strip, starting in 2008.

None of these wars have successfully served a long-term Israeli strategy. Instead, Gaza continues to fight back on a much larger scale than ever before, frustrating the calculation of Israeli leaders, as it became clear in their befuddled, disturbing language. During one of the deadliest Israeli wars on Gaza in July 2014, Israeli right-wing Knesset member, Ayelet Shaked, wrote on Facebook that the war was “not a war against terror, and not a war against extremists, and not even a war against the Palestinian Authority.” Instead, according to Shaked, who a year later became Israel’s Minister of Justice, “… is a war between two people. Who is the enemy? The Palestinian people.”

In the final analysis, the governments of Sharon, Tzipi Livni, Ehud Olmert, Benjamin Netanyahu and Naftali Bennett failed to isolate Gaza from the greater Palestinian body, break the will of the Strip or ensure Israeli security at the expense of Palestinians.

Moreover, Israel has fallen victim to its own hubris. While prolonging the siege will achieve no short or long-term strategic value, lifting the siege, from Israel’s viewpoint, would be tantamount to an admission of defeat – and could empower Palestinians in the West Bank to emulate the Gaza model. This lack of certainty further accentuates the political crisis and lack of strategic vision that continued to define all Israeli governments for nearly two decades.

Inevitably, Israel’s political experiment in Gaza has backfired, and the only way out is for the Gaza siege to be completely lifted and, this time, for good.

Ramzy Baroud is a journalist and the Editor of The Palestine Chronicle. He is the author of five books. His latest is “These Chains Will Be Broken: Palestinian Stories of Struggle and Defiance in Israeli Prisons” (Clarity Press, Atlanta). Dr. Baroud is a Non-resident Senior Research Fellow at the Center for Islam and Global Affairs (CIGA), Istanbul Zaim University (IZU). His website is www.ramzybaroud.net

EU plans investment in world's tallest dam to dent Russia's energy clout


Flags are seen behind the logo of the EIB pictured in the city of Luxembourg

Wed, July 6, 2022 
By Francesco Guarascio and Nazarali Pirnazarov

BRUSSELS/DUSHANBE (Reuters) - The European Union plans to become the top investor in the world's tallest dam in Tajikistan, EU officials told Reuters, in a move aimed at helping Central Asia cut its reliance on Russian energy and part of EU's answer to China's Belt and Road Initiative.

Tajikistan began in 2016 the construction of the giant hydropower Rogun plant, which could deliver full energy independence to the landlocked former Soviet Union nation.

The EU's investment arm, the European Investment Bank (EIB), has so far not funded the project, whose main developer is Italian construction firm Webuild.

But an EIB spokesman told Reuters this week that the bank has now been asked by the European Commission to become "the largest investor" in the project.

Rogun is expected to cost around $8 billion, of which $3 billion have already been spent, the Tajik energy minister Dalyor Juma told Reuters in June. While it has been largely financed by Tajik government's bonds and private loans up to now, the government in Dushanbe has requested EU financial and technological support in completing the project, an EU official familiar with the talks said.

The EIB spokesman declined to comment on the size of the possible investment and on the reasons for the new commitment.

The bank has invested in Central Asia about 182 million euros ($186.8 million) between 2014 and 2020, a fraction of its multi-billion-euro investments outside the EU's 27-nation bloc.

The EU official, who declined to be named because was not authorised to speak to media, said a key reason for the EU to become a top investor in the hydropower dam was to make Tajikistan and its neighbours independent from Russian energy.

The EU is interested in pursuing "Central Asia energy independence from Russia," the official said.

Brussels and its Western allies have been trying to isolate Russia in response to its February invasion of Ukraine.

The Rogun hydropower plant, with its 335-metre-tall clay core rockfill dam which the developers say will make it the tallest in the world once completed, is expected to end chronic power shortages in Tajikistan and allow it to export electricity to Uzbekistan and Kazakhstan.

Oil is Tajikistan's main import from Russia, while Kazakhstan and Uzbekistan import Russian gas, largely using imported energy to supply areas well interconnected with Russian infrastructure, even as both are themselves gas producers.

The funding would be part of the EU's "Global Gateway" strategy, the EU official said. Brussels unveiled the 300 billion euro global infrastructure spending plan in December as a better, greener alternative to China's Belt and Road Initiative. Beijing launched its plan in 2013 to boost its trade links with the rest of the world and Central Asia is among the regions where China has since heavily invested.

The EIB spokesman said the bank was considering a joint investment with the European Commission, which controls the EU multi-billion-euro budget and like the EIB can also raise money in the markets. The EU executive confirmed that the bloc was open to finance the hydropower Rogun dam project.

The Tajik government had no comment.

It is unclear when the EU's plans could turn into actual investments, but the EU official said that decisions could be made by the final quarter of this year.

($1 = 0.9741 euros)

(Additional reporting by Olzhas Auyezov in Almaty; writing by Francesco Guarascio @fraguarascio; Editing by Tomasz Janowski)

A former employee at a major US student-loan

company says workers 'literally cannot help' 

some borrowers when they're in trouble: 

'The idea of actually paying off a loan is 

virtually impossible'

Ayelet Sheffey 

Thu, July 7, 2022

Rachel Mendelson/Insider

• A laid-off employee of student-loan company Nelnet described the process for helping borrowers.

• She said in her experience resources are limited, and employees "literally cannot help" many struggling borrowers.

• Borrowers have previously reported frustrating experiences getting help from their servicers.

Dozens of student-loan borrowers have told Insider of the hours-long wait times and unsatisfactory customer service they say they get when they call their loan servicer for help.

A former employee at a major student-loan company told Insider there's really not much the workers can do about it.

After being laid off from Nelnet last month, Anne — who requested to use a pseudonym for privacy — told Insider there's a very generic script workers are trained to use when a borrower calls with a complaint. Nelnet is one of the largest student-loan servicing companies in the US, with nearly 8,000 full-time employees servicing 16.8 million borrowers who hold loans issued by both the federal government and by private companies. Anne said a large part of her job was "deescalation."

"A lot of people are calling in with a problematic situation and they're very upset," Anne said. "Essentially, we say, 'Thank you for the feedback. We appreciate it. We'll try to do better in the future.' And it just doesn't feel very reassuring to the customers unless you individually put in an actual sincere apology for affecting their financial lives like that."

Nelnet did not comment on the nature of the calls it receives or the script workers are given to assist borrowers.

Insider was first to report last month that Nelnet was laying off 150 employees, according to a leaked email. The email said the job cuts were a result of lack of work caused by the over two-year pandemic pause on student-loan payments, and "a performance-based approach was used to identify impacted associates. All released associates have been notified and we are not planning further release of staff."

Anne was one of those impacted associates, and leading up to her layoff, she was working in Firstmark Services, a private student-loan division of Nelnet.

"You literally cannot help people," Anne said. "You just have to give them this verbatim script, where if a person is out of payment relief options, their credit is probably so bad that they can't get a good interest rate, and if they reconsolidate, it's going to be a higher rate and they'll end up owing hundreds of thousands of dollars more, and the idea of actually paying off a loan is virtually impossible."

Nelnet spokesperson Ben Kiser told Insider that Nelnet seeks "regular feedback from our customers to help drive improvements in our loan servicing experience."

"Feedback takes the form of customer satisfaction surveys, experience testing, and other metrics, such as Net Promoter Scores," Kiser said. "Overall, Nelnet prioritizes compliance with consumer protection requirements and specific loan program guidance."

'There were always times where we wish we could do more'

When a student-loan borrower calls in with a problem, Anne said workers are given a flow chart they have to follow to work toward the best payment relief option for the borrower. The first step workers typically do, according to Anne, is determine if there is any COVID-19 relief available for the borrower, like the pandemic payment pause. Anne said workers "exhaust" all available federal relief before putting a borrower on forbearance.

"The goal is always to make sure we're getting as much information as we need from a customer to get that done," Anne said. "If you're a good call center agent, that's what you're going to focus on."

But issues sometimes arise with transactions borrowers make to Nelnet. If a borrower has multiple student loans, for example, and a payment isn't applied correctly across that account, the error could make some of the loans appear past-due, hurting the borrower's credit report — and Anne said Nelnet does not look at payments as frequently as they should, so the errors do not get fixed automatically.

"I have seen it get overlooked before and customers have to fight for the credit reporting to get revoked," Anne said.

Nelnet did not comment on how often it checks borrowers' accounts.

Aimee, a student-loan borrower who requested her last name be withheld for privacy, can attest to this. In an email to Insider, she described her interactions with Firstmark Services as "long and frustrating" due to their inability to resolve issues with her payments that arose when she paid two months of student debt bills upfront, and her servicer interpreted that payment as only one month's worth.

"I spent hours and hours on the phone with them trying to understand why my monthly payments weren't applied to all of my accounts when I should have been ahead of schedule," Aimee said. "It took a month, they had to sift through all of my accounts manually and reapply my payments and issue a correction to my credit."

And when she thought the issue was resolved, Aimee said the same thing kept happening when she tried to get ahead of her payment schedule, and the "nightmare" lasted two years until January 2022, in which she spent at least 30 hours of her time on the phone and filing complaints.

"The biggest issue was that every time I called, the person was confused and surprised the issue was happening, would put me on hold to speak with their manager and then they'd come back to me and promise to fix it only to repeat the process over and over again," Aimee said.

Nelnet did not comment on the amount of time it generally takes to resolve account errors.

Escalating customer complaints to management can only go so far. Anne said if a customer's account was severely mismanaged, she could submit a "rush request," in which she would have to write out "incredibly detailed notes" regarding the issues the borrower was having. But Anne said that in her experience, she found it to be a multi-step process that might not match the urgency of the situation.

Nelnet's Kiser did not comment on the rush request process, but told Insider that "associates are trained to provide each borrower customer in the federal programs with all available repayment and aid benefit options based on their loan type(s), so borrowers are empowered to choose and enroll in the best federal repayment, forgiveness, or payment postponement (deferments and forbearances) option available to them based on their unique circumstances."

"The main thing was advocating for why the customer deserves a rush, and even if the customer had their payment misapplied by thousands of dollars and was severely credit reported for it, that didn't make it a higher priority than anything else," Anne said. "There were always times where we wish we could do more for people."

'Student loans are such a horrible thing'

Insider also spoke to Jo, a current Nelnet employee using a pseudonym for privacy, who said the process for helping a student-loan borrower is essentially a checklist of prompts.

"The Department of Education is just one big beast," Jo said. "They just have one big list and you gotta follow it. They have what they call the 'priority of solutions.' So when a customer calls in requesting help with their payment, you gotta tick down the list."

Jo described the typical process for interacting with customers on the federal servicing side, saying the conversation would entail offering a standard repayment plan or an income-based repayment plan, making the borrower aware of any relief options, or consolidating the loans. The conversation didn't extend far beyond that.

President Joe Biden is in the process of deciding what student-loan relief he will implement, with most recent reports saying he is considering $10,000 in forgiveness for borrowers making under $150,000 a year. Lawmakers have expressed some concerns with student-loan companies' abilities to implement that relief effectively, and Insider has previously reported on struggles borrowers have faced with repayment and the lack of help they were receiving from their servicers.

As a student-loan borrower themself, Jo said working in the industry made it clear their debt will likely never be paid off.

"I'm taking out federal loans and I'm doing it with the knowledge that I'm probably never going to pay them off," Jo said. "Student loans are such a horrible thing that often, when you get into those situations and have a chance to make it better,  you're not going to know about it until it's too late and your credit is destroyed."

 Ayelet Sheffey at asheffey@insider.com.

Virgin Galactic taps Boeing subsidiary to build motherships



Susan Montoya Bryan
Wed, July 6, 2022 

ALBUQUERQUE — Virgin Galactic announced Wednesday that it is partnering with a Boeing subsidiary to manufacture the next generation of the twin-fuselage aircraft used to carry aloft the space tourism company's rocket ship.

Aurora Flight Sciences will build two of the special carrier planes at its facilities in Mississippi and West Virginia. Final assembly still will take place at Virgin Galactic's facility in Mojave, California, with the first mothership produced under the contract expected to enter service in 2025.

Each of the aircraft will be designed to fly up to 200 launches per year.

Virgin Galactic officials said that outsourcing the work will provide access to labor, minimize supply chain disruptions and lead to faster production times. The company has repeatedly pushed back the timeline for launching paying customers, with commercial service now expected in 2023.

Virgin Galactic CEO Michael Colglazier said the next-generation motherships will be integral to scaling up the company's operations.

“They will be faster to produce, easier to maintain and will allow us to fly substantially more missions each year,” he said in a statement. “Supported by the scale and strength of Boeing, Aurora is the ideal manufacturing partner for us.”

Virgin Galactic had assessed different aerospace manufacturers early in the process, but opted for Aurora in part because of its history of building cutting-edge aircraft. It has designed and built a new aircraft nearly every year for the past three decades.

The Virgin Galactic Spaceflight System is shown in front of Spaceport America. As the anchor tenant at Spaceport America, Virgin Galactic has two locations in Las Cruces. Many New Mexico State University graduates work for the company.

Virgin Galactic officials also noted Aurora's direct access to Boeing's expertise and other resources.

Aurora and Virgin Galactic have been working for the last several months to develop design specifications as well as workforce and manufacturing requirements.

After reaching nearly 50,000 feet, Virgin Galactic's space plane is released from the carrier aircraft and drops for a moment before igniting its rocket motor. It shuts off once it reaches space, providing passengers with silence, weightlessness and a view of Earth below. The rocket ship then glides back to the spaceport runway.

It's been nearly a year since Virgin Galactic launched founder Richard Branson and five Virgin Galactic employees toward the edge of space as the British entrepreneur raced to beat fellow billionaire Jeff Bezos and his rocket company Blue Origin.

Just weeks after the flight, Virgin Galactic reopened the ticket window, with prices starting at $450,000 a seat. By the fall, the company put off a planned research flight with members of the Italian air force and began scheduled assessments and maintenance of its aircrafts.

Virgin Galactic Shares Surge On Partnership With Boeing's Subsidiary To Build New Motherships

Akanksha Bakshi 

Wed, July 6, 2022 ·

• Virgin Galactic Holdings Inc (NYSE: SPCE) has inked an agreement with Aurora Flight Sciences, Boeing Co's (NYSE: BA) subsidiary, to partner in designing and manufacturing its next-generation motherships.

• The mothership is the air launch carrier aircraft in Virgin Galactic's space flight system that carries the spaceship to its release altitude of ~50,000 feet.

• Virgin Galactic has been working with Aurora for several months to develop design specifications. The two-vehicle contract enables Aurora to immediately begin the development of the vehicles, each designed to fly up to 200 launches per year.

• "Our next generation motherships are integral to scaling our operations. They will be faster to produce, easier to maintain and will allow us to fly substantially more missions each year," commented Michael Colglazier, Virgin Galactic Chief Executive Officer.

• Aurora plans to manufacture the aircraft at its Columbus, Mississippi, and Bridgeport, West Virginia facilities.

• The first new mothership is expected to enter service in 2025.

• Price Action: SPCE shares are trading higher by 4.34% at $6.73 during the post-market session on Wednesday, and BA closed lower by 1.01% at $136.31.

• Photo via Wikimedia Commons

Historic Cascade of Defaults Is Coming for Emerging Markets

Sydney Maki
Thu, July 7, 2022 




(Bloomberg) -- A quarter-trillion dollar pile of distressed debt is threatening to drag the developing world into a historic cascade of defaults.

Sri Lanka was the first nation to stop paying its foreign bondholders this year, burdened by unwieldy food and fuel costs that stoked protests and political chaos. Russia followed in June after getting caught in a web of sanctions.

Now, focus is turning to El Salvador, Ghana, Egypt, Tunisia and Pakistan — nations that Bloomberg Economics sees as vulnerable to default. As the cost to insure emerging-market debt from non-payment surges to the highest since Russia invaded Ukraine, concern is also coming from the likes of World Bank Chief Economist Carmen Reinhart and long-term emerging market debt specialists such as former Elliott Management portfolio manager Jay Newman.

“With the low-income countries, debt risks and debt crises are not hypothetical,” Reinhart said on Bloomberg Television. “We’re pretty much already there.”

The number of emerging markets with sovereign debt that trades at distressed levels — yields that indicate investors believe default is a real possibility — has more than doubled in the past six months, according to data compiled from a Bloomberg index. Collectively, those 19 nations are home to more than 900 million people, and some — such as Sri Lanka and Lebanon — are already in default.

At stake, then, is $237 billion due to foreign bondholders in notes that are trading in distress. That adds up to almost a fifth — or about 17% — of the $1.4 trillion emerging-market sovereigns have outstanding in external debt denominated in dollars, euros or yen, according to data compiled by Bloomberg.

And as crises have shown over and over again in recent decades, the financial collapse of one government can create a domino effect — known as contagion in market parlance — as skittish traders yank money out of countries with similar economic problems and, in so doing, accelerate their crash. The worst of those crises was the Latin American debt debacle of the 1980s. The current moment, emerging-market watchers say, bears a certain resemblance. Like then, the Federal Reserve is suddenly ratcheting up interest rates at a rapid-fire clip in a bid to curb inflation, sparking a surge in the value of the dollar that is making it difficult for developing nations to service their foreign bonds.

Those under the most stress tend to be smaller countries with a shorter track record in international capital markets. Bigger developing nations, such as China, India, Mexico and Brazil, can boast of fairly robust external balance sheets and stockpiles of foreign currency reserves.

But in more vulnerable countries, there's widespread concern about what's to come. Bouts of political turmoil are arising around the globe tied to soaring food and energy costs, casting a shadow over upcoming bond payments in highly-indebted nations such as Ghana and Egypt, which some say would be better off using the money to help their citizens. With the Russia-Ukraine war keeping pressure on commodity prices, global interest rates rising and the US dollar asserting its strength, the burden for some nations is likely to be intolerable.

For Anupam Damani, head of international and emerging-market debt at Nuveen, there’s deep concern about maintaining access to energy and food in developing economies.

“Those are things that are going to continue to resonate in the second half of the year,” she said. “There’s a lot of academic literature and historical precedence in terms of social instability that higher food prices can cause, and then that can lead to political change.”

At the Edge

A quarter of the nations tracked in the Bloomberg EM USD Aggregate Sovereign Index are trading in distress, generally defined as yields more than 10 percentage points above those on similar maturity Treasuries.

The gauge has tumbled almost 20% this year, already exceeding the full-year loss it notched during the global financial crisis in 2008. Some of that, of course stems from big losses in underlying rate markets, but credit deterioration has been a major driver for the most distressed nations.

Samy Muaddi, a portfolio manager at T. Rowe Price who helps oversee about $6.2 billion in assets, calls it one of the worst sell-offs for emerging-market debt “arguably in history.”

He points out that many emerging markets rushed to sell overseas bonds during the Covid pandemic when spending needs were high and borrowing costs were low. Now that global developed-market central banks tighten financial conditions, driving capital flows away from emerging markets and leaving them with heavy costs, some of them will be at risk.

“This is an acute period of challenge for many developing countries,” Muaddi said.

Risk aversion has also spread to active traders who are snapping up insurance against default in emerging markets. The cost is lingering just below the peak seen when Russian troops invaded Ukraine earlier this year.

“Things can get worse before they get better,” said Caesar Maasry, head of emerging-market cross-asset strategy at Goldman Sachs Group Inc., in a Bloomberg Intelligence webinar. “It’s late cycle. There’s not a strong recovery to buy into.”

That’s sent foreign money managers marching out of developing economies. They pulled $4 billion out of emerging-market bonds and stocks in June, according to the Institute of International Finance, marking a fourth straight month of outflows as Russia's invasion of Ukraine and the war’s impact on commodity prices and inflation dragged on investor sentiment.

“This could have really long-term impacts that actually change the way we think about emerging markets, and in particular, emerging markets in a strategic context,” said Gene Podkaminer, head of research at Franklin Templeton Investment Solutions. “The first thing it does is to reaffirm the reputation of emerging markets — they are volatile. There were certainly periods of time when investors perhaps had forgotten that, but it’s hard to ignore that fact now.”

Ballooning bond spreads are also a special concern for central bankers, who are seeing an increasingly stark trade-off between tightening interest rates to protect currencies and damp inflation versus staying accommodative to help keep fragile post-Covid recoveries on track. Multilateral institutions like the International Monetary Fund have also have warned of further on-the-ground strife associated with the burden of soaring costs of living, especially where governments are ill-placed to provide a cushion for households.

Sri Lanka’s political turmoil was fanned by sweeping electricity cuts and surging inflation that deepened inequality. That’s something Barclays Plc analysts led by Christian Keller warned could be repeated elsewhere in the second half this year.

“Populations suffering from high food prices and shortages of supplies can be a tinderbox for political instability,” his team wrote in a mid-year report.

US Fed Vice Chairwoman Brainard Doesn’t Like What She’s Seeing in Crypto

Jesse Hamilton
Fri, July 8, 2022 

Drew Angerer


One of the top officials at the Federal Reserve made it abundantly clear that the central bank – which is also a powerful financial watchdog – is paying careful attention to the flaws showing up as the crypto sector founders.

“Recent volatility has exposed serious vulnerabilities in the crypto financial system,” Fed Vice Chairwoman Lael Brainard said in a speech in London on Friday, which offered a laundry list of the failings of the digital assets sector. Brainard has been leading the Fed’s work on a potential digital dollar and has been minding the store on crypto policy discussions until the central bank appoints its permanent vice chair for supervision.

Brainard said the Fed has been “closely monitoring recent events where risks in the system have crystallized and many crypto investors have suffered losses,” according to a copy of the speech. And she suggests an answer: “Strong regulatory guardrails will help enable investors and developers to build a resilient digital native financial infrastructure.”

The vice chairwoman contends that the shortcomings of crypto are basically the same as traditional finance, and the sector needs to meet the same safety standards before it gets large enough to become a threat to the rest of the financial system.

“We have seen crypto trading platforms and crypto lending firms not only engage in activities similar to those in traditional finance without comparable regulatory compliance, but also combine activities that are required to be separated in traditional financial markets,” she said at the Bank of England event. “For example, some platforms combine market infrastructure and client facilitation with risk-taking businesses like asset creation, proprietary trading, venture capital and lending.”

TerraUSD’s meltdown has drawn the attention of the Fed and other regulators, and Brainard equated it with other financial runs throughout history.

“New technology and financial engineering cannot by themselves convert risky assets into safe ones,” she said. Brainard argued that stresses throughout the industry have revealed that crypto platforms suffer from classic vulnerabilities and contagions, “illustrated by the freeze on withdrawals at some crypto lending platforms and exchanges and the bankruptcy of a prominent crypto hedge fund.” Last week, hedge fund Three Arrows Capital filed for Chapter 15 bankruptcy in the Southern District of New York federal court.

She suggested that all this reinforces the idea that a central bank digital currency from the U.S. “may be an advantage for future financial stability.” Such a government token could have profound implications for the private stablecoin market.

The Senate is soon expected to confirm Michael Barr, President Joe Biden’s pick to be the next Fed vice chairman for supervision, who will lead the central bank’s regulatory and financial-supervision efforts, including how the U.S. will oversee stablecoins. Barr is widely seen as a consumer advocate who will promote tough regulation. He served for a time on the advisory board of crypto firm Ripple, and so he is familiar with the industry.

Camomile Shumba contributed to this report.

US Bans Government Employees Who Hold Crypto From Writing Related Policy (yahoo.com)

US Treasury Publishes First Roadmap for International Crypto Regulation (yahoo.com)

Perianne Boring, founder and president of lobbying group Chamber of Digital Commerce, discusses how Washington policymakers are reacting to the latest crypto contagion. Plus, outlook for U.S. ETFs.

 

Wally Adeyemo, deputy secretary of the U.S. Treasury joins Consensus 2022 to discuss the state and outlook for regulation and policy of digital assets. Moderator: Nik De, CoinDesk managing editor, global policy and regulation.