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The Dow Jones’ Wonderfully Cheesy Addition


The bailout of AIG to enable derivatives traders and other gamblers collect on their computer-driven bets is so enormous that it will take another article to describe. But in the meantime there is a development so wonderfully appropriate, almost poetic as a metaphor, that it cannot go unnoticed. The Dow Jones Company announced on September 18 that as of this Monday, September 22, 2008 it will replace ailing A.I.G. in the Dow Industrial Average with Kraft Foods. The company makes processed industrial products such as Cheez’it, Cheez Whiz and Oscar Meyer wieners, but is best known for the Macaroni and Cheese that Sam Kraft introduced in the Depression year of 1937. When milk and dairy products were rationed during World War II, these packaged meals were all that was available. Along with the company’s Hamburger Helper, much of the public may find itself obliged to eat more of this by the time the fallout from this week’s transition from Industrial Capitalism to Hedge Fund Capitalism runs its course.

How fitting a metaphor, not only the notorious Depression Diet, but the fact that the Kraft process is fake cheese. About as real as the default guarantees that A.I.G. “insured,” Velveeta and similar so-called “cheese products” are made out of Milk Protein Concentrate (MPC). “The general definition of MPC is a blend of dry dairy ingredients from 42% to 90% casein (pure dairy protein) made by ultra filtering skim milk, retaining anything the size of a protein or larger (bacteria, somatic cell, etc.) and then drying that to form a powder,” describes the Agribusiness Examiner. “Not manufactured in the U.S., MPC’s are added to cheese vats – on the cheap yielding more end products with ‘savings’ retained by the manufacturer.”

The resulting products are not considered milk by the Food and Drug Administration’s (FDA) definitions. This fact legally obliges Kraft to spell many of its consumer items “Cheez” under the “truth in labeling” laws. The intention is for the children at whom most of Kraft’s advertising is aimed will think that this is an affectionate diminutive for the company’s cheesy chemicals, confusing it with real dairy cheese. Much as Kraft’s products are aimed mainly at kids, so about three quarters of A.I.G.’s derivative insurance guarantees for trillions of dollars of computer-driven trades were pawned off on gullible European financial institutions.

Much in line with Thomas Gresham’s quip that “Bad money drives out good,” so Kraft now accounts for no less than 57 percent of the U.S. “cheese” market. And in the sphere of finance capital, the massive computerized derivatives trading insured by A.I.G. has diverted pension fund savings and bank credit away from tangible investment to something almost unworldly, neither tangible capital nor even financial capital, but bets and straddles on cross trades.

Kraft also makes Oscar Mayer meats, mainly frankfurters and other sausages, providing a model for the investment banking industry to emulate with its packaged mortgages (toxic CDOs, collateralized debt obligations), the financial equivalent of sweepings off the floor. People who know what go into sausages or CDOs rarely want to buy them. But a lot of money has been made selling them. And the government is now giving the blessing. There is no health plan for Americans reduced to Kraft Cheez diets, but there is now indeed a financial health plan for all the traders who have choked on the $450 billion unpayable derivatives trades that A.I.G. is said to have insured.

The moral seems to be health and bailouts for the wealthy; let the rest eat Cheese and Macaroni.

MICHAEL HUDSON is a former Wall Street economist specializing in the balance of payments and real estate at the Chase Manhattan Bank (now JPMorgan Chase & Co.), Arthur Anderson, and later at the Hudson Institute (no relation). In 1990 he helped established the world’s first sovereign debt fund for Scudder Stevens & Clark. Dr. Hudson was Dennis Kucinich’s Chief Economic Advisor in the recent Democratic primary presidential campaign, and has advised the U.S., Canadian, Mexican and Latvian governments, as well as the United Nations Institute for Training and Research (UNITAR). A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) He can be reached via his website,



Kraft “Cheese?”: Adulterated Food? FDA: Don’t Ask! Don’t Tell! The Agribusiness Examiner, May 7, 2001.


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Michael Hudson’s new book, Killing the Host is published in e-format by CounterPunch Books and in print by Islet. He can be reached via his website,

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