The Emperor’s New Banks 3


To state the obvious, the problem with the US government’s bailout of the US financial system is that the US government doesn’t have $700 billion. It doesn’t in fact have any money at all, being substantially in debt. The idea that this creation of yet more funny money in some way heals the system is patently absurd. It merely postpones, very temporarily, some impoverishment and ensures the pain will be borne for a generation or three.

The profligate use of taxpayers’ indebtedness throughout the last year, on both sides of the Atlantic, had been astounding, whether from the hundreds of billions “pumped into the money markets” by central banks, or all those successive rescue packages for individual institutions.

The signals sent to the market are extraordinarily contrary. Executives of failed institutions, whose policies were the direct cause of failure and who awarded themselves billions in bonuses for pursuing those policies, now have their jobs protected after they failed so badly. Irresponsibility and massive greed pays. Neither in the US nor the UK will the government again be able to tell public servants that they get lower pay because they take less risk than the private sector. And we now have institutions which are in effect now public sector, but where individual public servants – for that is what they now are – are receiving pay in the millions.

Furthermore, the investors – who if the market works should, indeed must lose their funds if the institution goes bust, just as they can make great gains if it booms – are not going to lose their money. At least with Northern Rock the British government got that bit right.

What we have instead is perhaps the single most regressive movement of funds in history, with taxes going to protect investments. Yes, I know many ordinary people benefit a bit from investments through pension funds etc, but the wealthy undoubtedly have many more investments on average than the poor, while many of the very poor have no interest in investments but still pay tax.

This is a huge bailout of the wealthy on the backs of the poor. That is why Bush is acting with such alacrity. Those commentators claiming Bush is taking leftward action iwith a “New Deal” philosophy could not be more wrong.


3 thoughts on “The Emperor’s New Banks

  • writeon

    Craig,

    Precisely. This bailout won't work because it is paradoxically only supplying more fuel to the fire that is raging.

    I've never believed the 'free market' was 'free', that was a merely propaganda design, not to illustrate 'how' the market functioned, but to disguise 'who' it functioned for.

    Disturbingly this bailout risks dragging the rest of the US economy and the dollar into the bottomless debt black hole, with unimaginable consequeneces. The black hole contains dozens of trillions of bad debt and has an insatiable appitite for taxpayers cash.

    Paulson seems to want to create the post of financial czar, a position of such power that it will, in reality, rival that of the President. Not only that, he wishes to introduce 'reforms' that will give him extraordinary powers over the US economy and at the same time protect him form judicial or legal scrutiny.

    This is rather like the 'coup' Bush pushed through after 9/11 when he asked and was given 'de facto' dictatorial powers to defend the United States.

    If the Congress gives Paulson these extraordinary powers over the economy, it will have profound political and social consequences. Real power will be concentrated in a tiny number of super-powerful men's hands.

    Paulson is estimated to have a personal fortune in excess of 250 million dollars, most of it acquired when he worked for Goldmund-Sachs. He can hardly be considered neutral. He is biased towards saving his own skin and those of his friends in the financial aristocracy, the real power and rulers of the United States.

    Anyway I could write about this bizarre and grotesque dance of death for days, but I'll resist the temptation and stop here. It's a shame we live in such interesting times, as I had planned to enjoy a life of luxury for the next thirty years, now I'm not sure it'll quite work out that way.

  • OrwellianUK

    There is in fact a long history of this 'Welfare State' for the rich. Especially if they are arms manufacturers. BAE Systems is a case in point with millions being spent in 'Aid' to other countries, provided they spend a substantial amount on 'Defence' contracts with UK companies.

    The U.S. has a long history of propping up its huge Military Industrial Complex as well. In fact it is curious how often a convenient war appeared to reverse cuts in Defence spending ordered by Congress.

    The fact that this bail-out extends to banks and other financial institutions comes as no surprise. It has long been apparent that governments around the world have deliberately facilitated the theft of wealth from the public and its transfer to the powerful.

    For the past 25 years at least, there has been a steady rise in the gap between rich and poor, and a transfer of a greater proportion of the worlds wealth into a smaller minority of anonymous corporate executives and investors.

    Being that Corporations and Financial institutions have deeply penetrated all areas of our so called 'Democratic' systems, it can only be deduced that this has all been well planned and implemented over a number of years.

    It is actually a form of slavery. Aside from the Elites who control the vast majority of the wealth, the rest of the worlds population can be divided into two main groups:

    1. About 2/3rds of humanity provide the cheap labour to produce goods, foodstuffs and raw materials.

    2. The remaining third exist to fall into tremendous life long debt in order to consume this produce, and keep the money flowing into the coffers of the corporations.

    Governments are little more than middle management in this system and therefore are invariably going to facilitate its continuation.

  • Wegal

    Cant help but feel that people are getting carried away with this, its a recession, they happen, just as day follows night. Its just a correction of the labour markets. As to the banks being given money, dont overlook the REAL reason for this move. The banks are massively powerful institutions, I believe that governments have allowed them to get in this mess for one reason only…. governements bail them out…. governements control them. All that western governments have done is take control of one of the last true free markets. When this has all blown over, there will be only one thing left that the governments dont control… the internet. Honestly western governments probably think this is a cheap way to get control of this sector.

    As for the redistribution of wealth… money was created so that the wealthy can control the rest of us, the existance of money creates hope for those that dont have any, give a man hope and he will do anything, including working 60 to 100 hours a week. getting rid of money wont work, humans are inherently lazy, its up to you to decide wether you want to play the game or not. Stop buying things you dont need get rid of your debt, find a job you enjoy, even better create your own job (i did) anyone can do it, they just have to stop being lazy and have a go.

    Stop blaming the banks and start looking closer to home, WE created this economy with our consumer attitudes, WE borrowed the money we could not pay back, its time to stop blaming the banks, if people hadnt been so stupid to borrow what they could not afford, then who's fault is it really… not the banks we are all responsible for our own actions. If the banks collapse then we have a very real problem.

Comments are closed.