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.