Capitalism on trial

Original article, an editorial subheaded The neoliberal dogmas that have dominated for more than 25 years are discredited, but they need to be replaced by more than proposals for re-regulating the banks, via

THE WORLD financial system is in the grip of the most severe crisis since the Great Depression of the 1930s–and there’s worse to come, not only for the banks and speculators of Wall Street, but far beyond, in every part of the U.S., and around the globe.

The US has decided to back the bad debt. More on that later in the editorial, but the finance gurus are celebrating. The question, of course, is should you?

The business world has been struck by a man-made earthquake, and people will be paying for this economic disaster for years to come in a number of ways–higher prices for food and other necessities, millions of foreclosures and evictions, greater unemployment, growing poverty, government programs cut back or eliminated, and rising tensions throughout society.

The interesting thing is that you are being blamed.  You’re living beyond your means. You’re the ones the banks were ‘forced’ to make home loans to.  Keep this in mind as the mad gamble by our political godfathers drain every last penny from the corpse of the american people.

The claim will echo around the corporate media that this was the inevitable consequence of all Americans “living beyond their means.” Don’t believe it. The vast majority of people who will have to pay the price for this disaster are blameless. They did nothing wrong.

Who should be blamed?

The crisis was caused by an irrational free-market system and the insatiable greed of a small class of rulers who continually seek greater wealth and power, without regard for the costs.

Period.  For quite a while, the only growth sector not associated with the military or the service economy was the housing market.  As we’ve seen with the popping of the housing bubble, it was a bad bet by the financial boys.

IT’S IMPOSSIBLE to exaggerate the scope of what has taken place in the financial world in the past several weeks. Scenarios that would have been dismissed as the fantasies of radical doomsayers a month ago now appear as accepted fact on the front pages of newspapers like the Wall Street Journal.

The government is bailing out the fiancial gurus.  That money is coming out of your wallet, and going to save the people who’ve broken the system.  And so far, it’s been being done by executive moves (presidential and through the Fed).  Now, it looks like Congress is going to get in on the game.

When desperate efforts by Treasury Department and Federal Reserve Bank officials to find a private-sector rescuer for AIG failed, the government stepped in with an $85 billion loan, payable over two years, in return for effective control of the company.

Set together with the takeover of mortgage giants Fannie Mae and Freddie Mac less than 10 days before, the U.S. government–that neoliberal scourge of nationalization in other countries–now owns the two largest mortgage companies and the single largest insurance company in the world.

Keep this in mind: Socialism for the rich = good, money going toward the ‘little guy’ = not so good.  W and his gang are bailing out their pals.  The money is coming from you.  The system is not going to be fixed by the band-aids being applied if only the fat-cats get saved by this.

AIG got into trouble almost entirely because of an obscure part of its business–selling what are called “credit default swaps,” which amount to an insurance policy on investments in bonds. Basically, AIG was selling financial protection to investors and companies that bought bonds–if the seller of those bonds defaulted on the promise to pay back the principal, plus interest, investors could cover their losses.

Credit default swaps are pretty much an invention of the last 10 years. Yet these financial insurance policies today may cover as much as $62 trillion worth of debt, according to estimates–greater, that is, than the total annual production of goods and services of every country of the world.

The sales of credit default swaps accompanied a massive–and little-examined, until now–boom in investments based on debt, and especially mortgage debt. Essentially, Wall Street pushed the expansion in mortgage financing and refinancing to feed a demand for bonds that packaged together large numbers of these loans for sale to big investors. As these “mortgage-backed securities” became bigger–and as they came to include a greater and greater proportion of risky sub-prime loans pushed on homebuyers by aggressive mortgage companies–the big investors who bought the bonds looked for protection against investments going bad. So the demand for credit default swaps boomed as well.

Insurance on credit.  Why should you be on the hook for insurance on credit?  Why should you be on the hook for up to $62 trillion worth of debt?  The banks and financial institutions will get to go on, and you get to pay back their bad debt.

Essentially, AIG was gambling that they could take in more money by selling this specialized form of insurance than they would ever pay out. But when this bluff was called by the mortgage crisis, AIG was busted out of the game.

The government was there to feed them more money.  It’s like giving more money to a gambling addict.  It’s not a good idea.

It’s easy to get lost in the details of what has happened–both the mind-boggling scope of the financial shell game that has been taking place for the last decade, and the unprecedented consequences as government officials and surviving players try to figure out how to unravel the mess.

But it’s important not to lose sight of a larger point: No one could possibly claim that Wall Street’s high-stakes casino contributed anything to the good of society as a whole. The entire world of credit default swaps, hedge funds, collateralized debt obligations and the rest of the alphabet soup concocted by Wall Street in this latest boom was directed toward one thing–make a tiny group of people rich beyond most people’s wildest dreams.

The financial catastrophe unfolding on Wall Street is the product of blind greed and arrogance. And now that the house of cards is collapsing, the U.S. government’s series of rescues carry another lesson: The bigger the bet and the wider the potential damage if it loses, the more likely the Feds will have to come to the rescue to stop the whole game from coming to an end.

Maybe it’s time to let the financial system collapse.

NOW THAT the full fury of the financial storm has struck, the neoliberal dogmas of the last several decades are out the window–above all, the belief that the free market can only function at its efficient best if government oversight and regulation is kept to a minimum, if not eliminated outright.

We’ve left the wine cellar’s door open and Foster Brooks is heading downstairs!  Grrrrr.  We’re already running huge deficits, now we’re just going to pile on.

After all, now that the U.S. government has carried out several quasi-nationalizations on an emergency basis, an obvious question looms, as the Financial Times’ Willem Buiter pointed out:

If financial behemoths like AIG are too large and/or too interconnected to fail, but not too smart to get themselves into situations where they need to be bailed out, then what is the case for letting private firms engage in such kinds of activities in the first place?

Is the reality of the modern, transactions-oriented model of financial capitalism indeed that large private firms make enormous private profits when the going is good, and get bailed out and taken into temporary public ownership when the going gets bad, with the taxpayer taking the risk and the losses?

If so, then why not keep these activities in permanent public ownership? There is a longstanding argument that there is no real case for private ownership of deposit-taking banking institutions, because these cannot exist safely without a deposit guarantee and/or lender of last resort facilities, that are ultimately underwritten by the taxpayer.

So, our version of capitalism is actually backed by a ‘socialist’ safety net.  Isn’t that the most ironic thing to know.  I’m sure the bankers, etc., will find some way to wash the bad taste out of their mouth.

William Greider of The Nation poses the question more bluntly: “People have the right to ask: What exactly are the rest of us getting for our money?”

Bingo!  The answer, as always, is very little.

Greider is right. For example, now that they have bailed out the mortgage giants Fannie Mae and Freddie Mac, shouldn’t U.S. taxpayers have a say in the companies’ operations? Why shouldn’t the public owners of these companies insist on a moratorium on foreclosures on the loans owned or guaranteed by Fannie and Freddie–nearly half of all mortgages in the U.S.? That would do a hundred times more for working people struggling with the mortgage crisis than the weak housing law passed this summer, whose main aim anyway was to enable the government takeover of Fannie and Freddie.

Now that the federal government has gotten into the insurance business with the takeover of the largest insurance company in the world, is there any justification for anyone in the U.S. going without health care coverage, much less 45 million people?

And when the objection comes that the U.S. government will have to cut spending to pay for the Wall Street rescues, there should be no question about where the money should come from. The federal government could get the whole sum for the AIG takeover from the Pentagon budget and still leave the U.S. military with more money–many times over–than any other country in the world.

The financial lords and their lackeys will blame you.  The blame will come from both wings of the single actual major party in the US.  You’ll hear how social programs will have to be cut because of the amounts of money which have been tied up saving the fianancial sector.  You’ll be on the hook, and won’t see any return for the efforts.

For more than 25 years, the theology of neoliberalism–with its worship of the free market and its demonization of “big government”–has reigned supreme in the U.S.

Wink, wink.  Big government is good for the corps and financial institutions.  Damn the regular citizens.

This is not the first guilty verdict against capitalism. As socialist filmmaker Ken Loach told the Guardian newspaper: “You look around the world, and you see massive need on the one hand, and massive wealth on the other, and the two never connect. The market is massively inefficient, capitalism is massively unstable and turbulent, and it’s insane that we are all bound to this terrible wheel of instability.”

You only matter to our corporatized mitiarist government beyond being a font to send money up the ladder.  We see the lie of ‘trickle down’ economics.  It is, and always has been, a ‘gusher up’ economic plan.  Keep this in mind as you head to the voting booth this fall.  There are alternatives available.

If you’re listening to Dianne Rheem right now, you’re hearing the blame be placed on you!

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  1. The solution is to tax the rich heavily so they pay for their own bailout and their own war. They spent the (more than the) past decade looting wealth from the American middle class.

    This meltdown was orchestrated to steal from the middle class and destroy, once and for all, our government. This is a major battle in the class war that the middle class just lost.

    In order to win the next round we must tax the rich so heavily that they bleed. Our tax policy should be about leveling everyone into equals and eliminating poverty by eliminating the rich.

  2. Confiscate their ill-gained wealth and throw their butts in prison.

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