The ills besetting the financial system are currently devouring the global economy on which it relies. When one bank collapses another buys it, ensuring that the state will have to rescue it because it is now too big to fail. All of a sudden, with a knife to their throats, taxpayers everywhere are paying thousands of billions of dollars to bail out the biggest financial institutions. No one knows how many toxic assets are still concealed in their innards or how much more will have to be paid to buy up the rising mountain of tainted loans – a clear consequence of financial deregulation.
Once upon a time, it seems bankers had a nice easy life. They subscribed to the US “3-6-3” principle: borrow at 3%, lend at 6% and off for a round of golf at 3 o’clock. It did not take a regiment of mathematicians armed with econometric models to master this simple exercise. Then in the 1980s, everything changed. Diversification, risk-taking, opening up and removing barriers: these were the new watchwords. In 1933 the Glass-Steagall Act was passed prohibiting US banks from dealing on the stock exchange. Such old-fashioned New Deal nonsense was abolished in the euphoria of the new economics. Modernity beckoned and banks no longer depended on the confidence of their savers.
Most of them rushed to invest in new products: “derivatives” consisting of packages of loans they themselves once “securitised”. The bankers themselves hardly know what is going on (a 150-page handbook would sometimes be needed for this sort of exercise) though they appreciated the cash all this innovation generated for them. Lending more and more, in the dark and with less and less equity, was certainly taking a chance. But these were the days of bubbles, endless expansion, financial pyramids and astronomical salaries, all encouraging a policy of more of the same (1).
At the end of 2007, some banks lent up to 30 times the amount they held in their vaults. Insurance companies like American International Group (AIG) stood by, covering this daring exhibition of tightrope walking.
But one day, the rope gave way. Some debtors, ruined and unable to borrow any more, stopped repaying their loans. The banks were in a weak position: if a tiny fraction of the loans they had agreed could not be repaid, they too would be bankrupt – and their insurers with them. With house prices in free fall, economic activity grinding to a halt, unemployment soaring, how are the financial institutions to recover? The answer is: the state will take care of them, the same state which has too often let some genius shuttling between banks take the helm.
It is time for the state to address the problem. In any case, the financial sector can no longer look to private shareholders for its salvation: they only spring to life when the government announces a fresh injection of funds. Nationalising the banks – anathema only yesterday when everyone (even the French socialists) was in favour of financial deregulation – is now such an obvious move and the disaster it would prevent so imminent that Republican members of Congress are recommending it in the US, and neo-liberal magazines like The Economist are, regretfully, advocating the same line (2).
It seems, however, that as soon as the banks have been redeemed with taxpayers’ money, they will be returned to their shareholders. In short, put the house in order and then give it back to the people who looted it. Why? Nationalised banking systems have funded decades of expansion. What have private banks done of similar value?
Ref: Le Monde
Peter Custers: green means zero growth
With the world economy in disarray and military expenditure spiralling, what hopes are there of a genuinely Green New Deal? In this month’s podcast, George Miller talks to Peter Custers, an expert on the international arms trade, about his article “Towards zero growth ”, which argues that “an economy that refuses to grow” is exactly what the world economy must aim for.
He sees positive signs in Germany’s policy on renewable energy and offers his verdict on how green Barack Obama will turn out to be.
Listen to the podcast here
Filed under: ANTI -NEOCON & NEOLIB, neo liberalism & neo capitalism, SHOCK DOCTRIN, USA | Tagged: bail out, bank, Financial Crisis, financial ruin, global economy, green new deal, insurance, international arms trade, military expenditure, Neo liberalism, Peter Custers, US economy, zero growth |