Bail-outs and the mass rescue of Capitalism


So let me get this straight . . .

The rush to rescue the banks and the bankers is happening across the world.

Congress has finally agreed to rescue Wall Street after having reconsidered its position due to some changes made to the bill. We knew they would come round eventually and apparently, the bill is just the same but with some pages added regarding millions of tax breaks. Tax breaks for who I’m not quite sure about but I’ll withhold the cynicism for now.

Our own Brown government is bailing out Bradford & Bingley. Prior to this, it bailed out Northern Rock.

Iceland is doing something similar and so is Europe as a whole.

I’m confused, as usual, on many levels.

What I don’t get is that they are going to take control of the debt part but not the profits. Does this mean, as suggested here, that the public, ie, you and me, will mop up the bad debt of the banks with our own public money and hold that debt which we will pass on to future generations and the bankers will still walk away with the profits?

As the Socialist Worker again rightly puts it, for decades we have been told by Labour and Tory governments alike that the market system is the best and only system but what we were never told is that when that systems crashes . . . when banks fail and shares plummet, we the people would have to foot the bill.

This welfare for Wall Street stands in stark contrast to the daily reality for working people – who face their homes being repossessed . . .

Yes, the welfare of the fat cats of Wall Street, London etc. is clearly very important to our leaders but what about the welfare of the ordinary citizens? What about the stability of the people? Will the ordinary people whose homes are at risk of being repossessed . . will they be bailed out? Will they be rescued too? Will people’s jobs be protected? Will their hard-earned pensions be safe?

The politicians argue that it must be done to give stability to the banking systems as a whole and the Brown government is calling it nationalisation which begs another question, why is he suddenly on the side of nationalisation when it involves getting his corporate banker friends out of trouble but remains vehemently opposed to the renationalisation of our vital public utilities?

Ultimately though, will the people’s basic interests be protected?

No, see, what actually happens is that government’s will quickly come to the rescue of banks that have gone into debt while ordinary people who get into debt are shown no such compassion.  They simply have their homes repossessed and are subsequently blacklisted for years.

I understand that Hobsons Choice may be at play here and the banking crisis will impact all our lives if the government doesn’t step in but given that we have to use public money to bail them out, it’s only right that the ordinary person facing serious financial difficulties due to said crisis should also be given some protection.

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13 responses to this post.

  1. Posted by Deepak on October 4, 2008 at 3:34 pm

    I have just translated the post into Hindi and want to publish it at our blog with our own comments as the ultimate target who will bear with this burden is the proletarians living generally all over the world and especially in the developing economies. Would you like to permit me to do so, please ?

    Reply

  2. […] समाजवादी नहीं हो जाता. आज ही श्रीमान earthpal की ब्लॉग आपको पूंजीवाद के एक नए फंडे […]

    Reply

  3. Yes, go ahead Deepak.

    Reply

  4. […] नहीं हो जाता. आज ही श्रीमान earthpal की ब्लॉग आपको पूंजीवाद के एक नए फंडे […]

    Reply

  5. I’m not calling this a problem of capitalism, nor is the bailout capitalism.

    The belief is that when they buy the bad assets from the banks, the credit crunch will disappear, banks will be able to give out loans, housing prices will rise and the government can sell the “bad” assets for a profit.

    That’s the assumed plan, so it is misleading to characterize this as a plan to sock it to taxpayers because it is not.

    I’m a free market capitalist and I believe every single one of these banks should fail because that’s how capitalism works. If you screw up, you fail.

    —-

    What I do find funny is that socialist quote. Seriously, most people that are losing their homes can’t afford them in the first place. Seriously, do you think people deserve half a million dollars homes when they really can’t afford it? They should of been a little smarter and got something a little more reasonably priced.

    Reply

  6. Posted by Deepak on October 5, 2008 at 3:21 am

    Chris,
    The expounders of the free market capitalism will be remembered in the annals of history for the revolution in information technology-one of the most fundamental works performed by the capitalism under their leadership in the last half of the 20th century. But they will be derided for their theory that the prices of houses always go up making everyone i.e bankers, customers, economists etc. believe that the free market system i.e. capitalism is flawless and reasonable, rejecting what Marx says about the prices of commodities for which they are exchanged with the other ones. Sooner or later, under the free market system, as true as the theory of gravitational pull, the prices of commodities are destined to come to that condition where the amount of socially necessary labour spent on creating them must be equal.

    Reply

  7. Earthpal, I think you hit the nail on the head: Fix the problem for large corporations and forget the little guy. Capitalism unchecked is not good for the poor. Actually, nothing has been very good for the poor so far. The rich don’t share well.

    Reply

  8. Hi Chris, yes, sure some of the people who are losing their homes probably couldn’t afford them anyway but the banks must accept some accountability for irresponsibly handing out huge mortgages to high-risk borrowers. But crucially, just as the banks are being hit by the looming recession so are the little people. More and more people are likely to lose their jobs and consequently their homes. Small businesses will perish and that will have a knock-on effect too. My question is, will these little people be bailed out too? Why do banks get to be rescued with tax-payers money but the little people get no protection? My best friend is about to have her home repossessed. Her husband’s business went bust and the receivers took over. Ironically, they are both earning decent salaries now but she can’t get a re-mortgage to pay off the debt, partly due to the credit crisis and also because of her husband being blacklisted. So she will lose her family home and, to rub the salt in deeper, the government is going to charge them £6000+ in state fees. Talk about kicking a man when he’s down.

    Hi Helen, yes, too true. The inequalities of capitalism are stark.

    Deepak, thanks for your input.

    Reply

  9. Hey everyone,
    Thanks for your replies back.

    Deepak,

    I’m a free market capitalist and I never believed houses would go up. I’ve been talking about the bubble popping long before this “credit crisis”. It wasn’t exactly hard to realize a problem when crappy little houses were selling for half a million dollars.

    People were buying houses that were way too expensive and they talked themselves into buying them because the financial “experts” told them it would keep going up, so no risk.

    Even though these “experts” might call themselves capitalists, they’re far from it. They’re only capitalists when things are working for their pocket book and they become government interventionists when things get bad for their pocket book. I think this is pretty apparent when you turn on CNBC and see all the analysts like Larry Kudlow crying for the balkout package.

    I’m sure you’re right. History will look back at this as a problem with capitalism when it is a problem with banking system, fiat currency, the “American Dream” and things like that.

    Earthpal,

    I think banks should be held accountable. They should absolutely not have a bailout. They screwed up and they should have to live with it.

    The little people shouldn’t be bailed out, nor should the big boys. Despite the media hype, things aren’t going to be that bad. All we’ve been seeing is the “sky is falling” mentality to push a bill through congress.

    I’m sorry about your friend, but why should taxpayers bail them out? And like I said, I don’t think big business should get bailouts either.

    Thanks for the replies everyone,
    Chris

    Reply

  10. Well, let’s wait and see what comes along from now on. What is sure is that the banking system will prevail with new adjustments. The European leaders of Britain, Germany, France and Italy have met and decided to give the needy banks a hand and their executives a smack. By the way it seems the Spanish banks are the only ones without problems.

    And life goes on as it always has: rich richer, poor poorer. Those in between struggling to become like the former, nobody wants to be the latter, but alas! I wish luck to everybody. It will be much needed.

    Reply

  11. Late in here… When I first came to the US, my puny brain couldnt understand the Credit Card system, imagine spending the money you dont have in the HOPE that you will have the Money in the future to pay for what you spent when you didnt have the money.. that in itself was a bad idea to me… so can you imagine my “shock and awe” when the sub-prime loan system started… Guess, this was to happen. As for the Bailout, I really dont see any of those CEO’s paying for their mistakes, instead they are getting more money for it. The Bailout tells the Big Businesses that they can take all the risk they want cause the Government will bail them out if something goes wrong.

    I want to know where the money is coming from, for the bailout. Who pays for that? So lets see if I understand this correctly 1. theres Billions pouring into Iraq and Afghanistan 2. theres billions for the bailout of Banks But 1. there isnt enough money in the Various Public school systems in the country, so they cut arts, music, sports and other activities. 2. there isnt enough to let the elders in the Nation have a solid health insurance system or retirement nest-egg. I would say let this simmer and work itself out ’cause thats the way Nature works, it doesnt rescue, it goes through the consequences and comes up with a new better Strong. Ok, I am really bad at economics.. so going to get off the stage.

    Reply

  12. Hey Chris, thanks for sharing your viewpoint.
    The way I see it, the financial organisations have caused much of the crisis with their irresponsible gambling, their demands for less regulation and for making a bad situation worse by manipulating the markets etc. and I can’t help feel that the little guys who may be negatively affected as a direct result of the bankers actions, should be given some protection, at least they should have their homes protected.

    Jose, wise words. The capitalist system believes that if you throw enough money at the top, some will trickle down to the poorer but we know that the poorest of the poor don’t even get the teeniest droplet. Indeed, capitalism depends on the poor remaining poor.

    Mysoul, beautifully said. The financial heads will be just fine. No doubt when all this is settled, they will award themselves huge bonuses. And great point about governments being able to find money to spend on controversial issues such as wars and fat cat bankers etc. when they can’t even alleviate child poverty in their own countries, let alone in developing countries.

    Reply

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