Lost in Washington
Published in La Jornada
(Mexico) on 4 March 2009
by Alejandro Nadal (link to original)
(Mexico) on 4 March 2009
by Alejandro Nadal (link to original)
Translated from
by Patricia Simoni.
Edited by Sonia Mladin.
For years, technocrats and satraps of every ilk traveled around the world, with their briefcases and well-pressed suits, spreading the news: globalization was unstoppable. The myth was strong; from the shopping malls of Shanghai, to the windows of Manhattan, they were building a single, global economy, well-integrated and promising.
Many believed it. In this legend, the free market would emerge as champion of efficiency, democracy, and even the environment. Thereafter, economic policy would have only two dominant axes: promotion of exports and financial liberalization.
Today, the main character of this legend is dead, and won’t be resuscitated. The crisis will not be the end of capitalism, but of the infamous, neo-liberal globalization. This is an opportunity to rethink the future. The irony is that Washington doesn’t know it. It looks like Obama lost his compass on Inauguration Day.
The latest news confirms it: Another 30 billion dollars into the black hole of insurance giant, AIG. Already, 152 billion dollars have been injected, however, the losses continue to grow. Justification given for the new injection of resources identifies AIG as key to the international financial system. The truth is that AIG backed irresponsible bank operations and was fully engaged in crazy credit derivatives speculation.
Treasury secretary, Tim Geithner, has just begun to consider the symptoms of the crisis, but not its roots. Partial bailouts already total astronomical sums, and nothing else is needed to demonstrate they are not working. If he wants credit to flow again and people to resume their addiction to consumption and debt, throwing money to entities, such as Citigroup, Bank of America or AIG, is not the way.
Of course, perhaps Present Barack Obama is remembering Candidate Barack, whose principal supporters in the corporate world were, precisely, these: Goldman Sachs (with a contribution to campaign expenses of 847 million dollars), JP Morgan/Chase, Morgan Stanley, and Citigroup. How strange that they are among the principal beneficiaries of Geithner’s bailouts.
At this point, only with centralized management intervention will some transparency return to the contents of bank books and the financial status of banks. And only then will it be possible to resume interbank transactions, now frozen by distrust and uncertainty. It is essential that insolvent banks be taken over, in order to dissect each one and examine accounts, separating good assets from bad. The Golden Rule should be applied to the banks: In cases of insolvency, the first to lose are owners and shareholders. Only in this way will banks be able to return to business as usual (deposits and loans).
Accounts demonstrate that partial bailouts will not work. If second-rate mortgages totaled 1.4 trillion dollars, the banks used those loans as collateral to issue securities and bonds for another 12 billion dollars. On top of that, Wall Street banks and funds used the securities and bonds to borrow another 140 billion dollars. The record is clear: the financial crisis is of Biblical proportions.
Obama's tax package was announced, with a figure of 789 billion dollars, which might seem like a respectable amount. This should be stressed: The sad reality is the remedy is insufficient to stimulate demand. The tax credit part of this package (116 billion dollars) will not be spent, because the beneficiaries live in a world of uncertainty (or reality) and are afraid to use it. The tax credit will be saved, or it will be used to pay off some debts and, thus, return to the banking system. It will not play a part in increasing employment.
It is true that part of the tax credits will also give a little respite to the people hardest hit, but it is important to note that it will not directly promote effective demand. The same can be said of other components of the package: health (141 billion dollars) and education (87 billion dollars). The amount left for infrastructure and energy (175.9 billion) is not sufficient to generate even one-third of the jobs that have been lost. A good portion of this amount will only begin to flow at the year’s end, so it is not only too little, it is also too late.
Not the slightest doubt remains. If Obama continues this path, without correction, the recession will be much longer than he imagines. At the very least, it will last about two years, with the U.S. economy emerging so damaged that it could remain in semi-stagnation for a decade. When they turn around in Washington to see how they lost their way, it will be too late.
Many believed it. In this legend, the free market would emerge as champion of efficiency, democracy, and even the environment. Thereafter, economic policy would have only two dominant axes: promotion of exports and financial liberalization.
Today, the main character of this legend is dead, and won’t be resuscitated. The crisis will not be the end of capitalism, but of the infamous, neo-liberal globalization. This is an opportunity to rethink the future. The irony is that Washington doesn’t know it. It looks like Obama lost his compass on Inauguration Day.
The latest news confirms it: Another 30 billion dollars into the black hole of insurance giant, AIG. Already, 152 billion dollars have been injected, however, the losses continue to grow. Justification given for the new injection of resources identifies AIG as key to the international financial system. The truth is that AIG backed irresponsible bank operations and was fully engaged in crazy credit derivatives speculation.
Treasury secretary, Tim Geithner, has just begun to consider the symptoms of the crisis, but not its roots. Partial bailouts already total astronomical sums, and nothing else is needed to demonstrate they are not working. If he wants credit to flow again and people to resume their addiction to consumption and debt, throwing money to entities, such as Citigroup, Bank of America or AIG, is not the way.
Of course, perhaps Present Barack Obama is remembering Candidate Barack, whose principal supporters in the corporate world were, precisely, these: Goldman Sachs (with a contribution to campaign expenses of 847 million dollars), JP Morgan/Chase, Morgan Stanley, and Citigroup. How strange that they are among the principal beneficiaries of Geithner’s bailouts.
At this point, only with centralized management intervention will some transparency return to the contents of bank books and the financial status of banks. And only then will it be possible to resume interbank transactions, now frozen by distrust and uncertainty. It is essential that insolvent banks be taken over, in order to dissect each one and examine accounts, separating good assets from bad. The Golden Rule should be applied to the banks: In cases of insolvency, the first to lose are owners and shareholders. Only in this way will banks be able to return to business as usual (deposits and loans).
Accounts demonstrate that partial bailouts will not work. If second-rate mortgages totaled 1.4 trillion dollars, the banks used those loans as collateral to issue securities and bonds for another 12 billion dollars. On top of that, Wall Street banks and funds used the securities and bonds to borrow another 140 billion dollars. The record is clear: the financial crisis is of Biblical proportions.
Obama's tax package was announced, with a figure of 789 billion dollars, which might seem like a respectable amount. This should be stressed: The sad reality is the remedy is insufficient to stimulate demand. The tax credit part of this package (116 billion dollars) will not be spent, because the beneficiaries live in a world of uncertainty (or reality) and are afraid to use it. The tax credit will be saved, or it will be used to pay off some debts and, thus, return to the banking system. It will not play a part in increasing employment.
It is true that part of the tax credits will also give a little respite to the people hardest hit, but it is important to note that it will not directly promote effective demand. The same can be said of other components of the package: health (141 billion dollars) and education (87 billion dollars). The amount left for infrastructure and energy (175.9 billion) is not sufficient to generate even one-third of the jobs that have been lost. A good portion of this amount will only begin to flow at the year’s end, so it is not only too little, it is also too late.
Not the slightest doubt remains. If Obama continues this path, without correction, the recession will be much longer than he imagines. At the very least, it will last about two years, with the U.S. economy emerging so damaged that it could remain in semi-stagnation for a decade. When they turn around in Washington to see how they lost their way, it will be too late.
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