[NYTr] Govts bail out dodgy plutocrats, ordinary people foot the bill

[All the News That Doesn't Fit]

sent by Riaz K. Tayob (activ-l)


The Observer - Aug 26, 2007


While obeisant governments bail out dodgy plutocrats, 
it's ordinary people who foot the bill 

by Will Hutton

One of the most inequitable and amoral acts in modern times is
happening in front of our eyes and in Britain there is hardly a murmur
of protest. The multi-billion dollar bail-out of global finance after
one of the most reckless periods of lending and deal-making since the
late 1920s is extraordinarily one-sided.

Little people's taxes are underwriting the mistakes of big people, who 
in the process have made riches beyond the dreams of avarice. 
Globalisation, it is now clear, is run in the interests of a global 
financial class which has Western governments in its thrall. This class 
does not give a fig for the interests of savers, clients or wider 
workforces.

The rules of the game are set up solely to benefit the financiers 
whether in London, New York or Hong Kong. The nonsense at the heart of 
the crisis - lending 100 per cent mortgages to borrowers with no
income, employment or assets, packaging up the resulting debt and
selling it to banks around the globe while taking a handsome fee on
every transaction -- can be launched with impunity. Financial
regulation, we are told, hinders the efficiency of financial markets.

But now that it has become obvious that the mainly American borrowers 
have neither the capacity nor intent to repay any of the mortgages in
an era of higher interest rates and stagnating house prices, there is 
justified panic at the wider consequence of the global system holding 
trillions of dollars of valueless debt.

The last few days have seen some recovery in the financial markets and 
some hopes for a return to normality, but what does normal mean? The 
system that has delivered hundreds of billions of dollars of
written-off loans with a global impact can hardly carry on as if
nothing has happened. The banks at the epicentre of the crisis should
go bust and heads should roll. The hedge funds which bought the debt,
traded it and sold it on to banks globally should also be allowed to go
bust and be subjected to much closer surveillance and regulation.

Interpol should make arrests in New York, London, Tokyo, Beijing, 
Frankfurt and Paris, starting with all the executives in the 
credit-rating agencies who blithely ranked the debt as creditworthy in 
exchange for fat fees and freebies from the very banks who were making 
the absurd loans. Governments should bring suits against the executives 
involved, the repositories of vast personal wealth, to help repair the 
hole in private and public balance sheets.

Instead, most central banks and governments across the West are 
straining every muscle to limit the fall-out, assure banks and hedge 
funds that there is limitless public money on tap and that governments' 
first aim is to get back to 'normal'. The explanation is obvious. The 
Western financial system is too important to be allowed to implode; 
credit is any economic system's life-blood and if the supply lines get 
gummed up because of a collapse of confidence and severely punctured 
balance sheets, everybody suffers. Quite right, but at least we can be 
careful in future about the terms on which supportive cash and
potential bail-outs are made, as well as drawing larger conclusions
about the nature of the implicit contract between finance and society.

Unbelievably, the European Central Bank has made hundreds of billions
of euros available to allcomers within the European financial system at
no penalty for the privilege, while the Federal Reserve Bank in the US
has lowered the interest rate at which it supports distressed banks. It
is as though Europe and America had announced an amnesty to the world's 
criminal gangs after they had gone on a killing spree because they 
feared the killing would get worse .

The Bank of England alone has held the line, insisting that anybody 
turning to it for cash as a last resort will have to pay at a rate of 
interest that will hurt the borrower. Good for the bank, except its 
stance is undermined because outside the euro-zone it cannot insist the 
European Central Bank follows its stance. It is also undermined by a 
British government that on these matters is the most craven in the West.

For as the German and French governments along with senior American 
Democrats argue, the whole affair raises fundamental questions. It 
cannot be right that finance insists on freedoms and lack of regulation 
to indulge in anti-social recklessness in order to make personal 
mega-fortunes, but when things go wrong to ask for government bail-outs 
with no questions asked.

Thus Chancellor Angela Merkel and President Sarkozy have called for
more transparency and regulation of hedge funds; thus in Brussels and 
Washington, there are to be investigations into what the executives at 
the credit-rating agencies have been up to. But from the British 
government there has not been a peep, not a hint that the contract 
between finance and society needs to be reassessed both at home and 
abroad. That would be - heaven forfend - 'anti-business'.

But the West's economies and societies cannot be constructed as if
their sole raison d'etre is to ensure that there is a steady flow of
deals for investment banks, private equity houses and hedge funds,
along with an abundant flow of credit, and the moment there is any
interruption governments bail them out. Finance is hardly poor. In
Richistan, his revelatory book about today's mega-rich, Robert Frank
shows how closely enmeshed instantaneous wealth and the financial
markets have become.

Gordon Brown runs a government that is essentially conservative over 
business opposed by an opposition yet more conservative, with the Lib 
Dems terrified to rock the conservative consensus. Over the last few 
years, there has been a firesale of British assets to foreigners, 
together with ever-closer entanglement with the American debt markets
to sustain the bonuses of the financial community. It would not
surprise me if, before the story is over, at least a couple of
household British financial names have to be offered a lifeline.

Somebody, somewhere must start blowing the whistle. The Americans at 
least take capitalism so seriously they challenge, monitor and regulate 
it. No such culture exists in degenerate Britain. We need a party which 
will speak for an interest other than self-interested, amoral 
plutocrats. None exists.

(c) Guardian News and Media Limited 2007.