Government bailouts – Night of the living dead?
By Peter Ewart
Wednesday, June 10, 2009 03:45 AM
By Peter Ewart
Honore de Balzac, the celebrated 19th Century French novelist, once wrote that “behind every great fortune lies a great crime.” Surely the sub-prime mortgage scam and the widespread distribution of toxic securities by Wall Street banks must constitute one of the great crimes of all time.
Even today, we don’t know precisely, over the decade or more that the giant scam was unfolding, to where and to whom those hundreds of billions of dollars of ill gotten gains ended up. Suffice it to say, besides the financial institutions, many leading financiers, politicians and blue chip companies were in on the feast.
But perhaps even a more brazen crime since then has been the massive bailouts of the banks and other financial institutions that followed in the wake of the sub-prime scandal. On Wall Street and around the world, the very institutions that triggered this worldwide financial calamity literally had, with the full assistance and connivance of the political leadership, the doors of the public treasury blasted open and the people’s money shoveled into the armoured cars of the banks like loads of manure.
These unprecedented bailouts were opposed by the vast majority of Americans, as well as Canadians and people in other parts of the world. However, as always, there are the apologists and sycophants in politics and the media who present arguments to justify this robbery.
But the fact remains that these bailouts have contributed to an astronomical government debt that, in the U.S., could amount to $17 or $18 trillion or more in a few years, as well as have created a slew of “zombie” mega-banks that are still more dead than alive.
Since then, auto companies in the U.S. and Canada have stepped up to the trough and been bailed out in the tens of billions of dollars. And recently there have been calls for bailouts in other ailing sectors such as forestry.
Now it is certainly understandable for workers and other people employed in these distressed industries, as well as community leaders, to look at government bailout for these large corporations as a possible solution. But is it a wise path to go down?
For one thing, if we look at who sits on the board of directors and who are the major shareholders of these distressed companies, very often we discover representatives of these same financial institutions who caused the crisis in the first place. They end up “skinning the ox twice” so to speak. They are bailed out as a financial institution, and then they are bailed out as a major shareholder of a distressed company.
Secondly, besides “zombie” banks, we now will have “zombie” corporations. For example, despite their recent taxpayer bailout, the outlook for GM and Chrysler is so poor that Stephen Harper, the prime minister of Canada, has admitted that the government is not expecting to get back the billions of dollars it has handed over to these companies.
Thirdly, while these “zombie” banks and corporations are more dead than alive, it doesn’t mean that they are not capable of causing huge damage to the overall economy. Like the zombies in the horror movie “Night of the Living Dead,” they love to feast on living flesh.
For example, one of the reasons many believe Japan’s economy has been in such a slump for the last couple of decades has been the zombie financial institutions that were propped up years ago and that have acted as a drag on the economy ever since then.
A more recent example is in the U.S. It is a fact that a number of smaller banks and regional banks kept themselves clean and were not involved in the subprime mortgage scandal. They were, relatively speaking, in good shape. Yet that has not stopped the big banks, who are now lurching around drunk with government bailout money, from elbowing into their markets and taking them over. If these zombie big banks fail this year or next, which they very well could, they will now take the good, the bad and everything else down with them.
Bailouts in auto, forestry and other sectors are no different. Experience has shown that the largest, most bloated and most poorly run companies will get the biggest share of the bailouts, and they will use that as leverage against the other companies that don’t have their snouts in the trough. Experience has also shown that they will use the bailout funds to find ways to dramatically slash their workforce, as is happening currently in the auto industry.
So when a bank or an industrial sector, like auto or forestry, becomes distressed, what should be done?
The first option is that of classic capitalism. In the course of capitalist competition, weaker companies eventually fail or collapse, only to be replaced by newer, more vital ones that are built on the ashes of the old. As the economist Joseph Schumpeter argues, this creates “new consumers, goods, the new methods of production and transportation, the new markets, the new forms of industrial organization that capitalist enterprise creates …This is the process of creative destruction,” and, so the theory goes, is absolutely necessary for the “cleansing” and natural functioning of the economic system. Indeed, there are countless examples of this process in Canada and the U.S.
If this option is followed, the logic is that, sooner or later, the distressed sector, whether it be banking, auto or forestry, will renew and reinvigorate itself.
The second option is the establishment of new public enterprises that are 100% publicly owned. This has been done in years previous in various sectors and various parts of Canada, such as airlines, atomic energy, hydro-electric power, railways, ferries and so on. For example, in British Columbia, BC Hydro was established as a publicly owned corporation and has operated successfully for many decades. Public schools are still another example, as are fire departments, the post office, municipal utility companies, and so on.
Despite a barrage of criticism over the last few years from privatization advocates and the constant undermining by unfriendly governments, many public enterprises have been shown to be remarkably durable. We live in tumultuous economic times which – there are many indications - could get much worse. If banks and financial institutions, as well as industrial sectors like auto and forestry, continue to founder, public ownership of parts of them, or even of whole sectors, may not be so far fetched, and indeed may become a central demand for people and communities.
However, governments of today, of both the “left” and “right,” are following neither of the above options. Instead, they are following the “zombie” one, of massive bailouts of private banks and corporations, of a kind of hybrid between the “classical capitalism” option and the “public ownership” option. This serves the interest of a corrupt political and economic elite – but not that of of the Canadian or American people. If governments continue to follow this option, like the end of the movie “Night of the Living Dead,” the outcome for the economy will neither be hopeful nor pretty.
Peter Ewart is a college instructor and writer based in Prince George, BC. He can be reached at: peter.ewart@shaw.ca
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Posted by: Eagleone on June 10 2009 6:03 AM
Budget Alternative
Instead of giving billions of dollars to the car industry that will squander
the money on lavish parties and unearned bonuses, use the following plan:
You can call it the Patriotic Retirement Plan.
There are about 10 million people over 50 in the work force.
Pay them 1 million apiece severance for early retirement with the following stipulations:
1) They MUST retire. Ten million job openings - Unemployment fixed.
2) They MUST buy a new CAR. Ten million cars ordered - Automotive Industry fixed.
3) They MUST either buy a house or pay off their mortgage - Housing and Mortgage Crisis fixed.
4) They must send their kids to school / college / university - Crime rate fixed.
5) Buy $50 of alcohol/gas a week - there's your money back in duty / tax etc.
It can't get any easier than that!
P.S. If more money is needed, have all members of parliament pay back any falsely claimed expenses and their second home allowances.