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Bailout For The MBAs

A Working-Class Perspective on the Current Market Crisis

By Alex Mohammed Krishnan

27/03/08 "ICH" -- - So. It's out in the open.

On Sunday, February 23, the New York Times reported on a confidential memo being circulated around Congress, by the global banks with the most to lose in this mess of their own making. It was a proposal for a public bailout of private investment houses, who are worried for their survival amid the massive subprime losses and credit crisis already roiling Wall Street.

This rescue, to be disguised as a plan to save homeowners at risk of default over the next several years, would set up a new public corporation to purchase from the banks a large part of the mind-boggling $739 billion in mortgages at “moderate to high risk” of defaulting within 5 years, thus transferring the risk to taxpayers. Versions of this scheme were discussed by liberal groups like the National Community Reinvestment Coalition and the New America Foundation in a bid to avoid a complete collapse, said the report.

Apparently the fear was that the proposal, formally made by Bank of America, the nation's largest mortgage lender after its recent purchase of Countrywide Financial, “will be acceptable only if it is not perceived as a bailout of the bond market.” That's why the new entity was to be packaged for public consumption as the work of a compassionate government trimming the sharp edges off life for an otherwise hapless citizenry.

Within a couple of weeks, the US government, not usually prone to lightning-fast action, had sprung into the service of big capital, with the Federal Reserve Bank providing $200 billion in liquidity to the largest banks in the form of treasury notes, and allowed these loans to be backed by guess what-- “mortgage-backed securities.” Now, as it becomes increasingly clear this measure is not sufficient to deter the downward spiral, the FDIC has announced large increases in staffing at the department which manages bank collapses, even bringing out of retirement people with experience during the S&L crisis in the late 1980s. At the same time, whispers have begun of a much larger and more direct bailout- possibly up to $1 trillion- with the government actually purchasing at taxpayer expense much of the toxic securities which so enriched the big boys, and which threaten to so impoverish the rest of us.

However, if the prevailing mantra of the bankers over the last few decades- the one which has brought many a developing economy to its knees by enforcing the strictest “market discipline”- is to be taken at face value, the prudent action would be to allow the invisible hand of the market to take its course. Let the dust settle with a minimum of government interference, leading probably to a number of Wall Street flagships going under completely. This is only fair.

Being pragmatic however, one can see that because the banks are tied in so intrinsically to the global economic system, this would mean misery for many millions around the world and entire economies grinding to a halt in a very short time. Without having prepared viable alternatives to the capitalist system on the ground, we would be grossly irresponsible to wish this catastrophe on our neighbors (though herein lies a pointer to what it will take to overthrow the global octopus of capital). Also, there's little doubt that many of the foreclosures are due to predatory lending practices, targeting likely low-income defaulters by using unethical methods, and that these victims deserve relief.

Thus it seems there is no practical alternative to another multi-billion dollar bailout for the MBAs, who have shown little remorse in sentencing others to a lifetime of poverty so the “market” can prevail- but no shame in holding their hats out to the taxpayer when their own rash bets go sour.

Well alright, fine. But this time, unlike the S&L and other bailouts, it's going to cost something.

There is little prevailing appetite for another freebie, certainly not for the self-absorbed brats who wield chunks of the economy like others brandish bunker-busting nukular weapons. So even here in such a fortified stronghold of capital, we can achieve some major gains in the bargain. Seems to me this unprecedented handout should not come to pass without a minimum of four clearly defined conditions being enforced by the people who will be paying for all this largesse-- us:

  1. Pay back the ill gotten gains. Yes, this is America and private money is sacrosanct, but what about fat profits made from complicity in the swindling of an entire generation? Large, painful fines- not just on the banks, but on the individual profiteers who amassed obscene fortunes as they watched the ship go down with everyone else on it- and large-scale funding of affordable housing initiatives.

  2. Jail time. If an unemployed single mother can get years in jail for shoplifting, then highly-educated, elite professionals deserve significantly higher penalties for recklessly endangering the security of millions.

  3. Fundamental changes in the way the markets are allowed to operate, and a complete overhaul of the regulatory bodies (Fed, SEC, etc.) to prevent future incestuousness between public and private actors.

  4. Stop evangelizing free market capitalism at gunpoint around the world. This is not a problem of a few bad apples- it's evident this is a systemic flaw. Either regulation works or it doesn't- can't have it both ways.

Other conditions may well emerge as the scale of this crisis and accompanying bailout becomes clearer. Without seeing at least some wins for the home team, we will have rewarded unmitigated plunder, and encouraged its proliferation. The political climate is shifting to where radically different economic ideas will have traction, and we can achieve significant goals in the midst of this capitalist catastrophe, but only by thinking fast and refusing to compromise our principles for the crooks behind it.

It would be a gross miscalculation to expect the street to stand idly by (and I don't mean Wall Street), not when millions of pensions and homes and dreams are evaporating. If we fail to ensure that this horrifying greed is not met with the most serious consequences, then let us read the writing clearly friends: There Will Be Blood.

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