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Corporate Welfare

Entry 859, on 2008-09-26 at 21:24:53 (Rating 5, Politics)

It seems that the US congress has almost reached an agreement on the plan to spend about US$700 billion (that's about 1 trillion NZ dollars) on bailing out the financial sector. I guess they are trapped between a rock and a hard place with the situation they find themselves in, but is this really a good idea?

The reaction amongst the public I have seen is almost universally negative. I have said in the past that I don't necessarily trust the opinion of the majority, but it is their money which is being spent so I guess they are entitled to have a say. Here's a sample of some of the better comments from the BBC web site...

Abdul from Leeds said: "Privatise the profits, socialise the losses. The tax payer did not get a cut of the profits - so why should they share the losses?" Yes, good question, isn't it?

Maziar Taleshi from Tehran observed: "Isn't it interesting the contradictions inherent in the market economy philosophy supported by the neo-conservatives? Normally we are told that government must not interfere or regulate big business and how limiting and adverse the effect of government control is... but when the going gets tough we are expected to accept a $700 billion bail out by the public sector." I think he's just observed the ultimate in hypocrisy.

And Denise from Kent said: "So, you make a complete horlicks of your company's financial portfolio, the Government bails you out AND you get a huge bonus at the end of the year. Nice work if you can get it. I'm in the wrong job..." I think people are beginning to see that these financial sector "high flyers" are really just silly corrupt little men.

Well, they are usually men, but there are exceptions like: "A US woman banker has been paid $40+ million bonuses while 20,000 have lost jobs in the business". This was a comment by Iain Connochie who also said: "$700 billion unprotected, the sharks/hyenas etc are just waiting to grab a piece of it". These useless parasites deserve no respect yet it sounds like it will be business as usual after they are rescued.

What I would like to know is what does this tell us about the priorities of the American administration? Americans are dying because there's no money for health care, American technology and science are languishing because funding has been cut, and their education system is disastrously underfunded. But when a bunch of highly paid financiers mess up they get all of this to help them out of a mistake which was caused by pure greed and stupidity.

This is one of the reasons I have no confidence in pure capitalism and free markets. The people who have the most political influence in those systems use it for their own benefit. They denounce the use of tax money to help the poor but they are the first to stand in line for handouts like this.

One of the comments on this debacle I read said they thought the people responsible were worse than the Nazis. That is probably a bit strong but I would have to say that these financial "geniuses" are hardly better than criminals in my opinion. Not only do they demand these massive payouts but they continue to get paid huge salaries to make grossly incompetent and corrupt use of other people's money. Its the ultimate in hypocrisy.

So I can rant and rave as much as I like but is there a reasonable alternative? I mean, if the financial sector isn't rescued won't the world slip into a depression which will adversely affect everyone? Unfortunately that is entirely possible. I think we need to change the way the world's finances are managed but we can't just throw the whole system out and hope for the best.

So maybe they should help out the financial institutions but there should be strings attached. The current management of those organisations should be fired or they should be forced to pay some sort of fine for their corruption. And we should put strong regulations in place to stop this sort of thing happening again, and those regulations should be sufficiently general that they can't easily be bypassed using the dirty little tricks that were used this time.

Ultimately the whole global financial system needs to change. Its geared towards rewarding corruption, greed, and purposeless schemes designed to do nothing useful. The US is losing its place as the global financial, political and technological leader but now China seems to be moving in to take its place and their form of capitalism is even more disgusting than the American one.

So I'm afraid things are unlikely to really change and I don't think the future really looks very positive. Maybe the world is heading towards another "dark age" fueled by stupid extreme capitalism, idiotic fundamentalist religion, and lack of accountability by the people who insist on it from everyone else. All I'm wondering right now is where did we go wrong?

Comment 1 (1678) by SBFL on 2008-10-01 at 23:32:02:

My goodness, do you actually know what you are talking about or did you just cut and paste this post from "The Socialist Worker"?

It appears your experts on the matter that you have quoted - Abdul, Maziar, Iain, and Denise from Leeds - are a bit under qualified. Do you have their credentials?

I see you manage to both make a comparison with the Nazis and blame religion in this post without even a comment being spilt. The former must be a record for Godwin's Law.

You are so disgusted by it all, I am sure you and your family are trying to emigrate to one of those Socialist paradises around the planet. Hmmm, so many Utopias to pick and choose from...where to start?

Tell me OJB - have you actually made an effort to find out why the financial markets are in trouble? You need to read this: An open letter on the financial crisis by Steven Horwitz. Also, David Farrar has a nice summary of it..

Now hopefully you'll hold back on the ranting and raving of a mad socialist and find out that your anger and frustration is somewhat misguided. Just remember OJB, you're part of the "capitalism", part of the "greed", you promote it by your very own habits, you just don't realise it.

Comment 2 (1685) by OJB on 2008-10-02 at 11:32:33:

I mentioned the comments on the BBC web site because I was surprised the public reaction was so overwhelmingly negative against the finance "experts" involved. I listed them to show what people were thinking. I didn't mean to imply they were right (and I don't mean to imply they are wrong either).

I mentioned that one person did the comparison with the Nazis but rejected that comparison myself. I am very familiar with Godwin's Law and tend to avoid falling into that trap!

I have read opinions from both sides and the old "more of the same" or "let's make things even easier for these people who already have too much control" solutions don't seem to make sense. If you only read one side of the argument its simple. if you read both its not quite so easy!

I'm not against capitalism (I think I have said that it is the "least bad" system) but I think it needs to have stronger checks and balances and those controls don't need to be so easy to bypass as they were in this latest crisis.

Comment 3 (1689) by SBFL on 2008-10-02 at 12:54:53:

It doesn't matter that you hide behind the fact that someone else made the comparison - you used it in your post to illustrate a point and so by that very nature you have made the comparison yourself.

If you are going to quote Denise from Leeds in your post I seriously doubt you have read both sides!

If you read the links I provided you will see that stronger checks and balances need to apply to state intervention, as much as they would to "capitalism" itself.

Comment 4 (1693) by OJB on 2008-10-02 at 14:45:23:

I was pointing out the fact that the general public blame the financiers and bankers for the problem. They could be wrong but I don't think so.

I have read the links you gave and I will post a criticism of them soon (maybe tonight or tomorrow). They offer one opinion, which has some merit, but apparently hasn't gained a lot of support from the general public, hence the comments I quoted.

Comment 5 (1696) by SBFL on 2008-10-02 at 15:14:32:

I was unaware Denise from Leeds had read them....:-)

Stepping aside form the argumentative nature of the thread, here's an opinion piece you might find interesting. Its from The Ecomomist.

Note the conclusion: "Unless policymakers blunder unforgivably—by letting “systemic” institutions fail or by keeping monetary policy too tight—there is no need for today’s misery to turn into a new Depression. A longer-term worry is the inevitable urge to regulate modern finance into submission. Though understandable, that desire is wrong and dangerous—and the colossal success of commerce in the emerging world (see article) shows how much there is to lose. Finance is the brain of the economy. For all its excesses, it allocates resources to where they are productive better than any central planner ever could.

Regulation is necessary, and much must now be done to improve the laws of finance. But it must be the right regulation: an end to America’s fragmented system of oversight; more transparency; capital requirements that lean against booms and flex with busts; supervision of giants, like AIG, that are too big and too interconnected to fail; accounting that values risks better and that everyone accepts; clearing houses and exchanges to make derivatives safer and less opaque.

All that would count as progress. But naive faith in regulators’ powers creates ruinous false security. Financiers know more than regulators and their voices carry more weight in a boom. Banks can exploit the regulations’ inevitable blind spots: assets hidden off their balance sheets, or insurance (such as that provided by AIG) which enables them to profit by sliding out of the capital requirements the regulators set. It is no accident that both schemes were at the heart of the crisis.

This is a black week. Those of us who have supported financial capitalism are open to the charge that the system we championed has merely enabled a few spivs to get rich. But it helped produce healthy economic growth and low inflation for a generation. It would take a very big recession indeed to wipe out those gains. Do not forget that in the debate ahead."

Comment 6 (1701) by OJB on 2008-10-02 at 19:23:27:

Well of course we need regulation and it should be the "right" regulation. I mean no one is going to suggest we should implement the "wrong" regulation, are they? the question is: what is "right" in this case? I'm not suggesting we need more (I hate too many rules), just that the regulation we do have is not too easy to bypass and that it achieves worthwhile objectives.

I'm pleased to hear that there is unlikely to be a major recession. Many people are really upset about that possibility.

Comment 7 (1704) by SBFL on 2008-10-07 at 23:35:56:

And that is the question answered (see second question of conclusion). The next question is "how?"

Comment 8 (1705) by SBFL on 2008-10-07 at 23:36:38:

Oops, should read "(see paragraph of conclusion)"

Comment 9 (1716) by SBFL on 2008-10-08 at 06:05:15:

Heh, make that '(see second paragraph of conclusion)'. - knew I'd get there in the end.

Now, apparently Americans have taken to emailing Nigerians warning them that if they get offers to put money into an American bank - don't do it, because it's a scam.

Comment 10 (1718) by OJB on 2008-10-08 at 09:47:39:

Well first we need an admission from as broad a majority as possible that unrestricted capitalism is not the answer, and that overly restrictive government regulation isn't the answer either. Ideally all current regulations would be scrapped and we could start again with a new set which work properly instead of just being added to and changed around like the current ones, but that would be risky.

Comment 11 (1722) by SBFL on 2008-10-09 at 18:29:57:

'Progress always involves risks. You can't steal second base and keep your foot on first.' ~Frederick B. Wilcox

Comment 12 (1724) by OJB on 2008-10-09 at 20:03:55:

As we know, these quotes can be chosen to support either side of a debate. On the other hand, I would like to see a major change in out economic system to make it work better. But that's not going to happen. Which government would take that sort of risk? Also, which government could overcome the pressure from interested groups with plenty of money?

Comment 13 (1726) by SBFL on 2008-10-10 at 07:58:17:

I didn't think I was debating in that previous comment of mine. Sometimes I think you are so quick to assume an argument that you can't see when I'm in agreement!

Comment 14 (1730) by OJB on 2008-10-10 at 11:36:46:

No I recognised you were more or less in agreement. The debate I was talking about is the more general one between sticking with current policies and regulations or trying to start again, not necessarily a debate between you and me!

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