The Crash and the Cash

I guess it’s difficult this week to not notice that the world’s banks are collapsing. And as usual they threaten to take us all with them.

There are many views of this current crisis, and most of them propounded by pastel shirt-wearing experts on news programs. And most of these views tend to be the same.

And then there is the view held by my favourite muck-stirrer, Mr George Monbiot. In fine fighting style, Mr. Monbiot explains just why this, the latest example of massive state intervention in so-called liberal and capitalist economies, should be seen for what it is – an attempt to prop up a broken system with other people’s money.

Recirculating US tax-payers money into the hands of the powerful and wealthy is not a new thing, as Mr. Monbiot points out. To quote a chunk of his article:

…the richest 10% of subsidised farmers took 66% of the payouts. Every few years, Congress or the administration promises to stop this swindle, then hands even more state money to agribusiness. The farm bill passed by Congress in May guarantees farmers a minimum of 90% of the income they’ve received over the past two years, which happen to be among the most profitable they’ve ever had. The middlemen do even better, especially the companies spreading starvation by turning maize into ethanol, which are guzzling billions of dollars’ worth of tax credits.

Slivinski shows how the federal government’s Advanced Technology Program, which was supposed to support the development of technologies that are “pre-competitive” or “high risk”, has instead been captured by big businesses flogging proven products. Since 1991, companies such as IBM, General Electric, Dow Chemical, Caterpillar, Ford, DuPont, General Motors, Chevron and Monsanto have extracted hundreds of millions from this programme. Big business is also underwritten by the Export-Import Bank: in 2006, for example, Boeing alone received $4.5bn in loan guarantees.

The US, the world’s leading proponent of “open markets” and “minimised state control” is, to put it simply, full of crap. Public money, in the form of “incentives” and “grants” and “subsidies”, greases the wheels and is used to prop up grossly inefficiently industries and companies. American farmers, like their cousins in Europe, probably haven’t tuned a real profit in decades but have more than enough political clout to keep the cash flowing in their direction.

To quote Mr. Monbiot once more: “There is not and has never been a free market in the US.”

Personally I have confidence that a transparent and open global economy is definitely the way to go. Globalise away, baby – incentives work, and greed is definitely an incentive like any other. Unfortunately the current global economy is protectionist, inefficient and dangerously liable to break down at any time, if it were not for vast amounts of tax payers cash.

So yes, global capitalism as preached by every world leader would work well enough except for the fact that:

  1. Nobody actually does it
  2. The people with the real clout don’t want us to do it, and never will

So I guess we’ll just have to shove our hands deep in our pockets and save those banks again. Or else start buying gold and shotguns.

/ paddy

21 thoughts on “The Crash and the Cash

  1. Off topic: Blimey! What’s that lamp-post made of? Do you know how fast you have to be driving a Porsche to make that sort of nick in the front end?

    Apres nous, le deluge, and all that.


  2. ladyfi: We should make money from rice-paper so it can be eaten in times of need.

    Aphra: Kryptonite..?

    Martin: Ah. Yes. Heh heh. Good that somebody is paying attention.

  3. Paddy I agree in general but not in some specifics. The Free Market doesn’t exist and therefore it doesn’t work. What masquerades as a ‘free’ market is controlled and regulated by the richest to enure they get richer. But it ends up like a gigantic pyramid scheme. Eventually it has to collapse and that is what is happening now. The problem is the rich can afford the collapse – the rest of us can’t.

    Check out ‘The Shock Doctrine’ by Naomi Klein.

    Not to be sensationalist but this is the kind of event that leads to wars (civil and international), revolutions and general mayhem.

    PS. Aphra Behn – its a Ferrari!

  4. Paddy, the thing you’re talking about is a very bad thing of course, but as far as I can see it’s not the same thing as the bank crisis.

    If I understand correctly, the banks and loaning institutes were lending out money to people who couldn’t be expected to afford to pay back unless the economy would go on upwards for decades and decades. Which the banks should have realised… They took risks they shouldn’t have, wether they realized it and didn’t care or did it really deliberately, and a lot of loan-takers were fooled.

    That is not the same as tricking the authorities into giving you money from grants and the like. (There is a word for it, but I have to go through my back issues of _MAD_ to find it…) That goes no matter how poor the grant-taker is.

    These two are both bad things, but they are not the same, and what’s more, they are not mutually exclusive in that both can happen in the same year. I suspect that those who intend to do something about this mess will have to see that difference to be able to do something effective about it.


  5. In Sweden, when we want to take a bankloan there are some loan conditions, you know. You have to have a certain income and its on your head til you pay it back to the bank, no matter making profit on the property or not. In Us the bank owns the property if you cant pay back. So you can turn in your house and get rid of the loan. So trailer trash and rednex people have destroyed the economy. Despite our system in Sweden, lots of people could borrow money form credit institutions, interest 2,9 %. I feel so sorry for theose people now ( 2 milj SEK for a singel household and you cant sll your appartment with profit) and for out economy as well.

  6. Stuart: I agree with you (I think). This is not at all a free market. If we tried it properly, it might even work.

    Tor: I taste some arcane logic in the air.

    Rolf: You are right of course – the bank crashes are due to bad loans which required constant economic growth to be viable. And corporate welfare is another thing altogether. However, the first thing (crappy loans and a belief in eternal growth) may have to be fixed, once again, by the second thing (state intervention). So the connection is there, although a little hazy.

    H: I would say that the people who advised the trailer trash to take out the loans in the first place, knowing that they could sell them on as sub prime loans, are the ones who ruined the economy. Taking advantage of stupid people is almost as bad as being a stupid person.

  7. Yeah Paddy, its like Sundbyberg in Stockholm. It’s the most Jack-Vegas-machine-crowded place in Sweden. 1 machine per 10 people. Because Svenska Spel (the swedish game and gambling monopoly) makes a profit. That´s a double standard! Using low educated game abusers.

  8. H: It’s only a double standard if Svenska Spel claim to be interested in reducing gambling. Although I guess that’s the point of state monopolies – to “protect” people from “harmful” things by removing the profit interest. Didn’t work for alcoholism in Sweden, though.

  9. Please note that “removing the profit interest” usually means only removing the private (or is that commercial?) profit incentive. There still is a *huge* *state* profit interest. As witness for instance the swedish liquor monopoly…

    By the way, perhaps I should google on _Svenska Spel_ and _marknadsföring_ – I believe they spend quite a lot on advertising.


  10. No, but why puting more machines there than anywhere else in Sweden? It would be like putting 3 Systembolag (government owned chain of liquor stores) in a bad surburb and still give money to project and research in order to decrease alcoholabuse. But the schizofrenic state budget its another blogg.

  11. Rolf: True.

    H: For the profit of course. And if systembolaget put the money from alcohol into alcohol abuse research, isn’t it better than if the profit goes to Stenaline or out of the country? It’s cynical, but it’s realistic.

    But, like I said, do Svenska Spel actually tell us to cut down on gambling?

  12. Hm, it´s not the same and doesn´t make sense at all. Of course if the state were competing with an private actor but they are not, so they can do more restriction. Svenska Spel can do profit by installing a machine in every small city or in every gas station, but if they pick the smallest muncipality in Sweden, a surburb to Stockholm, people with most gambling problems per capita, it’s cynical since they do that statistic and try to put state money to prevent gambling problems. Systembolaget does the opposite and less double standard solution, they remove their shops from bad areas.

    And why did I mentioned a schizofrenic state budget? Because the same tax money goes to prevention and to make profit on the same product. The social wellfare system, the medical and social insurance and the healthcare costs to much already and some parties want to raise the tax again. And then they install games in Sundbyberg! So trashy people really can start digging in the dirt and become a expansive burden for the society (and their children too). Other schizofrenic tendencies is that an authority has to waiste as much money as they can one year so they can get the same amount or more (yeah if they go minus they can claim they need more) next year. Me, working for 3 authorities knows that shortly before the next budget year my job starting to spend money on meaningless conferences, education, recruitment, computers and so on.

  13. H: I get your point now. Targeting the group they are supposed to be “protecting” just to increase their profit, and for no other reason, is indeed cynical.

    And the whole budgeting question for state authorities is a blog in itself. I used to make on-line training courses for these authorities and I saw the same thing – big investment just before the financial year is up.

  14. “If I understand correctly, the banks and loaning institutes were lending out money to people who couldn’t be expected to afford to pay back unless the economy would go on upwards for decades and decades.”

    It’s not just that though, is it? They were also repackaging these bad loans and selling them back and forth to each other at ever-increasing prices, and taking commissions and bonuses from every sale. That’s where the “pyramid scheme” analogy comes in.

  15. csrster: It’s true, it was a big financial ball of spaghetti. And 700 billion is a LOT of money. Jesus, what the hell couldn’t I do with 700 billion? Save the fucking world, man.

  16. Britain tried to invade Iceland today hoping to use its natural resources to pay for the maintenance of its City and County Councils, only to find that Russia had already bought the island in the North Atlantic on ebay.

    Americans are slowly getting used to their new banking system, now owned by mysterious Middle Eastern investment funds, wherein the paying of interest on money is considered against the wishes of Mohammad.

    In ‘home’ news, the ruling Democratic Socialist Unionist Progressive Party has passed a law forcing any foreign types who haven’t got pale skin and red hair and can’t sing both Amhran na bhFiann and The Sash while performing Riverdance, to sell all their possessions to pay for a Ryanair flight ‘home’.

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