This is a good article on the financial crisis. There is no end to
corruption and bad decision makers. M
Friday, September 26, 2008 (SF Chronicle)
Bailout offers amnesty for stupidity
Patrick J. Buchanan, Creators Syndicate, Inc.
Is it fair that businessmen who fail in neighborhood stores have to close
shop and often sell their homes, while Wall Street titans are spared the
consequences of monumental stupidity and greed?
No, it is not fair. Yet, Treasury Secretary Hank Paulson may be right. To
save the sheep who might have been wiped out in a general financial panic,
we may have to save the pigs.
Life is unfair, said John F. Kennedy.
Yet, this is going to be the mother of all bailouts. Paulson probably will
be given authority by Congress to spend $700 billion, 5 percent of our
gross domestic product, to buy all that toxic paper stinking up the books
of our banks.
And this is not the first such bailout of foolish and incompetent
financiers and politicians.
In 1975, when its cravenness to extortionate union demands had bankrupted
New York, the Big Apple had to be rescued by President Gerald Ford.
Mayor Marion Barry's Washington, D.C., was next in line at the cashier's
window.
In the Reagan era, it was Chrysler. Later that decade, Citibank,
Chase-Manhattan and Bank of America were staring into the abyss, as Latin
American regimes, to whom they had lent scores of billions, were balking
at paying their debts. Uncle Sam stepped in.
Then came the Mexican and Asian financial crises and the U.S.-IMF bailouts
of the 1990s. The Mexican bailout was as much a rescue of Goldman-Sachs as
Mexico City, as Treasury Secretary Bob Rubin's old firm was choking on all
its Mexican paper.
The great myth is that these 1990s bailouts were models of U.S. financial
statesmanship and great successes. The reality is the U.S. workers took it
in the neck.
For the countries bailed out, like Mexico, Thailand, Indonesia and South
Korea, were forced to devalue. This radically reduced the wages of their
workers relative to American workers, creating incentives for U.S.
manufacturers to shut plants and move them abroad. The devaluations also
slashed the price of foreign goods relative to U.S. goods. Imports flooded
in.
Who ultimately paid for the Mexican bailout? Florida tomato growers wiped
out by Mexican producers, the price of whose tomatoes was chopped
two-thirds by the devaluation. U.S. autoworkers who saw Ford and Delphi
plants shuttered as new Ford and Delphi plants opened in Mexico. U.S.
textile workers whose mills closed and jobs vanished.
Middle-class American families have paid and paid - in lost jobs, lower
wages, a falling median income - to save the big banks from the
consequences of their follies. And those bank bailouts are behind the
trade deficits that set five records in the Bush era, reached 6 percent of
gross domestic product, forced huge U.S. borrowings from abroad and
ravaged the dollar.
Having bailed out Latin America, Mexico, Asia and their U.S. creditors, we
now find our own country in trouble. And how are our allies reacting?
"Europeans on left and right ridicule U.S. money meltdown," ran the Los
Angeles Times headline. Italy's finance minister compares us to
corruption-ridden Albania, where "a nationwide pyramid scheme cost
hundreds of thousands of people their savings and ignited anarchic civil
conflict" in the 1990s.
How will the bailout work? Will every bank that brings in toxic paper be
able to dump it on the Treasury? Will the Treasury buy securities based on
subprime U.S. mortgages from foreign banks? Apparently so.
About one thing we may be sure. The U.S. deficit and national debt are
going to soar. The credit rating of the United States, as this nation of
nonsavers has to borrow abroad to save its banks, and their banks, is
going to fall. We are going to be a poorer nation and people.
As for the promises and plans of Barack Obama and John McCain - be it for
national health insurance or middle-class tax cuts - they are going by the
wayside. For the United States is as bankrupt as Lehman Bros., with this
difference: Uncle Sam can still borrow from abroad because foreigners see
many juicy U.S. assets they would like to take off our hands with their
hoards of ever-cheapening U.S. dollars.
"There is a great deal of ruin in a nation," Adam Smith once consoled a
friend who lamented that Britain would be ruined if the 13 Colonies were
lost.
We are about to test Smith's proposition.
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Copyright 2008 SF Chronicle
