Tuesday, 11 November 2008

Cost of bailouts rises as welfare state for corporations gets ever wider

If ever anyone wanted a clear illustration of the class based character of our present economic system, and the moral hypocrisy of capitalism, they need only look at the newly created and rapidly expanding welfare state for corporations and shareholders.
In both the US and Britain we have been told for decades that benefits must be cut back, that the unemployed are work shy, that probably most of those claiming incapacity benefit are fraudsters, in general the welfare state is a bad thing, and we must all be exposed to the full rigour or market forces or the country will be brought to its knees by 'scroungers'.
The moment banks and large corporations were in trouble, however, literally trillions of pounds and dollars were mobilised to help save their money.
In Britain Royal Bank of Scotland, HBOS and Lloyd's TSB were propped up by taxpayers money being used to support their shares. In the US the latest news shows both the still increasing cost of the financial crisis and the widening welfare state for shareholders.
Taking first two US companies in which shareholders were wiped out before their nationalisation, the insurer AIG and the mortgage company Fannie Mae, the cost to the taxpayer of the previous decisions of these companies is rapidly mounting.
Fannie Mae has announced it is losing money so rapidly, $29 billion in the third quarter of 2008, that it may need a cash infusion from the US Treasury Department by the end of the year from a special $100 billion fund the US Treasury set aside in September to aid the company. The already nationalised AIG announced a quarterly loss of $24.5 billion and has won approval from the US Federal Reserve to change to a bank-holding company - thereby opening it up for further government aid by participating in the Paulson bank bail out plan.
Turning to privately owned companies, American Express, the credit card and finance giant, has been granted bank-holding company status - as earlier were Goldman Sachs and Morgan Stanley. The Wall Street Journal reports that under these bank bailout plans the US government had promised: 'not to force banks receiving government assistance to lend out those funds to consumers and small businesses.' That is the main beneficiary will be bank shareholders.
In a surprise tax ruling the US Treasury has simultaneously handed up to a further $140 billion to US banks. The Washington Post commented: 'The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention... corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.
'The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal... "Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."... The guidance issued from the IRS [Inland Revenue Service] caught even some of the closest followers of tax law off guard because it seemed to come out of the blue when Treasury's work seemed focused almost exclusively on the bailout.
"It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops," said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. "I've been in tax law for 20 years, and I've never seen anything like this."'
Simultaneously speaker of the US House of Representatives Nancy Pelosi was calling for a special session of Congress to bail out General Motors and other stricken US car manufacturers.
As the Wall Street Journal noted on 11 November: 'It was a day when even the monolithic U.S. government might be forgiven a sense of being overwhelmed by the current financial and economic situation.' Or as one one figure the newspaper quoted put it about the US government: 'The rescue efforts are "evolving in ways that I don't think anyone anticipated," said Camden Fine, president and CEO of the Independent Community Bankers of America, a trade group. "Things are just hitting them from every single direction, every day, and I don't think they know whether to spit or go blind."'
What conclusions should be drawn from all this? They are both economic and moral.
First, the claim that capitalism is a beautiful market self-regulating system has been shown to be simply untrue. This crisis shows it requires the state to step in to keep it stable.
Second, capitalism's moral hypocrisy and bankruptcy is breathtaking. A poor person on unemployment benefit or a pension can be thrown to the wolves. But if you are a rich US or UK corporation you must be bailed out immediately. It remains to be seen how much and how rapidly public opinion draws the conclusions from all this.
But to adapt Christopher Wren's words in St Paul's cathedral - 'if you want to know the case against capitalism just look around.'


Alun Griffiths said...


Alun Griffiths said...

Tis is a submission made by Urban coalitions from the World Social Forum Urban Movements who work in the areas of macro economy, habitat, cities, ecology. Not strictly economics, nor strictly socialist, new political ecology I'd call it. Comments and suggestions would be most welcome...

G-20: Build a Global Social Pact for Equitable and Sustainable Habitat now!

editorial staff

13/11/2008 2:45 pm

On the occasion of the financial summit of the G 20 in Washington International housing rights alliances call for fundamental change of global financial architecture and financing habitat

We, the undersigned civil organizations and individuals

* dedicated to the defence and realization of the human right to adequate housing and habitat;
* fighting for many years for the right to decent housing against the consequences of neo-liberal policies and financial markets,
* alarmed by the cruel and crude consequences of the financial crisis manifesting itself through mass foreclosures and evictions,
* in accordance with the moral principles and legal human rights enshrined inter alia in the International Covenant on Economic, Social and Cultural Rights, the corresponding norms of UN human rights instruments and in accordance with many UN decisions and documents, such as the Kyoto Protocol,
* in parallel with the many related statements submitted by civil society organisations and trade unions (1),
* being aware of the emergency character of the current financial and economic crisis,
* being aware that many local authorities are already deeply affected by the current crisis,
* being aware that the fundamental character of the crisis requires fundamental far reaching change,
* understanding the many interdependencies of the financial crisis with development, energy, climate and employment,
* being aware of the serious threats this crisis presents to social cohesion, democracy, peace and freedom,
* hoping for a world leadership which is able and willing to replace discredited paths of development with a new global economic architecture and vision in accordance with the principles of human rights, democracy and international justice and in effective cooperation with civil society,
* stressing the provisional character of this statement,

Call on the G 20-governments to...