Thursday, February 19, 2009

Screw the Big Banks! Bailout the Small Depositors!

by Len Hart, The Existentialist Cowboy

It was last fall, as Americans dared hope that a new administration would take office just in time to save America, Bush announced a first big 'bailout' which would, we were told, prevent a financial collapse, a great depression, a panic! Not least among many reasons the bailout failed is the fact that the wrong people got the money. 

Although Richard Nixon had famously claimed "We are all Keynesians now", nothing could be further from the truth now.Thanks to the misplaced reverence for Augustus Reagan, we are all still Friedman monetarists --not Keynesians. That is why the bailout failed and it is the reason future bailouts will fail unless something is done to address the root cause of collapse: the wrong people got the money! 

It was only last fall that the FED and officials of the Treasury Department 'rode to the rescue' of all the wrong people, specifically, the very financial institutions that created this mess to begin with. In the wake of all this failure, incompetence and criminality, there was great hand wringing, wailing, gnashing of teeth because the 'n' word had been uttered. Nationalize the banks! At this point, it won't make any difference.As 'the Who' famously said, 'the new boss, same as the old boss'. What is needed is not a new boss following the same, tired, failed policies. What is needed is some intelligent thinking about what drives economies! Here are some clues: banks do not drive economies. Rich elites do not drive economies. Governments do not drive economies. Big corporations do not drive economies though many board chairs are deluded and believe themselves to be 'captains of industry'. Bullshit!
More than 83 corporations have offshore subsidiaries where their funds are protected in tax havens in the Caymen islands such as: The Bank of America, Citigroup, Morgan Stanley, AIG, JP Morgan Chase, Wells Fargo, and even Pepsi and General Motors who received 13.4 billion have hundreds of millions of dollars in tax havens offshore. All these corporations receive protection from paying the US government their taxes and the loss to the US is into the 100 billion dollars of lost tax revenue.< Senator Carl Levin a democrat from Michigan and Byron Dorgan, Democrat of North Dakota requested the report to be released and are pushing for new laws prohibiting these bailout scam corporations from being tax dodgers while asking for bailouts from the taxpayer
The Government Accounting Office includes 63 of the 100 largest contractors who receive government contracts also have accounts in tax haven countries.
--Bailout Corporation Tax Havens in Caymen Islands
The bailouts failed because the wrong people got the money. The government would have done better had it just put billions of dollars in mason jars, buried them in a land fill and let the unemployed dig them up! That is as true now as when Keynes first proposed it back in the thirties. You can bet those folks would have spent the money and, by doing so, revived the collapsing, moribund GOP economy that Bush left us.  

Instead, Bush gave the money to fat cats who parked it in offshore tax havens --a fact that may be solely responsible for the worst contraction of the US economy in a quarter century, an annualised 3.8 percent in the fourth quarter of 2008! That's the worst result since 1982, the year of Ronald Reagan's big tax cut. It was also the year of the 'Reagan Recession', the worst since Herbert Hoover's GOP 'Great Depression'!
Of the 100 largest public companies, 83 do business in tax-haven hotspots like the Cayman Islands, Bermuda and the British Virgin Islands, where they can move their income into tax-free accounts. .In the list of 100 companies that GAO studied were 63 with major federal contracts, including Caterpillar, BearingPoint, Boeing, Merck & Co. and Kraft Foods. ...Legislators gave particular attention to the 14 companies on the list that received bailout money from the Treasury in the recent financial meltdown. 
--GAO Report: Off-Shore Tax Havens for Bailed-Out Companies and Government Contractors?
In the meantime, more banks are going bust. Let them fail! Fuck the banks.
With two of the nation’s largest banks buckling under yet another round of huge losses, the incoming administration of Barack Obama and the Federal Reserve are suddenly dealing with banks that are “too big to fail” and yet unable to function as the sinking economy erodes their capital.

Particularly in the case of Citigroup, the losses have become so large that they make it almost mathematically impossible for the government to inject enough capital without taking a majority stake or at least squeezing out existing shareholders.
And the new ground rules laid down by Mr. Obama’s top economic advisers for the second half of the $700 billion bailout fund, as explained in a letter submitted to
  • Congress on Thursday, call for the government to play an increasing role in the major activities of the banks, from the dividends they pay to shareholders to the amount they can pay executives.

--New York Times, Rescue of Banks Hints at Nationalization
We should have been bailing out the depositors. By 'depositors', I am not talking about big corporations, who, like the banks, have taken monies out of the US economy. For example --General Motors which pocketed $13.4 billion and then promptly squirreled it away in 11 offshore subsidiaries. GM's 'financing arm, GMAC received $5 billion in bailout and quickly exported to two offshore units. 

GMACs majority owner is the private equity firm Cerberus Capital Management LP. Boycott them!If Obama were a part of the 'revolution', he would have already nationalized the crooks, seized their assets and put the monies back into the hands of original depositors whose expenditures would most certainly revive the ruined economy that the GOP thinks it has washed its guilty hands of. The trend in which an increasing tiny elite of about one percent of the total population would end up owning more than the rest of us combined is, at last, having the effect I warned about.

The Reagan years can be summed up briefly. He doubled the size of the Federal Bureaucracy and tripled the national deficit. The most pernicious effect of GOP economic policy is the effect of declining opportunity, a corollary of decline in wealth among all but the very rich.It is merely rhetorical to ask: why does the GOP seem to repeat ad nauseam utterly failed strategies that have never been shown to work? Reagan's Budget Director, David Stockman called Reaganomics a 'Trojan Horse'. He understood that tax cuts were not intended to trickle down. 

That's just how they are sold. Rather --the tax cuts always do precisely what the GOP insiders know they will do: they enrich the GOP base! They are 'laundered' pay offs. Thanks to enlightened tax policies during the administration of FDR, the US was at its most egalitarian throughout WWII and the post war era. Things did not change dramatically until the rise of 'Reagonomics', a polite word given the transfer of wealth upward to those already rich and will only invest it offshore where it cannot possibly help provide jobs at the local level. This is truly 'mainstreet' vs 'Wall Street'.

The rise of Ronald Reagan brought with it a spreading of wealth upward to the upper classes and Wall Street insiders, in fact, an increasingly tiny elite of just one percent of the nation which owns more than 90 percent of the nation's total wealth. That fact is graphically illustrated above. The result is factually documented by the government's own agencies --Census Bureau, Bureau of Labor Statistics, Department of Commerce-BEA, et al. Income inequality is measured by what economists call the GINI index. The higher the GINI, the greater the inequality. These numbers, recognized and cited by economists from Friedman to Krugman, from Keynes to Galbraith, invariably increase during GOP regimes.Now --as the late Steve Kangas pointed out, 'conservatives' will claim that correlation is not 'causation'. I think conservatives are wrong on that point, but if, in fact, GINIS always go up under GOP regimes, what difference does it make?The pragmatic solution is simply this: fire the GOP! Permanently! 

We cannot afford to continue to support both the GOP and its elite, pampered, privileged sponsors in business, industry and government. See more about 'income inequalities' at: What do liberals believe about income inequality? Also: Myth: The rich get rich because of merit.

The 'contraction' of an economy is typically called a 'depression'. The US economy is contracting due to 1) the transfer of wealth to but about one percent of the population; 2) this 'elite' has transferred most of its wealth offshore where it has absolutely no good effect on the domestic US economy. The current collapse of the US is the end result of a trend that was begun with the passage of Ronald Reagan's infamous tax cut for his rich, elite base. The year was 1982. Historians willl write of that date that it was the beginning of the end of the American empire.
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