In the United States this autumn, the elite financiers of September 15 succeeded in doing what the elite terrorists of September 11 failed to do: bring the US economy to its knees. But they’re not the only nincompoops in charge in the US.
According to The New York Times, the Bush administration initially estimated the cost of the Iraq war at $50 billion, and the Democratic opposition in Congress “largely agreed”. The real cost of the war isn’t $50 billion, in fact it is nowhere near it. Early last year the estimated expenditure of the war stood at $1.3 trillion, while Joseph Stiglitz, the winner of the 2001 Nobel Prize in Economic Sciences and a world authority on free markets (basically a very smart guy) has calculated the war’s expenses at $3 trillion.
Back in 2003, when a former Bush administration economic adviser predicted that the war would cost the US between “$100 and $200 billion”, Donald Rumsfeld fired him and called his numbers “baloney”.
The point being, are people now willing to trust either party that the $700 billion bail out package will rescue the US economy from a financial meltdown? I doubt it. Using the US government’s Iraq war miscalculation formula ($50 billion planned to a conservative $500 billion spent), the cost of the so called bail out will likely be in the region of $7 trillion. The plan will mostly benefit those referred to as “the fat cats of Wall Street” who originally caused the crisis.
Two weeks ago all we heard from the fat cats was financial Armageddon if Lehman Brothers failed, and yet it did fail and we are still around. The end of the world was prophesied before, as well as during, the Iraqi weapons of mass destruction fiasco; sombre words were employed. Colin Powell, the US Secretary of State, weightily intoned about “the gravity of the threat” Iraq’s WMD’s “could pose to the world”. Doomsday loomed.
It all actually reminds me of a silly fable set in a farmyard that I read as a child called Chicken Licken. Basically, one day an acorn falls on Chicken Licken’s head. He (it could equally have been a she) then goes around hysterically warning all species of animals (and using vocabulary eerily similar to what Powell used in his famous UN address) that there is “compelling”, “powerful” and “irrefutable” evidence that “the sky is falling”.
The naive animals start to follow Chicken Licken (whom we may consider as Henry Paulson and the lame duck Bush administration) and repeat his mantra “the sky is falling” believing the propaganda more and more with every repetition. The story was full of funnily-named animals, such as Gander Lander (Fannie Mae), Drake Lake (Freddie Mac), Ducky Lucky (AIG), Goose Loose (Goldman Sachs) and Cocky Locky (Merrill Lynch). To escape the imminent end of the world the animals gathered in a shelter that was offered by the cunning Foxy Loxy (the Sovereign Wealth Funds of China, Kuwait, Abu Dhabi and Singapore) who eats them all.
What was intriguing to me was, why were all the adult animals following a hysterical, adolescent chicken?
During the Asian financial crisis in 1997, which I recall clearly as my South East Asian friends pulled out of university in France, the proponents of capitalism such as the IMF and some Western countries balked at the Malaysian Prime Minister, Mahathir Mohammed, who ordered his government to interfere by pegging the Ringgit lower than they advised, which in turn made Malaysian exports cheaper and allowed the economy to recover faster. The IMF had also warned against “bail outs” and government intervention, Mahathir recently blogged, and yet now it is standing idle.
America eventually recovered from the 1929 crisis by doing exactly the opposite of bailing out the banks; in fact, up to 4,000 of them were allowed to fail or encouraged to merge with other banks under the New Deal introduced by President Franklin Roosevelt when he took office in 1933. The current bailout is setting the stage for sovereign wealth funds to step in and buy the rescued US entities that logically should be allowed to collapse.
For years China has been lending America money by buying US Treasury bonds so that Americans can buy Chinese products; allowing the Americans to sink more and more in debt in a deepening vicious circle. The socialist leaning states of the Middle East and Asia are the new financiers of the world, there’s no escaping that. The Chinese may offer Ducky Lucky shelter, but they expect to have crispy aromatic duck for dinner.
In the end the only thing this foolish bail out is going to prevent is a fresh case study for students to learn about the repercussions of allowing banks to fail.
In today’s animal farm, socialism is coming to the rescue of capitalism. Hats off to Karl Marx.
This article first appeared in The National on September 28th 2008