Saturday, September 20, 2008

Global power without matching obligations....

...That’s how I diagnose the current financial crisis. (See update on next page.)

Government bailouts (i.e., taxpayers) may satisfy the markets for a while, but the appetite of these “markets,” especially the elite that rules the capital markets, is insatiable. Sooner or later, they will return to their old habits unless the multi-billion dollar rescue operation curbs the irresponsible power they now have. Fundamental reforms are necessary.

Can you imagine the hilarious operetta Gilbert & Sullivan would have written about this debacle? Take what they would have done with the antics of one leading player, the U.S.-based American International Group Inc., the world’s largest insurance company that dabbles in non-insurance businesses.

Under the unregulated global freedom granted it, AIG has expanded into 130 countries and territories, with some 100,000 employees worldwide. Now AIG’s expansion itself is deemed to make it “too big to fail,” and somehow qualifies it to turn to American taxpayers for a two-year loan it needs to survive -- $85,000,000,000. In return, says the September 16 AIG press release, “American taxpayers will receive a substantial majority ownership interest in AIG.”

Well, as an American taxpayer, thank you very much, AIG. But I didn’t ask to own you.

I just hope that the guys who negotiated this deal for me and other surprised American owners will do what they failed to do before: match AIG’s powerful rights with corresponding responsibilities and accountability.

Pardon me if I wonder whether they will really do so

“AIG was not too big to fall, but too connected,” writes the Financial Times. Remember that the well connected men who arranged the AIG bailout, and are still making more and more bailouts, belong to the ailing system that they are supposed to cure.

They themselves are creatures of Wall Streets. They are immersed in its culture. They may be right in warning that we are at the brink of unprecedented disaster and that we must respond as they ask. But must we be unquestioning in accepting direction from the types of Wall Street insiders who brought us to that brink?


Now, late Saturday, these same insiders have persuaded the President to ask Congress for the power to pay up to $700,000,000,000 for the troubled assets of unspecified financial institutions. This unprecedented bailout, unless amended by Congress, is a one-sided deal in the familiar pattern of dispensing huge national resources to private entities without requiring any responsibilities beyond the minimal one of ultimate repayment of taxpayer money (if possible).

The proposed deal requires careful and calm scrutiny, unmarred by charges again that those seeking to defend the common good are somehow lacking in patriotism.

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1 comment:

Bojon75 said...

It was stated by the US administration that in the bottom of the crises is the subprime mortgage failure But is it not so that in the bottom is the very skewed income and wealth distribution - much worse in the US and the developing world like India and China than in the EU - where unions are stronger, e.g. in those parts of Europe where the trade unions are stronges is also the inequality less, even being recognized by the World Bank. The anti labour policies in the US both by the Bush administration and most of the corporate world has prevented large parts of the american middleclass and working class people from earning enough to afford decent housing. Certainly that problem is not dealt with in a short time as seems to need now. The suggested remedy being to force banks to renegotiate the mortgates. On the other hand this process of eroding the income and wealth distribution making it more and more skewed has gone on for the last 30 years and that process is not really challenged. The cause seems to be that the reactions of the financial and credit markets when there is a shift in economic policies toward more equality the negative reactons - in the US it is called socialism and rightly so - is stalling sensible policies from sustainability point of view. Behind this power of the financial market to prevent better economic policies is the shor term demands of return on invested capital hampering efficient corporate management. Financial performance rather than the real economic developments of the companies are making management less efficient. Corporate goals have to be such that they fit into sustainable development of societies/economies, manifested in full employment and decebt working conditions, stable prices and a more equitable society. These should be the policy goals again as they were 40 years ago. The current developments are not unique for the US. Inequality and injustice is dominating economic policies all over the world. Greed in itslef, being a human nature is not the cause but the excessive power of those in the business world that foster that greed, as Bob Senser also thinks, that is the cause. The lack of accountability from other points of view than mere profits and return on the invested capital has to be attacked, and how? The current capitalist system promotes a class of connected people that nurtures the greedy behavior. I noted that Paul Krugman referred to Alan Greenspan who way back in younger years thought that greed was good for humanity because it in itself promoted economic growht. Earning big money, making profit, has become the credo of the young generations that now are in power. It is the only goal and the single most important indicator of economic success. Few are the businessleaders that are industrialists and themselves capable of creating products that have lasting values. This is not what gives the business man a standing among his financial peers in business. It leads me to think that perhaps some religious fanatics are right in their negative judgement of the driving forces behind the Western culturee as it is being promoted by e.g. the US administration(s). Can we hope for a more pragmatic and rational policy. Will ideas of justice prevail both in the US and the EU, not to speak of in India, China and Russia? In these latter continents greed and injustice is even worse than in the US and the EU. However, I do not think that a single country or society alone can change the now dominating corporate culture. Perhaps a renewed Transatlantic agenda can stimulate the resetting of a social and environmental sustainability agenda as a dominating corporate governance strategy and put results that can be measured in such terms on top of the value scale among corporate leaders. Perhaps investors can get together with labour to push in that direction. Investor would not simply be setting 8 or 16 percents return on capital as a target, but use a wider concept of the purpose of corporate governance, such as the Scandnavian pension funds do, namely the companies contribution to a sustainable world as a guide to investoments. That requires certainly a more complex set of indicators to measure corporate success over the time than the Milton Friedman simple profit goal as the overriding and only purpose of producing goods and services in this world. There are already labour and corporate leaders that are dead against the hysteric assessments by the financial market operators of company profits on quarterly basis as their sole indicator of company success. Investors and employees/unions could bundle together and promote their common interest in a revision of the current corporate strategies.