Masters Hossein & Noureddine are at it again in the Asia Times. Good stuff, the hard stuff on what a catastrophically bad idea it is giving Henry a trillion of your dollars to play with. (Admit it's also nice they confirm everything I've been ranting about in my last 15 or so diaries.) The atimes title is priceless: Danger - Ben and Henry at work. Read the whole thing, but here are some important excerpts on Ben and Henry's bailout and what's really going on:
THE ECONOMIC CONSEQUENCES
To a previously projected 2009 record deficit of $500 billion, the bailout's $700 billion price tag combined with $200 billion for Fannie Mae and Freddie Mac and $85 billion for AIG, the fiscal deficit would explode to about $1.5 trillion. [And we] should also ask after this $700 billion is spent, what will Congress say to another request say of $300 billion to save the day?And so on into the future. . . .
As with past and recurring deficits under the Bush administration, the financing of such a monumental deficit can only be achieved through monetization, inflation and exchange-rate depreciation. This will considerably widen external deficits and aggravate food and energy price inflation. . . .
Economic growth will without a doubt be curtailed by a considerable fall in savings and a significant decrease in real government and private expenditures; real government spending will diminish because most of the expenditures will consist of buying worthless financial papers at the expense of spending on social and economic programs. Rapid food and energy inflation will erode real incomes and reduce private spending in real terms, and contribute to rising unemployment, further aggravating already deteriorating trends in the unemployment rate.
CREDIT & LIQUIDITY ARE FINE
. . . contrary to Paulson's claim, credit is not frozen, the US banking system is still lending significantly to the economy, as clearly demonstrated by the Fed's data, with bank credit still expanding at a high rate of 9% per year as of July 2008. Certainly, banks have become more prudent, matching the maturities of their assets and liabilities better, and are no longer replaying the speculative mania that led to the present subprime loan meltdown. . . .
There is so far little hard evidence of systemic risk to US commercial banks at large (note large investment banks have disappeared). Only speculative loans face problems. Loans invested in real and economic-generating activities in agriculture, industry and commerce remain sound. The non-financial sector continues to have access to credit at low interest rates. . . .The Fed has injected massive liquidity since August 2007, put in place large lending facilities to banks and worked out large swap facilities with major central banks around the world to inject further liquidity. Banks do not the face the serious liquidity problems attributed to them, as inter-bank rates, including the federal funds rate, have not come under serious pressure.
Money supply has expanded at the very high rate of 16% in 2008. Bernanke's goal is to rid banks of mismatched maturities and acquire billions of worthless speculative paper for the state. While the amount of writedowns by banks have so far exceeded $500 billion, it would appear that Paulson and Bernanke do not want banks to incur any further losses and that all their worthless and speculative paper will be put on the backs of US taxpayers. . . .
THE WHOLE IDEA: GROW INEQUALITY
On the equity side, it is unacceptable that tax money be used to subsidize banks, more specifically the speculative component of bank practices that has no direct bearing on investment and growth. Besides increasing distributive injustice, such spending is non-productive and yields no social benefit to taxpayers and to the broader economy in the form of health, education and infrastructure.It is absurd to have the government (ultimately the taxpayer) pay for the speculative losses of banks and hedge funds. Had banks invested wisely in productive activities they would not have faced their current problems of frozen speculative assets. In the case of hedge funds it is even more galling in that their billionaire executives pay a lower tax rate than do their secretaries!
Again, the unbiased experts tell us (if we can find them) what's real and what is hype, and they tell us this smelly deal smells cuz it's rotten. So, the critical question now is whether the mainstream press and their 'Wall Street is The Economy' pundits have scared America into okaying the scam. Or will 'we the people' rise up again and demand that our representatives say no to historic and horrific theft?
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