HBOS<\/a>). The wonders of a free market allowed short-selling and a few scares to destroy a company with solid resources – can you imagine how scared the rest must have become.<\/p>\nRisk?<\/h3>\n
So, in the interests of a free market, the government steps in and saves the companies. The government spends billions of the taxpayers money to rescue institutions that have, basically, gambled themselves out into the street.<\/p>\n
This is where I am confused.<\/p>\n
In the UK, the government has reportedly taken over a \u00a350billion debt on behalf of Bradford and Bingley. That is effectively \u00a31000 per person so that the demutualised, risk taking, company can survive. Although we were not aware of the risk we were taking, nor did we share in the rewards, everyone of us in the UK was involved in the gambles these people were taking.<\/p>\n
The US has the same problem. The $700bn bail out (good idea or not) is a phenomenal sum of money. The high flier financial wizz-kids and their high risk lifestyle would cost every one of the 300 million people in the US over $2000. For someone on federal minimum wage, that is 321 hours work – 40 working days – to save the rich from becoming poor (I know it is not quite that simple). Instead, the poor get a little bit poorer. Wonderful.<\/p>\n
The US must be the only modern democracy where funding the rich bankers is a more appealing proposition than giving healthcare to the sick. That confuses me.<\/p>\n
To confuse me even more, the news today had lots of talking heads on both sides of the Atlantic saying how it might seem strange but it was vital that the taxpayer (poor) bail out the bankers (rich) because. Often simply because. Sometimes there were vague, dire, warnings about the economy, but most of the time it was just a simple statement. We have to do it.<\/p>\n
Why?<\/p>\n
I don’t doubt that letting one or two banks slip will cause even more panic which will destabilise the economies, but if the US has $700bn and the UK has \u00a320bn going spare, then surely we can weather some rough times. When the average person on the street still has money for shops to take off them, then the economy will still work. In my mind that is where the salvation needs to be pointed.<\/p>\n
Equally odd, is this new definition of risk.<\/p>\n
If I gamble my house on a high risk deal and lose, I lose my house. Will the government bail me out? (Well, in the UK we have social housing but that is different) It is unlikely. For me, betting on high risk stocks is just that – high risk. I stand to gain but I also stand to lose everything.<\/p>\n
If a bank gambles the houses of 20 million people and loses, well they really lose nothing. Poorly paid staff will get laid off but the “risk takers” are immune. The organisation is immune because as long as it cries loudly enough the government helps. For the banks, betting on a high risk is actually risk free. They will either gain a lot, or lose nothing.<\/p>\n
Why is this acceptable? Why is this considered normal? Why are we still hearing that it is all down to the taxpayers to save these banks? Why not claw back the multimillion bonuses? Why not fine the fund managers? Why are they allowed to gamble without risk, yet still be thought of as “cool” risk takers?<\/p>\n
Crime and Punishment<\/h3>\n
The most sickening thing about the whole deal is not just that the taxpayer has to suffer.<\/p>\n
If, through negligence or design, I caused someone to lose out to the tune of \u00a31000 there are laws that would punish me. If I gambled \u00a31000 of someone else’s money without their knowledge and lost it, I would expect the police to visit me and to end up in jail.<\/p>\n
It seems, however, if you do it with enough people then not only does the government step in to cover your debts, but you dont even get punished. In the middle of the credit crunch, UK stockbrokers were still getting massive Christmas bonuses (just not as massive… poor things).<\/p>\n
While it often smacks of unscientific voodoo, I accept what the “finance experts” say and that the state has to prop up these failing institutions. However, why should the people who have caused this problem be allowed to walk away? If, for example, the fund managers and directors of each organisation were to be fined in proportion to their participation, the rescue plan’s tax burden would be a sweeter pill.<\/p>\n
Alternatively, if this heralds a new era of tightly controlled financial markets, where crazy risks are punished, and these people are not simply able to start ripping the world off again in a few years then, again, it becomes a bit more acceptable.<\/p>\n
I think the problem is, this will never happen. The hint that the US bail-out would be followed with government involvement meant that the Republicans stood against the great George Bush and turned down the bill (*). It seems the only way a rescue plan will be approved is if it carries no strings or punishments. Basically, the bankers are free to risk all our money without having to worry…. (Slightly better over here, where we are more accepting of government control and oversight).<\/p>\n
What a wonderful world.<\/p>\n
(*) This adds an ironic twist. I strongly think that the Republican party expect to lose the next election. McCain\/Palin are their idea of a joke. They know the country and the economy is about to tank, and the war in Iraq has gone badly. If they lose the election, Obama will be handed a hospital ball of a presidency. Unless he is truly Odin’s chosen one, come the next elections people will still be smarting from the economic crisis and will be ready to turn to the Republicans once more. Taken in this light, both Bush’s plan to asset strip the country, and the parties refusal to do something that (on the surface) benefits the public makes sense.<\/p>\n
Can you be too cynical?<\/p>\n