Wednesday, October 01, 2008

Sit back and watch the banks burn

It seems that a fair chunk of readers think the financial bailout's key flaw is where the money is coming from, as just under half of you have voted (at the time of writing) that the plan should go ahead, but only if funded by the very rich. Interesting, and I'd like to address this point, leaving to one side for a moment those who think a bailout would be a problem, no matter how it was funded. We may well come back to that another time.

It seems to me that this perspective is wrong for all the right reasons. The fact of the matter is that during any crisis it is the poorest and most vulnerable who are most likely to bare the brunt of its effects. I doubt many of us are inclined to shed a tear over a CEO who doesn't get his multi-million dollar bonus this year, but we are concerned about what effect a crisis in the markets will have on jobs, housing, public spending more generally.

Whilst it's possible to ameliorate the effects on the poor working stiffs who are busy doing all the useful stuff in society unfortunately those in positions of power will always look to passing the pain down the line and there is only so much progressive politicians and strong trade unions can do to protect workers from this tendency.

So a bailout funded solely by the very rich, or super rich, has a poetic justice about it. After all those who benefit most from the insanity of the system should be the ones to prop it up when it all goes pear shaped. There little to be said to gain say this if you care about social justice.

As it happens in a system run more rationally you wouldn't need to do this at all. So we're talking about what to do in this crisis, the one we're facing – not more generally about how the markets should run, or there should be markets at all. There is a big gap between what should happen and what can happen.

So, Bernie puts his proposal on the table and all those Republicans who voted for the package yesterday vote against and there are still enough Democrat rebels to ensure the bailout package with its 'fuck the rich tax', as I'm calling it, can't get passed. I don't think anyone is arguing that with the current composition of the house any such proposal has a hope in hell of getting passed. So by saying we should not go ahead if we can't get it funded by a specific tax you're essentially saying it is better not to take action to save the markets than to use current reserves.

That seems to me to be a fine line to draw.

I don't think we're heading into a new 1930s. The political map is far more unstable, we're facing a climate threat that requires immediate and robust action and trade union and left organisation is far, far, far weaker now than it was then. In other words if the crash becomes a sustained crisis it will be much worse.

That means if it is possible to stave off the current round of financial collapse then we should. Setting that in motion this week if possible. Whilst re-organising the way the US funds its spending should be on the table it's probably a little fantastical to think that might happen today or tomorrow.

There are no guarantees that this bailout will work. Nor do we know what the future holds, but if you put preconditions on a deal that you know can't be met you may as well be upfront about it and say “Let the markets burn.” I don't think that's a prudent course personally, although as an image it does have a certain something.

Caroline Lucas:
Regulation is the only option
US Socialist Worker:
Why no bail out for the rest of us
Mark Steel: Quick!
These bankers need rescuing!


James said...

I take it you've seen Sir George Parr's explanation.

James said...

I don't know a massive amount about just what kind of consequences we're facing without a bailout, although since everyone running the US economy confuses the welfare of the rich with that of the whole of society, I don't trust them an inch. However, I think you're asking the wrong question Jim. We aren't running the system. What should we be doing is debating how to build a movement to stop cuts in public spending and reign in the financial sector. In the meantime, many people's gut reaction is 'why should irresponsible banks get bailouts that taxpayers have to pay for?' and frankly, I'm not inclined to argue with them.

Jim Jay said...

Whilst that gut reaction has many laudible qualities it's also one that sees the financial sector as isolated from the rest of the economy. Any bailout is not about ensuring the top bosses get their pay packets but has far wider and more important ramifications.

There seems to be an international trend developing of nationalising these institutions, or under-writing them with added regulation - I think this is positive. The state can go far further than a simple cash injection to shore up economic difficulties - indeed it has to.

Those political choices of "socialising" financial institutions are really important and should be part of our "list of demands". And of course you're right that it's unions (and to a lesser extent campaigning organisations) that will make all the difference on the ground - but these are organisations that will also be putting forward political demands - I think we're a modest part of shaping that left response.

When the right rejected the deal the other night they've been able to introduce tax cuts into the plan as a concession to get it through. That's a real shame and the kind of thing we're going to need to have a proper response to over and again over the next few years.

I don't think seeing the deal only in terms of bankers (rather than banks) is particualrly helpful.

I think the Green New Deal is a really interesting document that we should use to help develop these ideas coupled with the kind of thing Jean Lambert seems to be doing with "Green Work" are very good points of reference.

Yes ground level campaigning and building trade unions. But let's also try and grapple with these really difficult choices - because if we don't have anything to say on that level we're going to be in trouble.

James said...

The US-based Institute of Policy Studies, which is an excellent leftist think-tank have published a Sensible Bailout Plan, which can be found here:
Interestingly, one of the main planks of it seems to echo the majority vote in your poll Jim, a Bailout 'funded by a tax on the very rich'. They've identified how this can be done in the report, but the main points of their plan are:
• A stimulus for Main Street: Aid to the real economy
• Make Wall Street speculators pay for the bailout: No more debt
• Shut down the casino: Rein in the unregulated financial sector
• Limits on CEO pay and prohibitions on profiteering from the bailout