[OPE] Interesting article by Dr Stiglitz

Dr Stiglitz writes:

"In theory, the administration's plan is based on letting the market determine the prices of the banks' "toxic assets" - including outstanding house loans and securities based on those loans. The reality, though, is that the market will not be pricing the toxic assets themselves, but options on those assets. The two have little to do with each other. The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily "value" their potential gains. This is exactly the same as being given an option. The two have little to do with each other. The government plan in effect involves insuring almost all losses. Since the private investors are spared most losses, then they primarily "value" their potential gains. This is exactly the same as being given an option." (...) What the Obama administration is doing is far worse than nationalization: it is ersatz capitalism, the privatizing of gains and the socializing of losses. It is a "partnership" in which one partner robs the other. http://www.nytimes.com/2009/04/01/opinion/01stiglitz.html

In other words, the American system is strongly biased against nationalizing corporations. Unfortunately, Dr Stiglitz however does not really explore the moral implications and social meaning of this further.

Capitalists are supposed to be "daring risk takers" who chance their capital to create wealth, and are rewarded accordingly. In reality that sort of story does not apply anymore organisationally, at least not to the haute bourgeoisie and the institutional investors. The point is that they took hardly any business risk, because every venture and initiative is insured against loss, with "a bob each way". Fortunes were made from asset-stripping and income-extraction involving mainly already existing business. Only trouble is, that due to the rampant overextension of credit money, the private financial insurance system has now imploded, turning into its dialectical opposite, creating more insecurity and risk for everybody (if it hadn't been the subprimes, it would have been some other default). On top of that, the burdens of financial misadventure are, via state insurance, placed on the workers, who pay the largest chunk of tax-money, and are made unemployed.

The central claim of the Obama government is that the procedure Mr Stiglitz describes is essential to restore "market confidence", and without it, the drop in output, investment and employment would escalate and spin out of control. Thus, if we were to wait for financial institutions to be bought out by their competitors (the alternative route), we could wait a very long time, and meantime the economy - including large chunks of the world economy - would be close to total collapse. So it's like being "between the devil and the deep blue sea". The proof of this theory seems to be, that when the government throws a few bilion dollars around, stock market trading suddenly jumps back.

The problem however is that the revival of market confidence is almost totally conditional on the ability of the rentiers to extract more income, and that market confidence can only be sustained beyond a temporary "mood" if there are again prospects of longer-term economic growth. But in a parasitic financial system, this can now occur only by durably taking more income away from other people, other social classes, other nations. The limit to the plunder is the point at which people have nothing left anymore that you can plunder. About one-third of the world fits that description: those people don't have anything much of economic value, so you cannot take it from them either; at most you could turn them into slaves, but that conflicts with liberal ideology.

In reality, the return to market confidence sets up a fight of the strong against the weak: the strong can move up, only by kicking the weak down. Maybe Mr Obama gets lucky and the propaganda campaign will appease the population for a sufficient time, while conditions stabilize, business adjusts, and the situation starts to improve. But if nothing improves significantly during his term of office, or in fact gets worse, then we can expect a political convulsion of some sort, amongst others from people who have little left to lose.

Addressing the joint session of Congress on 24 february, Mr Obama said "we have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election. A surplus became an excuse to transfer wealth to the wealthy, instead of an opportunity to invest in our future." But this raises the question of what could motivate any different kind of system in the future. It could only be done with the aid of a massive legal overhaul. So far, the "transfer" continues.

Sir Bob Geldof talks tough: "The essence of globalisation must be enforced co-operation." http://www.ft.com/cms/s/0/a3244902-1ee4-11de-a748-00144feabdc0.html He means that governments should force through cooperation. But this assumes markets are liberal and voluntary. It ignores market coercion.

Jurriaan

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Received on Thu Apr 2 16:17:22 2009