Published on online journal, by Mike Whitney, July 25, 2008.
At an improvised press conference last week, George Bush gave what might have been the most comical performance of his eight-year presidency. Looking like the skipper on the flight-deck of the Hindenburg, Bush tried his best to reassure the public that “all’s well” with the economy and that everyone’s deposits were perfectly safe in the rapidly disintegrating US banking system.
Leaning lazily on the presidential podium, Bush shrugged his shoulders and said, “My hope is that people take a deep breath and realize that their deposits are protected by our government. We’re not seeing the growth we’d like to see, but the financial system is basically sound” …
… If the public grasped the significance of the Bear Stearns fiasco, they’d understand how grave the situation really is. The technical details are irrelevant; don’t bother with them. What IS important is that the Fed acknowledged that the investment speculators had so polluted the financial system with their toxic, unregulated garbage (Credit default swaps) that if the transaction with JP Morgan flopped, the entire system would have imploded. Think about that. In other words, the legitimate “Real Economy” is now inextricably lashed to a massive $500 trillion dollar unregulated shadow banking system that operates without rules, supervision or sufficient capital. Over the counter derivatives trading is a cancer that has spread to every part of the system and is devouring it from the inside. It’s only a matter of time before the patient succumbs. That’s what the Bear bailout really means; the rest is bunkum.
The banking system is broke, busted, penniless; and yet the Fed and the G-7 allow this comedy to persist like nothing is wrong. When will the American people wake up?
And, will someone please explain how free markets can exist when speculators are subsidized by the state, or when the risk is removed from risky investing? That’s what it means when the Fed opens its auction facilities to the investment banks and brokerage houses. It makes no sense at all. Government “safety nets” are anathema to free market capitalism. “You pays yer money and you takes yer chances.” That’s finance capitalism; deal with it.
What we are seeing is a hybridized version of capitalism, “Paulson’s Scatterbrain Capitalism,” a hodge-podge of taxpayer bailouts, government intervention and free market mumbo-jumbo. It’s a toxic mix of off-balance sheets operations, over-the-counter “unregulated” derivatives, dark pool trading, opaque hedge funds, dodgy Enron-style accounting, and complex, hard-to-pronounce debt-instruments wrapped up into one, cheesy, unsustainable shell game, managed by Harvard-educated flim-flam men and backed by a 100 percent government guarantee. That’s the system we’re supporting with our tax dollars and that’s the system that is dragging us headlong to ruin.
It ain’t capitalism, my friend. It’s a crooked system run by corporate carpetbaggers and banking scalawags who’ve shot the Golden Goose in hopes of keeping the larder at the cottage on the New Jersey coast chock-full of Dom Perignon and halibut fillets. They created this nightmare and they’ve doomed us all.
As long as we prop up the existing system, the economy will continue to flounder, unemployment will continue to rise, foreclosures will continue to soar, banks will continue to be shuttered, and the wobbly old greenback will continue its inexorable march towards Pesoville. It’s time to clean house and we can start by firing Paulson. (full text).
(Mike Whitney lives in Washington state. He can be reached by e-mail).