Republican Socialists

When the going gets rough, the rich get richer. The grand bankers, now collapsed, need our help to save us all. While herding us off the sub-prime mortgage cliff, they seem to have gotten too close to the edge, lost their solid footing and fallen with us. And they must be saved--by the government. Although the government is no longer of, by or for the people, it is still the people who get to pay. And the money goes to the enemies of banking regulations, universal health care and food stamps because those are socialist programs. Government stepping in to save badly managed private banks, the bankers argue, is not. Hello, as my daughters used to say, rolling their eyes as only adolescents can.

I recommend the recent article, "The Fruit of Hypocrisy," by Joseph Stiglitz, Nobel Prize winner for economics. Stiglitz writes:

"Houses of cards, chickens coming home to roost - pick your cliche. The new low in the financial crisis, which has prompted comparisons with the 1929 Wall Street crash, is the fruit of a pattern of dishonesty on the part of financial institutions, and incompetence on the part of policymakers.

"We had become accustomed to the hypocrisy. The banks reject any suggestion they should face regulation, rebuff any move towards anti-trust measures - yet when trouble strikes, all of a sudden they demand state intervention: they must be bailed out; they are too big, too important to be allowed to fail.

"Eventually, however, we were always going to learn how big the safety net was. And a sign of the limits of the US Federal Reserve and treasury's willingness to rescue comes with the collapse of the investment bank Lehman Brothers, one of the most famous Wall Street names.

"The big question always centres on systemic risk: to what extent does the collapse of an institution imperil the financial system as a whole? Wall Street has always been quick to overstate systemic risk - take, for example, the 1994 Mexican financial crisis - but loth to allow examination of their own dealings. Last week the US treasury secretary, Henry Paulson, judged there was sufficient systemic risk to warrant a government rescue of mortgage giants Fannie Mae and Freddie Mac; but there was not sufficient systemic risk seen in Lehman.

"The present financial crisis springs from a catastrophic collapse in confidence. The banks were laying huge bets with each other over loans and assets. Complex transactions were designed to move risk and disguise the sliding value of assets. In this game there are winners and losers. And it's not a zero-sum game, it's a negative-sum game: as people wake up to the smoke and mirrors in the financial system, as people grow averse to risk, losses occur; the market as a whole plummets and everyone loses."

Read the rest of the article in The Guardian.