Flogging the financial Hor-lapses

11 Oct

It is profoundly disturbing to read about how the financial market collapses have been reported. As politicians start to blame the executives for the crashes, one cannot help wonder if they are just side-stepping the problem by flogging dead horses. Sure, the Wall Street types have created this mess but who gave them the keys to the lock of the door?

While it is easy to blame the Bush Administration for having caused such a mess, one should know that the problem occurred way before the Texan became President. Chomsky noted that the financial market was in danger under the Clinton administration when the latter ‘repealed the Glass-Steagall act of 1933, thus freeing financial institutions “to innovate in the new economy,” ‘. This was confirmed by Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan administration, who said almost the same thing:

‘In 1933 the Glass-Steagall Act separated commercial banking from the securities business. It prevented securities speculation from destroying bank capital and shrinking bank deposits from bank failures and runs on banks by depositors. Congress and President Bill Clinton foolishly repealed the Glass-Steagall Act in 1999.

The repeal of the 1933 law was driven by profit lust in the banking industry and by “free market” ideology, which claims the unfettered marketplace is always superior to regulation. In pushing the repeal forward, Congress and Clinton ignored warnings from the General Accounting Office that the banks needed to build up their capital levels before being permitted to enter a broad range of securities businesses. The GAO also noted that there were no regulatory structures in place to monitor the new financial networks that would result from removing the wall between commercial and investment banking.’

In another insightful article, Chomsky noted that state intervenes when corporations find themselves failing. Citing a study done 15 years ago by economists Winfried Ruigrok and Rob van Tulde, discovered that, ‘at least 20 companies in the Fortune 100 would not have survived if they had not been saved by their respective governments, and that many of the rest gained substantially by demanding that governments “socialise their losses,” as in today’s taxpayer-financed bailout. Such government intervention “has been the rule rather than the exception over the past two centuries”, they conclude.’

More importantly, he notes, financial liberalisation is a weapon against democracy: ‘Free capital movement creates what some have called a “virtual parliament” of investors and lenders, who closely monitor government programmes and “vote” against them if they are considered irrational: for the benefit of people, rather than concentrated private power. Investors and lenders can “vote” by capital flight, attacks on currencies and other devices offered by financial liberalisation’.

He also noted that the collapse of the Bretton Woods, was a result of the US suspended convertibility from dollars to gold, making US dollars the ‘reserve currency’.

The purpose of making greenback the world’s reserve currency, is a sinister attempt for economic  and political hegemony. According to Shih Yuan, when Charles De Gaulle wanted to return to the gold standard, Washington was quick to denounce the move:’ They [The US] asserted that the gold standard system is out of date; that the total amount of gold in the world is far from enough, and if the dollar is not used to supplement gold, international trade and economy will be harmed by a “deflation,” and so forth’.

On the other hand, keeping the US currency as the dominant trading currency means keeping the empire afloat: ‘All that the U.S. financial authorities need do to carry out expansionist and aggressive policies abroad is to print more dollars which are then used to grab huge amounts of foreign resources, buy over puppet governments and lease military bases. When their domestic economy and finances are in crisis, they can also shift or export the crisis to other countries. Nothing could be more beneficial to the United States’.

While the writer prophesised that US days were over (he made that claim in 1965), it did not materialise.

The purpose of this commentary is not so much to predict how this global financial crisis will unfold – whether the US will continues to be the global hegemon or whether financial liberalisation will scale back (read my previous post on what I think). Rather, history has a lot to teach us more than we might care to know.

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