Some economic crisis links (10.13.2008)

Class struggle in TINA's world

From Michael Hudson's latest:

We are now entering the financial End Time. Bailout "Plan A" (buy the junk mortgages) has failed, "Plan B" (buy ersatz stocks in the banks to recapitalize them without wiping out current mismanagers) is fizzling, and the debts still can't be paid. That is the reality Wall Street avoids confronting. "First they ignore you, then they denounce you, and then they say that they knew what you were saying all the time," said Gandhi. The same might be said of today's overhang of debts in excess of the economy's ability to pay. First the policy makers pretend that they can be paid, then they denounce the pessimists as spreading panic, and then they say that of course students have been taught for four thousand years now how the "magic of compound interest" keeps on doubling and redoubling debts faster than the economy can squeeze out an economic surplus to pay.

What has ended is the idea that "the magic of compound interest" can make economies rich without having to work and without industry. I hope we have seen the end of derivatives formulae seeking to make money by playing in a zero-sum game. A debt overhang always ends either in foreclosure of the debtor's property, or in a debt annulment to preserve the economy's overall freedom and equity.

This means that the postmodern economy as we know it must end — either in financial polarization and debt peonage to a new oligarchic elite, or in a debt cancellation, a Jubilee Year to rescue society. But when the government says that it is reviewing "all" the options, this reality is not one of them [emphasis added].

After pointing to the vast amount of money national governments were willing to give to their banks, indeed, to give away with few or even no obligations, Chris Floyd then notes:

But putting aside for a moment the actual intent, details and results of the global bailout offers, it is their very extent that shocks, and shows — in a stark, harsh, all-revealing light — the brutal disdain with which the national governments of the world's "leading democracies" have treated their own citizens for decades.

To be sure, the common folk everywhere were told that the "free lunch era" had concluded, and that every man and woman must now work hard for their bread or perish. The market's discipline would teach them the ways of the new reality.

Floyd continues:

This is one of the main facts that ordinary citizens around the world should take away from this crisis: the money to maintain, secure and improve the lives of their families and communities was always there — but their governments, and their political parties, made a deliberate, unforced choice not to use it for the common good. Instead, they subjugated the well-being of the world to the dictates of an extremist cult. A cult of greed and privilege, that preached iron discipline to the poor and the middle-class, but released the rich and powerful from all restrictions, and all responsibility for their actions.

Power without responsibility and profits without production, liberty without citizenship and human beings without humanity — these were the goals the market fundamentalists sought and often achieved in practice.

In any case, the stock markets approved of the crisis management measures taken over the weekend by the G-7 countries (see also this, this, this), according to the New York Times and the Wall Street Journal (this). Yet:

The ultimate judgment on this weekend's developments, however, may have to wait until Tuesday, when credit markets re-open after the Columbus Day holiday. Problems in the flow of credit are at the root of the current crisis; if these markets remained locked on Tuesday, stocks could once again fall.

Update (10.13.2008)

Stock markets around the world, but Wall Street especially, surged in response to the coordinated actions of the G-7 countries, according to the New York Times (see also this, this and this).