Sometimes something happens that takes one breath away. It makes it hard to speak, never mind coherently. The Government’s bank guarantee proposal is one such. It constitutes a fundamental capitulation, not to the logic of the ‘free market’ nor to the necessity of state ownership, but to a uniquely Fianna Fail policy of propping up some of the worse business practices engaged in by some of the most reckless institutions in the history of the state. Let’s be clear: these are institutions who have in the past engaged in widescale tax evasion, pursued investment policies that starved our economy and recently have been full and gleeful participants in the lunatic preoccupation of property speculation. And the Government has not just guaranteed deposits but liabilities as well – to the tune of between €400 billion and €500, or up to nearly three times the size of the entire economy. Labour leader Eamon Gilmore has called it the biggest welfare cheque ever. If he’s guilty of one thing, it’s understatement.
Never mind that this will cost the taxpayer – through the increase in borrowing costs arising from the guarantee; never mind the exposure of the Exchequer and the economy; never mind that it doesn’t alter one iota the past and current practices the banks are pursuing; never mind that this is business as usual, albeit now that business is backed up by the economy; never mind that the banks will not pay the full cost of this guarantee (only a ‘commercial’ charge to be decided by the Central Bank – can’t wait to see that criteria); this is about something else entirely.
This is about maintaining a system whereby the ‘commercial’ (and I use quotation marks deliberately) decisions of a handful of people determine the economic health, welfare and future of everyone in the land. And now these ‘commercial’ decisions are no longer subject to the ‘discipline of the market’ (whatever the hell that might mean anymore), but rather to the largesse of a desperate and pliant Government. No accountability, no oversight, no new disciplines: in my book, if someone guarantees the consequences of my actions, then I can have no complaint when that someone rightfully demands accountability over my actions; and extracts a fair price. But not here, not in Fianna Fail-land.
75 percent of non-financial private sector credit lies in the construction/property sector. How much of this will eventually end up in the default pile? And how exactly does the credit to the financial sector breakdown? How much is this going out to institutions which themselves are in hock to property? What kind of loans are out to non-MFI institutions (i.e. non-monetary institutions) - the off-shore activities, the special purpose vehicles? Before the taxpayer is asked to assume the burden, will they be fully informed of what exactly they are being asked to guarantee? Not a chance.
I have some time for those ‘backwoodsmen’ of the Republican Party who joined forces with a number of progressive Democrats to reject the Paulson deal in Congress. They are not the blind disciples of Hayek, Friedman or Ayn Rand. They simply rebelled against a noxious and obscene proposition that Main Street should bail out Wall Street; that those who participate in, and shoulder the burden of, the ‘real economy’ are now being called to bail out those who believed you could make money out of paper rather than real goods, real services. Similarly, Labour and the Left in the Dail, and throughout the trade union movement, should now join forces to reject this bill. Reject is too small a word. It should be repudiated with every fibre. If that means holding up the Dail for days in blocking tactics, so be it. Create mayhem, divert a nation’s attention to this monstrosity. The Government has the numbers, but they can still lose in a wider sense. Make this their Black Thursday.
No one questions the need to keep banks afloat. To say that markets need capital is an insulting tautology. The issue here is on whose terms – the bankers or people, business, the economy. That George Lee, not known for spouting demands for the nationalising the commanding heights of the economy, pointed out that the Government could have bought half the four major banks for a cool €5 billion, suggests that taking the route that US and European authorities have taken is not so far-fetched. That capital injection would have provided much-needed liquidity and would have given the taxpayers a real stake in these institutions. This, then, could have been followed up with not only guarantees but an intervention in the investment practices themselves, specifically a redirection of 1% to 2% of banks lending portfolio into Enterprise Development Funds which would finance our indigenous base (this would have won support from huge sections of the business community).
Something like this would have been a rational approach. But it would have involved a socialisation strategy that is anathema to the Right. So what we get instead is capitalists without the capitalism, capitalists with a big fat welfare cheque, capitalists who are not allowed to fail no matter how unworthy their efforts. This is the system we are paying to save.
It’s a funny ol' world.