This article appears in today’s edition of The Malta Independent on Sunday.
Karl Marx must be laughing in his grave. Admittedly you’d have to have one hell of a sense of humour to find anything on this earth funny once you’ve moved on to pastures new but still, I guess the old geezer would have a bit of a point. The jitters we witnessed over this week once that mass of geniuses in the US Congress decided to vote out Mr Paulson’s first proposal have been incredible. It was hard not to remain glued to the news as victim after victim was notched up in the banking and insurance industry.
The debates too were not in short supply – for a second it seemed that the wishy washy communists would be back on the main soap box accusing capitalism of failing the people and their expectations. The American dream was turning out to be a nightmare – and all this in the middle of a presidential campaign just as Miss Foreign Affairs was about to square up to Joe Biden in a debate promising loads of gaffes (unhappily there were not much of those in the end). The baby-eating communists did creep out of their corners to guffaw at the general mess but no sooner did their laughter and triumphalism begin to reverberate around the walls of the White House that the first banks in Welfare Abundant Europe come crumbling down.
In a way it all became a matter of saving…
Saving by all Accounts (Dude, Save my bank)
For a while we read about the indignation of Main Street – the man in the street who is left to his own devices and failures. Whenever an SME (that’s a small and medium enterprise) in Main Street goes bankrupt no government comes wading in with bucket-loads of money and guarantees in order to prop up the flailing business. That was the argument. Why should the fat cats at Wall Street benefit from what is perceived as molly cuddling? Aren’t these the same CEOs who are paid in six figure amounts and have such ludicrous things as Golden Parachute agreements pencilled into their employment contract to ensure that if something goes wrong they run off with the money?
It was not exactly the French Estates General all over again. We did not have the peasants, the bourgeoisie and the aristocracy vying for power but we had the 21st century version of the disgruntled. Why should the taxpayer foot the bill? Granted, the economic failure was not due to a War Campaign in North America against the evil British having emptied the Frenchies coffers – this time the capital was nowhere to be found because of “evil” speculation and fictitious bubbles growing and bursting all in one go.
The temptation to punish the fat cats and let them sink was great. It always is. The problem is that Main Street is heavily dependent on Wall Street and the longer Wall Street is made to hobble along the longer we head towards a situation best described by the name of an eighties rock band: Dire Straits. The Economist put it best in this week’s editorial and I hope you don’t mind me nicking this very succinct explanation of why Main Street depends on Wall Street:
“Sooner or later the money markets affect every business. Companies face higher interest charges and the fear that they may one day lose access to bank loans altogether. So they, too, hoard cash, cancelling acquisitions and investments, in order to pay down debt. Managers delay new products, leave factories unbuilt, pull the plug on loss making divisions, and cut costs and jobs. Car makers and other manufacturers will no longer extend credit and loans will become elusive and expensive. Consumers will suffer. Unemployment will rise.”
Ok, I have seen worse doomsday predictions. The Book of Revelations for example with all its smiting of suns, moons and stars and angels speaking to the church of Smyrna can be quite a downer. But in the real and now, tangible, materialistic world nothing sucks more than being told that we are heading towards a possible recession. And for recession read depression.
S.O.S (Save our Savings)
So what is being done to prevent this? Well prevention right now is not exactly what most political leaders have in mind. Thing is the damage is done, so right now what we are seeing is damage limitation. In the US they called it a “bail out plan”. Now they are regretting that and wish they would have called it a Rescue. It’s all about marketing the idea to the common folk in “folksy” terms as Sarah “Foreign Affairs” Palin would say. People are less ready to bail out the rich in need than to rescue the future of the economy and consequently their own.
Interestingly for the factoid freaks among you, the budget deficit of the US for the current fiscal year is estimated at slightly over $400 billion dollars. That is already about 3% of the GDP. In other words if the US were part of the EU, it would be facing trouble for breaching the Maastricht guidelines.
Then there was the EU. Now that was one hell of a show we had this week. Mainly because in matters banking the EU is about as potent as a eunuch. So, I was saying, the EU. It was not the EU really, but a number of governments separately reacting in knee-jerk mode. France, the Netherlands, Luxembourg, and Germany were the first to join the UK and feel the crunch. Iceland, wallowing in non-EU bliss (yeah, right) too had to grit its teeth and come up with a saving plan for its third largest bank. The domino effect had begun and it was not nice. It’s one thing hearing about Freddie Mac and Fannie Mae – they could be two hopeless rappers for all I care – but it’s another to hear that Fortis and Dexia are up that creek full of fecal matter. I live within walking distance of a branch of each bank and by my very personal calculations the next banks to suffer should be BCEE and HSBC.
Of course I have no scientific basis for this assertion other than the distance of each bank from my place of abode. Fact is that in order to save the savings of their denizens the governments of Europe are having to step in and buy off their poisoned assets. Which brings me to an interesting question. What exactly is a poisoned asset? We are told that part of the $700bn package in the US will be devoted to buying off poison assets in order for banks to breath anew bereft of the rotten apples among them. What is this poison asset? And what in heaven’s name were former directors of Northern Rock (bankrupt earlier this year) doing sitting on Fortis advising it to buy ABN Amro and run itself to the ground?
The Irish government has thrown everybody (and that includes Sarkozy and Merkel) off track by guaranteeing every last penny in its banks. The risks run by this kind of unilateral action inside the European Union are typified by what is called a Delaware Effect. People might rush money out of some banks to move them into Irish banks in order to benefit from this guarantee. On the obverse side of the coin is the government of the Netherlands which has decided to regulate the obscene payments that CEOs receive from big companies. In a new law that will apply as of January 2009, the Netherlands will tax such bonuses and compensations as these big fat cats receive at a much higher rate. It is their attempt at disciplining the market. Their main problem is that if other EU countries do not follow suit then they will witness the Delaware Effect’s negative consequences – a rush by companies away from the Netherlands to countries where the tax is not that high.
On the 1st October, soon after the US Congress had refused the bailout package Mark I a French official suggested that the economic crisis is best faced by the EU as a whole. Merkel and Germany were very much against this idea and were still mired in the each to their own phase of thinking. Three days later and more and more convincing arguments are surfacing that the EU best think of a way out together. I am continuously astounded by the lack of understanding about how much we depend on each other – us Europeans that is.
Jesus Saves (Value Judgements)
Take the immigration issue. I was lucky this week that the Luxembourg monopolist of choice in cable TV provision (monopolist of choice is one where you are asked to choose which supplier you would like but then you are told that only one supplies your area) did not black out the Italian channels. I was thus able to immerse myself in the reality of the latest problems Italians are facing with immigration. The arguments sounded oh so familiar. Immigrants are a menace and they bring crime and an erosion of national values to the country.
What is interesting is to see how even a big country like Italy gets to face the same problems and ask the same questions as Malta. In the meantime Sarkozy worked hard on his Immigration Pact and seems to be about to get it through. Slowly, slowly some intelligent questions are being asked in the press and I do not hesitate to highlight Ranier Fsadni’s interesting piece (TOM, Thursday) regarding facing the challenges of burden-sharing. Because burden sharing also means taking a bit of the burden ourselves. It means giving real value to integration, and yes, if there are any of that rare race of christians with a love for their brother left on the island … will they please stand up?
And speaking of christian values and society, what is all this claptrap I hear about the “threat of secularism”? Since when does advocating for rights such as divorce mean a valueless society? Someone needs lessons in basic values – in an open society there are some values that are not absolute, that are not universal. Nobody, and I repeat nobody, has the right to tell the church to shut up and not voice its opinion on the effects of divorce on marriage breakdown. Neither does the church, on the other hand, have any right in our society to morally blackmail the political establishment and press it to abdicate from its constitutional responsibility of representing ALL of the people. In a way it’s a case of speak, and be damned.
Save the last dance (for me)
We are back to the last fandango in the article. Some bits and bobs to mention and get that grey matter working. Take Austria for example and the ugly resurfacing of Haider and his rightist motley crew. This might be an absolute non-sequitur but did anyone notice that this extraordinary success for the far right coincided with a new first for Austrian elections? You may have guessed by now but for those oblivious to such interesting world events allow me to inform you… these were the first elections since the voting age was lowered ….to sixteen.
And in Bavaria… the impossible has happened. After 46 years the conservative CSU has lost its absolute majority and… horror of horrors… it will need a coalition partner to stay in power. Angela Merkel’s government might be the next victim of this new monster… Coalition anyone?
Finally the caravan people. I cannot shed any tears for people who occupy public land abusively but will someone please explain if there is any truth in the allegation that a Nationalist Minister was busy inaugurating some structure for the caravan people back in 1989? Some people might have been in government for too long for their own comfort!
This has been j’accuse… saving… so you don’t have to!
Jacques has been quiet this week on https://jaccuse.wordpress.com. Was your week relatively busy too? Pop over for a break and leave a comment or two.