[Pen-l] The Wall Street Coup and the Bailout Scam

[Louis Proyect <lnp3@xxxxxxxxx>]

The Wall Street Coup and the Bailout Scam
by Ismael Hossein-zadeh

The "rescue" plan is not only fraudulent, it is also the wrong 
medicine for the ailing economy.

The Wall Street took the US (and the world) hostage and extracted a 
heavy ransom.  But while the enormous ransom was successfully 
extracted, there are no guarantees that the hostages will be set free 
from the shackles of trickle-down economics.  On the contrary, there 
are strong indications that the fraudulent (and perhaps criminal) 
bailout may turn the current crisis into a protracted agony of a 
long-bleeding economic depression.

Why the Bailout Scam Is More Likely to Fail than to Succeed

The bailout scam is doomed to fail because it avoids diagnosis and 
dodges the heart of the problem: the inability of more than five 
million homeowners to pay their fraudulently inflated mortgage obligations.

Instead of trying to salvage the threatened real assets or homes and 
save their owners from becoming homeless, the bailout scheme is 
trying to salvage the phony or fictitious assets of Wall Street 
gamblers and reward their sins by sending taxpayers' good money after 
the gamblers' bad money.  It focuses on the wrong end of the problem.

The apparent rationale for the bailout plan is that, while the 
injection of tax payers' money into the Wall Street casino may not be 
fair, it is a necessary evil that will free the "troubled assets" and 
create liquidity in the financial markets, thereby triggering a 
much-needed wave of lending, borrowing, and expansion.

There are at least five major problems with this argument.

The first major problem is that the current financial disaster is not 
really a liquidity problem as it is repeatedly portrayed to be.  It 
is a problem of faith and trust, or lack thereof, which in turn stems 
from the disproportionately large amount of junk assets or mortgages 
relative to real assets.  It is true that lending and credit 
expansion has almost come to a halt and, in this sense, there is a 
serious liquidity crisis.  But this illiquidity is not really due to 
a lack of good money or real assets in the system.  It is rather 
because owners of such valuable assets are unwilling to lend their 
precious possessions to owners of troubled assets, or worthless papers.

As Herman E. Daly, University of Maryland economist, puts it, "The 
value of present real wealth is no longer sufficient to serve as a 
lien to guarantee the exploding debt.  Consequently the debt is being 
devalued in terms of existing wealth.  No one any longer is eager to 
trade real present wealth for debt even at high interest rates.  This 
is because the debt is worth much less, not because there is not 
enough money or credit."

The second major problem with the bailout scheme is that it is simply 
unfeasible and ineffectual because there is just not enough good 
money to redeem all the bad money that has ballooned or bubbled to a 
multiple of the good money and/or real assets.

full: http://mrzine.monthlyreview.org/hossein-zadeh111008.html

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