New Internationalist

Kleptocracy comes home

Did the financial 'meltdown' in October 2008 make any difference to the way the bailed-out banks work? The hard evidence suggest not.

The latest Executive Excess report from Washington's Institute for Policy Studies reveals that in the early months of 2009 the top 5 executives in 10 out of the 20 financial firms which received the most public bail-out cash in the US awarded themselves $90 million in stock options.

The picture has remained more or less unchanged since the 'credit crunch' began in August 2007. Between 2006 and 2008 the top 5 executives of all 20 banks averaged $32 million each in personal compensation. In 2008 the CEOs alone averaged $13.8 million each. While they're at it, since the beginning of 2008 they have between them laid off more than 160,000 employees.

The pilfering of public funds continues in the US in plenty of other ways as well. For example, a $50 billion public fund intended to forestall the repossession of homes has been fed to the very same financial institutions that promoted the 'sub-prime' scam in the first place. Almost none of the cash has emerged to help 'repossessed' people themselves.

What's true in the US is also true in that other 'financial capital', Britain - though very much less is heard about it here, where there's little or no prospect of the criminal prosecutions that have sometimes been mounted in the US.

Both countries might aptly now be granted the status of 'kleptocracy' (government by theft) once accorded to 'Third World' dictatorships like the former Zaire under President Mobutu or the Philippines under President Marcos - though the sums of money there were, by comparison, a mere trifle.

The likeness is not as fanciful as it appears. After all, the 'Third World Debt' crisis resulted from the shifting of private liabilities incurred by local oligarchs on to the backs of the general public, in exactly the same way as has now occurred in the US and Britain.

The consequences for the impoverished people of the Majority World were immediate and drastic, as fees were charged for what little primary education or healthcare there was, and the prospect of 'development' receded over the horizon. But the price in the West, in terms of unemployment, lost public services and hikes in taxation, will be paid by those least able to afford it in exactly the same way too.

Students of Third World Debt and the Jubilee 2000 campaign against it will recall the arguments deployed then (as, indeed, they still are now) to demand repayment in full. Chief among these was the notion of 'moral hazard' - that forgiveness would encourage the same reckless behaviour to persist. Lest we forget, these 'moral' arguments were advanced by the very same banks that lie behind the meltdown.

What are they saying now? Well, what it boils down to is that when they make profits they pay themselves 'bonuses' - but when they make losses their 'toxic' debts are handed over to the general public. If that isn't 'moral hazard', what is?

The scam is so brazen, the utter foolishness so stark, that the only question of any real consequence is how on earth they get away with it. The answer has to be political and, for all the complexity that is said to characterize finance, it is crude in the extreme.

The banks are 'too big to fail'. In other words, like Russian oligarchs, their capacity to wreak havoc is greater than anyone else's capacity to overcome it.

So, as the process of the meltdown unfolds, we discover the corporate oligarchs of the West are not impaled on their own moral hazard but presiding over vast quantities of public treasure and, if anything, even more brazen - and thereby more powerful - than before.

This represents a political crisis for liberal democracy that has been brewing for years.

The world's entire financial system currently rests on the knife-edge of public confidence in the 'guarantees' provided by governments for bank deposits. Yet, it is claimed, the public does not have confidence in its governments to make of finance what it patently is - a public utility.

Quite how long people anywhere will be prepared to go on voting for politicians without confidence, who in practice make no difference at all, is open to debate.

What is quite certain, however, is that the real test for democracy, liberal, neoliberal or otherwise, lies ahead - and that the course of the meltdown has a long way to run yet.

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