Stealing from the Public

The following are excerpts from, "Monetarism Is Dead; Bury It Before It Buries Us"

by John Hoefle

When everyone wants to sell, who does the buying? Increasingly, the answer to that question is: a government or a central bank. In the early days of the crisis, before it exploded so publicly, the big banks would unload their bad paper on state and local governments, but that only worked for a while, until those governments started taking big losses. The banks also sold some of their bad paper to vulture investors who believed that the markets would return, and big profits could be had by buying assets "cheaply"; the vultures were soon disabused of that notion. The banks also sold off bunches of their bad paper to hedge funds and special purpose vehicles they set up as toxic waste dumps, often lending the buyers the money to make the purchases. At this point, the financial world is littered with more buried bodies than a mafia garbage dump.

As the speculators' desperation grew and they ran out of suckers to rip off, they increasingly turned their attentions to governments. Initially, the banks began unloading their bad paper on the central banks as collateral for loans, and as the crisis deepened, the central banks both increased the size of their loan programs and loosened their collateral standards, taking in ever-larger amounts of bad paper. The nominal reason for these loans was to deal with the "credit crunch," but they were really intended to deal with a solvency crisis by exchanging worthless securities for cash.

It was not enough—by a long shot. Though the tens of billions turned into hundreds of billions and then into trillions of dollars, the losses grew even faster, leaving the banks with more bad paper than ever before. With the hole growing faster than it could be filled, a new plan was launched, to have the Federal government buy the bad paper directly.

The result was Secretary Paulson's bailout plan, submitted to Congress in mid-September, accompanied by a demand that the plan be passed without modification. What Paulson got was a bill that gave him most of what he wanted, including giving him the power to decide which institutions might survive for a while and which would not. In presenting the plan, Paulson asserted that it was well thought out, carefully crafted to deal with the problem, and absolutely necessary.

Then, a week after he got what he said he needed, he threw out the plan, and adopted one cooked up by the British.

Under the British plan, the governments would inject capital directly into the banks, by buying equity stakes. 

Despite having rejected the idea of buying equity in the banks, Paulson adopted the British plan. We suspect it wasn't entirely voluntary, since the change followed a visit to the United States by the plan's spokesman, British Prime Minister Gordon Brown.

However, the real purpose of the cash injections was not simply to save banks, but to force a consolidation of the U.S. banking system. This intent was demonstrated in the takeover by PNC Financial of National City Corp., when Treasury denied National City the funds it needed to stay independent, instead telling it to find a buyer, while giving PNC significantly more in cash than it needed to buy National City.

Unless we break with these Anglo-Dutch Liberal system policies, we are heading inexorably into corporatism, a world run by a small group of global financial and corporate interests which will savagely loot the people of the world to protect what they see as their right to rule the world, and exercise control over all of its resources. The oligarchs have made their intent clear in many public statements, despite the veneer of the "saving the little people" propaganda they spin around their plans for public consumption.

As the physical economy collapses, our ability to support human life plunges. People will die not only in Asia, Africa, and Ibero-America, but in the United States and Europe as well. People will die, nations will die, cultures will die, all because those who could turn the situation around—people who could force a change in policy that could save humanity—refuse to act.

This great tragedy does not have to happen. The policies to solve the problem exist, as do significant numbers of people devoted to organizing the solution.

This article appears in the November 14, 2008 issue of Executive Intelligence Review.

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