Tuesday, September 30, 2008

Republicans' Darwinist Theory of Economics

They be creationist over wealth but last yesterday's vote against the, heavily amended by congress, bail out plan shows that House Republicans have a Darwinist "survival of the fittest" approach to the financial sector. Two thirds of Republicans votes against and as the roll call carried on more Democrats took a cautious approach ending with 40% not supporting the plan.

So yesterday while the US's 4th largest Bank Wachovia was bought over by Citigroup, the BeNeLux nations bailed out Fortis, Iceland nationalised its third largest bank Glitnir, and German lender Hypo Real Estate was loaned 35bn Euros from the German Banking sector, American legislators continued to procrastinate leading to overnight loses in the Asian markets.

There are fears for other UK banks including the Royal Bank of Scotland, who at one point yesterday were down 20% in value, and Lloyds-TSB who are in the process of rescuing HBOS. James Eden of Exane BNP Paribas said:

"I'm trying to be open-minded about other surprises there might be. Can you imagine Lloyds walking away from HBOS? The share price is telling you there is a chance of that happening."

So while they fiddle on the hill as Wall Street and the wider financial world burn, how can these legislators who fought for major concessions from the original plan then vote against what they fought for? Leaders on both sides of the aisle had negotiated through the weekend a complex deal of bi-partisan compromise. Don't forget this deal stemmed from the Republican Treasury Secretary, was backed by a Democratic House who wanted to have Republican support which was why the details were hashed out in what was allegedly a shouting match at times. Yet when it came to it some were smug enough to say the bankers have got what they deserve.

There's just one problem with that. At the moment the bankers are scared to lend among themselves, let alone anyone else, as none of them are certain what tomorrow may bring their way. Therefore the circulation of money is slowing up. The knock on effect of the bankers freezing up their lending could knock down to businesses heavily and from there to the workers and the electors on the street. One does wonder how many of the Representatives who voted no may well have many electors facing a tougher time come election day as a result of yesterday's vote.


Tristan said...

Firstly those who voted against were not involved with the talks. They were excluded.

Secondly it is obscene that $700 billion should be taken from working people and hard working businessmen to be given to people who made poor decisions.

They made the right decision, and the decision their electorate wanted them to make.

If the current system cannot function without theft from the poor to give to the rich then it doesn't deserve to exist.

Stephen Glenn said...

Ok on point one Tristain but the leaderships of both sides were and major concessions were made.

Secondly only $350bn was to be given as part of those concessions with the option of the other half. There were no to go to the fat cat's salaries but to provide stability to the lenders etc to allow the money flow to unfreeze again and regain some confidence in the financial sector.

Thirdly if the current system ceases to exist we may well revisit the 1930s. Banks are currently not lending firstly to each other as they have no confidence in themselves, therefore are unable to lend to businesses which could led to all short of economies (including cutting jobs), and most of all unable to lend to individuals.

We needed some economic WD40 to get things moving before looking a regulation to stop it happening again. We may end up looking as resussitation if we're not careful. But I hope against hope that I'm work.

Jock Coats said...

Worth noting that "survival oof the fittest" is not Darwin, but liberal philosopher Herbert Spencer's original phrase.

I would like to hear from Chris Huhne about all this - his economic speciality was the collapsing finance systems of south American countries, including Argentina when it basically had no currency. And survived.

Stephen Glenn said...

That would be an interesting take Jock. Of course surviving without the Argentine Peso is one thing. Losing faith in the so called hard currencies which a lot of the world rely on on top of their own may well be a different thing altogether.

PS did I mistype off or just you?

Stephen Glenn said...

I meant of, of course lol

Jock Coats said...

The mistype was me...:)

But remember, the Peso wasn't really the problem. The country relied on the dollar peg and that's what really done for them. Effectively they were in a dollar world suddenly finding themselves trading only in a "local" currency, the Peso.

No reason why we couldn't have some local currencies pretty quickly if push came to shove. Nobody gets rich not selling stuff.

Then there's the situation in Liverpool in 1793-95. Pretty well exactly the same situation as pertains right now - there was a complete seizure of global trade because of the collapse of a major issuing bank. Liverpool got permission by act of parliament to issue its own Sterling notes and coin for several years to put some liquidity into the local market and keep the merchants trading.

And if you lot hadn't managed to sell all your banks (even Adam & Co I believe is now a subsidiary of someone else) to foreigners (!) perhaps the Royal, the BoS and the Clydesdale could have gone to Holyrood and asked for permission to print some Pounds Scots for the time being, removing the link to the Bank of England balance sheet requirements to hold cash in the BofE to the equivalent amount they'd issued in Scottish issued sterling!

What's that phrase for debt that is more than someone should be expected to bear - like with loan sharks? Not "Obnoxious debt" but something like that. I reckon if someone has been sold something the banks may have suspected their ability to repay everyone should claim that and if there's going to be any bail-out at all, the cash should go to distressed borrowers who could then choose to pay off their unaffordable balance and keep their homes or run for the hills and pocket the cash!

Far better than our money paying the bankers!


Related Posts with Thumbnails