Another Case of Government Bailing Out the Big Boys

The corporate capitalists’ knees are shaking a bit. Their manipulation of the sub-prime housing market has led to a spreading credit crunch and liquidity crisis. So it is time for them to call on Uncle Sam — the all-purpose bailout man.

Only don’t call it a bailout yet. It is just an injection of over $200 billion in the past week to stabilize the heaving financial markets by the European Central Bank and our Federal Reserve. Governments to the rescue — again.

My father many years ago asked his children during dinner table conversation: “Why will capitalism always survive?� His answer: “Because socialism will always be used to save it.� As a small businessman himself (a restaurateur), he was not referring to the little guys on Main Street. He was talking about the big boys. Today, we call these self-paying CEOs “corporate capitalists.�

Central banks are government regulators after all. Among other impacts, they regulate interest rates. But they are so saturated with banking executives or former banking officials on their boards, committees and at the helms, that they see themselves as part and parcel saviors of their banking brethren.

Brother Henry M. Paulson, formerly with the Goldman-Sachs investment giant and now United States treasury secretary, just said: “The markets are resilient. They can absorb those losses. We’ve gone through challenging times in the markets, and we will rise to the challenge.�

We? Paulson is a government official who is supposed to be worrying about the people first — such as the millions of homeowners who are slated to lose their homes in the next 18 months.

u           u           u

How to help these “borrowers, not the wheeler-dealers,� as columnist Paul Krugman described his “workouts, not bailouts� plan in The New York Times (Aug. 17) should be Paulson’s chief concern.

Secretary Paulson did tell The New York Times that federal regulators should try to eliminate fraud and market manipulation and that there needs to be more disclosure of the holdings and actions of hedge funds and other private pools of capital.

Well, that’s talk. Where is the action? Krugman, an economist, believes that the current real-estate bubble was “both caused and was fed by widespread malfeasance. Rating agencies like Moody’s Investors Service, which get paid a lot of money for rating mortgage-backed securities,� seemed to be performing much like the major accounting firms that rubber-stamped the inflated, deceptive financial statements of the Enrons and the Worldcoms.

u           u           u

Passing on the risks of these mortgage loans through more and more complicated financial transactions, which are in turn bet on by the huge derivatives markets, allows wider transmission of these risk viruses throughout the national and the global financial markets.

A kind of dominoes effect sets in and induces panic selling and panic inability to obtain daily commercial loans in the stiffening credit markets.

The European Central Bank recently has poured tens of billions of Euros into the global financial system after the giant French bank BNP Paribas SA froze three of its investment funds.

If matters get worse, the Central Banks will inject more money into the system. If financial markets start collapsing along with investor confidence, then Uncle Sam will certainly adopt additional direct bailout options.

One man, Mervyn King, the governor of the Bank of England, is the lone central banker who resists intervening in the markets. “Interest rates,� he asserts, “aren’t a policy instrument to protect unwise lenders from the consequences of their unwise decisions.�

Bailing out investors and their risky investments would just induce them to take on bigger risks next time, expecting another bailout, he believes.

More and more, corporate capitalists inside and beyond the financial markets do not want to behave as capitalists—willing to take the losses along with the profits. They want Washington, D.C., meaning you the taxpayers, to pay for their facilities (as with big time sports stadiums) or take on their losses because they believe that they are too big to be allowed to fail (as with large banks or industrial companies).

These corporate capitalists should be exposed when they always say that government is the problem whenever it moves to help the little guys with health and safety regulations, for example, but government is wonderful when the bureaucrats are summoned to perform missions to rescue them from their own greed and folly.

Consumer advocate Ralph Nader grew up in Winsted and attended The Gilbert School.

Latest News

South Kent School’s unofficial March reunion

Elmarko Jackson was named a 2023 McDonald’s All American in his senior year at South Kent School. He helped lead the Cardinals to a New England Prep School Athletic Conference (NEPSAC) AAA title victory and was recruited to play at the University of Kansas. This March he will play point guard for the Jayhawks when they enter the tournament as a No. 4 seed against (13) Samford University.

Riley Klein

SOUTH KENT — March Madness will feature seven former South Kent Cardinals who now play on Division 1 NCAA teams.

The top-tier high school basketball program will be well represented with graduates from each of the past three years heading to “The Big Dance.”

Keep ReadingShow less
Hotchkiss grads dancing with Yale

Nick Townsend helped Yale win the Ivy League.

Screenshot from ESPN+ Broadcast

LAKEVILLE — Yale University advanced to the NCAA men’s basketball tournament after a buzzer-beater win over Brown University in the Ivy League championship game Sunday, March 17.

On Yale’s roster this year are two graduates of The Hotchkiss School: Nick Townsend, class of ‘22, and Jack Molloy, class of ‘21. Townsend wears No. 42 and Molloy wears No. 33.

Keep ReadingShow less
Handbells of St. Andrew’s to ring out Easter morning

Anne Everett and Bonnie Rosborough wait their turn to sound notes as bell ringers practicing to take part in the Easter morning service at St. Andrew’s Church.

Kathryn Boughton

KENT—There will be a joyful noise in St. Andrew’s Church Easter morning when a set of handbells donated to the church some 40 years ago are used for the first time by a choir currently rehearsing with music director Susan Guse.

Guse said that the church got the valuable three-octave set when Harlem Valley Psychiatric Center closed in the late 1980s and the bells were donated to the church. “The center used the bells for music therapy for younger patients. Our priest then was chaplain there and when the center closed, he brought the bells here,” she explained.

Keep ReadingShow less
Picasso’s American debut was a financial flop
Picasso’s American debut was a financial flop
Penguin Random House

‘Picasso’s War” by Foreign Affairs senior editor Hugh Eakin, who has written about the art world for publications like The New York Review of Books, Vanity Fair, The New Yorker and The New York Times, is not about Pablo Picasso’s time in Nazi-occupied Paris and being harassed by the Gestapo, nor about his 1937 oil painting “Guernica,” in response to the aerial bombing of civilians in the Basque town during the Spanish Civil War.

Instead, the Penguin Random House book’s subtitle makes a clearer statement of intent: “How Modern Art Came To America.” This war was not between military forces but a cultural war combating America’s distaste for the emerging modernism that had flourished in Europe in the early decades of the 20th century.

Keep ReadingShow less