While most Americans are left to fend for themselves after the current financial collapse, powerful Wall Street investment bankers and big business get saved. This proves once and for all that a government that is supposed to represent us doesn't. And despite the rhetoric to the contrary, the corporations aren't against socialism as long as they are the beneficiaries.
FEDERAL OFFICIALS and congressional leaders will hash out a bailout of the nation's financial system this weekend that, with measures already taken, could add $1 trillion to the national debt, by some estimates.
The plan, under which the government would buy defaulted mortgages from distressed lending institutions, is intended to help prevent a financial services industry meltdown, improve the availability of credit and stave off further deterioration of the overall economy.
"This needs to be big enough to make a real difference and get to the heart of the problem," Treasury Secretary Henry Paulson said Friday.
Paulson would only say that the cost of the rescue plan could run into the hundreds of billions. Some in Congress and on Wall Street are concerned that the new plan and other recent financial industry rescues could add alarmingly to the national debt - now $9.7 trillion.
We have to pay for the excesses of the financial industry and the failure of the lap-dogs-of business to regulate them.
Sen. Richard Shelby, the senior Republican member of the Banking Committee, talked about the overall pricetag this morning on ABC's Good Morning America.
"I figure it'll be at least a half a trillion," Shelby says. "But when you look at what the Fed has already done, and the extension of power to Treasury to deal with Fannie Mae and Freddie Mac, I believe we're talking about a trillion dollars."
But it is not clear whether the "rescue plan" will even work. Remember how the government response to the housing collapse was to give the public a tax rebate check. That obviously didn't amount to much while driving up the debt/deficit even further. This from a British perspective.
This is what we might call the $1trillion question. That's $1,000,000,000,000, by the way. It is a little like surgery. The US government has amputated the gangrenous leg of the banking system to save the patient. But it is now preparing to graft the infected limb on to the body politic of America. The US taxpayers will be lucky if they do not feel distinctly unwell as a result of this little experiment.
The truth is that simply buying the banks' worthless securities has been an option, if an unpalatable one, for the authorities since the credit crunch began a year ago. All the plans to lend against these assets, such as the Bank of England's Special Liquidity Scheme, and other "injections of liquidity", were temporary solutions, born out of a hope, if not an expectation, that the crisis would not be prolonged.
We know better now. What the American authorities have done is the only sure way to protect the banking system against further destabilisation. Short-selling or not, left to their own devices, the markets would sooner or later force more banks into the arms of the taxpayer anyhow. It is a sad day when hard-pressed citizens find themselves subsidising private banks for their stupid mistakes. But that is what's happening in the US, and it will surely be done here. The Bank of England hates the notion; but Gordon Brown may well feel that he has no choice.
So for the banks and their shareholders and staff, the US rescue plan is already working, and it will save the wider economy from yet more damage. It is less clear whether it will end the credit crisis or preserve America's fast disappearing economic hegemony.
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