Posts Tagged ‘Bailouts’

An SF writer’s diagnosis and cure for capitalism

April 27, 2017

In the opening of Kim Stanley Robinson’s new SF novel, New York 2140, two unemployed financial software engineers known as Mutt and Jeff—unemployed because they refuse to design a possibly illegal program for high-speed trading—contemplate a flooded lower Manhattan from atop the former Metropolitan Life building.

One of them says he has figured out what’s wrong with capitalism.

The basic problem with capitalism, he says, is that the forces of the market forces producers to sell products below cost.

How can you sell below cost and survive?  By offloading your costs onto someone else—onto customers, onto neighbors, onto taxpayers, onto the wider community and onto future generations.

This enables an individual enterprise to survive (sometimes), but, in the long run, leads human society into bankruptcy.

In the novel, global warming has taken place, sea levels have risen and lower Manhattan is under water.  Skyscrapers such as the Met Life building are still survive amid a kind of new Venice.  Uptown Manhattan is 50 feet higher in elevation, and is dry.  In the middle is a tidal zone, where the poor and homeless congregate.

Some environmental problems have been solved, or at least are being coped with.  Gasoline, jet fuel and other fossil fuels no longer exist.  Air travel is by dirigible, ocean travel is by sailing ship and land vehicles are electric.   But the financial structure and distribution of income are more or less like they are now.

New skyscrapers—”superscrapers”—in uptown are owned by the world’s wealthy elite, as investments or as one of multiple homes, and are often vacant.

A hurricane late in the novel leaves many homeless.  They try to storm the vacant uptown towers, and are turned back by private security forces, who outgun the New York Police Department.

Rather than attempt a violent revolutionary overthrow, the common people attempt a political and economic jujitsu.

They join in a nationwide debt strike.  On a given day, they stop paying their mortgages, student loans and credit card balances.  The financial system is go highly leveraged with debt upon debt that it comes crashing down, just as in 2008.   So the financiers go to Washington for another bailout, just as they did then.

But this time, the President and Federal Reserve Chairman, who are in on the plan, act differently.  They tell the banks and investment companies that they would be bailed out only on one condition—that the government be given stock of equal value to the bailout, as was done in the bailout of General Motors.   Those who refuse this deal are allowed to fail.

Now the federal government has the authority to force the banks to act as public utilities.  And the huge profits that once flowed to the financial elite now flow to Washington, which makes it possible to adequately fund public education, infrastructure improvement, scientific research and all the other things the country needs.

And so the American people live happily—not ever after and not completely, but for a while.

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Bailouts and the risk premium

July 13, 2011

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Interest on some kinds of bonds is higher than on others.  That is because of the “risk premium.”  The higher the risk that the borrower will default, the higher the interest rate the lender will charge.  That is why high-yield bonds are called “junk bonds.”  High interest rates on certain corporate bonds offset the risk that the company that issued the bonds goes bankrupt.  High interest rates on certain government bonds offset the risk that the government defaults.

But the policy of the Federal Reserve Bank and the U.S. Treasury Department is that bondholders should be protected from risk, no matter what the cost to the public.  This goes against the principle of a free enterprise system, which is to reward success and punish failure.

These thoughts came to mind when I read a New York Times interview with Sheila Bair, outgoing chair of the Federal Deposit Insurance Corp., an Eisenhower-type Republican who found herself in the minority when she opposed the “too big to fail” mentality so prevalent in the government.  Here are some key paragraphs from the article.

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“Did anybody help me out? No.”

July 2, 2011

Actor Craig T. Nelson, appearing on the Glenn Beck show a few months back, said he is going to stop paying taxes until the government stops bailing out failed corporations.  “I’ve been on food stamps and welfare,” he said.  “Did anybody help me out? No.”

I had to smile at Nelson’s idea of what government help is and isn’t.  But when I viewed the whole segment and listened to his full comments, I found that I sort-of halfway agreed with him.

It doesn’t make sense to continue with bailouts, subsidies and special tax breaks for big corporations, and at the same time cut back on education, fire protection and other basic services, on taking care of our veterans and, yes, on food stamps and unemployment compensation for people temporarily down on their luck as Craig T. Nelson once was.

I don’t see eye to eye with Nelson in every respect.  I think he probably gets too much of his information from Fox News. I think the Glenn Beck wing of the Republican Party is part of the problem rather than part of the answer.

But I think Nelson’s moral outrage at our current national priorities is thoroughly justified, and I even agree with Glenn Beck on recommending people read the Declaration of Independence and Tom Paine’s Common Sense.

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