Pity for subprime borrowers?

[sv-wolf]

I always wondered why Governments bailed out the institutions that put everyone into such dire straits, instead of bailing out the consumer that is ultimately the one that pays for everything in the end????

Hi Doc

How are you doing?

In my experience, the answer to all such questions is to watch what governments do and not what they say they do or what the media or the prevailing mythology says they do. Governments have one fundamental role: to manage the "economy" (insofar as this is possible). The economy cannot be run in the interests of the ordinary "consumer" who has to work for a living. It is not designed that way. To try and make it work that way is like trying to get lemon trees to produce pomegranites. It can only be run in the interests of those who have access to capital. Governments of whatever political colour know this and will always choose (just as they have always chosen) to put wealth in the pockets of the already wealthy. It has happened again here now. There should be no surprise over this. C'mon! When was it ever otherwise?

There is an interesting situation brewing in the UK. The new government is throwing everyone into a panic by claiming that the current government deficit of £159 billion is the highest on record and that it needs to be brought down immediately by introducing the biggest cuts in public spending in British history. The argument is that unless the deficit is reduced dramatically it will make borrowing prohibitively expensive and may even threaten the UK's triple A credit rating on the money markets.

What they forget to mention is that £159 billion is only the highest figure on record if you fail to take inflation into account for the last 100 years. The truth of the matter is that current government debt is 70% of current GDP - a historically quite modest figure. It compares currently with 113% of GDP in Singapore and 190% GDP in Japan. The governments of neither of these countries are having any problems borrowing money at a reasonable rate. The debt right across Europe is similarly quite modest. To put it in perspective the 70% debt in the UK is lower than the government's deficit at any time between 1914 and 1964 (I've been doing a little digging.)

In fact, the degree of government debt is pretty immaterial. What spooks the money markets is not how big a government debt is but whether there are sudden increases in it. The rapid increase in the last few years as the UK government attempted to stimulate the economy and bail out the bankers certainly did cause a couple of wobbles on the money markets, but that has now settled down. All that governments need do now to calm the situation is to stablise the current debt. Normally, governments pay off their debts during boom time when they can maintain services and run a budget surplus at the same time.

The UK government like the US government has never seriously defaulted on its debts. In addition, both governments still have a lot of "headroom" to increase taxation in a state of emergency since they both have relatively low levels of investment in the economy. These are the two most important consideration for the money markets. The British economy also has a very flexible debt structure which means it can adapt easily to unexpected changes. (Unlike Greece for example. The problem with Greece at the moment is not its degree of debt - about 110% of GDP - but the fact that most of that debt will mature in the next 18 months and have to be paid off all in one go. The money markets have panicked at this situation, making it prohibitively expensive for the Greek government to borrow more money to cover these liabilities - which is what it would have done perfectly comfortably in less volatile times.)

The need to cut services to reduce the deficit is just a con and is being used by the current coalition Tory/LibDem government as a pretext to continue the Thatcherite agenda of rapidly transferring income upwards (as though that wasn't already happening at a slower rate under the last two Labour governments). The cuts already announced will cause immense hardship here, especially among the most vulnerable and the poor, while the rich will be barely affected by them.

Wherever you look, in the US and the UK, in Europe and elsewhere, it is the same old dirty story.

[sv-wolf]

I always wondered why Governments bailed out the institutions that put everyone into such dire straits, instead of bailing out the consumer that is ultimately the one that pays for everything in the end????

The "consumers" that needs the bailing out are not the ones that pay, it's the consumers that don't need bailing out are the ones that pay in the end.

That's actually debateable, HYPERR. It depends how you analyse the movements of the market. But in any case, this is a good example of how the mythology of the current system gets ordinary "consumers" (by which I take it you mean people who have to work for a living) blaming each other for what is, in fact, a bigger institutional problem - one which affects all of us. Taking the moral high ground is easy, anyone can do it, but it solves precisely nothing.

[dr_bar]

I still think it was money thrown down the drain... Every institution/company that wanted a bailout should have been gutted of their board of directors and a whole new board appointed by a neutral third party committee composed of CEO's, CFO's, etc of corporations that survived without bailouts...



Am I stirring the pot enough???

[HYPERR]

I always wondered why Governments bailed out the institutions that put everyone into such dire straits, instead of bailing out the consumer that is ultimately the one that pays for everything in the end????

The "consumers" that needs the bailing out are not the ones that pay, it's the consumers that don't need bailing out are the ones that pay in the end.

That's actually debateable, HYPERR. It depends how you analyse the movements of the market. But in any case, this is a good example of how the mythology of the current system gets ordinary "consumers" (by which I take it you mean people who have to work for a living) blaming each other for what is, in fact, a bigger institutional problem - one which affects all of us. Taking the moral high ground is easy, anyone can do it, but it solves precisely nothing.

No what I meant by consumers is the people that buy things and pay for it, whether it be their mortgages or credit cards. When I say "consumers" I mean people that don't don't pay for things that they buy whether it be their mortgages or credit cards. The credit criminals in another words.

[sv-wolf]

I still think it was money thrown down the drain... Every institution/company that wanted a bailout should have been gutted of their board of directors and a whole new board appointed by a neutral third party committee composed of CEO's, CFO's, etc of corporations that survived without bailouts...



Am I stirring the pot enough???

Oh, I agree. Big money, right down the drain - if by the drain you mean putting cash into rich people's pockets. On the other hand, in my understanding this is the primary function of governments and so maybe not. LOL. Competition of course exists with the wealthy class and government has to balance how it redistributes wealth among them, which is why there has been a lot of wrangling over this. The fianancial and industrial sectors of the economy often represent a major divide in ruling class interest.

[sv-wolf]

No what I meant by consumers is the people that buy things and pay for it, whether it be their mortgages or credit cards. When I say "consumers" I mean people that don't don't pay for things that they buy whether it be their mortgages or credit cards. The credit criminals in another words.

Hi HYPERR

Yeah I kind of got that. There is often a communication gap between people like me who take a horizontal class-based view of society and those who take a more vertical "national" one.

What motivated your "credit criminals" as you call them to do what they did? We don't know. They may have had a whole range of individual motivations. What I do know is that an opportunity was presented to them and they took it. Is that so surprising in a world where risk and competition and insecurity are built into the very fabric of our economic system? It may have been foolish, or, depending how it was presented to them, it may not. I think big sweeping moral criticisms are dodgy things.

What I see when I look at this mess is a set of banking and commercial institutions evolved to make rich people richer at the expense of those who have little. When those with little get the chance to enter the rich man's gambling and make use of it either wisely or unwisely looking for a chance to escape from working class insecurity, who do you choose to blame? The mortgagees, the bankers or the system? I "blame" the system first and the bankers second. The mortgagees come a very distant third.

The poor are always blamed by the system. How convenient for the rich!

If we lived in a world which was geared to meet the needs of the majority (your consumers and your "consumers") rather than the minority of the rich, then none of this would have happened because none of it could have happened. Houses would be houses - for living in, not commodities to be speculated on.

Does it not strike you as tragic how little our society is geared to meeting the needs of the majority of its members and how bizarre, anarchic, and chaotic are its commercial and financial institutions? It does me.

Regards

Richard

[HYPERR]

The poor are always blamed by the system. How convenient for the rich!

I am not blaming the poor, the rich ,the minority, or the majority. I am simply blaming the irresponsible.

[sv-wolf]

The poor are always blamed by the system. How convenient for the rich!

I am not blaming the poor, the rich ,the minority, or the majority. I am simply blaming the irresponsible.

Actually, no you aren't. It sounds like you haven't noticed. If you were focusing your blame upon the "irresponsible" (if that is what they are), then you would have included the banking community and the regulators. Your focus of criticism has been entirely upon a section of the less well off. The implication of this is that you regard poor "credit criminals" as more worthy of your critical attention than "commercial criminals" - those that ultimately orchestrated this whole sorry mess.

So I repeat:

The poor are always blamed by the system. How convenient for the rich!

[HYPERR]

The poor are always blamed by the system. How convenient for the rich!

I am not blaming the poor, the rich ,the minority, or the majority. I am simply blaming the irresponsible.

Actually, no you aren't. It sounds like you haven't noticed. If you were focusing your blame upon the "irresponsible" (if that is what they are), then you would have included the banking community and the regulators. Your focus of criticism has been entirely upon a section of the less well off. The implication of this is that you regard poor "credit criminals" as more worthy of your critical attention than "commercial criminals" - those that ultimately orchestrated this whole sorry mess.

So I repeat:

The poor are always blamed by the system. How convenient for the rich!

Actually you and I are talking about something different. What you are talking about is someting much larger than what I am talking about. My topic is only a subset of yours. I was simply replying to drbar's comment about comparing industries to consumers. My comment only pertained to individual consumers and not industries. If you read my post with drbar's quote, you will see what I am talking about. What I am talking about, has nothing to do with the rich or the poor. The rich can be forclosed on their homes just as much as the lower class can be on theirs.

[sv-wolf]

Hi HYPERR

Legally, yes, the rich can have their homes foreclosed on just like the poor, but are you being serious? It is inevitably those with less fallback capital - the less wealthy - who are much more frequently foreclosed on and when it happens they generally suffer far more than the rich as a result. If we are talking about the sub-prime debacle we are by definition not talking about the wealthy. There is a great quote from 'The Red Lily' by Anatole France on this subject:

"The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread."

I think that what you say about our differing perspectives is true - to a point. It is not the arguments you present but the unspoken assumptions they rely on that interest me, and those assumptions express a wider perspective, whether you are conscious of it or not.

They are fairly conventional (I would say ideological), but I think they are delusory (I don't mean that in any personal way); and I think they are also implicated in a colossal amount of unnecessary human suffering, which means I think they are important.

You assume, for example, that it is meaningful to talk about individuals rather than institutions. This implies that you think the way individuals behave is independent of the social, cultural, economic, and political environment into which they are born. You appeal instead to some vague innate capacity for 'responsibility'. Actually, I am not just talking about "industries", but about the fundamentally exploitative and conflictual relationships which are built into our society at root. These cut across industries and intrude into all forms of social and political organistion.

Your comments make me think of someone who is tinkering around with gear ratios when they have a clapped-out engine. Nothing is going to improve or make much sense until they deal with the engine.

So yes, I do see what you are talking about in your conversation with doc. But whether you are aware of it or not, what you are talking starts by assuming the institutions that create divisions of wealth in our society and therefore has everything to do with the rich and the poor.



Cheers

Richard