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as the westprepares topull back, who are iraq’s winners and losers? Pp4-5
How do we get galerie vidal-saint phalleNEXTFINANCIALCRISIS IS IN PUBLIC SERVICES
out of here?Austerityisnottheonlywaytomakeupformassive government debt and lack of revenue following self‑induced disasters in private finance. There are fairer ways to balance the booksBYFRÉDÉRICLORDON
max neumann – ‘Untitled’ (2002)
Too big to fail
States rescued the banks in country after country, neither asking nor getting anything in return. The banks are now using their newfound strength against the state, threatening to reveal the accounting tricks the banks themselves had recommended to hide some of the debt. After all, interest rates on loans are higher when the financial reputation of the state is in question.
So Goldman Sachs first helped Greece to borrow billions of euros in secret, and then told it how to get round the European restrictions on public debt. The bill for this groundbreaking financial advice was subsequently added to the huge Greek deficit (1). And the winners and losers? Lloyd Craig Blankfein, CEO and chairman of Goldman Sachs, received a $9m bonus; Greek civil servants will lose the equivalent of a month’s salary each year.
A country, like a bank, is “too big to fail”. So Greece will be rescued – at a price. The European Central Bank claims to know all about Wall Street’s game, and ECB president Jean-Claude Trichet is taking a very hard line with the Greek government, warning that Greece will have to take “vigorous steps” to mend its ways, “under close and constant EU supervision”. In other words, hand over control of its economic affairs and reduce its 2009 deficit – 12.7% of GDP – to 3% by 2012. To cut the deficit by almost 10%,
particularly in an area of weak growth, is an almost impossible task, requiring major surgery rather than “discipline”. Oddly enough, the aim of the exercise is to strengthen the euro at the very time when the US and China are devaluing their currencies in order to consolidate the process of recovery (2).
Angela Merkel considered that “it would be a disgrace if it turned out to be true that banks that already pushed us to the edge of the abyss were also party to falsifying Greek statistics”. Goldman Sachs is unlikely to be moved by this tirade. Barack Obama’s comment on Blankfein’s bonus was anodyne: “I, like most of the American people, don’t begrudge people success or wealth. That is part of the freemarket system.” As we all know, that wealth serves the whole community: after all, Goldman Sachs paid 0.6% tax (3) on its profits last year, didn’t it?
Translated byBarbara Wilson
(1) The New York Times for 13 February 2010 quoted a figure of $300m for the fees paid to Goldman Sachs for finding a way for Greece to borrow billions of dollars secretly, to enable the country – already deep in debt – to join the European Monetary Union. (2) See Yves de Kerdrel, “Le problème ce n’est pas la Grèce, c’est l’euro”, Le Figaro, Paris, 16 February 2010. (3) Quoted in Harper’s, New York, February 2010.
inside this issue The bigger they come: the economic crisis brings Dubai to its knees
The real supreme leaders: Iran’s Revolutionary Guards control much more than the military
The death of journalism: is it the end of the profession as we know it?
Suffering but not silent: Bosnia’s war rape victims find a voice
Brazil: Lula aims to influence
Family business in Paraguay: Stroessner’s grandson waits in the wings
Palestine special dossier: Haifa: the plan for urbicide, which narrowly failed
Page 12 A stateless national cinema describes the Palestinian struggle
Graphic nonfiction: the Gaza drama seen by Joe Sacco
Tiger’s tale: but was he sincere?
Naomi Klein’s “shock doctrine” – her idea that natural and man-made disasters have been used as pretexts to impose free market policies on countries whose people would normally reject them – didn’t convince completely until recently. “Disaster capitalism” did apply in some cases, especially in southern hemisphere and transition economies. But it was not as universally valid as Klein believed, and the establishment of neoliberalism in developed economies was more a calculated implementation of a systematic and far-reaching agenda. But now Klein may see her analysis confirmed, and spectacularly, by events at the heart of developed capitalism.
The crisis in the private financial sector has, inevitably, spread to the public sector. It was impossible for governments to ignore the risk of an imminent, total collapse of the banking sector. Justifiable public anger at the banks’ return to their old bad habits at the expense of the taxpayer is justified, but letting them collapse was not an option. Class solidarity and cronyism played a part in the decision to bail them out, but action was still required to save them.
The world’s governments are unhappy: though they have rescued the financial sector, they have been unable to impose any significant reforms. They counter public criticism by pointing out that the rescue will cost nothing, or even make money for the taxpayer, once the financial sector has recovered and paid off its debts. This is not all bluff.The sums paid out by the French government were modest, the recovery of the sector has made government guarantees redundant and the emergency loans have been repaid, with interest. In the US, the cost of rescuing the financial sector has, at least in appearance, shrunk even faster. The Troubled Asset Relief Programme (a delightful euphemism) started with a budget of $700bn but the final bill is less than $100bn, which the Obama administration plans to wipe off the slate with a special tax on banks over a 10-year period.
The flattering manner in which this outcome is presented masks unsightly details, notably the decisive role played by pseudo-governmental institutions such as Fannie Mae, Freddie Mac and the Federal Housing Administration. These were stretched to the limit by the effort to prevent a complete collapse of the real estate market and of economic growth. The cost of rescuing them ($400bn) has been excluded from last
Frédéric Lordon is an economist and author of La crise de trop: Reconstruction d’un monde failli (One crisis too many: rebuilding a failed world), Fayard, 2009
year’s balance sheet, perhaps because it is less likely to be recoverable. The financial sector has been saved and the recession contained, but only by sweeping most of the problems under the carpet. This could easily lead to disaster in the near future.
There is a more important reason why the financial crisis was bound to spread to the public sector: the cost to national budgets of the sharp decline in economic activity and the resulting fall in tax revenues. The huge growth of budget deficits and public debt is due less to the cost of the rescue packages than to the macro-economy. There can be no easy way out and no miraculous recovery.
nothing to do with us
As the chain of cause and effect grows longer, people lose sight of the big picture. The banks now believe they can pretend they have settled the bill for their little excesses and blame unemployment, recession, deficits on the remote mechanisms of the macro-economy: “Very sad, but it’s nothing to do with us.” They don’t know the meaning of the word shame and are regaining their confidence, feeling free to lecture national governments on how to run things. The huge rise in public debt is a problem, say the managers of the fixed income departments, forgetting that taxpayer money saved them from disaster.
Now that the banks are flourishing, partly because massive government support for the economy saves them from a second tsunami of bad debts, they have no scruples about speculating against the governments that saved them, thereby increasing the cost of public borrowing and exacerbating the deficit problem they caused.
This is Klein’s “shock”. Salaried workers, already hard hit by the recession, will as taxpayers also have to foot the bill for the budgetary adjustment. Neoliberalist ideology is deftly turning to its advantage an upset that should have killed it: neoliberals advocate the dismantling of the state on an unprecedented scale, on a par with the huge increase in deficits and public debt caused by their own actions.
The “ordinary” shocks of Klein’s theory were mostly external (coups, counter-revolutions or natural disasters). The neoliberal agenda kicked in during the chaos that followed. But this latest shock is a product of internal factors and is
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