Bank Bailouts are Class Warfare

Finance ministers from the Group of 20 met at a golf resort in Scotland this past weekend. At the meeting on Saturday, British Prime Minister Gordon Brown proposed "a new tax on financial transactions to support future bank rescues." He supports, in effect, a down payment on the next bailout for bankster assholes who run their businesses into the ground. He said, "It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us." This is happening right now: privatized profits and socialized losses.

If financial institutions were allowed to go bankrupt, the costs of failure would be borne by its shareholders and depositors proportionally to their investment in the business. The very wealthiest would bear the most cost, and the middle class would bear the rest. The poor have savings in cash, not stock, are covered by FDIC insurance, and would not lose a dime. This fair distribution of burden is not permitted to happen.

Instead, the US Treasury issues Treasury bonds, which the Federal Reserve buys with Federal Reserve Notes, which the Treasury uses to purchase banks' toxic assets. The interest on those Treasury bonds is paid with income taxes. Thus the working-class poor are paying to bail out businesses in which they have no equity (stock), and in which their deposits are already guaranteed.

Prime Minister Brown proposes modest reform. If a tax on financial transactions were implemented to provide for a bailout fund, the super-wealthy could take on ever-higher levels of leverage and risk, secure in the knowledge that bailouts are explicitly guaranteed and funded ahead of time. The inevitable cost of periodic failures in these risky investments would be borne in part by middle-class citizens who invest in run-of-the-mill, safe vehicles such as mutual funds. But at least an investment tax would not directly burden those too poor to invest beyond their savings accounts.

Naturally, US Treasury Secretary Timothy Geithner does not like the idea. And he uses doublespeak to say it: "We want to make sure that we don't put the taxpayer in a position of having to absorb the costs of a crisis in the future." What a laugh. What are Congress, Treasury, and the Fed going to do, let their buddies go bankrupt? They have already proven unwilling to do that. Geithner is simply saying, "No thanks, we already have a much better arrangement. Not only are we secure in the knowledge of future bailouts when needed, but we also get to spread the burden of our failures across nearly the entire populace." Privatized profits; socialized losses.

In the march toward fascist tyranny, why take a backward step?

Opt Out of: Passive acceptance of the bubble/bailout economy.