The heat for the financial meltdown did not come from investments in unmet social and environmental needs. It came from speculative and unproductive financial shuffling whose major purpose remains the amassing of wealth. This process probably received its biggest recent boost from the marked productivity leap about 25 years ago with new tools and techniques for producing and selling goods and services. In hindsight the wage restraint practiced, argued by unions in some cases around the world at the time, was wrong and accelerated concentration of wealth globally. It resulted in incalculable amounts of money swirling around the financial global slipstream looking for investments that returned easy, assured and large amounts of money. But, not only has money been devalued, the speculative bubble has even devalued the very term 'investment' which is more and more about making money out of money.
The greedy 90s and the financial misdeeds of those like Enron's smartest men in the room have been more than surpassed by the current collapse.
This virtual investment world now wants to be saved notwithstanding that it has been rewarded manifold. The piecemeal patch up by US authorities has now become a comprehensive bailout that will gobble up a hefty slice of the world's largest economy.
But, there are signs that the American people may not stand for it, which is why there are desperate attempts at finding bipartisan ways to sell the measures to save the market's financial pillars.
The argument, even by well-intentioned people, is that collapse of these pillars will cause untold damage to the economy.
There are many reasons why this logic is flawed. One is that no one can guarantee it will work which will mean that the bleeding of the public purse, again, would have left the failed status quo intact.
The other is that it makes no sense to save a system which has shown a flaw as gaping as the global inequality it was responsible for promoting. Unlike the other comparable crisis of the 30s Depression, and it is not written with a capital for nothing, there is no New Deal.
The response must deal with the consequences at the base of this crisis such as unemployment, housing losses, failed small businesses and unfair enrichment. The speculative investments that have brought these influential financial institutions to this crisis point have more in common with corrupt and criminal behaviour than with proper investments in social and environmental needs.
It cannot be stressed enough that the money lost has not disappeared into some black hole. It has just changed pockets, which is why a bailout as presented is wrong.
The money needs to go into bolstering productive purposes and those needing a bail out are people who have been caught in the net of speculative investments – those who have lost their jobs or houses for example. They are the ones who need saving by having their interest rates frozen, or their debt reduced. And the money should be invested in needed infrastructure projects, resolving famine and poverty and the development of sustainable energy sources.
It is not that there is a shortage of urgent areas that need to be funded. In these areas are the responses needed.
As to the financial institutions – the lesson is that they are a law unto themselves and governments must regulate to avoid monopolies and to reduce inequality and discrepancies in wealth.
Making money out of money without work is at the heart of the American dream and for ordinary people under stress the harder the times the attractiveness of the dream.
But, as a workable system the dream, as the financial crisis shows, is in the end illusory.
Source: Australian Options, Issue 54, Spring 2008, p. 1.