G7 Agrees Creeping Socialism For World Banking

By Cernig

The American Right are going to be apoplectic when they figure this out. Not just creeping socialism but creeping socialism mandated by a New World Order super-national group. The black helicopter crowd will be up in arms!

The Guardian : G7 agrees global rescue plan

The G7 agreed to take "all necessary steps" including adopting Britain's plans to part-nationalise banks in order to kick- start lending in frozen credit markets after Wall Street suffered the worst week in its history. With shares, oil and sterling all plunging at the end of a dramatic week, the G7 pledged to take decisive action and use all tools available to prevent more big western banks going bust.

The G7 issued a five-point plan in a short communique after meeting in Washington yesterday. It pledged to "ensure that our banks and other financial intermediaries, as needed, can raise capital from public as well as private sources in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses".

Facing the most severe stockmarket crash since 1929, Henry Paulson, the US treasury secretary, said last night the US would use some of the $700bn, earmarked by Congress to buy up Wall Street's "toxic waste", to buy stakes in US banks.

He said the government programme to purchase stock in private US financial firms will be open to a broad array of institutions, including banks, in an effort to help them raise money.

Paulson said the G7 finance ministers "finalised an aggressive action plan to address the turmoil in the global financial markets", and that they were focused on the need to stabilise the financial markets. He said it had never been more important to find "collective solutions".

That's "collective", but it's going to be read as tantamount to "collectivist".

The Guardian: G7 ministers forced to think the unthinkable

Faced with what they accepted was the threat of financial meltdown, policymakers had to think the unthinkable. Ideas floated in Washington yesterday were not remotely in prospect even a month ago. But the sense of urgency had increased since the collapse of Lehman, last month propelled the crisis into a dangerous phase.

There are now few takers for the old purist approach of allowing banks to fail, with the "creative destruction" giving a leaner and cleaner system. Advocates of this "Austrian school" may still exist in universities, but not in any of the G7 finance ministries.

Henry Paulson, the US treasury secretary, had appeared to dabble with this sink-or-swim philosophy when he allowed Lehman to go bust, but the subsequent market mayhem has pushed him in completely the opposite direction.

Last night it was nationalisation rather than a free-market solution that looked more likely, even after the G7 unveiled its five-point blueprint to end a month of financial chaos. It is accepted that if the current plan to calm the markets through state-backed recapitalisation of banks fails, then there will be no alternative but for governments to take them over - lock, stock and barrel.

Do you mind if, in amongst all the justified worrying about where the bottom is and where the economic crash will take the world geopolitical situation, I find it funny as f**k that rampant crony-capitalism has become the impetus for forcing Democratic Socialist economic policies on the world - and on George Bush's watch too?

Daily Telegraph: G7 meeting: The five-point rescue plan

1. Take decisive action using all available tools to support struggling financial institutions and prevent their failure.

2. Take all necessary steps to unfreeze credit and money markets.

3. Ensure that banks can raise capital from public as well as private sources, in sufficient amounts to re-establish confidence and permit them to continue lending to households and businesses.

4. Ensure that savers' deposit insurance and guarantee programs are robust so savers have confidence in the safety of their deposits.

5. Take action, where appropriate, to restart the mortgage securitisation markets.

All of this sounds like a good idea to me - but then I am a democratic solcialist. I believe firmly that money is there for people, not vice versa, and that the markets should be as free as empirical experimentation determines it's safe to allow them to be - and where it's not safe, the should be regulated and oversight should be in place. The G7 has come to the same conclusion and "Laissez Faire" has gone the way of the dodo.

Daily Telegraph: Global banking system to be part-nationalised

The agreement produced last night by finance ministers in Washington is thought to represent a last-ditch attempt for governments to prevent the financial crisis from worsening yet further next week. Some experts fear that unless it succeeds in boosting confidence the financial system may collapse entirely, threatening a worse economic slump than was experienced in the 1930s.

The G7 statement, which was among the most eagerly awaited in recent history, said: "[We agree] today that the current situation calls for urgent and exceptional action."

Mr Paulson described the G7 statement as "an aggressive action plan to address the turmoil in global financial markets and the stresses on our financial institutions."

Once the U.S. Right figures out that Reaganomics is dead, Dubya's legacy is toast. With the financial meltdown on top of the collapse of American prestige abroad following Bush's misdaventures in militaristic foreign policy, the very nadir of American conservative thinking is here, brought about by eigth years of extremist American conservative thinking.

And once the Obama campaign reminds voters that John McCain supported Bush's foreign policy and economic policies to the extent of voting with them 95% of the time, McCain is toast too. Followed by parozysms of self-examination and ideological fissuring within the Republican Party such as will make the post-Kerry crisis of Democratic faith seem a mere moment of introspection.

It's true what they say - every cloud has a silver lining.

(A massive hat tip for all those links to our tireless researcher, Kat)

Update: Extra funny. An article at the rightwing rag Investor's Business Daily, which has already been Insta-linked, says that the markets are crashing in fear of the coming first socialist President.

It's a ridiculous notion on the face of it - the markets rose when both Blair and Brown became UK Prime Minister, even though both belong to an ostensibly democratic socialist party and other socialist world leaders have been just as warmly welcomed by the business community in the past.

But the real rich hilarity is that it's the Bush administration who are now bringing about socialist economic policy in the U.S. as the consequence of following the kind of disasterous course IBD has been advocating all these years.

Comments

[Kat]

>> Once the U.S. Right figures out that Reaganomics is dead...

If you read the comments under this Jan '08 Balloon Juice post - We Are All SubPrime, Now - it's obvious that for many people, in spite of all that's happened in the interim, that realization is still going to be a long time coming -- primarily because the GOP's only real 'achievement' over the past 4 decades has been their mastery of propaganda, including all but annihilating real journalism and the free press.

[BJ Bjornson]

Have to agree with Kat, the Right (capital-R) will never accept that Reaganomics is dead. This is all the fault of the Dems who forced those poor banks to give poor people mortgages. And besides, Bush isn’t really a conservative, he abandoned his roots and became a liberal. Once we get a real conservative in there, you’ll see. Everything will work perfectly. Free Market! Free!

[Charles II]

I wonder what IBD will say when the markets rally and outperform Bushco's tenure.

[Kat]

Reaganomics is like Big Brother -- it can't die because it never existed to begin with. It is, and always has been, a propaganda drumbeat to confound the masses.

Genuinely fed up with all this US insanity, it seems likely that democratic socialism is where Brown and the rest of the world are heading.

But I think a comment here (with my paragraphing, for clarity) nails what's going on behind the scenes in the US, and it's anything but democratic socialism:

«The other thing is that the authorities have got to close those firms that are not going to be survivors as quickly as possible. We can't wait around for consolidation.»

So Peter Fisher is effectively confirming this comment by a very realistic guy: http://londonbanker.blogspot.com/2008/10/financial-eugenics-paulson-plan-for.html

«The most cynical moment in the call is when the Treasury official confirms, ”our preference would be to help the healthy banks become even healthier” rather than helping troubled banks or illiquid banks. America is now a centrally planned economy where the Treasury will determine which firms survive and prosper through allocation of scarce capital to an undercapitalised financial sector.»

«Favoured private equity and insiders who swap US dollars for equity in the banking system will presumably be aware of the survivor bias being engineered on their behalf. Sovereign wealth funds, investment funds and private equity investors ripped off in the first round of recapitalisation may be willing to come back in once it is clear to them that the next round will benefit from official favouritism. Warren Buffett’s timely stake in Goldman Sachs is clearly linked to his confidence the Paulson Plan will benefit them disproportionately. A factor which is probably critical but has received little discussion is that literally thousands of Bush administration apparatchiks will need jobs come January, and a fair selection of GOP House and Senate legislators and their aides too. What better way to enahance their CVs in their final months in power than to distribute $700 billion or so in pre-Christmas largesse to the most remunerative employers in the world? And what better way to ensure the corporate largesse is returned to the GOP to win back the White House and Congress in 2012 as the recession fuels public anger? And then there is a huge arbitrage opportunity as well so that everyone makes money for years to come. According to the conference call, the pricing on offer from the Treasury will be a bit below Level 3 pricing. The toxic assets will be repackaged and resold with a new AAA wrapper, possibly priced well below what the Treasury paid, assuring a huge profit on both immediate liquidation by the banks and ultimate maturity by investors. The Fed gets its cash and Treasuries back; the banks make huge profits; the foreigners and off-shore tax avoiders get disguised ownership of the American financial system; the taxpayer gets ripped off. What’s not to love?»

[Mark]

As a proud Hayekian, I find nothing in the least bit ironic about this:

"rampant crony-capitalism has become the impetus for forcing Democratic Socialist economic policies on the world - and on George Bush's watch too"

Crony capitalism IS socialism. We libertarians have been saying for quite some time that Bush is far from the laissez-faire icon he is portrayed as (and which the Right portrays him as). Quite the opposite, in fact. Certainly, he is pro-business. But pro-business is often (perhaps usually) not the same as pro-free market. In all honestly, there are precious few Bush policies that I would consider pro-free market (some would say that his tax cuts would qualify; I say hogwash - tax cuts are meaningless, only spending matters...and Bush has increased discretionary spending more than anyone in the last 50 years save LBJ).

Also, as for markets going up when nominally liberal candidates win elections, this is not inconsistent with markets going down in anticipation of their victories. Indeed, there is a theory prevalent amongst many economists that the anticipation of a liberal getting elected is bad for markets, but that once they are elected markets respond favorably. The reason for this has to do with an inaccurate fear that a liberal administration will interfere tremendously with markets. When this turns out not to be the case (with Dems like Clinton and Carter actually being more hands-off than Repubs like Reagan and Nixon, respectively), markets respond extremely favorably. That said, the idea that anticipation of an Obama administration is largely or mostly responsible for the current situation is absurd. It may play a minor role, but hardly enough to trigger a recession, much less a possible depression. The fact is that most market participants recognize Obama for what he is - a run of the mill center-left politician not much different on economics from recent center-left politicians like Clinton and Blair. The idea that he is a wild-eyed socialist is primarily, I think, restricted to people who listen to Republican talk radio.

[Cernig]

Hi Mark,

"The idea that he is a wild-eyed socialist is primarily, I think, restricted to people who listen to Republican talk radio."

Probably true. However it worries me more than a bit that the proportion of Americans who do so is roughly proportionate to the number of Sunnis in Iraq. Especially since the same segment of America has been talking up the possibility of a rightwing insurgency if a "wild-eyed socialist" became President since at least 2006.

Regards, C

[jerry]

I guess I am not really clear why Paulson has agreed to go with a recapitalization plan that allows for the government to buy a stake in the bankstas' banks, when just last week he and his banksta friends were against it. Now he is for it. What seems to not have changed is that toxic bail-outing will still go forward. So, what the commenters and Cernig are saying is that only the most alpha-dog banks will rise like Phoenix's from the ashes of arsonist burned smaller banks. Yet, there is the issue of Counterparty and the interconnectedness of the toxic stuff mashed throughout. Who's got what, and how much? There still is no balance sheet transparency. Can you all dissect these issues and explain the whys?