What U.S. could learn from China
It's been called 'financial socialism', 'socialism for the rich', and 'lemon socialism'. But whatever it's called, the Bush administration 'bailout' for financial institutions is the greatest transfer of wealth from ordinary working people to the rich in world history.
The proposed program to buy a mountain of non-performing housing loans and other worthless assets from banks and finance companies will cost an estimated $700 billion to $1 trillion U.S. dollars.
This money will come from U.S. taxpayers, most of whom are ordinary workers. It amounts to taking around $2500 U.S. dollars, or 17,000 RMB, from every U.S. citizen - and giving it to the banks and finance companies.
The cost for each family of four is around $10,000 or 68,000 RMB. This money could have been used for health care, for improved education, for scientific research, for social welfare program; for environmental protect; or a myriad of other socially useful purposes.
Alternatively, it could have been used to cut taxes for ordinary people, or even to help them buy their houses. Instead it is being donated to banks and financial companies whose managements and owners are among the richest in the world. These measures represent a massive redistribution of socially -produced wealth from working and poor people to the rich.
Learning from China
The argument of the Bush administration - echoed faithfully by the U.S. media - is that there is 'no other way'. The claim is that the U.S. system, and the jobs of U.S. workers within it, can only be safeguarded by this transfer of wealth to the banks.
In fact, this argument is incorrect.
Obviously the government must act to protect banking and finance in an economic crisis of this magnitude. But if banks are bankrupt or insolvent, a fair solution would be to buy or nationalize the banks themselves, *not* their bad debts. Then the taxpayers would receive something of value - a stabilized and accountable banking system belonging to the people instead of worthless debts.
In China, such a solution would seem almost common sense. With its socialist market economy growing at about 10% per year, Chinas' government banks play a key role in providing a stable foundation for the financing of Chinese economic development,
But the possibility of taking over or nationalizing U.S. banks has not even been mentioned by any mainstream U.S. political figures or mainstream media.
Instead, up to a trillion dollars or taxpayer money is being donated to institutions whose managements have shown themselves incompetent to manage their own funds.
Perhaps the economic interests of the powerful wall street companies, one of whose former CEO's is U.S. Treasury Secretary Henry Paulson, has something to do with this 'blind spot'.`
Over the years China has resisted intense pressure from Paulson and other U.S. officials to radically deregulate its financial markets. They have lectured China repeatedly on how deregulation of financial markets, and letting foreign financial capital operate freely in China - as in the U.S. - was in Chinas best interests.
"An open, competitive and liberalized financial market can effectively allocate scarcer resources in a manner that promotes stability and prosperity far better than government intervention,'' Paulson said in Shanghai in March last year. "Time is of the essence."
Now even the U.S. has been compelled to abandon this 'open financial markets' approach. With the sub-prime crisis now expanded into a full-blown crisis in the western financial sector, knowledgeable Chinese experts are thankful that China never accepted this laisez fair prescription for financial regulation.
"The U.S. crisis reflects regulatory problems in the U.S. and innovative financial products that ignored basic economic rules,'' former Chinese central bank deputy governor Wu Xiaoling told a financial conference in Beijing recently."
"The U.S. crisis today would be China's tomorrow if financial products such as securitization are introduced without proper risk-control measures.''
Chinas' cautious attitude, government banks, and regulatory framework have helped China to restrict its losses and write-downs from the credit-market crisis to less than 1 percent of the massive global total.
The feasibility of bank nationalizations, closer regulation, and banning certain types of transactions, such as derivatives, which carry excessive risk are all lessons which can be learned from China.
Banks, financial companies, and the wealthy should not be allowed to unload their bad debts onto ordinary workers and taxpayers. It's sheer madness to allow them to transfer a trillion dollars from workers and taxpayers to themselves.
By Eric Sommer
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