Thursday, October 6, 2011

The Largest Bank Heist in History

There are several levels at which we can understand the “debt crisis.”

As currently reported by the mass media, it is a crisis of the 17-nation Eurozone centered on the inability of the government of Greece to service a national debt of nearly half a trillion dollars.

If we step back a bit, the crisis grows larger. Because banks in most developed countries hold varying amounts of foreign sovereign debt, the entire global financial system is at risk of collapse. That would throw the world economy into a deep recession, causing a vicious downward spiral of layoffs, manufacturing cutbacks, and falling trade.

China would also be seriously affected. Its “workshop of the world” path to booming growth has landed it in a position where a financial collapse in major Western countries will implode its huge manufacturing economy. That would set off a global deflation of commodity prices, bringing misery to many developing countries dependent on their export for much of their income.

If we step back even further from this looming global crisis and look at the fundamental nature of the problem, we can understand it as one of corruption and abuse of power by a small financial elite.

Borrowing has been an essential part of the growth of the global economy over the last four hundred years, but it was always an ancillary factor. What has happened in the last two decades is that those who lend money have got into the driver’s seat, and flooded the world with credit as an easy means of increasing their own income. With greed getting the better of common sense, they then recklessly packaged this debt, much of it to people and institutions without the capacity to repay, into “investments.”

The banking system in developed countries through which this financial elite operates, bought those “investments” on a massive scale, spreading the bad debt to the portfolios of a whole range of investors, including pension funds, universities and insurance companies. In 2008, when these follies first came to a head, governments used taxpayer money to prevent a disastrous and far-reaching collapse. In effect, the financiers got away with the largest bank heist in history, leaving ordinary people to pay for their theft.

 As governments resorted to austerity measures to cope with the unsustainable burdens of debts imposed on their own populations without consultation, there has been rising popular anger. Some sections of the media have resurrected Marxist terminology in presenting this anger in terms of “class war.” However, it is far from that; public anger is directed not at the business community or at the rich generally, but at a very small and powerful set of financial operators.  

Understood in those terms, the current situation offers an opportunity for a creative response beyond the “haircuts” imposed on banks and legal action against those seen to have acted irresponsibly. Social activists, small and medium businesses and credit unions should network to create a new community-based financial infrastructure. That would not only insulate the larger economy from the current crisis, it would be a decisive check on the power of a financial elite that has long outlived its utility.

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