Wednesday 27 June 2012

"There is no new thing under the sun" - the rest of us had to bail out the rich in 1932 as well!

So, the Italian goverrnment has decided to bail out Europe's oldest bank, the 540-year old Banca Monte dei Paschi di Siena SpA, to the tune of 3.9 billion Euros  - well below the going rate, I'd have thought. Yet again, a financial institution is to be propped up with taxpayer's money. This reminded me of one of the many fascinating insights in Isabel Paterson's The God of the Machine (which I recently wrote about here) concerning the American government's response to the Great Depression.

Two parallels between what happened in the US in the 1930s and what's happening right now there and across Europe struck me as  borderline spooky (the italics are mine):

And who went on Federal relief first [in 1932]? By no means the "have nots."... The first measure of "relief" was the Reconstruction Finance Corporation; and the first money paid out from it went to J. P. Morgan & CoIt was the non-productive rich who first went on the dole...  
Vincent Astor, drawing a large inherited income from ground rents, sold slum property which had been exploited till there was no income left in it, to the Federal government. Owning shipping, he got shipping subsidies... To "save them [the non-productive rich] from the consequences of their own gambling, everyone who had not participated in the game was penalized. Laws were passed against "hoarding," so that the only action punished was prudence. By this means the normal reserves of cash which normally restore production were dissipated.  
Like-wise, thrifty, competent, and solvent farmers, who managed to get their living from their farms, were penalized with quotas and quota taxes to subsidize speculative farming. One man in Montana drew $30,000 of government money because he had persisted in wasting seed wheat on arid land during a drought, while  a poor widow in New England was forced to pay a "processing tax" because she raised a couple of pigs and turned them into bacon!
Maybe we, the people, are doomed to bail out the rich whenever they've gone through one of their periodic psychotic episodes, because recovery would be impossible without the silly sods.  Or maybe, as Tory MEP Daniel Hannan and many other right-wingers have advocated, we should simply have let the idiots who gambled away our money go the wall, with all the suffering that would have meant for employees and investors.

Then and now, we seem to have ended up rewarding the feckless (by bailing out their banks in the first place and by printing money to try to convince the bankers to keep on lending rather than use lavish public subsidies to reward themselves for their incompetence) while punishing businesses and individuals who have acted wisely (with rock-bottom interest rates and devaluing the currency and keeping inflation high by printing money for the banks to lend).

The real reason I despise the Occupy movement is that it made it impossible for the rest of us to vent our anger at goofy financial institutions without inadvertently identifying ourselves with a bunch of infantile, half-witted, workshy nihilists who evidently want to destroy financial systems that - in between bouts of lunacy - have created so much wealth and liberty and happiness.

I'm sure any number of brilliant economists will tell me that the only hope of keeping our heads above water is to take money away from sensible people and hand it to wreckless fools - and I do appreciate that life is often unfair - but I just can't believe that the only effective solution to our woes has to be so bloody annoying!

5 comments:

  1. At the end of Niall Ferguson's Reith lecture yesterday the first question, around 34', came from a retired British diplomat now "working" for Occupy Wall St.

    After Ferguson slaughtered him, butchered him, minced him, cooked and then ate him, the Occupier's gentle response was "you wanna settle this thing outside?" or words to that effect.

    A charming warning.

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  2. ... we should simply have let the idiots who gambled away our money go the wall, with all the suffering that would have meant for employees and investors ...

    The investors have suffered, as our friend in common who suffered from the Bristol & West Building Society's discovery that it is actually Irish and that bondholders therefore don't need to be repaid will tell you.

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  3. Anybody got £1.41 million cash and want to retire to North Devon in the middle of 200 acres of beautiful land with a choice of about 60 rooms to sleep in each night?

    My friend I was at school with when we were 3 is a hotelier. At least he was. Now the administrators are moving in.

    Best offer on the table is £1.4 million cash with no ongoing liabilities, the company will be wound up, there will be no staff to give the buyer TUPE problems and no creditors.

    You get an 18-hole golf course thrown in. And a 25m swimming pool. And the bar where Laurence Olivier used to pretend he was a barman and serve people and few realised who he was.

    Later, I served there and, would you believe it, no-one realised who I was either. Spooky.

    We all understand why the government doesn't feel a special obligation to save the hoteliers. Why the bankers?

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  4. The only word you left out was "eviscerated". Niall Ferguson is a wonderfully combative little Glaswegian Prod (despite the Oirish first name) - his unoprivileged background means he can see right through self-serving upper-class liberal posturing. He presented a TV programme I was editing a few times, and our treat was to go down the road of an evening and stuff our faces with fish and chips in between ranting about left-wingers (I ranted incoherently - he talked sense, as always).

    The case you mention involving a mutual friend is, indeed, outrageous. I wasn't saying nobody has suffered as a result of what the banks did - anyone with savings has been paying for it fo the last last three and a half years, which means every investor in this country has suffered to some extent.

    If you weren't recognised, you must have been heavily disguised.

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  5. Scientists Claim Tiny Sub-Atomic Traces of Ethics Discovered in Barclays:

    Cern scientists reporting from the Large Hadron Collider (LHC) have claimed the discovery of a new so-called ethics particle consistent with evidence that tiny sub-atomic traces of honesty could theoretically exist in traders at Barclays Bank – albeit in miniscule amounts ...

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