Global Economic Crisis

Just over a year ago, simultaneously with the implosion of Lehman Brothers, the U.S. Federal Reserve and Treasury Department decided not to let American International Group  fail, no matter the cost. That bill has been heavy; $182.3 billion of U.S. taxpayers money has been injected into AIG to ensure its survival amidst massive losses on its London-based credit default swap business. Each and every citizen of the United States has been billed more than $600 to cover AIG’s losses. In effect, the Fed and U.S. Treasury have used the zombie-like subsidized life support of AIG as a pass-though, transferring billions of dollars to investment and foreign banks. The largest recipient of American taxpayers money transferred through AIG was Goldman Sachs, which received a $12.9 billion payoff, which seems to have gone straight into bonuses for its senior executives. Was it mere coincidence that Goldman Sachs CEO Lloyd Blankfein sat in on a meeting with Ben Bernanke and Hank Paulson to decide on the scope of the taxpayer’s subsidy to AIG?

The Fed and Treasury, which decided on their own to effect a bailout of AIG without any input or sanction from Congress and the American people, have assured us that their infallible judgement can be relied on to make the correct decision for the U.S. taxpayers. Well, that “infallible” decision-making has left the American people tied ball and chain to a private corporate entity that is still losing vast amounts of money. AIG has recently reported its Q4 results: a loss of $8.9 billion. This may be a sign of more red ink to come, as the global economic recovery falters amid mounting concern over high unemployment and sovereign debt crises. AIG apparently is not done as a costly financial liability for the citizens of the United States, despite the fact that not a single one of them had the opportunity to vote in favor of this hideously expensive experiment in corporate socialism.

Hank Paulson is deeply empathetic about the American people’s plight; absorbing  intergenerational levels of debt to cover the costs of unbridled greed and recklessness on the part of Wall Street. Thus, while being raked over the coals at a congressional hearing for his role in the near destruction of the global financial system last fall, and the $700 billion TARP Wall Street bailout package he was able to pull through a terrified Congress as the price of avoiding financial Armageddon, the former Treasury Secretary had this to say about the plight of the American people: “The tragedy is they didn’t create the problem. But they would be the ones that would pay the greatest penalty if there was a collapse.”

Paulson’s statement, while superficially sympathetic to the injustice of the collective innocent paying for the sins of the few, is in substance the manifestation of a disdain for the broad masses that borders on contempt. In effect, he is reiterating a posture that has been consistently maintained by the “masters of the universe” since the onset of the global financial and economic crisis; privatize the profits (especially after radical deregulation) but socialize all losses.

Since last fall, trillions of dollars have been added to the U.S. national debt through TARP, fiscal stimulus packages made necessary by the financial collapse, and other forms of direct and indirect government and Federal Reserve aid to the financial sector. All in the name, we are told, of the American people who, it is claimed, would be subjected to even greater debt and future taxation if Wall Street is not bailed out. The old concept of “moral hazard,” still in force when Paulson allowed Lehman Brothers, a competitor  of his former stomping ground Goldman Sachs to die, was swiftly ejected when AIG faced bankruptcy.

Now Goldman Sachs is declaring a record quarterly profit, and arrogantly boasting of the billions of dollars of bonus payments that will be dished out to its employees. What the firm that Paulson used to lead as Chairman won’t divulge is how much of its profit was due to $13 billion it received in payment from the U.S. taxpayer, using AIG as a pass-through for the payment. Neither will this Wall Street entity make public the impact of tens of billions of dollars in low-interest, taxpayer subsidized loans it now has access to, once Hank Paulson and Fed Chairman Ben Bernanke changed the rules, and allowed investment banks such as Goldman Sachs to magically transform themselves into bank holding companies.

If Hank Paulson symbolizes the incestuous relationship between Wall Street and government, his attitude reflects how insignificant the general public has become in the minds of those calling the shots and making the critical policy decisions in the wake of the worst economic crisis to afflict the American people since the Great Depression. But when those who caused the disaster are spared the ravages of the unwashed masses who are now being corralled into ever-growing unemployment lines, and instead are basking in the illumination of near record bonus payments, their callousness can at least be understood.

The question that Hank Paulson and his ilk may ultimately be compelled to answer is why should the American people be eternally grateful for their “noblesse oblige” when it becomes crystal clear to them that they have been dispossessed of much of their future as  the price for  bailing out Wall Street and its  architects of our current economic and financial doom.