13 Nov 2011

The Bank Problem. "The Grand Double-Cross."


By Olafur Arnarson, an author and columnist at Pressan.is, Michael Hudson, a Professor of Economics at University of Missouri- Kansas City, and Gunnar Tomasson, a retired IMF advisor
The problem of bank loans gone bad, especially those with government-guarantees...
...In the United States, banks receiving TARP bailout money were supposed to negotiate with mortgage debtors to write down the debts to market prices and/or the ability to pay. This was not done. Likewise in Iceland, the vulture funds that bought the bad “old bank” loans were supposed to pass on the debt write-downs to the debtors. This was not done either. In fact, the loan principals continued to be revalued upward in keeping with Iceland’s unique indexing designed to save banks from taking a loss – that is, to make sure that the economy as a whole suffers, even suffering a fatal austerity attack, so that bankers will be “made whole.” This means making a windfall fortune for the vultures who buy bad loans on the cheap.
Is this the future of Europe as well? If so, the present financial crisis will become the great windfall for vulture banks, and for banks in general. Whereas the past few centuries have seen financial crashes wipe out the savings and creditor claims (bonds, bank loans, etc.) that are the counterpart to bad debts, today we are seeing the bad debts kept on the books, but the banks and bondholders that provided the bad loans being made whole at taxpayer expense.
This is not how economic democracy was expected to work during the 19th-century drive for Parliamentary reform. And by the early 20th century, social democratic and labor parties were supposed to take the lead in moving banking and credit along with other basic infrastructure into the public domain But today, from Greece to Iceland, governments are acting as enforcers or even as collection agents on behalf of the financial sector – as the Occupy Wall Street movement expresses it, the top “1%,” not the bottom 99%.
Iceland stands as a dress rehearsal for this power grab. The IMF and Iceland’s government held a conference in Reykjavik on October 27 to celebrate the ostensible success in their reconstruction of Iceland’s economy and banking system.
In the United States, the crisis that Obama Chief of Staff Rahm Emanuel celebrated as “too good to let go to waste” will be capped by scaling back Social Security and Medicare as soon as the autumn Doomsday Clock runs down and the Congressional Super-Committee of 12 (with President Obama holding the 13th vote in case of a tie) gets to agree to make the working population pay Wall Street for its bad loans. The Greek austerity plan thus serves as a dress rehearsal for the U.S. – with the Democratic Party playing the role as counterparts to Greece’s Socialist Party that is sponsoring austerity, and expelling labor union leaders from its ranks if they object to the grand double-cross.