American Morphine and the fall of the market of invisible hand

While America is trying to cure its sick economy applying the morphine injection and serving the media Prozac, while European leaders once again discredit the EU decision-making mechanisms, quietly legitimizing unilateral actions by Member State’s governments – the world’s public opinion still seems to tacitly endorse the raid of the state institutions for their own money (taxes) and the new socialism for the rich in the name of the fight against new threats of the decade in the form of the financial crisis.

 

Managing fear

Browsing the pages of history, rises and declines of empires, thesis can be derived stating that one of the abilities that helped leaders to maintain their governance or dictatorship over the years, have been skilful management of the social levels of fear. Some of us might remember the remarkable scene from Boleslaw Prus’s “Pharaoh”, where the priests maintain political influence through the knowledge of the coming eclipse of the sun, and adequate manipulation of the crowd.

Ideologies of twentieth century had mastered this art almost perfectly – on one hand haunting with odious capitalists, exploiters and instigators of war, on the other raising the fear using the threats of Jewish-mason conspiracy, attack on cultural or racial superiority and religion. Taking into possession the channels of public information has become a feature of all respectful regimes.

Under the current democratic systems based on the liberal market, free and pluralistic societies have (at least in theory) access to a sufficient number of more or less reliable sources of information, with which they may confront their observations or signals emanating from the ruling elite. It is just a question of their will. In an era of higher than ever accessibility to Internet, alternative channels of deriving knowledge, the manipulation of reality in order to scare social majority or to achieve the political goals is fortunately aggravated.

Sphere, which leaves a margin of manipulation, however, is a convenient presentation of the “cures”, political sale of ways on how to deal with commonly visible, objective problem.

Access to the results of scientific research, good relationship with the authorities in the fields of researching social risks, appears to be an excellent investment from the point of view of political marketing. On their shoulders lies the public confidence in the case of fear of something (someone) completely unknown or complicated enough that the precise identification and understanding is not accessible to the average citizen.

Decade of fear?

Historians, sociologists and other analysts, who will investigate in the future, the first decade of the twenty-first century in a global scale, its socio-political dimension, are likely to entitle it “the decade of fear” and thus increased social role of the State.

9/11 attacks in the United States have began this slow process of the stigmatization of a “free man” (especially in America), who – in the name of fighting an invisible enemy – step by step has been deprived of privacy, gradually carved out from the sphere of institutionally not-controlled scraps of his intimacy – of course, in the name of common good, in the name of safety.

Post-September random interrogations of Muslims in the U.S., phone calls monitoring, state bureaucracy access to the electronic mailboxes of citizens have advanced from day to day from the slightly abstract set of dangerous toys of Orwell’s Big Brother, into tools “necessary” in the defense of democratic order. It all has happened with a relative and silent approval of American society, paralyzed by the terrorist threat.

Everything seems to lead towards the situation in which, in the coming weeks, not just U.S. citizens, but the community around the world will be forced to face a new source of fears. Threats that could effectively paralyze the democratic defense mechanisms, in the form of social response, protest against the actions detrimental to freedom, and the protection of citizens against the consequences of irresponsible decisions.

In these times we should be looking with attention at the hands of the governors.

Financial Crisis

Financial Crisis – exhausted in all possible cases key-word, opening most news services around the world, the mare invading secured sleep of the stock-market sharks, something nauseous that politicians talk about with trembling hands, bringing the citizens heart beat stronger … haven’t I overstated the latter?

The situation from the perspective of the average citizen is fortunately not tragic. Yes, there appear to be potential risks in the labor market, and on some volcanic islands of the world you may hear hoof tramp of the galloping inflation, credit became less accessible for those interested in purchasing the house or car. Crisis specter however, seems to threaten much more big corporations, banks, entities of incompetently managed risk that has been usually much less of a mantra to our own household budgets.

The situation seems to be even worse, when we take a closer look at the (di)stress of those who took on the repayment of large loans and whose income in the crisis cooled economy will not be able to secure the liquidity of paying back the installments. In particular, this concerns the U.S. consumers, accustomed for years to the system of consumption based on credits.

In the current situation the question is getting raised about the role of state institutions, the boundaries of actions and interference into the free market mechanism that should be taken by our representatives in the government, in order to minimize the social consequences of the financial markets liquidity crisis of the world.

State duties

The role of state in liberal economies is to create such rules of the game, in which globally recognized risk factor in relation to the individual, the citizen, is minimized, especially in the cases of sustainable or temporary disruption of its functioning. The role of the state is also to ensure respect for justice prevailing rules of the game to all market actors.

The state is to be primarily responsible for all the voters, citizens. It is in the end thanks them who legitimize the rulers’ governing authority, though government decisions are often not independent from financial support of organizations, corporations, companies, institutions of different nature. This relationship service is based on the framework defined by the provisions of law (constitution) and the mechanisms of free market.

Recently adopted by the U.S. Congress and the President of the United States so called “Paulson Plan” appears to go far beyond the frontiers of typical state action in a free market economy, recalling the rather dangerous and unprecedented for the twenty-first century standards interference of the state in the economy.

Interestingly, it all happens along with society’s acquiescence (silence as approval?) and surprising absence of criticism – although the main beneficiaries of the money “pumped” in the banking sector by the U.S. government would be first of all, same “experts” whom we can see in the media trying to convince citizens’ that such “surgical” procedure is absolutely necessary for the U.S. economy … in most of the cases, these are the same people, corporations, who are de facto responsible for the current crisis.

American Morphine

700 billion dollars (over 20% of the annual U.S. budget) of the bail-out, designated by the U.S. government to “rescue” the financial sector, in particular the failing banks, whose rash lending policies of granting loans without sufficient repayment guarantees to the citizens, so-called “ninja’s” (no income, no job, no assets) led a large part of the U.S. economy to fall, appears to be morally questionable. It is not only clapping gambler’s back, who has lost all the borrowed money in the casino, but filling his pockets with another check of “trust” and becomes a serious a violation of free-market principles, where the inferior should give place to a safer, more efficient player.

Such huge injection of money, without specific legislative proposals, with no regard to the realm of regulation or the establishment of the institutional control over the “licentious” wrestling financial sector, recalls rather a shot of morphine applied the sick patient to temporarily relief from pain than medication that could possibly cure the reasons of the malaise.

The price of the questionable medical treatment is to be acquitted by the American taxpayer, who will cover the losses. The bill accounts for bagatelle:

- 2295 U.S. dollars per statistical U.S. citizen (700 billion U.S. dollars / 305 million people in the U.S.)

or worse

- 4,635 U.S. dollars per statistical working American (based on data accounting for about 151 million workers in the U.S.).

Citizen, stupid!

Nationalization of banks and other financial institutions at the expense of the American taxpayer have been proposed in strong contrast to the lack of any plan of assistance for citizens who found themselves unable to repay incurred debts. Why Americans do not criticize their government and to paraphrase their former president Bill Clinton by shouting loud: “Citizens, stupid!”? Isn’t it the citizen on who we should see focused attention of the state?

The proposal of the great looser of this year Democratic Party nomination for the U.S. White House race, Senator Hillary Clinton – to appoint so-called “Home Owners’ Loan Corporation”, modeled on a similar body created in 1933 by President Roosevelt as part of a “New Deal” policies to help home owners to repay the mortgage loans raised – have not met sufficient political support.

This has happened despite the rational arguments of the former First Lady, warning that lack of action addressed to the borrower would never solve the crisis, which has met lenders. Without it, it would be difficult to maintain consumption levels of the U.S. citizens that seem to be the basis for the functioning of the U.S. economy.

Promoting the Paulson Plan as the only appropriate remedy for the sick system’s gripes, seems to be the media shaped Prozac served to the American society lost in depression, or rather engineered fear of it.

Manipulation of fears has been replaced by the manipulation with the list of remedies?

As a result, we are dealing with social approval for the “raid” of state for citizens’ money – something that an economist from New York University’s Stern School of Business professor Nouriel Roubini calls to be the privatization of profits and nationalization of the losses, socialism for the rich and well connected to Wall Street in the name of the fight against new threats of the decade in the form of the financial crisis.

It is to be hoped that the morphine applied in such large quantities to the free market, by invisible hands of U.S. taxpayers will not lead to a state of agony, or artificially induced euthanasia.

European prescription or the sum of individual powerlessnesses?

We couldn’t count in the globalized finances world on the U.S. crisis not to reach the borders of our continent. European Union institutions – clearly surprised Wall Street events – have not been able to prepare in advance to the circumstances of the loss of liquidity of certain components of its own banking system.

Quite long silence of the French presidency, and the European Commission itself (relatively the European Central Bank) has resulted in the cascade of declarations by individual Member States (Ireland, Greece) assuring their banking systems with the willingness to inject the money (financial morphine) if needed and to nationalize of banks in danger (Belgium).

Apart honorable objectives of such assurances, willing to minimize the public fear about the safety of citizens’ assets in the banks, those declarations were strange and surprising enough, as contrary to the EU competition law, which prohibits governments of the Member States’ subsidization of free market economy sectors (except directly subsidized by the EU, such as agriculture and regional policy), and any disruption of the internal market of the 27-countries bloc.

The authority of the European Union was therefore put at stake; We have experienced another battle between: the strength of national egoisms and taking care of welfare (well being, safety) only of their own citizens on the other hand and the (lack of) ability to develop a common position, finding prescription, list of actions necessary in relation to the situation or potential risks.

At present, it appears that result of the battle is still not decided and the reactions of European leaders seem to be schizophrenic at times. German Chancellor Angela Merkel, who criticized one day the states which declared their support for individual banks, without waiting for common EU position, on the second day of agreed herself to provide 50 billion Euros of support (public-private partnerships) for the failing German bank Hypo Real Estate.

The lightness with which some European leaders provide the support services of banking systems in their countries, smells strongly hypocrisy when confronted with the decisions of the EU Competition Commissioner Neelie Kroes on the declining the state aid for Polish shipyards and ordering the repayment of public funds, which may lead them to collapse and deprive the masses of shipyard jobs. In which sense the shipyards are worse than the banks that they are refused to be treated alike?

How far will we let it go?

Is the EU going to cave in under the strong banking sector lobby and create the European version of the Paulson Plan? Based on the statements of European politicians at the recent summit in Brussels, we can say that we should not feel threatened yet, although some state intervention in the banking system has already occurred (the Belgian bank Fortis and the German Hypo Real Estate).

In contrast to the U.S. government, European finance ministers have raised the guarantee limit for bank deposits of its citizens (from the current mandatory 20’000 to 50’000 Euros) in the case of the collapse of their bank, rather than deciding on direct support to the banking system by the injection of money, alike their American counterparts.

Instead of a syringe with morphine, citizens’ have been proposed a vaccine. It has to be met with appreciation, that the proposed solution by the EU in the first instance to took into account the financial safety of the Europeans. However, we will have to wait with the positive evaluation of the effectiveness of the vaccine.

Gambler’s courage

One thing is certain, that in such moments of crisis, when the strength of political decisions or those made by investors on the financial markets are governed by emotions, we should not uncritically look at prescriptions of governing elites to the contemporary problems and unregulated bills for someone else’s mistakes, which may be presented to us for payment.

In the era of new global threats, more or less real sources of fear, we, the citizens should not need to fear to look at our governor’s hands and to require them access to abstract of account stating clearly the gains and losses and urge them to take action to protect our interests …

… even should it require from us … the gambler’s courage!

 

 

The article has been originally published in Polish in September 2008