Solving the Market Meltdown -- They Privatized Profits; now We Socialize Losses
Bumped by GH; well worth a second look. Originally posted 2008-09-19 13:18:23 -0500.
Back in July, I wrote a short commentary about how the 21st century robber barons, as if following the playbook from the Gilded Age, had managed to privatize for their own pocketbooks, the profits from selling off our national treasures, our forests, our airwaves, our oil, our minerals.
Think for two minutes about where the profits from the logging in the national forests go. Do you, as a taxpayer in this country, see any of that? Or grazing rights? Do you, as taxpayer, see any of the gains from the practice of allowing private individuals to graze their herds on national park lands? Do you see share in the profits -- as the Venezuleans certainly do in theirs, since the Venezulean Oil company is nationalized -- of the oil that underlies our country (well, excepting if you are a recipient of the $1200 check to Alaskan citizens)? Privizating profits loosely translates to take what is owned by everyone and give the revenue to only a few rich individuals.
That's the meaning of privatizing profits.
This week, we are learning painfully about the other half of the equation: Socialize losses.
If a company is badly managed, bail it out by having everyone pay for it. Let the owners walk away with their golden parachutes, and have the taxpayers pick up the tab. No, we don't have enough to get ice for the survivors of Hurricane Ike, nor can we repair our crumbling roads, or build mass transit, invest in clean energy... but we sure can rescue, with our tax dollars, the AIGs and Bear Stearns...
That's socializing losses... making the little guys pay for the mistakes of the uber class. Those guys in the upper atmosphere are sucking up all the oxygen. According to a WSJ article, entitled charmingly Richest See Income Share Rise by Jesse Drucker:
The richest 1% of Americans in 2006 garnered the highest share of the U.S. adjusted gross income in two decades as their average tax rate fell,the IRS said.
And for those politically inclined and disturbed by what Drucker calls "the increasing inequality," hope is on its way. Sen John McCain "has proposed extending the lower tax rates of 15% on long-term capital gains" -- which will surely level out the inequalities. (okay, I am kidding about the hope thing, unless you are filthy with riches.)
Another Wall Street Journal article from this past summer anticipated this Resolution Trust buyout (socializing losses):Like S&Ls? Paying the Tab For a Cleanup
At some point banks may run out of funding sources or willing buyers for their misfit loans. A three-letter solution is already on the lips of many investors: RTC.
Resolution Trust Corp. was established during the savings-and-loan crisis of the late 1980s and early 1990s. The clearinghouse sold off some $394 billion in assets of 747 failed S&Ls, costing the taxpayer about $76 billion, according to the Federal Deposit Insurance Corp.
Potential losses in this crisis are far larger, with estimates of $1 trillion or more being bandied about. Taxpayers won't be on the hook for anything close to that. But their bill could make the $124 billion they paid, in total, for the S&L crisis seem a bargain.
See Virginia, there is a Santa Claus.
... for the rich.
Paid for by the rapidly getting poorer middle class.