Mike Whitney calls Henry Paulson’s bailout plan “a band-aid approach to a sucking chest wound”. He goes on to say: “The debts are enormous and the pain will be substantial, but the problem cannot be resolved by crushing the middle class or destroying the currency”. Whitney’s article condemns and explains the deregulated US financial system: “Now taxpayers will pay for the lawless system which men like “industry rep” Henry Paulson put in place. That’s deregulation in a nutshell; a system that allows Wall Street banksters to create credit out of thin air and then run weeping to Congress when their swindles backfire. shows the dire consequences of an unsupervised marketplace where individual players are allowed to create as much credit as they choose”.
The system is at the breaking point, and despite Wall Street’s elation from the proposed $1 trillion dollar bailout to remove toxic mortgage-backed debt from banks balance sheets, the market is still correcting in what has become a vicious downward cycle. This cycle will persist until the bad debts are accounted for and written off for or until the exhausted dollar-system collapses altogether. Either way, the volatility and violent dislocations will continue for the foreseeable future.
The problems cannot be resolved by shifting the debts of the banks onto the taxpayer. That’s an illusion. By adding another $1 or $2 trillion dollars to the National Debt, Paulson is just ensuring that interest rates will go up, real estate will crash, unemployment will soar, and foreign central banks will abandon the dollar. In truth, there is no fix for a deleveraging market anymore than there is a fix for gravity. The belief that massive debts and insolvency can be erased by increasing liquidity just shows a fundamental misunderstanding of economics. That’s why Henry Paulson is the worst possible person to be orchestrating the so called rescue project. Paulson comes from a business culture which rewards deception, personal acquisitiveness, and extreme risk-taking. Paulson is to finance capitalism what Rumsfeld is to military strategy. His leadership, and the congress’ pathetic abdication of responsibility, assures disaster. Besides, why should the taxpayers be happy that the stocks of Morgan Stanley, Washington Mutual and Goldman Sachs surged on the news that there would be a government bailout yesterday? These banks are essentially bankrupt and their business models are broken. Keeping insolvent banks on life support is not a rescue plan; it’s insanity.