In its infinite generosity, Washington came to the rescue. Of course it had no choice; no modern government would dare let a financial crisis turn into a general collapse. Yet the situation is rich with irony. In the early 1990s, Greenspan would craft the Federal Reserve’s bailout of the 1980s mania. And the braindead caretaker administration of George Bush crafted the greatest socialization of private loss in history, the S&L bailout. And, remarkably, almost nobody has suffered serious criminal penalties or political disgrace for this rampant abuse of trust. Huge quantities of public money — some $200 billion, though definitive accountings are hard to come by — were spent with little discussion or analysis, and the affair is now largely forgotten. The chance to use the industry’s partial liquidation as an opportunity to develop new public and cooperative financial institutions was blown. Within a couple of years of the crisis’ passing, no one paid it any mind any longer. It’s as if it never happened.
Wall Street, page 90, Doug Henwood.
One question I haven’t seen answered so far, or even asked yet, is how the various governments around the world are paying for their bailout schemes. The US government doesn’t just have 700 billion dollars lying around, or the British government fifty billion pounds, nor even the Dutch government the 17 billion euros needed to bail out Fortis. So where do they get it from? That’s right, they borrow it on the international money markets.
So two questions: 1) if the banks are in trouble because they can’t get anybody to lend them money, where do the governments get their money from and 2) if there is money in the system, and if governments can get money for bailouts there obviously is, why isn’t this money loaned to the banks directly?
Obviously the answer to the second question is that the people with the money don’t trust the banks but do trust governments enough to think their investment is safe with them, even if their bailouts fail. Private profits, socialised risk.