• Global economic crisis: why are governments bailing out banks?

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The short answer is “because governments are stupid and power hungry”. The long answer follows: allow me to explain the stupid part, then I’ll get to the power hungry bit.

Many people are saying that the economic crisis is caused by the free market: that it is not true because we don’t have a free market. The economic crisis is caused by governmental control of money via central banking systems, e.g. the Federal Reserve¹.

Central banks allow governments to print money at will, and when governments want to boost economic growth they print more money, which retail banks then loan out (the US government has been printing a lot more money since 1992). It’s cheap to borrow money at times like this, so people borrow lots and invest it business enterprises, rack up huge debts on their credit cards, and take on massive mortgages for high-priced houses. Because money is easily obtained people make bad investments, and badly run companies eventually go bust. The investors then can’t repay the money they borrowed for their unwise investments, and the people formerly employed by the bankrupt companies can’t repay their credit cards and mortgages (in a crash people will often be in negative equity, where the balance owing on the mortgage is greater than the value of the house). When people can’t repay their loans banks go bust, which is what is happening now: in the USA the situation was made worse by government policies that caused banks to lend to people that no sane banker would lend to, i.e. the subprime mortgages which formed about a quarter of all mortgages. This is a simplification, but that’s the guts of it.

When banks fail the government tells us that the end of the world is nigh and that we have an economic crisis, when in fact such things are simply the economy trying to return to reality and leave behind the world of imaginary wealth created when the government prints money.

Remember that the whole problem is caused by the fact that governments can print money at will. What is happening now is that governments are printing more money to bail out the banks: that’s the stupid part, because governments are just doing more of the same thing that caused the problem in the first place. It’s like walking a mile with a stone in your shoe and deciding that the way to fix the problem is to walk another five miles with the stone in your shoe. After six miles you have a major foot injury that takes a long time to heal, instead of a minor one that takes a short time to heal. If the government let the banks go bust there would a short recovery period, and bailing them out just increases the economic pain and stretches out the recovery period. However, governments operate solely with money that they have stolen from the citizens² – it sounds nicer when it’s called taxation – so they do not personally suffer as a result of their stupidity: to put it another way, it’s easy to spend other people’s money.

Now for the power hungry bit. Governments are buying stakes in healthy banks as well as sick ones; Henry Paulson, US Treasury Secretary, said that the government has bought stakes in “healthy institutions“. In the UK the government has effectively taken control of the banks, with the BBC saying “In return for the investment, the government will get a say in how the banks are run, including controls over the bonuses paid to management“, and Iceland has also nationalised banks. This is how governments steal property from private owners and bring it under their control and, like central banking, this is a policy straight from the Communist Manifesto: “The proletariat [i.e. the State] will use its political supremacy to wrest, by degree, all capital from the bourgeoisie, to centralize all instruments of production in the hands of the state…”³. We all know how well government businesses perform, so these bailouts are the kiss of death. The governments are saying that they will sell their bank shares at a later date, but that’s about as likely as George W. Bush becoming a pacifist.

The economic crisis calls for two solutions: (1) don’t bail out banks, let them fail and (2) get rid of central banking and return to the gold standard, i.e. stop allowing governments to print money and bring back a dollar based on gold. Governments don’t like these ideas because they are stupid and power hungry.

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See also my posts here and here.

Click here for background information on the economic crisis that you won’t find in the mainstream media.

1. central banking is a policy straight from the Communist Manifesto, and the history of Russia, North Korea, et al will tell you that following communist economic policies is a bad idea

2. each time the government prints another dollar each existing dollar is worth less (we see this as inflation), which is another form of theft

3. Governments use crises and manufacture crises to justify the taking of civil liberties and private property. E.g., when the Cold War ended the US government decided that Iraq was the new enemy, and that was expanded into the War on Terrorism. The UK government has also used terrorism as an excuse for gross violations of civil liberties. It’s just as George Orwell described in 1984: constant war to keep the minds of the citizens off the totalitarianism of the government.

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