The cost of bailing out capitalism

The International Monetary Fund’s latest Global Financial Stability Report has provided some conservative estimates of the potential global losses from bailing out the flawed capitalist financial system. According to the IMF, governments around the world will lose an estimated $4,400 billion on the loans and guarantees made to the financial sector over the last 18 months or so. 

$4,400 billion is the total value of all the good and services produced in 2007 in Japan, the second largest economy in the world. Yet this is a conservative estimate as it only covers banks’ losses on loans and securities and does not include the flawed an inactive derivatives market. 

Still this is an astonishing amount of expected loss that will need to be paid by ordinary taxpayers over decades. This is the price for bailing out capitalism. Despite governments’ committing nearly $9,000 billion in loans, asset purchase schemes and guarantees, with the justification of rescuing the real economy, the world economy is in the midst of a major global recession.

Driven by the venerated incentives of capitalism bankers took out huge loans to make colossal gambles which they lost. Rather than punishing this failure as capitalism espouses the bankers have been rescued with the world economy ending in deep recession. Private debt has been nationalised with the new debtors, taxpayers, unable to affect or influence the outcome of such a major catastrophe. 

Proponents of democracy champion the role played taxpayers in accounting democratic governments. It is argued democracy needs taxpayers. Yet we see taxpayers and their democratic representatives utterly powerless in influencing the course of events in the last 18 months when the tax burden has risen exponentially. 

The reality is political leaders are influenced more by rich bankers who can finance billion dollar election campaigns than ordinary citizens. This is demonstrated by the increasing role of bankers in government as detailed in “bankers own the congress.”

Thus this is not only a failure of capitalism but of democracy.