The Progressive


A project of Common Dreams

For Immediate Release

Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167

Behind the Bailout



Chomsky, whose recent books include Interventions and The Essential Chomsky, stated:
"Markets have inherent and well-known inefficiencies. One factor is
failure to calculate the costs to those who do not participate in
transactions. These 'externalities' can be huge. That is particularly
true for financial institutions. Their task is to take risks,
calculating potential costs for themselves. But they do not take into
account the consequences of their losses for the economy as a whole.
Hence the financial market 'underprices risk' and is 'systematically
inefficient,' as John Eatwell and Lance Taylor wrote a decade ago,
warning of the extreme dangers of financial liberalization and
reviewing the substantial costs already incurred -- and also proposing
solutions, which have been ignored.

"The threat became more severe when the Clinton administration repealed
the Glass-Steagall act of 1933, thus freeing financial institutions 'to
innovate in the new economy,' in Clinton's words -- and also 'to
self-destruct, taking down with them the general economy and
international confidence in the U.S. banking system,' financial analyst
Nomi Prins adds. The unprecedented intervention of the Fed may be
justified or not in narrow terms, but it reveals, once again, the
profoundly undemocratic character of state capitalist institutions,
designed in large measure to socialize cost and risk and privatize
profit, without a public voice. That is, of course, not limited to
financial markets. The advanced economy as a whole relies heavily on
the dynamic state sector, with much the same consequences with regard
to risk, cost, profit, and decisions, crucial features of the economy
and political system."
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NOMI PRINS, via Celeste Balducci
Prins is a former investment banker turned journalist. She used to run
the European analytics group at Bear Stearns and has also worked at
Lehman Brothers and Goldman Sachs. She said today: "With another Sunday
night surprise announcement, this time that Goldman Sachs and Morgan
Stanley have been transformed into Bank Holding Companies, the
dissolution of Glass-Steagall transcends its 1999 repeal. Rather than
risk more pain while scrounging for capital, Goldman (with former CEO
turned Treasury Secretary Hank Paulson's help) has positioned itself to
take capital directly from citizens, with all the benefits and federal
safeguards of a commercial bank. Somewhere Senator, and former
Treasurer, Carter Glass, is turning in his grave."
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An economist, Wolff just wrote the piece "Cowardly New World," which
states: "Secretary Paulson has attempted to declare himself the most
equal of pigs in our animal house economy. The Treasury seeks more than
$700 billion for itself under the sole auspices of the Secretary whose
management helped bring us right over the brink. I say more because
unlike so many commentators, I read the proposal. It only limits
Treasury to $700 billion in balances at any one time (Section 6). If
they buy $700B and lose 20 percent of the principle ($140B), Treasury
will just buy another $140B. That restores market confidence?"

Wolff is an instructor at the Graduate Program in International Affairs
at the New School University. He is a frequent contributor to
Huffington Post, Asia Times and The Indypendent.
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A nationwide consortium, the Institute for Public Accuracy (IPA) represents an unprecedented effort to bring other voices to the mass-media table often dominated by a few major think tanks. IPA works to broaden public discourse in mainstream media, while building communication with alternative media outlets and grassroots activists.