Global Financial Crisis

THOMAS FERGUSON
Available for a limited number of interviews, Ferguson is professor of
political science at the University of Massachusetts, Boston. He is the
author of Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems (University of Chicago Press).

Ferguson noted that the Financial Times reported
in its Thursday print edition: "The Federal Reserve -- while very
supportive of the asset purchase plan -- has believed for at least four
months that recapitalization of the banking system is the most potent
way to fight the credit squeeze. But the Treasury has hitherto been
skeptical about recapitalization, in part because of concern over the
degree of government intervention this would imply. Now the Treasury
seems to have come round to the view that direct recapitalization makes
sense on economic grounds -- though the U.S. is certain to tailor its
approach to its own domestic conditions."

Professor Ferguson commented today: "The disclosure yesterday that
the Federal Reserve has been urging bank recapitalization for four
months, while the Treasury has resisted, is stunning. It should give
everyone pause and attract immediate attention from regulators and
Congress.

"So should the article's reference to market fundamentalism
('concern over the degree of government intervention') as the reason
for Treasury's resistance. What all this gobbledygook really means is
that the Treasury Secretary and his friends in the financial sector
resist sharing any of the upside from government intervention with
taxpayers whose money will be used to save them. They are determined to
preserve existing shareholders from dilution by new preferred stock
issuance.

"The decision to put Paulson's young former special assistant
[Neel Kashkari] in charge of the bailout program only adds to one's
doubts. Gretchen Morgenson of the New York Times and others have raised
serious questions about Secretary Paulson's calculations in previous
bailout episodes. Der Spiegel's report yesterday that Treasury is
thinking that any shares it does take should be non-voting is even more
disturbing. Days after the Treasury rescued AIG, the company was
throwing lavish parties. The government needs voting shares to stop
such nonsense.

"With ... everyone's pensions, 401Ks and other financial reserves
shrinking by the hour, it is high time for Congress to insist
immediately that the bailout program convert itself into a modern
version of Franklin D. Roosevelt's Reconstruction Finance Corporation.
Treasury should not be allowed to 'tailor its approach' -- it just
needs to focus like the proverbial laser on increasing bank capital by
direct injections of equity into banks that can be saved. And the
bailout needs to be run in a completely transparent manner, with
clearly stated, publicly verifiable criteria for making the
investments. It is intolerable that everyone's financial assets
continue to be put at risk for ideological goals and private profits."
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PATRICK BOND The G-7,
International Monetary Fund and World Bank are meeting this weekend. On
a short visit to the U.S., Bond is based in South Africa, where he is
professor of development studies and director of the Center for Civil
Society at the University of KwaZulu-Natal and has long scrutinized
these institutions.

Bond said today: "The global economy's vast financial sector
expansion has occurred in the context of productive sector stagnation
which dates back more than three decades.

"Thus far, since the early 1980s, the management of the crisis has
increased the leading power brokers' capacity to 'devalue' large parts
of the Third World, including major emerging market sites like South
Africa -- as well as to write down selected financially volatile and
vulnerable markets in the North (e.g. dot.com and real estate bubbles).
In contrast to the early 1930s, this set of partial write-downs has not
yet created such generalized panic and crisis contagion as to threaten
the entire system's integrity. Shifting and stalling the crisis over
the past decades has meant allowing idle capital to bubble up into
speculative markets, and has also increased extra-economic coercion
(the way Naomi Klein describes in her book 'The Shock Doctrine').

"The result is a world economy that concentrates wealth and
poverty in more extreme ways, geographically, and brings markets and
the non-market spheres of society and nature together in a manner
adverse to the latter. Reform of the system is long overdue, but is
hampered by severe bias in multilateral financial and development
agencies, amounting to a neoliberal-neoconservative fusion. No 'global
governance' initiatives appear to be succeeding, either with respect to
financial imbalances, trade, United Nations reform, climate control or
other crucial global-scale problems.

"Moreover, there is constrained space and political will at
national level in most states, requiring much more aggressive civil
society activism, such as the email/phone swarm that intimidated the
U.S. House of Representatives from approving Paulson's initial bailout.

"In short, what this means is an urgent need for U.S. citizens to:

a) transcend U.S.-centric understandings of the financial meltdown,
especially those based on superficial epiphenomena (corruption,
deregulation, greed, fraud, consumer overindebtedness);
b) think more deeply about the problems building in the U.S.-led world markets, going back several decades;
c) look realistically at the limited ability of world institutions --
e.g. the Bretton Woods Institutions [such as the IMF and World Bank]
having their annual meetings in Washington this weekend -- to solve
problems, given the adverse power balance and self-interested
leadership;
d) consider whether any national state -- even the U.S. under an Obama
administration -- will have the scope to generate solutions given how
deep and wide the crisis has become; and
e) instead support various creative initiatives of civil society groups
across the U.S. and the world, who have made history under similar
circumstances of crisis and renewed social activism."

Bond is author of the recent paper "The
U.S. financial meltdown: What really happened? Roots of the economic
crisis in overaccumulation, financialization and 'global apartheid.'" A Power Point presentation of his work is available here.

Bond was formerly a Pacifica Radio economics correspondent and
Washington correspondent for American Public Media's "Marketplace." He
studied at Swarthmore, the Wharton School of Finance and Johns Hopkins
and wrote more than a dozen public policies for Nelson Mandela's first
democratic South African government.

Bond's recently authored and edited books include "Looting Africa:
The Economics of Exploitation," "Talk Left, Walk Right" and "Against
Global Apartheid: South Africa meets the World Bank, IMF and
International Finance."
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