Austerity should be for the banksters, NOT their victims

Austerity sounds vaguely virtuous.  The idea is to stop spending money on things we cannot afford.  And after at least a century of rampant conspicuous waste, I can think of all sorts of fat targets ripe for elimination.  Things like the multi-trillion dollar bailout of the most corrupt banks in recorded history.

Unfortunately for the rest of us, the Predator Classes have things in mind like eliminating free education for poor students when they think of austerity.  And in their naked greed, they have managed to provoke near revolutionary conditions in places like Greece—and rapidly spreading to the rest of Europe.

The Myth of European Socialism

Austerity Backlash

by JACK RANDOM   MAY 08, 2012

The countries that are doing very well in Europe are the Scandinavian countries. Denmark is different from Sweden, Sweden is different from Norway – but they all have strong social protection and they are all growing. The argument that the response to the current crisis has to be a lessening of social protection is really an argument by the 1% to say: “We have to grab a bigger share of the pie.”
– Joseph Stiglitz

There are few themes the American right likes better than accusing the centrists of the Democratic party of trying to enact European socialism. Led by their corporate candidate for the White House, they point with apparent glee at the economic slide in Europe and proclaim the triumph of conservative economic theory.

Nothing could be further from the truth. Europe’s decline was in fact a direct consequence of its adopting American-style free enterprise economics. The initial crisis (along with our own) was caused by drinking the kool-aid of Wall Street’s brave new theory: that wealth could be created where none actually existed.

Under the leadership of Europe’s new Iron Lady, Angela Merkel of Germany, and France’s conservative Nicolas Sarkozy, the continent embraced the assumption that financial markets could govern themselves. When the fraud was exposed in America and the markets imploded worldwide, Europe responded with rightwing ideological zeal.

Europe discarded the lessons of practical economics and marched lockstep down the road to austerity. The result is a prolonged, profound, double-dip recession that threatens at once European unity and the sovereignty of its member nations.

Spain should have been an exception to the austerity mandate but its socialist government fell in line, yielding to the influence of Europe’s more powerful nations. Socialist in name only, Jose Luis Rodriguez Zapatero followed the examples of discredited former Prime Minister Tony Blair and former American President Bill Clinton. Claiming the mythical “third way” he discarded his most fundamental principles by lowering taxes on the wealthy, cutting public spending by record amounts, cutting wages for public workers, and freezing pensions.

As any practical economist would attest, Zapatero and indeed most of Europe not only failed to act responsibly; they did the opposite of what was required.

Zapatero was swept from office at the end of 2011 and others will soon follow. The democratic backlash against the austerity mandate has swept through the Netherlands, smashed through Greece and Italy and today (as I write these words) it rolled over Sarkozy’s France.

The people have served notice that they will not stand idly while their governments sell out to the interests of the elite. They will not pay for what the financial institutions broke. They will not suffer while the wealthy prosper. They will not watch their pensions disappear, their wages cut, their unions broken, their services stripped bare while the international corporations that conspired in this crisis continue to prosper. more

And Matt Taibbi cannot resist pointing out the obvious—austerity is being prescribed for all the wrong people.

Austerity Can't Be Just for Regular People

Matt Taibbi
May 8, 11:02 AM

It didn’t take long to crank up the backlash against European voters. This is inevitable whenever a socialist wins a major election, but particularly now, when new French president François Hollande rode to victory shouting, "Austerity can no longer be inevitable!"

This sounds like the beginning of what will be a very heated debate over who has to pay for the excesses of the financial crisis. It was previously assumed that everybody but the actual financial services sector would have to pay, but voters in Europe now are refusing to go along, sparking a wave of eye-rolling editorials in the financial press. Even David Brooks got into the act today, penning a lugubrious editorial about the errant political instincts of the populist masses here and abroad.

Markets all over the world freaked out over the prospect of having ignorant European voters meddling in the recovery process the geniuses of the high finance world had already painstakingly laid out for them. The model for economic progress in the financial bubble era, after all, is supposed to go something like this:

1. Let banks inflate massive asset bubbles with the aid of cheap or even free government cash, and tons of leverage;
2. Before it all explodes, carve out gigantic sums for bonuses and compensation for the companies that inflated those bubbles;
3. After it explodes, get the various governments to bail those companies out;
4. Pay for it all by slashing services to what’s left of the middle class.

This is the model we used in America. We had a monster asset bubble based on phony mortgages, which Wall Street was allowed to inflate to spectacular dimensions with minimal reserve capital, huge amounts of leverage, and tons of fraud for good measure. When that bubble exploded, we first rescued the banks who inflated the thing in the first place, and then our plan for paying for it mostly revolved around folks like Paul Ryan and Chris Christie, who made great political hay by trying to take an ax to "entitlements" like health care and retirement benefits.

They're replaying the same script in Europe, sort of. The causes of crises in places like Spain, Greece, Portugal and Italy vary somewhat and are less simple to define, but a common denominator in all of them is weak growth mixed with giant budget deficits.

In most all of these cases, you had enormous sums of money entering these countries in the middle and late 2000s as global financiers in the midst of the bubble boom looked for higher-yield investments around the world – Spanish real estate, Greek debt, etc.

The local economies sucked up the bubble money, and in Greece's case they used it to ramp up state benefits, which they could no longer afford once the bubble burst. A lot of these countries turned to Wall Street to finance their way out of budgetary messes using swap deals and other hocus-pocus moves, kicking the can down the road as it were, and those decisions are now blowing up in their faces.

Now that it’s the next morning, and everyone has a severe hangover from the bubble, the dominant narrative is that these countries brought their troubles on themselves by being reckless spenders with unsustainable welfare states. The solution, naturally, is going to be "austerity," slashing state budgets, reining in those wasteful citizens with their unreasonable demands for returns on taxes.

Take today's Brooks column in the Times, for instance, which seems aimed at his colleague Paul Krugman (who has been arguing that cutting public spending and job stimulus in European countries will be disastrous). Brooks claims that the financial crisis was caused by "structural" problems, the first of which is that we’ve simply grown out of a need to pay low-skilled workers real wages:

Hyperefficient globalized companies need fewer workers. As a result, unemployment rises, superstar salaries surge while lower-skilled wages stagnate, the middle gets hollowed out and inequality grows.

According to Brooks, this organic trend toward lower salaries for everyone but the "superstars" managing those hyperefficient companies has forced politicians into the bad decision of borrowing and taxing to extend more welfare/charity to the less fortunate:

Politicians tried to compensate by reducing the tax bill, increasing deficit spending, ensuring easy credit for homebuyers and by helping workers shift out of the hypercompetitive, globalized part of the economy and into the less productive and more sheltered parts of the economy – mostly into health care, government and education.

But you can only mask structural problems for so long …. The current model, in which we try to compensate for structural economic weakness with tax cuts and an unsustainable welfare state, simply cannot last.

Naturally, since that welfare state is "unsustainable"” we need to be real about things and stop the deficit spending and the stimulus, etc.

This world view ignores the fact that those "superstar" leaders of "hyperefficient" companies have been sucking up a thousand times as much welfare as those low-skilled workers Brooks is talking about. Here’s how the "superstars" of the banking world sometimes earn their bonuses: they borrow trillions from the U.S. Federal Reserve at zero or near zero interest, then they turn right around and lend chunks of that free money to a place like Greece (ex-FDIC Sheila Bair, in a hilarious editorial on the subject, pegged the ten-year yield at 21%), then they pocket the proceeds and call it capitalism.

Brooks’ analysis of the financial crisis leaves out things like the $16 trillion in emergency loans the banks secretly got from the Fed in the years since the crisis. It ignores quantitative easing, bailouts, and the trillions of dollars of bets Wall Street made on the unreal economy during the bubble years that we all ended up paying for, either through taxes or reduced home values or lowered interest on our savings.

The point is, when people talk about “austerity,” they only ever talk about the pain the general population should voluntarily accept, in the form of reduced services and curtailed “stimulus.” No one ever says the financial services sector should have to cut back on its access to easy money, and there hasn’t been much in the way of serious plans to restore some sanity and prudence to the lending and investing business. more