Maurizio Blondet 27 Settembre 2008

The current wave of rises on the stock market, hectic and incredible, look really dull, like the wellness of a terminal-cancer patient when somebody offers him a miracle drug, feeling better only with the news. This miracle treatment, announced by the US power, is the Resolution Trust Corporation, an unbelievably huge scrap-yard where the government will throw out, after a discount purchase, the toxic derivatives (those which no one wants to buy today) with the hope to be able to resell them inch by inch in years to come, when (and if) there will be a recovery. It can also give a potential small margin, as some optimists say.

Because, they say, we mustn’t forget what’s behind these toxic assets (that nobody want, regardless of the price): there are real estates, homes, whose owners cannot pay the mortgage, causing a collapse of their market price. But may be, in five or ten years, they will be worth something, and – after selling them – the bail out cost, colossal today for the taxpayers, will be more reasonable. It is not the first time that U.S.A. had recourse to Resolution Trust Corporations: they were established during the 1930s, during the New Deal, without any positive influence. The depression was sorted out by WAR.

Let’s suppose, now, that the optimists are right. The question then is: why the American Power – that has injected liquid assets for 900 billion US$, without any result – hasn’t helped the citizens to pay their mortgages, giving them some cash?.

It’s not requested to them the payment of the whole banquet, just to pay the difference between the interests requested by mortgage holders and what the little debtors could pay. With just a fraction of what the Fed has squandered in anyone of the attempts of rescue,  would have happened the following results: there wouldn’t have occurred mortgage defaults, millions of impounded homes wouldn’t be thrown in the market crashing heavily down the prices (-20%); the owners would still hold their houses, ensuring their maintenance against the social deprivation; mortgage’s accruals would be paid regularly and, then, also the derivates – the bonds made by plungers mixing and fractionating that mortgages – wouldn’t have been toxic. And this crisis would have never been born.

So, if a little bit of liquidity would have been injected on the bottom end - to the poor debtors – the entire economic and social order would still exist now, with a reasonable price. Naturally, the liberism theologists, the gurus of the free market will reply: “[This help to the little owners mustn’t be given...] because it would be like make a gift to people who don’t deserve it. In the market capitalism, there’s no free lunch. If you are wrong, you pay for it. The liberism is moralistic”.

In the last few days, this objection has become really weak, destroyed by the fact that the central banks like Fed has given enormous amounts of cash to crooks, to plungers, to people that were [and are] surely unreliable, to the wrong people.

In the next to the last (and futile) cash injection, the Fed, helped by the ECB, the Japanese central bank and others, has put, into the pockets of the real criminals of the situation, 180 billion ( 10 times NASA’s budget) and, as it wasn’t enough, the dose increased of other 247 billion.

As before mentioned, the sum of all intervention made in the previous weeks reaches about 1 trillion: enough to provide every American citizen with health care for free, and also enough to create gigantic programs for public infrastructures, enough to start any kind of Research & Development plans with the purpose to find an alternative energy, a dozen of Manhattan Project.

In short, the power has preferred to give billions to the superrich – who ruined themselves -  rather that helping all the poor citizens, those on which the stability of the economical system – and also of the speculative finance – rely on. All financial creations and all the sophisticated instruments, invented by the genius of Goldman Sachs and Morgan Stanley, with the purpose to raise up the revenues using debts, are based, in last resort, on the essential requirement that millions of anonymous citizens, with nice job and salary, pay their bills, their accrual on home, on car, on credit card, to honour their commitments. Now the base is ruined, and therefore nothing will save the finance.

Globalization has exported the decently paid manufacturing jobs from America to Asia. It’s long time that Americans couldn’t buy the car monthlies, if it wasn’t for another mortgage on their homes; this worked only when real estate values were rising; but now, with that values melt like an ice-cream under sunlight, not any more. The liberal ideology, fanatically applied, have rendered precarious the job market; if you have a three month contract, you don’t access to credit required to buy a car, an home: in this situation there are millions of people. But, if is impossible to overburden the ordinary citizen with debts, everything halts.

The access to easy credit is the core of the American way of life. The American dream is based on monthly instalments. The mechanism now has been broken from the base. That’s why to put money on speculators hands is futile.

With those free funds, banks should restart interbank lending. Instead, with that money they have bought public debt for reassurance, considering it as a – relatively – safe investment, because they are trying to increase their reserves (to face giant losses which entity only they know), and because they know very well that other banks are in their same situation, insolvent.

How far the losses go, how many other holes they have on their balance sheets, it is a fact that banks hide well. It would be like playing poker showing the cards from the beginning, too bloody risky.

That’s why they are so happy with the announcement of government’s Resolution Act. They will show their poor poker cards (their “toxic” assets) all together at the same time. So, they hope to start again the same game: put in debt ordinary citizens with credit cards, toxic mortgages to them and also to the companies (2), giving risky loan, falling again in enormous debts to restart speculations (like the hedge funds) . But if the industrial workforce in the bottom of the pyramid isn’t there any more, the game is over.

The actual generation of workers will not do it again, is too scalded. It will take at least 15 years time to forget, to have another generation without memory of this disaster; it will be difficult to convince again to play roulette at the stock, to accept permanent debts; it’s difficult to find now necessary investment capital (pseudo-capital) to restart the economy. The finance will have written on its face “there’s no credit” for 15 years, at least. One of the most stupid comments heard from the thinkers of the terminal liberal illness, is: the US government is heading towards socialism, the nationalization of Freddie, Fannie, AIG is the evidence… Double idiocy.

First of all, it is not socialism, but economical fascism. In fact, this nationalization is along the same lines of the Italian IRI (state holding created by Mussolini) that helped firms to produce goods, to save jobs and keep the qualifying skills in the country, to keep modernity and excellence all over Italy.

The American IRI, instead,  helps banks, that produce nothing, only debts, bills of exchange, and worse. Fascist IRI nationalized Ansaldo Steels. American IRI, instead, nationalized Las Vegas.

I want to see if the banks will confer their derivatives to the American IRI. Only Morgan has 90 trillion $ in  derivatives, seven times the US GDP, twice the entire world’s GDP. Losses forecasts can reach 9 trillion, enough waste to break down the sturdiest trashcan.

Maurizio Blondet

Source >  EFFEDIEFFE.com | sept 21

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