UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

May 20, 2009

CRASH TALK

Dirt Digger's Digest - Bailouts are supposed to be situations in which companies come to Washington with a tin cup and plead with lawmakers to save them from obliteration. Lawmakers have to be persuaded to devote public money to rescue those suffering failure in the private market.

Somehow that has gotten completely turned on its head. We now face a situation in which the federal government is in effect pleading with large corporations to take its money, and those companies find it distasteful to do so. Getting bailed out is viewed as burden rather than deliverance. Financial policy has gone from being wrong-headed to being downright bizarre.

Treasury Secretary Timothy Geithner does not seem to be aware of the absurdity of his position. It is unclear why he continues to push his bailout medicine on financial institutions that claim they don't need it-claims that on the surface have more validity following the completion of the stress tests that were dubious to begin with and lost all validity after it came to light that many banks successfully negotiated for more favorable findings.

To make things worse, Treasury is, according to the New York Times, allowing those banks buying back the feds' holdings to do so on extremely favorable terms. "Treasury accepted a lowball offer," one analyst told the Times.

The time has come for Geithner and his boss President Obama to admit that the bailout program has become a farce. There is little evidence that it ever accomplished the stated aim of freeing up lending. Whether or not the banks really needed the assistance in the first place is something that analysts will be debating for many years to come. The auto industry portion may have provided some breathing room for General Motors and Chrysler, but now it's become clear that the real plan is to increase imports from low-wage countries such as China.

Let's wrap up this botched flirtation with state capitalism and focus on rebuilding an effective system of financial regulation. Some investigations and prosecutions of those who caused the mess in the first place would also be welcome.

Al Jazeera - The Japanese economy has contracted at its fastest pace in more than 50 years amid slumping exports and consumer spending at home. The world's second-largest economy contracted by four per cent in the three months to March this year compared with the previous quarter, resulting in an annual GDP drop of 15.2 per cent, the government said. The drop was the steepest since the country began recording gross domestic product statistics in 1955 and it is the first time on record that the economy has contracted for four straight quarters.

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