Yo Momma’s Socialist: Reagan & Bush, "The Banks Will Never Be Allowed to Fail"

Ronald Reagan & Bush: “The Banks will Never Be Allowed to Fail”
Nationalizing banks isn’t new, the modern American capitalist
economic system presumes that the financial sector will be bailed
on on a regular cyclical basis.

In Bad Money, Phillips also discusses the shift from a production economy
to a service and finance economy. This idea supports the assertion that
current bail outs are a current and necessary feature
of modern American Capitalism. He writes,

In the late 1980’s the government decided that finance,
not manufacturing or even high tech, had to be the sector on
which they would place its strategic chips- would “pick as a winner…
farms and factories were expendable, but certain business and
financial institutions would not be allowed to fail.

Would not be allowed to fail.
Would not be allowed to fail.
Would not be allowed to fail. Phillips goes on to write about the specific kinds of
assistance offered to banks.

Since the 1980’s there have been three kinds of
assistance that have been sought from (and generally provided):
government bailouts when pivotal institutions, loans, profit
methodologies got themselves in trouble services in trouble;
Liquidity for the Fed required to keep the wealth escalator
going; benign regulation and law making. Favoritism is what
it use to be called.

In an interview in N+1 Magazine, Geography Professor, David
Harvey explains why the modern American Capitalist economy
assumes that bailouts will occur on a regular basis. He explains,

Instead of saying there is a systemic problem, which
periodical erupts, in the history of capitalism, we tend to
look at this peculiar incident of the present. But the property
market crises have played a crucial role historically
in triggering major downturns past economies

…The global downturn of 1973, everybody says it was oil. But
the actual recession started six months before the oil
embargo….with a global crash in the property markets. If you look
at what brought the Japan economy down at the end of the
1980’s it was speculation in the land and property markets. If you
look at the recession in this country during the savings and loan
crisis …something like a thousand banks were on the watch list- it was
as property market thing.

Harvey uses plain language to describe why this mortgage
crisis has affected us differently than the crises of the past.
He writes,

This is not unique to the history of capitalism. What is different
this time around is the extent of it, and the degree to which finance
changed its manner: For instance when the property market crashed
in 1973, it was mainly local banks that got caught out, because if you
had a mortgage, you had it with a local bank, so the mortgage market
was localized. During the 1980’s, the mortgage market became
securitized , and they started to put together all these mortgages
and push them onto organizations like Fannie Mae and Freddie
Mac, or they would get package onto collateralized debt obligations
and sliced up and sold to a pension fund in Florida or a bank
that had excess liquidity in Germany.

Harvey also had some really interesting things to say about
how risk was managed through out the globalization of
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The mortgage market became really global. This was
suppose to spread the risk. Which to some degree it did.
But as it spread risk, it built more risk. People at financial
institutions thought that if you spread risk, you eliminate
risk, which of course you haven’t done.

Harvey then goes on to discuss how we should all equally shoulder
the burden of the failure of the banks. He explains that,

Technically everybody should, but we have a structure
of state power which is dedicated to protecting the integrity of the
financial system. So in the effect what happens in that
state uses it power to bail out the financial institutions.

..If you look at cities like Cleveland and Baltimore, the
foreclosures wave has been like a series of financial Katrina’s.

After reading this, I would imagine that it is easier
to see how the current cycle of bailouts has very little to do
with subprime markets or middle and low income
Black and Latino home owners buying more house
than they could afford, per se.

Harvey concludes with the statement that the Capitalist
economy has been about growth and that we need to prepare
our selves to live in a society where there will be no growth.
He mentions that every economy needs a surplus, some
extra cushion just in case things go bad. He suggests that
we think about our surplus being held by the government
but controlled by the American people. While the tone was
somber and it was encouraging as well,

“What we see the system beginning to get rockier and rockier,
and it is time that people started to say, “look, this system cannot
continue in this way.” So the best case scenario is the growth
of a political movement.

I will discuss my thoughts about this idea in an upcoming
post on local, green, artistic & sustainable economies.

‘Yo Momma’s a Socialist: From Production to Consumption ‘
‘Yo Momma’s a Socialist: Reagan and Bush, “The Banks Will
Never Be Allowed to Fail”
‘Yo Momma’s a Socialist: Podcast

The ‘Yo Momma’s a Socialist Podcast is a conversation
that Filthy and I recorded last September. We discuss:
American Consumption, Racism, WWII, Adult Onset Poverty,
Why More Schooling Isn’t the main Solution, Lenin, Fordism
The Soviet Union, Why Products Don’t Last Anymore, Germany.

Thoughts? I know you have some.
Is it too much to grasp?
Or does your bank account tell you that you
don’t have a choice BUT to try and understand it?