If someone suggested that you spend a sizeable proportion of your income on buying a pile of household waste from the local refuse tip, you would rightly think they were off their heads. That, however, is exactly what’s happening in the United States in what is now being dubbed by some as President Obama’s “cash for trash” programme.
The “rubbish” in this instance are the dodgy “assets” held by the country’s banks, which they can’t get rid of because no one is willing to put a price on them. Once described as toxic, the White House is apparently now describing them as “legacy” assets. Some inheritance for American working people!
The “cash for trash” programme is truly staggering in its complexity but the essence is that private funds will actually receive a subsidy from the US central bank and another state body to buy rubbish assets from the banks. If the asset miraculously rises in price, the funds keep the profits. If they fall in price, the state takes the hit. As one investor put it: “It’s a win win situation.” Up to $1 trillion could be involved in what is euphemistically called the “Public Private Investment Program”.
This mad-cap scheme is a sign of the desperate nature of the financial crisis in the United States and also reflects a growing rage over taxpayer bail-outs to profligate banks and insurance companies who, like AIG, use the money to pay executive bonuses. A Bill is in Congress that aims to impose a retrospective 90% tax rate on AIG bonuses, which Obama is under fire for doing nothing about.
Will it work? Many have serious doubts. New York Times columnist and economist Paul Krugman believes that not only is it the wrong policy but that the political mood is “getting ugly” and that the failure of the “cash for trash” policy will prevent Obama from going back to Congress for more funds.
Similar concerns are voiced by the Financial Times’ most eminent commentator, Martin Wolf who today admits to “becoming ever more worried” by Obama’s lack of decisiveness against a “grim background” of the “worst global economic crisis since the 1930s”. He is also concerned that if somehow if, against all odds, the scheme works, fund managers will make vast returns. “I fear this is going to convince ordinary Americans that their government is a racket run for the benefit of Wall Street.” Looking at the prospects for next week’s G20 summit, Wolf concludes that with the “US at an impasse” the outlook is ”frightening”.
For both Wolf and Krugman, the main issue remains the recapitalisation of the banks. And neither the money nor the political will exists for the state to undertake such a project. Certainly not in Britain, where the governor of the Bank of England yesterday pointedly told the New Labour government that the state is over-mortgaged and can’t spend any more. In fact, steep tax rises and sharp cuts in public spending lie ahead.
It’s not just the US that’s in an impasse. The crisis has already led to the collapse of the Czech government, the departure of the Hungarian prime minister as well as mass student and worker actions in France. There are no magic solutions that will end the global capitalist crisis and for all Gordon Brown’s determination to talk up next week’s G20 in London, it will come up with a big fat zero.
Ultimately, there are just two options: the major economies plummet uncontrollably into deep slump, with mass unemployment, wages cuts and the rest; or we put people first by establishing social control of economic and financial resources as the precondition for creating a more rational system. There is no middle way.
AWTW communications editor