In the Leninist Soviet Union, one line from Karl Marx was exceedingly unpopular: he predicted that socialism would take over the capitalist societies without the need for a revolution, so cherished by Leninists. Sadly, history vindicates Marx.

Socialism signaled the end of many empires. Ancient Rome went down amid distribution of free grain and show tickets, and inflation. Europe, too old to bear itself, is to all practical purposes a socialist entity. Though the factories are not technically nationalized, they belong to myriad investors—effectively the entire nation. Since the second Roosevelt, the United States also has progressed down the road to serfdom. But the current nationalization of banks still came as a shock.

The bailout was completely unnecessary. In similar circumstances, earlier governments imposed bank holidays. This administration, too, could impose a moratorium on large withdrawals. Small depositors would be unaffected and the sharks who had profited from the junk mortgage boom would be duly punished.

The terms of the bailout were criminally generous: why did the government leave the AIG shareholders 20 percent of their equity? That company has failed in the most fraudulent matter; at the time of the bailout, its capital was wiped out; why leave anything to the shareholders? The government received non-voting preferred shares: incredibly, the company’s management was left to the very crooks who brought it to bankruptcy. As the government has no managerial infrastructure to run the acquired banks, the same CEOs continue to do it, with salaries running into tens of millions of dollars.

The AIG bailout was structured as an emergency loan of $85 billion. That loan will never be repaid for the simple reason that it is almost free. Even if AIG had honestly wished to repay, it could not. Unlike banks, which can sell repossessed houses at a reduced price, AIG has no collateral to offset its insurance losses.

The AIG bailout was touted as a salvation to consumers, or perhaps to banks. But that is a lie. AIG issued credit default swaps, arcane insurance instruments designed specifically for speculation. By defending AIG, the government only reimburses the losses of large speculators. If caveat emptor applies to anyone, it applies to them: they are well-informed, intelligent, prone to risks, and conscientiously engage in speculation. There is no imaginable reason for society to defend them against losses. In fact, their losses are a correction of the sky-high profits they made earlier. The bailout allows the affected investors to realize full profits while the government foots the bill for the losses: they profit by executing CDSs, which actually lack any value.

Small investors as a group suffered comparable losses in the dot-com debacle, and the dot-com industry is more important for the American economy than the subprime mortgage casino, but no one thought of bailing out the dot-com investors. In the current crisis, many other companies besides banks are doomed, and bailing out all of them is unrealistic.

Theoretically, there might be a limited fallout from the AIG failure on small banks if the defaulting loans are insured by AIG. The impact would be very small, as the banks would liquidate the defaulting mortgages through house repossessions. The banks will absorb some losses with their capital, and the government only needs to step in with relatively small funding for the balance. Instead of bailing out AIG with $85 billion, the government would have spent perhaps ten to twenty billion on bailing out the affected banks.

A trillion-dollar bailout cannot possibly be helping working Americans: they just don’t hold that much in their affected bank and 401k pension accounts. By far, most of the government loans are to reimburse the investor sharks, including foreign ones. Why did the banks fail across the world? The only reason is that large investors fled mortgage markets, cashed and withdrew their investments. Laden with CMO (collateralized mortgage obligations) investments, the banks appeared short on cash. Well, don’t speculate.

It is unrealistic to expect that a trillion dollars would save American banks. In the S&L default twenty years ago, the total cost of the bailout exceeded original estimates by several times. American taxpayers will be left to repay the trillions of dollars the administration is borrowing to cover the speculators’ losses.

The moral dimension has gotten lost in the bailout discourse, but realize how evil it is to tax the working class for the affair which led to a manifold increase in their mortgage payments. The sharks created the real estate bubble, which pushed up house prices and consequently mortgage payments. For years, the working class was paying their inflated mortgages obediently while the investors realized staggering profits—and now will compensate the investors for their losses, which are actually only lost profits. Banks milked consumers, earned outrageous profits for their investors, and now consumers have to bail them out without even an attempt to charge back the fraudulent profits. Regardless of economic feasibility, consideration of the moral dimension should come first.

But there is no economic feasibility, either. Speculators withdraw large money from the real estate bubble to create other bubbles—in grain, oil, etc.—further destabilizing the economy. Not only do taxpayers bail out the sharks, but they also suffer from the resulting increase in food and gas prices.
The government claims that if it allows the mortgage industry to fail, common Americans won’t be able to buy houses. What nonsense. If people of moderate means are of any concern to the government, house prices must be allowed to fall to their 1995 level—that is, three to five times. The return of house prices to their pre-bubble levels is not only economically imperative, but also socially a must.

The American and European governments are pretending to combat the crisis on the Keynesian model: presumably, government spending during crises helps to prevent recession. Roosevelt employed Keynes’ model during the Great Depression with infamous results. Keynesians countered criticism by claiming that the government was not spending enough. In economics, you never know how much is enough until inflation runs rampant. If maximizing government spending is the objective, then it is wrong to spend a trillion dollars bailing out financial speculators; this money should be spent productively. The US Administration has to borrow the trillion dollars, mostly from the market; thus investment financing is curtailed. Government borrowing is as anti-Keynesian as it gets. Keynes never clearly articulated where the money for the increased spending should come from; he suggested running a budget deficit, but such a deficit must be small, and most countries run one, anyway. The trillion dollars pumped into the banking system will be used to finance speculations rather than productive investments, which are too risky in a recession economy.

The Keynesian model brings about auxiliary damages. Increased government spending results in pork-barrel projects, corruption, and bureaucratization. In the end there is inflation: the politically correct way of charging the working class for the profits of the rich. The inflation of the 1970s was a direct result of the Keynesian policies of the previous two decades.

Keynes the homosexual is the socialists’ darling. No wonder officials such as Darling, a Trotskyist in his student years, embrace his recommendations. This crisis offers them a perfect opportunity to achieve many ends simultaneously: nationalize the banks, jack up government spending, increase the state’s regulatory power, and extend paternalism into essential capitalist institutions. Above all, crises make people credulous, eager to swallow the government’s lies. Note the Newspeak in which recession is called “negative growth.” Right, and a moonless night is a dark sun.
As in Ancient Rome, socialism comes through oligarchy, the latter using the former to justify itself. Corporations learned to use democratic mechanisms for private gain. Companies close to the government will profit from the Keynesian antirecession spending. Financial scam artists, if not jailed in time, will continue their criminal activities in other areas and receive mammoth wages even as their companies are being bailed out. Investors will profit from the government bonds issued to cover the bailout debt. The working man will be forced to pay interest on bonds so that sharks can withdraw their money from failed banks on demand.

Irresponsible mortgage borrowers will get their houses free, as the government cannot evict millions of voters from their houses and will restructure their debts. Leftists win on both ends: they get to help their pet minorities and regulate.

The Keynesian model doesn’t apply because there is no structural crisis, but merely a bubble that has exploded. The transnational nature of crisis shows that it has nothing to do with the domestic economy, but only with international money markets—which the working-class taxpayers are under no obligation to save.

The subprime mortgage crisis is a criminal affair. Not in the vague sense of Fannie Mae and Freddie Mac pushing mortgages to those who could not possibly repay them, but in the literal sense. Here comes Michael Milken, the junk-bond casino creator of the 1980s. After being jailed in the US and paying hundreds of millions of dollars in fines (a fraction of his illicit gains), he now seeks to establish his financial scam empire in Israel. Milken is directly liable for the mortgage crisis. He and his accomplices from Drexel Burnham Lambert led the AIG CDS operations. In Milken’s casino for rich speculators, credit default swaps replace junk bonds. AIG’s CDSs were fake from the beginning: intended to cover the mortgage investors’ losses in case of default, the instruments were designed in such a way that they could not possibly withstand a market-wide default; AIG carried no reserves to cover them. Milken’s associates were selling insurance which they knew was without substance. That’s why they needed to co-opt AIG, a respected insurance company which could not be content with its modest profits while the speculative market was bubbling just out of the window. It was an especially heinous crime for a major insurer such as AIG, which advertises its stability and engages in pension and lifetime savings business, to perform such risky operations on mind-boggling amounts without even hedging them. Incredibly, CDSs were carried by AIG Financial Partners, a formally independent firm with no significant reserves of its own; its failure won’t affect AIG’s core insurance business, and there was no social need for the bailout. AIG holds close to $600 billion in CDS, which makes the prospective efficacy of the $85 billion bailout doubtful.

The empire’s decline calls for a barbarian ruler.

barbarous socialist US economy - AIG