Het Neoliberale Geloof 321

Fixing the Economy: Of Fences and Futures
By Robert Freeman
February 11, 2009
"Commondreams"

A man calls a carpenter and says that his dog has been getting out. He instructs the carpenter to raise the fence in the back yard by a foot. The carpenter does the job.The next day, the man calls the carpenter back and says that the dog is still getting out. He tells the carpenter to add another foot to the top of the fence. The carpenter does so.On the third day, the man calls the carpenter back yet again and begins to tell him to add still another foot. But this time the carpenter interrupts him. Pointing to the far corner of the yard, he says, "Sir, I can raise the top of the fence to the sky, but until you fix that hole at the bottom, the dog is going to keep getting out."So far, all the money aimed at fixing the economy has gone to the top of the fence - the banks - and not at the actual hole in the bottom - insufficient incomes. We can pour money into the banks until the government itself is bankrupt but until we fix the problem at the bottom, with vanishing jobs, declining incomes, and rising foreclosures, the crisis will only deepen.Giving money to the banks hasn't worked and won't work for three reasons. First, they are insolvent. The financial crisis has destroyed almost $4 trillion in bank-system capital, against a little less than $2 trillion in equity. The banks are literally bankrupt with nothing to lend. Unless the government is willing to give the banks an additional $2 trillion of taxpayer money, they cannot be revived in their current form.Second, the banks are leery of loaning to each other because they all know this. They all know of their own devastated balance sheets and of the "toxic sludge" that has brought them down. They know all too well that the same toxic sludge infects the balance sheets of all of the other banks. No one wants to lend to someone that is both bankrupt and holding nothing but bogus assets. Would you?The final reason the top-of-the-fence strategy won't work is that banks know all too well the plight of consumers whose spending makes up over 70% of GDP. They can see better than anybody the collapse of consumer incomes, the overextension of credit card debt, the late payments on car loans, the decimated retirement accounts, the skyrocketing foreclosures, and the imploding home values. There has never been a worse time to lend money, so expecting it to happen from bankrupt banks to collapsing consumers is idiocy.All of this is made still worse because the collapse is feeding on itself. Every time someone loses a job, the chance of foreclosure skyrockets. And every time a home's value is written down in foreclosure, the balance sheet of the bank that wrote the mortgage is undermined. The losses at the bottom are precisely what continue to erode the balance sheets at the top.'
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