My piece in today’s Fin is about the Geithner plan to bail out US banks. I’ll post the whole thing tomorrow (given that the Fin is pay-only, I wait until today’s issue is off the stands), but there’s one point I want to stress.
Most of the debate about alternative bailout plans has been framed around the equivalent pair of questions: liquidity crisis or solvency crisis? and book value or mark-to-market? The Geithner plan assumes that the true long-term value of ‘toxic’ [1] asset-based securities greatly exceeds their current market value, and that the banks are therefore solvent but illiquid. Critics like Krugman don’t buy this.
But the really big question, it seems to me, is what kind of financial system will emerge from the current crisis. Geithner, Summers and Bernanke clearly envisage something very like the pre-2008 system, with a few less players (all the better for Goldman Sachs!) and some tighter regulation to prevent unfortunate occurrences like those of the last year. The advocates of nationalisation implicitly accept that something very different is going to be needed; not permanent public ownership, but a much smaller, more conservative and less profitable financial sector, providing necessary services in the manner of other utility and infrastructure businesses. An obvious dividing point is financial innovation: advocates of Geithner style bailouts are much concerned to avoid discouraging financial innovation, while the critics see uncontrolled innovation as a large part of the problem.
fn1. A side issue I’ve been meaning to raise for a while concerns the salience of “toxics” in US culture generally. As an example, food safety seems to be regarded as a major environmental issue in the US, while in Australia it seems to me to be seen as a minor local government issue, with the archetypal instance being dirty restaurant kitchens suitable for hidden camera current affairs exposes. But it’s hard to tell if my perceptions on this are accurate.
John Quiggin 
article in new Yorker on
“the plan.”
http://www.newyorker.com/online/blogs/jamessurowiecki/2009/03/things-not-to-w.html
Ilya #47
Actually it’s not just those financial elites but those social Kenesians that also make up the subject of the article’s excellent expose’ on the oligarchy. To understand what comfortable bedfellows they make when the printing presses are rolling along, you need to ask yourself just who decided public servants should retire on a fixed percentage of their final salary(85% in our case), all at the expense of future taxpayers which was awfully nice of them given that wee problem of demographics looming. Listen to that same mentality howling with CEO golden handshakes now, not least Sir Fred Goodwin, ex Royal Bank of Scotland, off with his 700,000 pounds a year pension and refusing to give it back. To the howls of protest from the social Keynesian set, in a reverse George Bernard Shaw moment he’s virtually saying it’s not his fault they’re just a bunch of cheaper whores and quit their bitching. He know what they are but it’s simply a matter of price dears.
Ilya Says: March 27th, 2009 at 3:09 pm
Dear Eli,
You seem like a nice man. Perhaps you could do better for yourself than act as an intellectual spear-carrier for a bag man from the Russian mob.
Yeltsin was a catastrophe for Russia. By this I do not mean to excuse the catastrophe of Bolshevism. But I do not think that the CIS had to evolve in the “shock therapy” way that Yeltsin directed. Other models of social development were available.
Reviewing your points above:
1. “elimination of communism” Gorbachev removed the Communist party’s monopoly on power. This was the key to disabling totatlitarianism.
2. “nascent democracy,later rolled back by Putin”
One of the big myths about CIS is that Putin has somehow “betrayed” Yeltsin’s marvellous legacy. (This theme is a common one in Russian history as I am sure you would know.) In fact Putin has fulfilled Yeltsin’s legacy, in spades. Yeltsin banned the pluralistically constituted Communist part,y which was undemocratic. Perry Anderson provides a clear-headed unsentimental review of this “revolution betrayed”:
3. “political liberties” Yeltsin provided freedom of association and expression alright. This extended to the right to set up ones own crime gang and whack your business rivals or partners once you had maneuvered yourself into getting a grip on a vital state industry.
The liberals who supported Yeltsin were, I am afraid, useful idiots for the Russian Mob. Now ruing their original enthusiasm. Here is Anderson:
4. “economic institutions and instruments ensuring the growth” This bland phrase leaves out the little detail of Yeltsin’s total collapse of public services and basic consumer goods economy. Really this caused premature death of about 10 million people – a slow motion Holocaust.
Most subsequent growth has been as consequence of mineral price rises. Income from this concentrated amongst oligarchs, mobsters and connected officials. Very little seen by ordinary Russians, esp in province. (How come Moscow realty nearly most expensive in world?)
This has caused a massive demoralisation of the populace who are literally self-destructing:
FWIW, I think that the CIS would have been alot better off copying the PRC’s model. Less glasnost and less perestroika. More concern with re-building family social structure and infra-structure.
This is a conservative philosophy at odds with liberalism’s obsession with grandiose institutional reforms and individual liberties (read free-for-all for the sharpest practitioners). It is therefore not one that wins favour with elites. They just want to take money and run.
Why the obsession in so many countries with stripping the public sector?
Traditionally it was the public sector that provided services to the poor, but country after country has had to put up these neo insane attacks on public services, including Australia.
The relentless advance of the zombie privatisers. I would bet its a major factor in advancing inequality in most industrialised nations over the past twenty five to 30 years. The private sector doesnt step in well enough or often enough to provide these services (and it erodes infrastructure and organisation in a ountry – just erodes it rapidly and turns the economy into a dog eat dog world – you cant pay? You cant transport yourself. You cant pay? Your kids dont go to school. You cant pay? your teeth can fall out. You can pay? You wait years for a simple operation.
These services traditionally helped the poor and damn well made them more productive so they add to economic activity instead of starving or committing crimes.
The persistent attacks privatisations (no matter what silly party is in power – where does it come from? Months ago Barry OFarrell voted against privatisation of electricity now he announces he will do it anyway – they all get on the bandwagon – and thats all it is a damn wagon (not the way forward.
This stripping of public services creates a mess they will have to clean up or fix up later and is a terrible burden on the poor and even the middle classes in places like Russia after all those years of a state owned system (to just kill it off and move to an opposite extreme is like making an addict go cold turkey).
Its ridiculous, these IMF prescriptions on privatisations included. Privatisation of teh public sector in every nook and cranny (and replace it with layers of bureacrats on high salaries put in to do the stripping) is a neo liberal obsession bordering on a foolish mania.
Alice,
I know that this will sound jarring to you but will you stop going to the extremes when writing? You are saying that we are privatising education? Are you insane? Has Sweden, with the most deregulated and open education system privatised it? Has Britain under Thatcher? Or the US under Reagan?
Why are you so incapable of seeing the facts and coming up with an opinion rather than seeing the world as how you would think it is?
Sean # 54
Education in this country (Australia) has been half privatised Sean. The subsidies to private schools are now huge. The admittance of full fee paying students from overseas into our universities has also been large. This is privatisation by half – what do you call that Sean?.
At the turn of the cebtury – we had “the free education act” – ie “no child in this country will deprived of an education because they cannot afford to pay for it.”
Now they all pay. I dont agree and Ill never agree.
You want to split hairs over degrees Sean, as always. Its the direction we have gone down. I dont agree. Education should be free for all students until at least they graduate from a bachelors degree or equivalent. Is that so hard to understand. Its an investment by governments in human capital and a future long term benefits to society.
As for your comment
“Why are you so incapable of seeing the facts and coming up with an opinion rather than seeing the world as how you would think it is?”
Uh???. The facts are all there.
Sean – go and read other posts like Gerards on weekend reflections. You are amjaor denialist Sean of all sorts of evidence, if it doesnt fit with your narrow political view of the world.
Sean#54
If you dont think forced privatisation has been an economic policty in Australia for the past ten years or more…then I suggest you read this
Click to access bu_1297_2.pdf
Just because it was published by the RBA doesnt mean we have to agree with it. I dont happen to agree with the privatisation push. That is my opinion. What is yours Sean?
I think I touched a raw nerve.
Sean#59
The government now no longer owns these assets it privatised and what does it have to show for it? How is government debt looking now after the GFC? Bigger than ever with less income producing assets. You couldnt trust them to run a small business. It was short term insanity to get rid of some of these income producing public assets and mostly we did it courtesy of JH’s blinkered irrational ideologies. Australia, second in the privatisation race by value after the U.K. and look at the mess the U.K. is in.
The privatisation agenda is hogwash.
Personally Alice I don’t get up in the morning and start wondering whether the Govt will provide me with the basics like food, clothing and shelter let alone the ute and petrol to get me to the job. As for the mobile phone to start my day, it seems a lot better than pulling up at a tardis to ring in. Then there’s that small matter of Govt as a proportion of GDP that seems to have slipped your mind and Howards too for that matter, but I’m a fair man and I’ll offer you a swap back to the future of my parent’s day. You can have your pre-Whitlam Govt utilities and Commonwealth bank back if I can have the old university ed system and Social Security system back again. Deal?
Alice – subsidies to private schools aren’t huge – they are less per student than a state school.
#61 Done Deal Observa.
I never asked for government meals or government issue clothing and shelter (I havent committed any crimes lately).
But,
Ill take public utilities over the likes of the three amigos anyday (oh and throw in some half way decent public transport as well).
Ive heard there is a bunch of doctors down in Orange waiting desperating for the PPP improvements to Orange Base Hospital to be finished. Trouble it was financed by Babcock and Brown. They might be waiting a while.
Nanks#62
Many private schools actually dont need subsidies at all (and why should they – isnt that government intervention in the private sector and a form of industry protection? They are private because they can raise private money or they should not exist – although the catholic schools are fine – they dont charge students high fees).
These are my tax dollars too.
Alice, state schools raise private money as well – it really depends on where you see the subsidy going – to the students/families or to the school. Lumping independent schools together into one genre is far too crude. Most independent schools are not ‘elite training grounds for corporate criminals’. They’re just schools with particular value systems that cannot be supported at a more generic state level. Families value those value systems (often ethico-religious) sufficiently to make financial sacrifices. Far from receiving an outrageous boon, there is a financial burden imposed on people who decide they are not happy with the state controlling the education their children receive.
I am not comfortable with the state controlling all education – I don’t trust the state apparatus, and I think we’ve had quite a few years demonstrating that the state should not be the sole purveyor of values and information. remember it is the state schools that are keen to get MacDonald’s and other companies into the education system and influencing children.
What I dont like Nanks is really well off private schools putting their hands out for public subsidies so that they end up with indoor swimming pools, tennis courts and the very best of facilities (by shuffling the students postcodes) along with the healthy donations to the “building fund” and fundraising activities by time rich eastern suburbs or north shore Mums while many other public schools could do with that money to effect basic repairs or install shade structures etc. Fair is fair and that isnt fair. Some private schools simply dont need that money and whether your concern is in how “the state influences education” or otherwise, the reality is that the majority of children attend public schools and many parents would not be able to afford 20 K plus a year for schooling.
I understand your point Alice – however the schools you reference are a small minority – similarly the 20K plus is also a small minority – few private schools charge this much. There is a lot of misinformation about private schooling. Many state schools have better facilities than many private schools (I know this from teachers who work supply across both systems) yet I don’t hear cries of outrage that children are being disadvantaged because their parents hold ethical or religious views that are not supported by the state system even though those parents are taxpayers too.
Jack, #53, oh man, this is going to turn ugly.
One: where Yeltsin has a specific political mission with a degree of idealism (i.e. elimination of communism), the entire premise of the Putin regime is utilisation of the Soviet industrial legacy and its conversion into private profits. This was a secondary side effect during the Yeltsin years but since then became the sole purpose, modus operandi and overriding policy objective of the governing elites. There is certainly a degree of continuity, particularly with respect to the personalities involved, but there is a fundamental difference insofar as the destination is concerned. Therefore, to me there is a difference between what happened in 1990’s and what is going on now and I don’t think we should conflate the two as you do in your post.
Two: to claim that Gorbachev defeated communism is dangerously naive. In the context of the 1991-94 period in Russian history, it is plain wrong. The reality is that there was a serious fightback, including for economic reasons, mainly by Soviet industrialist losing control, and there were not immune to using communists and/or nationalists to regain power.
Three: Putin did roll back the democratic legacy of Yeltsin’s years. Let’s see: free media wiped out, regional elections changed to Kremlin appointment of governors, parliament debased with the upper chamber stripped of any material power and the lower chamber turned into a rubber-stamping extension of the executive, elections turned into a farce and freedom of assembly restrained. Now, with the exception of rigging elections as admittedly Yeltsin did do in 1996 (where by the way he should have lost to the communists, see point one again), everything else did exist in the 1990’s.
Finally, no one is arguing things were rosy. If I recall correctly, my original point was with respect to Larry Summers and his predeliction to accepting the realistic political position in preference to the theoretiaclly supperior but unattainable (a al Paul Krugman), both advising Russia in the 90’s or now. This is still my point and the decision made in Russia back then need to be seen in the light of the situation at the time rather than with the benefit of hindsight…
Apologies for the poor spelling etc., short of time to re-read right now.
Nanks#67
I dont know what city you live in but 20K plus is pretty common for private schools in Sydney ie Sceggs, Knox, Barker, Kings, Shore, Kambal, Sydney Grammar, Newington, Ascot, Ascham, St Lukes etc
The schools that dont need public funding.
add PLC and Abbotsleigh
Ilya says “The reality is that there was a serious fightback, including for economic reasons, mainly by Soviet industrialist losing control, and there were not immune to using communists and/or nationalists to regain power.says
very interesting – so did Putin capitalise on a nostalgia or yearning for communism (in the same way an ordinary person might yearn for an economic system where they recall they were better off) by a country decimated economically by a too sudden movement to capitalism…as it seems they were?
Ilya # 68 Or was Putin the puppet to other puppet masters (industrialist / oligarchs) instructed to cash in anyway he could politically and how better to aceive that than to offer the people an old comfortable system, when the new system is working so well?
Alice
http://www.theaustralian.news.com.au/story/0,25197,24863943-601,00.html
There are over 900 non-govt schools in NSW and most non-govt schools in NSW are not in the elite highest (> $20k) charging group. Let alone across Australia. It is somewhat misleading to claim that >20k fees are common as relatively few schools charge that much and I believe only in NSW and Vic – ie in a minority of states
Nanks
Im not sure from this article how >20,000 K fees are not common given that the artcle claims
“The schools charging the highest fees are independent schools, mostly Anglican, in NSW and Victoria.
Many of the elite schools in those states are charging more than $20,000 a year in Year 12.”
Notwithstanding how many are charging >10,000 – a lot of schools. As I said before I have no objectionto cathlic schools (they dont charge a lot) but why should schools who charge 10 to 20K in fees get government susbisies?
Its not fair. &0 percent of all children still go to public schools – any funding should be allocated on this basis and Im not in favour of subsidising schools who simply dont need it when there is a backlog of maintenance works in public schools that hasnt been done for years.
70 percent of all children go to public schools (and likely more after the GFC).
@Alice Why should people who can’t go to the local state school or who choose a faith based school be discriminated against.
77#
nanks – most faith based schools are fine and catholic schools I gave as a case in point which are fine…but as for the brethren…so fond of JH with their tiny numbers opening up schools when they dont have the numbers just to get a subsidy…it has been happening Nanks (obscure faith based schools wanting a handout when they have barely any students – what next the outer Mongolian school for the worship of the soul of Gengis Khan- all three students of the director???)..as usual a private rort of a public subsidy for which I dont my taxes redirected.
This sort of thing has been happening and today I notice some of the most expensive private schools applied for new gyms, halls and playing fields and got large subsidies (more than schools that need a single gym).
Its become a rort.