The Bailout of Banks
Oh, to be a big American banker
excerpted from the book
Corporate Predators
by Russel Mokhiber and Robert Weissman
Common Courage Press, 1999
Make lots of money, with little or no risk.
Thanks to Secretary of Treasury Robert Rubin and the International
Monetary Fund (IMF), those are the terms upon which big U.S. banks
effectively operate.
The Asian financial crisis has many causes and consequences,
but imprudent loans by U.S. banks to businesses in South Korea
and elsewhere are an important part of the story. Those loans
helped create the crisis by supporting unsound investments and
creating repayment obligations that Korean enterprises were unable
to satisfy, thus undermining financial market confidence in the
South Korean economy.
By all rights, one of the consequences of the crisis should
be that the banks which made bad loans in South Korea and elsewhere
in Asia should have to swallow hard and eat their losses. The
amounts at stake are not insignificant: U.S. banks' exposure in
South Korea is estimated to total more than $20 billion. BankAmerica
alone reportedly has more than $3 billion in outstanding loans
to South Korean firms, and Citicorp more than $2 billion.
Now, due to the taxpayer-backed bailout engineered by Rubin
and the IMF, it does not appear that BankAmerica, Citicorp or
the other major banks with outstanding loans to South Korea-J.P.
Morgan, Bankers Trust, the Bank of New York and Chase Manhattan-will
lose a penny.
The Rubin/IMF plan is funneling tens of billions of dollars
of new, public sector loans to South Korea. Much of that money
will go to pay back the big U.S. banks. In exchange for this bailout,
the banks have agreed only to stretch out the payment period.
Not only is the Rubin/IMF scheme an unconscionable bailout
of the big banks which were complicit in the South Korean financial
debacle, it is certain to create what is known
as a "moral hazard." Simply put, that means we can
expect to see more reckless lending by the big banks, which-following
the Mexican and now South Korean bailouts-know they can count
on public subsidies if their loans go bad.
There is more, for the Rubin/IMF program does much more than
bail out the banks. In exchange for instilling liquidity into
the South Korean economy, it imposes a series of onerous conditions
on South Korea, many of which have no connection to South Korea's
financial crisis-and are actually likely to exacerbate the crisis
and further weaken the South Korean economy. Among these conditions
are contractionary fiscal and monetary measures which will throw
tens of thousands of South Korean workers out of work. These and
other austerity measures will inflict enormous suffering-much
of it avoidable-on South Koreans. And with the domestic market
shrinking, and Korean wages falling as a result of the austerity
measures, look for Korean exports to increase-and for commensurate
pressure on wages and jobs in the United States. None of this
foreseeable pain will be shared by the U.S. banks.
Another, particularly notable, set of counterproductive conditions
imposed by the IMF and Rubin will require South Korea to open
up its economy to foreign investors. Rubin has specifically and
successfully pressured Korea to open up its financial sector.
Translation: the very American banks which contributed to
South Korea's crisis now stand to buy up lucrative sectors of
the South Korean economy at fire-sale prices.
Virtually riskless lending, taxpayer bailouts, government-ordered
bargain-basement sales of foreign enterprises' assets-these are
the privileges of the megabanks.
Most of what Rubin-operating without any congressional authorization-and
the IMF have done is done and unfixable, barring a sudden reversal
of allegiances by the Treasury Secretary and the IMF. But it is
possible to draw the line with the Korean/BankAmerica bailout.
Two steps are crucial: First, Congress must pass legislation
which prohibits the Treasury Secretary from allocating large amounts
of taxpayer money without prior congressional approval. Second,
Congress should refuse to authorize additional funds for the IMF
(now seeking nearly $20 billion in new monies), which mechanically
imposes crushing austerity measures on all of its borrowers but
is sure to tread ever so softly where big bankers are concerned.
[Legislation to limit the ability of the Treasury Secretary
to use large amounts of taxpayer money for financial bailouts
in international markets, introduced by Representative Bernie
Sanders, an independent from Vermont, failed to pass the House
of Representatives in a close vote. And, in a last minute "omnibus"
funding bill at the end of the 1998 legislative session, Congress
appropriated $18 billion to the IMF.
Corporate Predators