Governments come short - Double standard when trouble hits: banks receive bailouts and citizens austerity

Shahab Sabahi

Energy and Environment for Development – Policy Analysis Research Group

In “Politics as a Vocation” Max Weber defined the state as an entity which should successfully claim a "monopoly on the legitimate use of force". Social authority is supposed to be a rational-legal authority for enforcing regulations to protect citizens’ rights evenly; whether they are bankers or otherwise.

In large part, bankers have precipitated the current financial crisis. They received bailouts for mistakes they made. The bailouts, in effect, resulted in redistributing wealth to take from the public to enrich the bankers. In spite of enormous capital infusion the banks did not resume lending and investing in real strategic assets. It led to further stagnations in the economic growth. Taxpayers are always told that the governments must recapitalize the banks if the economy is to recover. Billions have been given to the banks under sweetheart terms; in return the taxpayers receive nothing but austerity measures. We should pay attention to what had happened beneath the surface.

The cost of Mexico’s bank rescue of 1994-1997 was estimated to be equal to 15 percent of its GDP, and a substantial part of that went to the wealthy owners of banks. Mexico’s growth stalled over the decade, a decade later, wages of Mexican workers adjusted for inflation, were lower while inequality was higher (J. Stiglitz 2009)

History tells us that the previous crises did little to diminish the influence of bankers in politics; certainly the current financial crisis would not end their influence either. Perhaps physical capitals and profit in the sector have been diminished but their political capital survived. If their investments in the area of financial markets, loans and financial products may fail to produce handsome profits, their political investments have yielded significantly. They could secure a deregulated financial market as well as tax-free heavens to save their profits.

Do governments truly protect citizens’ rights evenly? Does the old-fashion capitalism concept need to be mended and give a way to Neo-capitalism? Should the government servants in finance ministries and central banks come from non-private bank backgrounds? 

The Occupy Wall Street and its EU-ASIA versions will make out the answers of the above mentioned questions.