Thursday, August 11, 2011

German Taxpayers Willingly Subsidise Bankers

By Michael Hudson
August 11, 2011

A bailout, like any other government expenditure, is a tax. Someone must pay all this money. And it is unfair to tax the broad population to pay for a special interest. Instead of being a progressive tax policy, bailouts enable bad behavior by the financial elite, sticking taxpayers with the cost.

Bailouts are unpopular among Europeans who see them as a tax being paid by the population as a whole to financiers at the top of the pyramid. These bankers have lived in the short run, taking large risks of capital for short-term gains to outperform their rivals. It is a game that most individuals have not played with their own savings, and they don’t think that governments should compensate banks for taking these risks.

The bonds in question are held largely in German and French banks in Europe, and by U.S. banks. Germans are especially angry by reports that U.S. Treasury Secretary Timothy Geithner intervened in opposition to the insistence of Germany’s chancellor, Angela Merkel, that bondholders should take a loss on their irresponsible investments. News reports say that as many as half the troubled securities are held by U.S. money market funds or subject to derivatives gambles. So it is not only European banks that are being bailed out, but also risk-taking U.S. speculators.

Banks bought these bonds to earn high rates of interest; they took a risk, and now the taxpayers will pay. This is morally repugnant. Article posted here

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