Tonight I'm preparing for my Politics of Mexico class, which is tomorrow morning. We've reached the section where we're going to discuss the roots of Mexico's economic collapse in 1982, and how it contributed to Mexico's Lost Decade (the 1980s).
I'm not so much concerned about the similarities between the causes behind Mexico's collapse and what happened here in the United States. To be sure, there are parallels when it comes to U.S. bankers putting too much faith in how smart they think they are, and the subsequent mistakes they made.
Nor am I really concerned about how Mexico's poor- and middle-classes had to pay for the inept mismanagement of it's economy by bearing the financial brunt of recovery through declining wages, unemployment, high inflation, devaluations, and other lost opportunities in the 1980s. America's middle-class will eventually wake up and realize that it's going to pay, on many levels, for bailing out Wall Street's reckless financial gambles. In the process they will also learn that the collapse was made possible by a bevy of boot-licking politicians in Washington who gave Wall Street a stream of deregulation gifts over a period of 30 years, and now think bankers deserve the financial equivalent of a group hug for screwing up.
Rather, I'm smiling (grumbling?) over how, once again, Washington's biggest politicians and affiliated agencies - the Federal Reserve, the Treasury Department, and other institutions - are insulating our largest banking and investment houses from their own greed and stupidity.
As was the case during the Reagan administration, when Washington bailed out and then protected U.S. banks from the very dumb decisions they made regarding Mexico (some of whom had lent Mexico more than several individual banks had in assets), taxpayers are going to have to accept the costs and conditions imposed by our current de facto banking cartel.
The impact is the same too. Wealth is extracted form taxpayers and transferred to the financial sector.
We shouldn't be so surprised. As I outlined in my book, saving the banks that had foolishly lent to Mexico under the premise that countries don't go bankrupt, was followed by a series of market bailouts that surrounded Continental Illinois (1984), the Discount Window Intervention (late 1980s), market supports after the 1987 crash, the Savings & Loan debacle (1989-1992), the intervention to save the Bank of New England and Citibank, the 1994-1995 Mexico rescue (yes, again), the Asian currency rescue, the Long Term Capital Management rescue, etc. In all of these cases (and there are others) the goal was to - in what is now a standard refrain - save the financial system from collapse.
Put another way, what we are seeing today has been going on for the better part of 30 years. It's one of the reasons I consistently argue we don't have free markets. We provide favorable legislation, deregulate when we can, and then bailout when things get tough. If we did have a real free market economy many of the players running our current banking cartel would be staving off lawsuits, going bankrupt, or in jail (or a combination thereof).
For those of you interested in a longer history of myopic banking practices and/or market bailouts you can read Benjamin Cohen's In Whose Interest? International Banking and American Foreign Policy (New Haven, CT: Yale University Press, 1986).
- Mark
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