The original caption for this Dorothea Lange Depression-era photo was "Slept in a bed all my life long, till now - sleeping on the ground." Laurent Pinsolle sees insult added to injury when families that have lost homes and/or jobs have to pay for the bailout of the very banks that put them in that situation. (Photo: Dorothea Lange / Farm Security Administration)
Many authors, critical of neoliberalism [free-market fundamentalism], maintain that the neoliberal economic system is amoral since it is based on individual profit and selfishness only. One may wonder whether the current economic crisis does not demonstrate that this system is even completely immoral.
"Privatization of Profits, Socialization of Losses"
That's how the ultra-neoliberal free market newspaper The Economist summarized government intervention in the fall. And how can one not be shocked finally by the fact that bank bosses are dismissed with golden parachutes worth several tens of millions of dollars, that their banks are rescued at a cost of tens of billions of dollars, while several million American households have lost their homes or their employment, sometimes even both?
On the one hand, the most powerful can make mistakes: Bosses leave with enough to assure their descendants' living over several generations and the businesses are rescued by the authorities. On the other hand, households undergo a double punishment: the loss of their homes and the taxes they'll have to pay to save the banks that expropriated them!
Many authors like Robert Reich have described capitalism as immoral since it is directed solely by the quest for profit. But what's happening in the United States goes farther than that. To push modest households to become homeowners, banks conceived particularly dangerous loans, with reduced monthly payments in their initial months and variable rates, that represented veritable financial time bombs.
The problem is that while the banks made these households incur immense risks, they thought to insure themselves against all risk by securitization or insurance against bad loans. The system's asymmetry is morally difficult to accept.
But far from having disappeared, the risk had only become invisible, carved up into multiple investments that banks sold to one another. Still worse, while no one is coming to the rescue of households that have lost their homes, the authorities have been forced to help the guilty banks, so as to avoid having the financial system collapse completely and having savers lose the money they have put aside.
There is an immense moral problem in seeing American households lose their homes, but be forced, through taxes, to help the banks, the managers of which have been lavishly rewarded for constructing a system that led to millions of expropriations and owes its survival solely to the massive injection of public money.
An "Irresponsibilizing" System
The present neoliberal free market system is profoundly "irresponsibilizing." Financial institution bosses draw such short-term profit from their excesses that even their dismissal is nothing but a very gentle sanction compared to what millions of households that have lost their homes or their jobs undergo.
In the same way, plans to assist banks pose an immense problem of moral hazard. Because banks are vital to economic activity and their downfall would entail still worse economic consequences, it's not possible to allow them to go bankrupt. Consequently, the government is forced de facto to cover their bad decisions, even at the price of hundreds of billions!
The lessons from the crisis are worrying on this score: Lehman alone was not rescued. Don't bankers' dangerous behaviors risk being encouraged by this crisis? After all, were there to be a new financial crash in five or ten years, everyone knows that governments would once again be obliged to intervene to avoid an even more brutal collapse.
This state of affairs poses the question of the banking sector's status today. Because banks are too big to fail, the government and hence the collective, are their de facto guarantors. Must we not then nationalize the sector? Or must we not drastically limit bank size to avoid systemic risk?
But the system is not only "irresponsibilizing" for individuals and companies. There is something paradoxical all the same about seeing the crisis hit Germany before the United States even. On the one hand, there is a country with almost-balanced public finances, low household debt and stable real estate prices over the past ten years. On the other, a country that piles up deficits, the households of which are crushed by debt and no longer save anything, a country which has experienced a totally exuberant and irrational real estate bubble. And yet, the crisis in the second country has brought along in its wake a no-less-violent crisis in the first. A minimum of justice would have presupposed that the crisis would affect the United States far more than Germany.
This crisis shows the immense limitations of the present economic system. It is unjust because it protects the strongest and makes the weakest suffer. It is unjust because the faults of some strike those who knew how to stay away from all these excesses just as violently as they do those responsible for them.