The collapse of the Western financial sector was just what the doctor ordered, for the bankers. They had reached the point where they needed a cathartic clean-out. Their bloated excesses couldn’t go on, so a managed return to health was necessary to secure their long-term interests.

And so, cleverly manipulating the politicians, the banks are disposing of their victims – the suckers who took on mortgages they couldn’t afford – and shifting worthless assets on to a new batch of suckers (taxpayers). Prognosis: a new, lean banking machine ready to cash in on the glorious opportunities over the next business cycle.

This is not the authorised version, of course, but the ability to control the way the public perceives the problem is part of the crisis management skills that are fostered by what we might call the logic of our economic system.

Spilling the Beans

Sometimes, the beans are spilt, of course, like the revelations by Mark Patterson. He is chairman of the company that is supposed to be pioneering the joint public-private bank rescues in America. Because he was speaking to a forum of investors in a far-flung corner of the Persian Gulf, Patterson thought it safe to offer the insider’s account of the US government’s strategy. But someone recorded his words and this is how they were reported in the Daily Telegraph (May 14):

“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40% of the money but get little of the equity upside. It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn of the $700bn Troubled Asset Relief Programme [TARP] funds.”

Much the same rip-off is operating in London, of course, where the authorities are pumping in money to rescue banks by protecting the financiers and socialising the losses. A few sacrificial lambs are offered, of course, but the golden handshakes handed out do much to soften the blows. Meanwhile, the money-printing pump-priming operation run by the Bank of England is enabling banks to rebuild their capital base, leaving the inflationary consequences (like the erosion of the buying power of wages) to somebody else.

Playing by the Rules

There is nothing illegal about these scams. Governments and the bankers are playing by the rules. Those rules were calculated to produce the boom, the busts and the managed recovery back to business-as-usual. So milking the taxpayer to protect the financial sector is not corrupt: it’s the name of the game.

Britain’s parliamentarians affirmed this logic over the past two weeks. They used their so-called expenses to lavishly appoint their homes and, in some cases, to make capital gains out of the sale of properties which they bought in part with the money received from taxpayers. It was all done according to the rules. Some MPs were reimbursed for the interest payments on mortgages that did not exist.

Let’s be honest. Members of the public who are outraged at the way their MPs milked their expenses to enhance the value of their properties were happy to pocket the something-for-nothing value that miraculously attached itself to their homes over the past 10 years. Few questioned the ethics of this way of getting rich. It all came out of “the rules”.

Digging up the Foundations

What passes for diagnosis – explaining the global economic crisis – is no more than navel-gazing. Discussions around “the future of capitalism” carefully avoid challenging the rules that direct people into ethically corrupt behaviour. Just about everyone now has a vested interest in protecting the system – meaning, the rules of the game.

Economics lacks the forensic archaeologists who are needed to excavate the foundations for a critical look at what, exactly, is corroding the social super-structure. Given the geo-political realities now in place, this can mean one thing only – violent times ahead.

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