Oh, to be a big American banker.
Make lots of money, with little or no risk.
Thanks to Secretary of Treasury Robert Rubin and the International Monetary Fund (IMF), those are the terms upon which Big U.S. banks effectively operate.
The Asian financial crisis has many causes and consequences, but imprudent loans by U.S. banks to businesses in South Korea and elsewhere are an important part of the story. Those loans helped create the crisis by supporting unsound investments and creating repayment obligations that Korean enterprises were unable to satisfy, thus undermining financial market confidence in the South Korean economy.
By all rights, one of the consequences of the crisis should be that the banks which made bad loans in South Korea and elsewhere in Asia should have to swallow hard and eat their losses. The amounts at stake are not insignificant: U.S. banks' exposure in South Korea is estimated to total more than $20 billion. BankAmerica alone reportedly has more than $3 billion in outstanding loans to South Korean firms, and Citicorp more than $2 billion.
Now, due to the taxpayer-backed bailout engineered by Rubin and IMF, it does not appear that BankAmerica, Citicorp or the other major banks with outstanding loans to South Korea -- J.P. Morgan, Bankers Trust, the Bank of New York and Chase Manhattan -- will lose a penny.
The Rubin/IMF plan is funnelling tens of billions of dollars of new, public sector loans to South Korea. Much of that money will go to pay back the big U.S. banks. In exchange for this bailout, the banks have agreed only to stretch out the payment period.
Not only is the Rubin/IMF scheme an unconscionable bailout of the big banks which were complicit in the South Korean financial debacle, it is certain to create what is known as a "moral hazard." Simply put, that means we can expect to see more reckless lending by the big banks, which -- following the Mexican and now South Korean bailouts -- know they can count on public subsidies if their loans go bad.
There is more, for the Rubin/IMF program does much more than bail out the banks. In exchange for instilling liquidity into the South Korean economy, it imposes a series of onerous conditions on South Korea, many of which have no connection to South Korea's financial crisis -- and are actually likely to exacerbate the crisis and further weaken the South Korean economy. Among these conditions are contractionary fiscal and monetary measures which will throw tens of thousands of South Korean workers out of work. These and other austerity measures will inflict enormous suffering -- much of it avoidable -- on South Koreans. And with the domestic market shrinking, and Korean wages falling as a result of the austerity measures, look for Korean exports to increase -- and for commensurate pressure on wages and jobs in the United States. None of this foreseeable pain will be shared by the U.S. banks.
Another, particularly notable, set of counterproductive conditions imposed by the IMF and Rubin will require South Korea to open up its economy to foreign investors. Rubin has specifically and successfully pressured Korea to open up its financial sector.
Translation: the very American banks which contributed to South Korea's crisis now stand to buy up lucrative sectors of the South Korean economy at firesale prices.
Virtually riskless lending, taxpayer bailouts, government-ordered bargain-basement sales of foreign enterprises' assets -- these are the privileges of the megabanks.
Most of what Rubin -- operating without any congressional authorization -- and the IMF have done is done and unfixable, barring a sudden reversal of allegiances by the Treasury Secretary and the IMF. But it is possible to draw the line with the Korean/BankAmerica bailout.
Two steps are crucial: First, Congress must pass legislation which prohibits the Treasury Secretary from allocating large amounts of taxpayer money without prior congressional approval. Second, Congress should refuse to authorize additional funds for the IMF (now seeking nearly $20 billion in new monies), which mechanically imposes crushing austerity measures on all of its borrowers but is sure to tread ever so softly where big bankers are concerned.
COPYRIGHT © RUSSELL MOKHIBER AND ROBERT WEISSMAN
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