Banks on the Brink
WASHINGTON D.C.
In the abstract realm of statistics where economists dwell, the future looks brighter and brighter for the American economy. The recovery from the long recession continues much stronger than expected. Unemployment is still high but inching downward. Inflation seems under control. The numbers are very reassuring.
In the real world, meanwhile, some people are acting a little bit crazy. Frustrated and powerless, they search for tangible villains. Trapped by hardship and mysterious economic forces, they lunge at desperate, sometimes violent remedies.
In Rio de Janeiro, citizens have been looting supermarkets. These are not your legendary poor of Brazil who live in the cardboard shacks; the looters are dispossessed workers, middle-class citizens who see themselves sliding down the economic ladder toward poverty. In the last three years, while Americans concentrated on their own painful recession, Brazilians experienced an utter disaster: the real per capita income in their country dropped by an astounding twelve percent (compared with the U.S. decline of less than one percent in 1982). Brazilians who were interviewed as they carted off free groceries were eager to name the villains responsible for their suffering: American banks and the International Monetary Fund (IMF).
Meanwhile, back in the United States, a crowd of unemployed steel-workers stormed into the Homestead, Pennsylvania, branch office of the Mellon Bank and disrupted business. Their angry demonstration ended when the cops cleared them out. These jobless steelworkers have a different complaint about banks. They accuse the Mellon Bank of siphoning American capital that ought to be invested in modernizing steel mills in Homestead and shipping it overseas in the form of lucrative loans to debt-soaked countries like Brazil. They want American capital to create jobs in America.
In Buenos Aires, amid wildcat strikes and other signs of political unrest, the president of Argentina’s central bank was arrested when he returned home from the annual IMF meeting in Washington. He was accused of betraying Argentina’s “national sovereignty” by giving in to austerity conditions imposed upon the Argentine economy by its creditors, the IMF and the international bankers in New York. Facing $40 billion in foreign debt and exploding interest payments that grow larger each year, Argentina is now the leading candidate for default on its loans – simply declaring to its creditors (Citibank, Chase Manhattan, Morgan Guaranty, Manufacturers Hanover Trust, among others) that it can’t and won’t pay any longer. If that occurs, Argentina would suffer the consequences, but so might we all. If one Third World nation defaults, others will be tempted to do the same, and the entire structure of international finance, not to mention some famous names in American banking, would be threatened with disastrous losses, even collapse.
In Ruthton, Minnesota, a dairy farmer named James Lee Jenkins decided to deal directly with his personal villain, the local banker who had foreclosed on the Jenkins farm. Rudy Blythe, president of the Buffalo Ridge State Bank, was lured by a late-night phone call to an abandoned farmhouse, where he was slain by a sniper’s rifle. A few days later, Jenkins committed suicide. The tragedy, of course, is that the ambushed banker was an innocent victim himself, trapped by the same economic forces that produced record-high interest rates and farm failures across the Midwest. The Federal Deposit Insurance Corporation (FDIC) reports that nearly 600 American banks (out of 15,000) are in trouble right now, in danger of failing because they have too many customers like farmer Jenkins who can’t pay off their loans. This is the highest level of “problem” banks recorded by the FDIC since that agency was founded in the 1930s.
These scattered episodes (which economists would disparage as “anecdotal data”) are certainly not as reliable as the hard statistics. Yet they are portents of human distress that could overwhelm the standard calculations by economic forecasters. These angry people are trying to tell us something, and the economic policy makers had better listen.
In moments of wishful fantasy, I like to imagine that all of these suffering people could somehow be gathered together in one great meeting hall where all of them – Brazilian looters, Argentine strikers, America’s distressed farmers and workers – could voice their different complaints. Obviously, the first thing they would agree on is that they all blame the bankers. But that’s too easy. And it is not really a solution.
In my wishful thinking, this assembly of the aggrieved would push beyond banker bashing and discover common ground that is more fundamental. After days of arguing over the horribly complex realities of international economics, they would agree on this simple insight: none of them will get well unless all of them can get well. American well-being is bound inextricably to the economic fate of Brazilians and Argentines and millions of other distant foreigners, who need us just as we need them. We are all in the same boat – that is the easy part. What’s not so easy is figuring out the common economic strategy to bring the rising tide that will lift us all.
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