Skip to comments.Bailing out Brazil – Or Robert Rubin?
Posted on 08/14/2002 1:03:51 PM PDT by arete
What has happened to Paul O'Neill? Our tough-love treasury secretary seems to have undergone a road-to-Damascus conversion to the Clintonite policy of bailing out bankrupt Third World regimes.
Last month, O'Neill scoffed at the idea of bailing out Latin America. The money, he said, would probably wind up in Swiss banks. But last week, Uruguay got $1.5 billion to stop a run on its banks. Then came a $30 billion dollar IMF bailout of Brazil. Now, the World Bank and Inter-American Development Bank are offering Brazil another $7 billion.
This $37 billion comes on top of $15 billion the IMF sent Brazil last year and a $41 billion Brazilian bailout in 1998.
Why is Uncle Sam bailing out these deadbeats yet again when Americans have gotten zero help from the government while a two-year bear market has gutted their 401(k)s and stock portfolios?
Read Friday's New York Times and you will find the answer.
Sam isn't bailing out Brazilian peasants, he's bailing out big banks. Last week, Brazil was in a panic, on the verge of default, and reporter Edmund Andrews explains why this was so "frightening."
"Brazil's ... external debt of $264 billion is more than double that of Argentina's, and American banks like Citigroup, FleetBoston and J. P. Morgan Chase have much greater exposure to Brazilian loans than to Argentine ones."
How great is the exposure?
"American banks have about $25.6 billion in outstanding loans to Brazilian borrowers. Citigroup, the biggest lender to Brazil, has $9.7 billion in Brazilian loans." That's right. Forty percent of the U.S. bank exposure in Brazil is the fault of America's biggest and dumbest bank. And who is the resident financial wizard at Citigroup?
"Robert H. Rubin, who was treasury secretary under President Clinton and engineered international rescue packages for Mexico, Russia and many Asian countries, is now a Citigroup director."
Andrews pointedly adds, "A representative for Citigroup could not say whether bank executives had lobbied in favor of a rescue package for Brazil." But the day the Brazilian bailout was announced, Citigroup's stock shot up 6 percent.
The career of Robert Rubin is instructive. As lead pony at Goldman Sachs, he led that investment bank into plunging billions into Mexican bonds. As head of the White House Economic Security Council, he failed to see the Mexican default barreling up the tracks. But as treasury secretary, he was able to shovel billions of U.S. dollars down Mexico way, thus saving the Goldman Sachs investments.
Last fall, we learned Rubin phoned Treasury to suggest to a friend that he might call Moody's to urge them not to downgrade the credit rating of Enron. Citigroup had loaned Enron $750 million. Yet, the committee investigating Enron, chaired by Joe Lieberman, has yet to call Rubin to explain what exactly he was up to and what other calls he made on Enron's behalf. Having friends in high places can save a lot of grief.
In fairness, Rubin is probably not responsible for sinking that $9.7 billion into Brazil. For this is not the first time Citigroup has had to have Uncle Sam post bail for its binges in Latin America. Citigroup has a recidivism rate to rival Darryl Strawberry's.
Yet, some of us saw O'Neill's pirouette coming. Two months ago, I wrote, "A prediction: President Bush and Treasury Secretary Paul O'Neill will emulate Bill Clinton and Bob Rubin and get into the bailout business, big-time as Dick Cheney would say, because no wants to be the one left standing there when the music stops."
Why the abandonment of principle by the president and O'Neill? Because neither wants to be in the wheelhouse when the ship hits the reef.
With Brazil's external debt at $264 billion, this $37 billion only kicks the can up the road. Brazil is bust, and putting bankrupts deeper in debt only pushes off the day of reckoning and write-offs. O'Neill is throwing tens of billions of good U.S. tax dollars down a rathole to chase the lost loans of Citigroup and J. P. Morgan.
Moreover, the Brazilians have had enough of IMF austerity. In the latest poll for the October presidential election, leftists "Lula" da Silva and Ciro Gomes had 60 percent of the vote between them, while our man, the IMF's man, the incumbent party's man, was pulling 11 percent.
The only question left is who is going to eat the losses from the idiot Latin loans of America's Big Banks. Because there are guys like Robert Rubin around, with friends in high places, it always comes down to the taxpayer.
That's the way the world works in 2002, even though it stinks.
The sooner Greenspan and the politicians let JPM and Citi sink, the better off the whole world would be. Taxpayers are bailing out those corrupt bankers again.
Comments and opinions welcome.
they are understanding that some of the biggest offenders are from their own party.
Sure, why not . . . as long as the ruling class elite can spend the summer at the Hampton vaction home. What -- you mean it isn't supposed to work that way?!
Many political obsevers have been clamoring for Robert Rubin to return as Treasury Secretary but not even he could reinflate the burst bubble his policies helped to create.
Rubin helped to orchestrate the bailout of Mexico and South Korea, and advised the International Monetary Fund (IMF) on the Russian, Brazilian, and Southeast Asian financial crises. All in all, an estimated $250 billion in international loans went to prop-up faltering currencies and restructure debts.
While it is not immediately clear why bailouts would help prop up the dollar, as distinguished financial economist Allan Meltzer has noted, support for exchange rates gives the people who want dollars a better price at which to buy them as they have to pay less of their own currency for every dollar purchased. As Meltzer says, Give people more opportunity to leave and on better terms, and more will leave. As a result nearly all of these nations have larger international debts than before the bailout and the dollar appreciated following each intervention.
In addition, the infusion of cash allowed the developing countries to continue to service the debt owed to international bankers like Banc of America, JP Morgan Chase, HSBC, and Citigroup. Often the loans were restructured, but this did not matter to the Wall Street speculators since they would charge banking fees and a commission for their troubles. Rubin was a hero to his former colleagues as IMF and Treasury bailouts attenuated the default risk on highly speculative loans. Bankers got the high-yields that accompany high-risk investments and very little of the actual risk.
I trust that Bush will do a number on the terrorists during his watch. Perhaps he couldn't have done all that much, like going into Afghanistan, until the public was behind him. Now we are, and he is rolling.
And he's doing a pretty good job of pushing back the rolling tide of liberalism that is strangling this fine country in the long term, though that battle will continue as long as America lives. For each opportunity to take a conservative stand that the Bush Bashers are quick to notice Bush has missed, there is another action he has taken in the Right direction, that Clinton or Gore would not have.
But the other biggie for him will be this debt, foreign and domestic, public and private. Someday, I suspect in the next few years, maybe sooner, it will come rushing down like a huge avalanche, taking out a few large banks and sharply reducing the supply of liquid capital. Most of our liquid capital, our money, isn't anything more than a figment of some banks imagination. Not only no gold backing it, but not even any greenbacks or even any demand account checking deposits. For each dollar deposited in a bank, it can loan ten or twenty more. Those dollars are spent, at that bank or some other bank, creating more deposits that leverage more loans. It's called the fractional reserve system, and its how banks manage our nations money.
This keeps up until the bank gets scared, or broke.
As we will be seeing, someday soon.
They will never let them sink while they still have the power to intervene. JPM and Citi are the government.
Wall Street and Washington have merged. They used to at least go through the pretense of not being part of the same group of lying thieving mobsters. Now, I can see little difference.
I refer to it as the fictional reserve system
Unfortunately, since the handover,.....,
Is that expression politically acceptable ?
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