October 18, 2008
By Uli Schmetzer
The infamous Bush-Paulson rescue plan for financial institutions in trouble reminds
me of the Papua-New Guinea and Vanuatu â€˜cargo cultsâ€™ when the natives, nurtured
on hand-outs from allied air drops during World War II, sat around landing strips waiting
for more cargo while engaging in weird worship rituals to attract the planes.
In the end the war ended, the bounty ran out, the planes did not return, the cargo cults
collapsed, its high priests ran off into the jungle with the loot they had hoarded and everyone was
poorer then before because they had forgotten how to make an honest living without hand-
The American and European rescue plans, supposed to salvage a rotted global
finance system, are very similar: The billion dollar hand-outs by the U.S. Treasury have
no strings attached which means the managers and whiz-kids responsible for the trouble
in the first place can keep on doing what they have been doing so far â€“ gambling with
their clientsâ€™ money, confident the next government bail-out is guaranteed because
the politicians are too scared to let â€˜the systemâ€™ collapse.
Like the natives squatting by the air strips waiting for the next cargo to arrive our finance
gurus can gobble up everything that has been handed out - or play bingo with it. The U.S.
government or the European Union (which has doubled the U.S. bail-out figure) have no control
over the operations of the rescued banks and institutions and, like the providers for the cargo cults,
have no supervision over the use of their loans.
No one from the government is on the board of directors and no rules or restrictions
are attached to these mega-loans.
If all that sounds like idiocy, it is.
We know at least one near-broke financial giant went on a 40,000 dollar party binge for its
executives the minute the loan was granted though their investors had lost millions. We know there
is no onus on any of the banks or institutions to stop investing in a shadow economy known as
derivatives, basically assets that do not exist except on paper. Or who is to stop the practice of â
€˜collateralized debt obligationsâ€™ bundling together debts and selling them, or the practice of
betting on the stock market going up or down, a game known as â€˜short-selling?â€™
Amazingly some of the geniuses who invented these gimmicks are now being hired
for as much as a million dollars a month to unravel the riddle of how they did it.
It has been estimated that the total of the â€˜shadow economyâ€™ - the one invented by
our finance gurus - is round 500 trillion dollars, ten times the output of the global â€˜real economy.â
So far governments on both sides of the Atlantic have only shored up â€˜the systemâ€™
and its manipulators, those who have milked the cream out of our economies. The loans have not
and are unlikely to percolate down to the victims of these manipulators. In fact the beneficiaries are
usually the same people who used to pressure the lending industry to pump out more loans, on
ever more flimsy securities, so they could bundle together more material for their dubious new
The injection of funds into our sick finance system is like keeping a coma patient on
a battery-run respirator. Death is inevitable because the battery will run down.
Like the cargo cults our bail-out cults will also eventually run out of funds â€“ and its high
priests will vanish with the loot.
FOOTNOTE: The Wikipedia says the term â€˜cargo cultsâ€™ has also become an English idiom
to mean: â€˜Any group of people who imitate the superficial exterior of a process or system without
having any understanding of the underlying substance.â€™