Rescue merely shifted crisis risk onto government balance sheets

Evidence

One way to describe this unprecedented array of practices was to gloss it as the prevention of rolling bankruptcy through the instrumentality of the central government and the central banks taking much of the risks and bad paper onto their own balance sheets, either directly or virtually through loans and guarantees to private interests. Rather than create a new market in “carbon-style permits,” the government and central banks jury-rigged a novel market in quasi-public, quasi-private debt. As has often been bemoaned, in practice profits remained privatized while all the downside risk was nationalized. It has been less frequently noticed that most of these activities didn’t actually “solve” the financial crisis in any lasting or definitive way; all they did was shift it onto the balance sheets of governments, who then subsequently found their own public debt ballooning and their central banks becoming market-makers of last resort. This ramshackle contraption of the government backstopping corporate failure through disguised asset “purchases” on a grand scale has morphed into a mutant form of capitalism, one that sports its origins in the neoliberal precept that the solution to supposed market failures is more markets. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 946

Categorization

• XREF: The ‘mutant form of capitalism’ and market-maker of last resort connects to the author’s earlier discussion of carbon-trading as the paradigm of market-based solutions. — connects to: The 2010 PIIGS crisis was a shift in risk perception, not underlying risk — Mark Blyth, Austerity: The History of a Dangerous…, 198; Crisis rescue shifted private sector insolvency onto sovereign state accounts — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 49; European austerity serves to reserve sovereign balance-sheet space for too-big-to-bail bank rescues — Mark Blyth, Austerity: The History of a Dangerous…, 617 (+1 more)
• SEED: Angles: ‘The market-maker of last resort as a state-financed insurance scheme’ — comparing financial rescue to carbon emissions markets as twin instances of market-fetishist governance.

Broader Connections

• European austerity serves to reserve sovereign balance-sheet space for too-big-to-bail bank rescues #expands (0.85) — Mark Blyth, Austerity, 617
• Government bailouts prevent capitalist crises from restoring profitability #corroborates (0.80) — Nick Couldry & Ulises A. Mejias, The Costs of Connection, 801