Was the template for the present "bankster bailouts" sown in Continental Illinois?

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"Mr. Laka reminds us that the Federal Reserve Act of 1913 allowed American banks to establish branches in foreign countries for one main purpose "the furtherance of the foreign commerce of the United Nonetheless the major American banks, including Continental Illinois went on a lending binge to foreign governments who now cannot pay the high interest rates. Every one of the top nine American banks lent money to many governments, tour of which, Brazil, Mexico, Argentina and Venezuela, owe these banks more than 100 percent of the banks' shareholders' equity.

The large banks fully expected any default to be backed up by Uncle Sam, according to a recent study commissioned by the Federal Reserve Bank of New York." ------------

These large banks took huge risks (be it by lending money to Third World nations who couldn't pay back the loans back in the old days or presently, by making gambling bets with their their customers' savings accounts on CDS's) operating with the understanding that the taxpayer will be there to back them up.

Why isn't Reagan being called a socialist for bailing out Continental Illinois?

Sitting at the casino and playing with other peoples' money is great. If I win, the winnings are mine. If I lose.....well, there is no losing in this game. I only win --- you taxpayers? You lose on both counts....

matmar83's picture
Jul. 31, 2007 3:01 pm


From the article:

"A former vice-president of Citibank for strategic planning, Eugene J. Laka, argues that the go-go growth mania of banks is incompatible with the banks' "primary responsibility as a fiduciary." This fast growth strategy he sees as the root cause of the imprudent lending and loose practices."

"Wall Street breathed a collective sigh of relief at avoiding a dominoes effect throughout the shaky financial community..."

The bailouts weren't sown in this Continental episode per se but in the need to maintain free market ideology as the operational paradigm for the United States for the benefit of the wealthy. Their concern was to avoid regulation, even though the FDIC took over. The very wealthy want as high a return they can get and high risk finance is the way. Through their control of our government, they have privatized profit and socialized loss.

Continental's behavior and result was sown in the power of the wealthy and their fear of loss.

jeffbiss's picture
Jul. 31, 2007 3:01 pm

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