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The Bailout Goes South of the Border

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Now that its taxpayers are rescuing Wall Street's privileged from the consequences of their folly, the US government's Fat Cats First program is going global. The Federal Reserve Board announced this week that it was providing Brazil, Korea and Mexico with a line of credit of 30 billion US dollars each. The Fed says these "swaps" will allow the poorer countries' to use the fed's dollars to defend against a run on their currencies.

I don 't know what is going on in Brazil or Korea, but in Mexico -- where I'm writing this -- the new US foreign aid will support business as usual, i.e. socialism for the rich.

Since early August, the Mexican peso has fallen about one-third against the dollar. In part, the peso was caught in the general flight of short term money out of developing countries by suddenly risk-averse investors -- foreigners as well as locals. But what mostly undercut the peso was the bursting of a speculative debt bubble fueled by major Mexican transnationals. Turns out that large Mexican corporations and financial institutions have -- like their gringo cousins -- been borrowing money in New York to buy exotic derivatives based on gambling in the foreign exchange markets. When the bets went wrong and their debt pyramids began to unravel, New York called in the loans. This forced the Mexican companies to sell off peso-denominated assets, which drove down the peso's international price.

With major companies now short of cash, the conservative Mexican government of Felipe Calderón -- like its US counterpart -- is throwing money at their problem. The day after the US Federal Reserve line of credit was announced, the Calderón administration bailed out a major retail chain with loan guarantees and acknowledged that it will be extending its largesse to a number of other big corporations, who's CEOs are now stewing in their own greedy juice. That these same corporations were part of a group that made massive illegal contributions to Calderon's disputed election last year appears to be more than coincidence. As one newspaper columnist put it: "Washington rescues Calderón... and Calderón rescues his friends.

In a country where the government admits that at least 45 percent of the population is poor (some academics put the real number at 70 percent), unemployment and bankruptcy are rippling through the real Mexican economy. The remittances from workers in the US (along with oil, the country's large export) have shrunk and many migrants are coming home, adding to the number of people here desperate for work.

Yet, Calderón has airily resisted an economic stimulus that might help the ordinary Mexican. A self-styled fiscal conservative, his major concern seems to be to maintain the sacred principle of the Mexican oligarchs who run the country -- the rich don't pay taxes. In fact, Mexico's tax revenue as a share of its GDP is less than half of the US. In effect, the US taxpayers are providing credit to help bail out the rich Mexicans who don't pay taxes to their own country.

Those who worry that Wall Street's catastrophe might have discredited American-style "market" economy should relax. Crony capitalism remains alive -- and appears to be traveling well.