RSA Animate - Crises of Capitalism- David Harvey

Capitalist Education Reform: Democracy is the new "socialism"

           By Morna mcDermott, Baltimore Education Reform Examiner

Capitalism and democracy are not synonymous terms-while they overlap in American society they are often also at odds with each other.

Capitalism (particularly the free market version) is often based on the evolutionary notion of “survival of the fittest.” The most vulnerable are at greatest risk. The framework for this parallel is grounded in an ideology that presumes capitalism as “natural” and “given” rather than a social construction which, as such, is liable to be fraught with bias, prejudice and greed- human constructions which at times need to be checked. The assertion that capitalism is a natural state insinuates then that as in “nature” the weakest ones are thinned out of the herd. In socioeconomic terms, the so called “weakest” are those with the least economic or political power, namely: children, the elderly, those less educated, people living in lower socioeconomic conditions, minority groups (all of whom are often marginalized from the center of access to privilege and opportunity). They can’t fight back as easily so their needs are the easiest place to cut the fiscal budget.

Schools in a democratic society, free and open to all, are supposed to be sites where all children can receive access to privilege and opportunity. But instead they have become sites of tests and measurements. The democratic system of schooling has gradually been replaced with a capitalist one.

Democracy is grounded in collaboration and collective participation. A democratic process is one in which multiple voices and perspectives can be heard. It is an emergent dialogic process. It relies on fairness, not competition.

High stakes testing as a means for making schools “accountable” is a capitalist notion. It suggests that tests, in a one size fits all model, is offering “equality” across the curriculum, while ignoring factors such as poverty that directly influence the shape, scope, and outcome of that content delivery. In ideology-land, everyone has an equal chance to take and succeed on the test if only they “try hard enough.” They’re all learning the same material and taking the same test, right? This eerily parallels the myth of meritocracy, close cousin to free market thinking, which blindly wishes to assume that everyone has an equal chance to succeed regardless of the obstacles. Therefore, any failure must be on behalf of the teacher or the student themselves for most likely “not trying hard enough.” This mentality suggests that somehow teachers and schools are the greatest determining force in remediating social and economic ills, and denies the reality that existing problems with social and economic inequality are larger determining factors in shaping childhood development and classroom learning than testing.

A capitalist ideology is reflected in the notion of “I got mine. You can go get yours.” A democratic ideology is supported by the idea of “we are all in this together.” The policy makers who hold the power to cut funding choose programs which do not affect them directly. How many high ranking business men and public officials do you think worry about the arts being cut from their children’s high tax bracket public schools? How many of them do you think accept food stamps? How many live in food deserts or have limited or non-existent access to health care?

In contrast: How many of them will (and do) benefit from tax breaks to the big businesses and top 10% wealthiest people?

While Maryland spends millions of dollars on testing and test preparation for their Race to the Top, here is a list (below) of factors within Baltimore City, many of which are on the chopping block for the 2011-2012 budget. The same people who want to bring us standardized testing as the carrot for financial reward and privatization of schools are the same people who want to cut those programs that help alleviate those social conditions which most directly impact school performance. Race to the Top is self evident. The title says it all: Survival of the Fittest. Sucks for the rest of you. It entrenches the idea that fear and competition will be the remedies to socioeconomic problems and institutional racism. Let’s simply scare children out of poverty and social injustice.

According to a study presented at PBS.org:

To understand the problems of education in America, it is necessary to look at the way public schools are financed. The disparate funding for public schools and between states and within metropolitan areas has turned some public schools into meccas for affluent students and others into decaying infrastructures with overcrowded classrooms and soaring drop-out rates. (www.pbs.org/newshour/backgrounders/school_funding.html)

Advertisement

So let’s examine the myth that budget cutting only eliminates those programs which have been “proven” ineffective. Current budget cuts are eliminating smaller programs in Maryland that have been supposedly “determined to be ineffective”—the logic being, why fund something that appears to not being work? Yet, the tests and textbook companies which eat up an enormous part of the educational budget seem immune to this scrutiny in spite of the fact that research has proven that tests effectively do not measure meaningful learning but rather simply test to show if kids can take tests. In fact research shows that high-stakes testing results in:

increase student grade retention and failure rates,

higher dropout rates

practices which are unfair to minorities

inappropriate labeling that can stigmatize children

As Peg, from pegwithpen blog, articulates powerfully in “I Cannot Feed You, But I Will Test You”ironically while we spend money on the testing of children we spend considerably less money for programs that help children develop the skills and learning they need. See her blog at: http://pegwithpen.blogspot.com/2011/03/child-abuse-in-corporate-education.html

Here are the grim statistics for Baltimore City between 2008 and present (and into the future):

Proposed budget cuts to park and recreation

The closing of city-run pools and recreation centers. Judy Atkinson, with the Roosevelt Park Rec Center, said that could be devastating. "It's gonna mean a lot more children out on the street that you're gonna have people with idle time on their hands."

(http://www.wbaltv.com/money/22994652/detail.html)

Poverty

Approximately 30% of all families with children under the age of 18 live in poverty (Census between 2005-2009). For women as householders with no husband present the rate goes to 35%. That is one-third, or one in three. Children living at 250% below the poverty level is 64%.

Loss of PE, AP level classes, art and music programs in “low performing” schools

State funding for arts education has already been cut from the 2008 level of $2.3 million to the $1.163 million amount in the Governor's proposed budget for FY 2011. This is almost a 50% cut from 2008. While surrounding counties like Ann Arundel Montgomery and Howard have arts and sports supplies in abundance, many city schools are lucky to find a few pots of paint and some old paper, a worn out playing field, and broken equipment. For students who don’t necessarily buy into schooling for schoolings sake, the arts and athletics are the reason they succeed and stay in school. It offers them a way to make sense of the world and a reason to attend school.

Segregation

No, sorry folks, it didn’t go out at the end of the Civil Rights Movement. A passage from The Huffington Post by Sarah Neufield (2009) states: “(Baltimore) is one of the most segregated school systems in America... this must be one of the closest to absolute apartheid." For more on this issue see Howell S. Baum's book Brown in Baltimore: School Desegregation and the Limits of Liberalism

Food deserts

Food deserts are pervasive around Baltimore’s economically challenged communities. Essentially families in these areas must travel a mile or more (usually without a car) to access healthy food choices in larger grocery store chains. The impact of nutrition on the development of a child’s mind and body significantly impact their learning and school performance. Everything from low birth weight in infants born to mothers with poor dietary habits, to incidences of “ADHD” due to the excess of sugar and artificial ingredients in high processed foods most available to them in corner stores and fast food chains.

Clean drinking water

Seems simple enough, but for many students in Baltimore City schools, they do not even have clean potable drinking water in their water fountains.

I am overlooking a myriad of other factors, but space in this article prohibits me from including them all. But these examples suffice to make the message clear. And as far as the line of “using data to drive” policy decision making goes I think the collapse of Fanny May, Freddie Mack, and AIG under the umbrella of free market (as the ideal proposed to “reform” schools in a business model) speak for themselves. Are these really the real results we want for our children? And they are ALL our children.

http://www.examiner.com/education-reform-in-baltimore/capitalistic-education-reform-democracy-is-the-new-socialism-1?fb_

The writer is an Associate Professor of Education in Baltimore.

Tags:

High stakes testing, educational reform, Maryland Race to the Top

The Year the White House became Business Friendly

The Year Washington Became “Business Friendly”

MONDAY, DECEMBER 20, 2010

History will record 2010 as the year Washington became “business friendly.”

Not that it was all that unfriendly before. Some would say the bailouts of Wall Street, AIG, GM, and Chysler were about as friendly as it can get. In addition, Washington gave windfalls to drug companies and health insurers in the new health bill, subsidies to energy companies in the stimulus package, and billions to domestic and military contractors.

But for corporate America it still wasn’t friendly enough. Before the midterm elections, Verizon CEO and Business Roundtable chair Ivan Seidenberg accused the President of creating a hostile environment for investment and job-creation. In the midterms, business leaders overwhelmingly threw their support to Republicans.

So the White House caved in on the Bush tax cuts for the wealthy, and is telling CEOs it will be on their side from now on. As the President recently told a group of CEOs, the choice “is not between Democrats and Republicans. It’s between America and our competitors around the world. We can win the competition.”

There’s only one problem. America’s big businesses are less and less American. They’re going abroad for sales and employees. That’s one reason they’ve showed record-breaking profits in 2010 while creating almost no American jobs.

Consider one of most popular Christmas products of all time – Apple’s iPhone. Researchers from the Asian Development Bank Institute have dissected an iPhone whose wholesale price is around $179.00 to determine where the money actually goes.

Some shows up in Apple’s profits, which are soaring.

About $61 of the $179 price goes to Japanese workers who make key iPhone components, $30 to German workers who supply other pieces, and $23 to South Korean workers who provide still others. Around $6 goes to the Chinese workers who assemble it. Most of the rest goes to workers elsewhere around the globe who make other bits.

Only about $11 of that iPhone goes to American workers, mostly researchers and designers.

Even old-tech American companies made big money abroad in 2010 – and created scads of jobs there. General Motors, for example, is now turning a nice profit and American investors bullish about its future.

That doesn’t mean GM will be creating lots more blue-collar jobs in America, though. 2010 was a banner year for GM’s foreign sales — already two-thirds of its total sales, and rising. In October, GM became first automaker to sell more than 2 million cars a year in China. The company is now making more cars in China than in the United States.And GM has just signed a deal with its Chinese partner to try to crack India’s potentially huge auto market.

Meanwhile, back home in the U.S., GM has slashed its labor costs. New hires are brought in at roughly half the wages and benefits of former GM employees, under a two-tier wage structure accepted by the United Auto Workers. Almost all GM’s U.S. suppliers have also cut their payrolls.

It’s much the same even for America’s biggest retailers. 2010 wasn’t an especially good year for Wal-Mart in the United States. Its third-quarter sales fell, as U.S. shoppers continued to hold back.

But Wal-Mart International is contributing mightily to its bottom line. Its UK business, Asda, will be adding 7,500 new jobs next year. Wal-Mart is also doing well in Japan and Brazil, and hiring like mad in both countries.

So when President Obama tells American CEOs our biggest challenge comes from abroad, you’ve got to wonder. The leaders of American business are already abroad, and doing quite nicely.

Just after the midterm elections, the President’s chief  economic advisor, Larry Summers, told a group of top U.S. CEOs that the election was partly a “rejection of elites…that were seen as more citizens of Davos than of their countries.” American CEOs, Summers warned, should “think very hard about their obligations as citizens of this country.”

Yes, they’re citizens. But first and foremost they’re CEOs. And CEOs have to show profits – wherever those profits come from. Under American-style capitalism, profits matter. Jobs don’t.  

2010 was the year Washington became even more “business friendly.” The result has been more and better jobs – but not in America.
Robert Reich. 

The continuing economic crisis

The financial crisis is not over although it has been moved off of the front pages of many papers.  On Thursday, September 23, 2010, the Financial Crisis Inquiry Commission came to Sacramento chaired by Phil Angelides.  In his opening statement Angelides noted that there were 26 million out of work, over 2 million have lost their homes, over $12 trillion in wealth has been wiped out, and California has an official 12.8 % unemployment.

The crisis started in the housing markets, particularly  in places like Sacramento. The economic problems were accelerated by the near larceny of business practices by corporations including Washington Mutual and Long Beach Savings.  Sub prime and Alter A mortgages were promoted and sold to make outlandish profits even though it was clear that many home buyers could not pay for their mortgages.

The  current Great Recession was accelerated far beyond  Sacramento and the Central Valley by finance capital and banking, mostly on Wall Street, ie. Chase Banks, Bank of America, Goldman Sachs,  AIG, and others.  Finance capital owned the banks, and they robbed the banks through investment and trading  schemes including investments in mortgage backed derivatives. Wall Street’s actions plunged the U.S. into the worst financial crisis since the Great Depression, destroying jobs and lives, and triggering a recession in much of  the developed world.

One person testifying ( I did not get his name), said this was , “capitalism at its most unregulated.”  The effects of the housing crisis spread to Wall Street because it was Wall Street firms backing the mostly fraudulent mortgages – and then they were bailed out.

We are now  in the greatest economic crisis since the 1930’s.  WE need  a new  consistent, comprehensible narrative  to explain how the economic system is only working for the rich and powerful, not for working people.   Such a narrative  would explain  to working families  the economic  reality and the destruction  which they are seeing around them and provide an alternative to the narrative being offered by the  media, the Tea Party and the other corporate front groups.

The  recent work 13 Bankers. The Wall Street Takeover and the Next Financial Meltdown. ( 2010)  and a number of other books  develop  the important thesis that the U.S. is being directed and exploited by an oligarchy.  This oligarchy protects  their profits and their privileges, they dominate the government.  And, they will continue to do so until they are stopped.

Johnson and Kwak  argue that in the crisis of 2007/2009, which the oligarchy created, the rich seized billions of dollars for themselves.  They made massive profits from the economic disaster. The Great Recession cost  the homes, the jobs, and even the lives of working people.

 In  The Wall Street Takeover and the Next Financial Meldown,  Johnson and Kwak describe in detail the self serving economic theories which the wealthy and the powerful promote, such as those advanced most notably by the University of Chicago economists.

Perhaps most important is to understand that the system has not been fundamentally changed – it will all happen again.  Johnson and Kwak note

 “ In the dark days of late 2008- when Lehman Brothers vanished, Merrill Lynch was acquired, AIG was taken over by the government, Washington Mutual and Wachovia collapsed, Goldman Sachs and Morgan Stanley fled for safety morphing into bank holding companies, and Citigroup and Bank of America teetered on the edge of being bailed out- the conventional wisdom was that the financial crisis  spelled the end of an era of excessive risk –taking and fabulous profits.  Instead,  we can now see that the largest, most powerful banks came out of the crisis even larger and more powerful.  When Wall Street was on its knees, Washington came to its rescue- not because of personal favors to a handful of powerful bankers, but because of a belief in a certain kind of financial sector so strong that not even the ugly revelations of the financial crisis could uproot it.”  ( P.11)

To see more on this see, “The easiest way to rob a bank is to own one,” on a prior post.

A hopeful counter point  to oligarchic power was offered in a presentation by Barry Lynn of the New America Foundation at a noon conference downtown.    Lynn argues in his book, Cornered: The New Monopoly Capitalism and the Economics of Destruction, (2010) that the growth of monopoly power in the U.S. has given the powerful, or those referred to by Johnson and Kwak as the Oligarchs, a new power to control our economy and to govern our lives.  He gave examples from beer brewing, agriculture (chickens and milk), to Wall Mart and Google to argue for an effort to renew our democracy.  Interestingly, his anti monopoly of power argument came from a rather conservative perspective- not from the Left.

Capitalism: A Love Story

It is time for economic reform : Moyers

It is time for economic justice.  Bill Moyers

Capitalism: a Love Story

BILL MOYERS:

I sat in a theater packed with passionate moviegoers, every one of them seemingly aghast at the Wall Street skullduggery exposed by Michael Moore in his latest film. It's called 'Capitalism: A Love Story.' Here's an excerpt:

MICHAEL MOORE: We're here to get the money back for the American People. Do you think it's too harsh to call what has happened here a coup d'état? A financial coup d'état?

MARCY KAPTUR: That's, no. Because I think that's what's happened. Um, a financial coup d'état?

Just over a year after economic calamity brought promises of reform from Washington, has Wall Street really changed? Former International Monetary Fund chief economist Simon Johnson and US Rep. Marcy Kaptur (D-OH) report on the state of the economy.

More from Simon Johnson and US Rep. Marcy Kaptur and review the JOURNAL's coverage of the financial crisis.

Watch the video: http://www.pbs.org/moyers/journal/10092009/watch.html

Capitalism: A Love Story

Go see, Capitalism: a Love Story written and directed by Michael Moore.
It is great-and at times sad.
Meanwhile.  Barack Obama receives the Noble Peace Prize.
The Sacramento Bee headline writer editorializes,  Obama Acclaimed for Aims.

The U.S. has failed to control Wall Street

For all Obama's talk of overhaul, the US has failed to wind in Wall Street

With a blank cheque from taxpayers and no real reform the perverse incentives for risk-taking are bigger than ever

by Joseph Stiglitz
The Guardian (U.K.)
9/14/09

What went wrong? Have the right lessons been learned? Could it happen again? The anniversary of the Lehman Brothers' bankruptcy and the freezing of the credit markets that followed is an occasion for reflection. I fear that our collective response has been mistaken and inadequate – that we may just have made matters worse.

The financial sector would like us to believe that if only the Federal Reserve and the Treasury had leapt to the rescue of Lehmans all would have been fine. Sheer nonsense. Lehmans was not a cause but a consequence: a consequence of flawed lending practices, and of inadequate oversight by regulators.

Financial markets had lent on the basis of a bubble – a bubble in large part of their making. They had incentive structures that encouraged excessive risk-taking and shortsighted behaviour. And that was no accident. It was the fruit of vigorous lobbying, which strived equally hard to prevent regulation of changes in the financial structure, new products like credit default swaps – which, while supposedly designed to manage risk, actually created it – and ingenious devices to exploit poor and uninformed borrowers and investors. The sector may not have made good economic investments, but its political investments paid off handsomely.

Lehmans was allowed to fail, we were told at the time, because its failure did not pose systemic risk. The systemic consequences its failure entailed, of course, were used as an excuse for the massive bailouts for the banks. Thus the Lehmans example became at best a scare tactic; at worst it became an excuse, a tool, to extract as much as possible for the banks and the bankers that brought the world to the brink of economic ruin.

Had more thought gone into how to deal with Lehmans, the Treasury and Fed might have realised that it played an important role in the shadow banking system, and that it was important to protect the integrity of the shadow system which had come to play such an important role in the US and global financial payments system. But many of Lehmans' activities had no systemic importance. The administration could have found a path between the false dichotomy of abandonment or bailout. That would have protected the payments system, providing the minimum amount of taxpayer money. Shareholders and long-term bondholders would have been wiped out before any public money had to be put in.

Bailing out the US banks need not have meant bailing out the bankers, their shareholders, and bondholders. We could have kept the banks as ongoing institutions, even if we had played by the ordinary rules of capitalism which say that when a firm can't meet its obligations to creditors, the shareholders lose everything.

Unquestionably we should not have allowed banks to become so big and so intertwined that their failure would cause a crisis. But the Obama administration has created a new concept: institutions too big to be resolved, too big for capital markets to provide the necessary discipline. The perverse incentives for excessive risk-taking at taxpayers' expense are even worse with the too-big-to-be-resolved banks than they are at the too-big-to-fail institutions. We have signed a blank cheque on the public purse. We have not circumscribed their gambling – indeed, they have access to funds from the Fed at close to zero interest rates, and it appears that "trading profits" have (besides "accounting" changes) become the major source of returns.

Last night Barack Obama defended his administration's response to the financial crisis, but the reality is that a year on from Lehmans' collapse, it has failed to take adequate steps to restrict institutions' size, their risk-taking, and their interconnectedness. Indeed, it has allowed the big banks to become even bigger – just as it has failed to stem the flow of profligate executive bonuses. Obama's call on Wall Street yesterday to support "the most ambitious overhaul of the financial system since the Great Depression" is welcome – but the devil, as ever, will be in the detail.

There remain many institutions willing and able to engage in gambling, trading and speculation. There is no justification for this to be done by institutions underwritten by the public. The implicit guarantee distorts the market, providing them a competitive advantage and giving rise to a dynamic of ever-increasing size and concentration. Only their own managerial competence, demonstrated amply by a few institutions, provides a check on the whole process.

The Lehmans episode demonstrates that incompetence has a price. That there would be serious problems in our financial institutions was apparent since early 2007, with the bursting of the bubble. Self-deception led those who had allowed the bubble to develop, who had looked the other way as bad lending practices became routine, to think that the problems were niche or temporary. But after the fall of Bear Stearns, with rumours that Lehmans was next, the Fed and the Treasury should have done a serious job of figuring out how to manage an orderly shutdown of a large, complex institution; and if they determined that they lacked adequate legal authority, they should have requested it.

They appear, remarkably, to have been repeatedly caught off-guard. They claim in the exigency of the moment they were doing the best they could. There was no time for thought. And that explains how they veered from one solution to another: after saying that they did not want to bail out Lehmans because of a concern about moral hazard, they extended the government's safety net further than it had ever been. Bear Stearns extended it to investment banks, and AIG to all financial institutions. Perhaps they were doing the best they could at the time; but that is no excuse for not having anticipated the problems and been better prepared.

Lehman Brothers was a symptom of a dysfunctional financial system and regulatory failure. It should have taught us that preventing problems is easier, and certainly less costly, than dealing with them when they become virtually intractable.

Shutting Detroit Down

They're Shuttin' Detroit Down

Check out this new video: here http://heavens-gates.com/usworkers/indexB.html

You will need to wait for the video to load. And, you may need to click through to the alternative site.
It is worth it.

What profits are for

A coffee stall at one corner of The University of Melbourne claims to have a 'new concept of business'. They let the customers decide how the profits from their cup(s) of coffee would be distributed: to the owner, or to one of their causes (social, environment or cultural). Every time they buy coffee or snack, customers would be given a card, which they will put into one of four pigeon holes representing each purposes. At the end of every month, profits will be distributed based on the distribution of cards in each pigeon holes.

Yesterday, for the first time I bought their coffee (it tastes and smells good, and costs less than other coffees in the university and its surroundings, by the way). Then I put my card into the first pigeon hole: the owner. Yes, I want the profit from my cup to be enjoyed by the owner. My philosophy is simple. It is a small business, and if the owner can't enjoy a substantial profit, they might go out of business. Somehow, most of their customers also think so. The highest percentage of cards so far went into the 'owner' hole.

My preference may be different had it been, say, Starbucks or Dunkin Donuts. Not that I want to 'punish' them for making big profits. But those companies may have earned enough profits to keep them in business. Up to some point, a reallocation the profits may leave them as well-off as before, but it increase my utility if they sponsor an exhibition, a movie project or a concert. Off course, needless to say, that would also depend on to where or what kind of activities they will share their profits.

Capitalism, with a subsidy

The end of gentlemanly capitalism
Tony Curzon Price
The global financial panic triggered by uncertainties in the United States home-loans market is much more than an institutional wobble, says Tony Curzon Price:
it is a system-crisis that requires a radical solution.
13 - 08 - 2007


Over the past week, we - the rich-world voter and taxpayer - have bailed out the hedge-funds, their bankers and their counterparts caught in the global squeeze on credit. Again. It happened in 2001 and in 1998. The financial system has once more fallen into the soft, bouncy, but ultimately comfortable safety-net (trampoline?) that we - all of us together, through our central banks and the losses we are prepared to underwrite as taxpayers - extend to troubled financiers.
Are we right to keep bailing out the bankers, offering them a safety-net that turns their business nto a risk-less, one-way bet? There was an innocent time when we - as voters and taxpayers - were right to always be there as "lenders of last resort". But finance has become self-servingly postmodern too: the banking system knows how to take advantage of the social-security we have extended, and we are only storing up trouble by keeping them afloat. We should resist the temptation to "hug a hedgy''. Now is the time for some tough love for the newly stressed and bedraggled hedge-fund managers. Only this will allow the emergence of a fair and stable financial order.
But, the fund manager might retort, why endure the pain that a wholesale financial restructuring now would entail? Can't we - that is, you - give in just one more time, and hope that our binge of bad investment is pardoned in the dilutive (and real) forces of technological and global-south catch-up growth?
Tony Curzon Price is the editor-in-chief of openDemocracy. He worked as a consultant economist for more than ten years. Since 1997, he has lectured on economics and energy policy to postgraduates at Imperial College, London, and at the École Polytechnique Fédérale de Lausanne (EPFL)

Among Tony Curzon Price’s recent articles in openDemocracy:

20
This is an offer the rest of us should refuse, for it resembles nothing so much as the argument for repeated concessions to the welfare-Keynesianism of the 1960s and 1970s. The crisis of that model, and the lack of principled, intellectual and political, resolve among the policy-makers of that era in response to it, eventually undermined the modern dream of fair, full and fruitful employment. So today, the continuation of healthy global growth in the world economy is threatened by institutional blockages, this time from systematically malfunctioning financial agencies that seem at every step too powerful to cross. We live in a moment when technology and trade offer great hope for the development of good lives. This generation must not allow itself to squander through cowardice, as did its predecessor, the opportunity for sustainable economic betterment.
The masters of go
The lineaments of crisis are plain. Financial markets have fallen sharply. Central banks have acted in concert as "lenders of last resort'' to troubled funds. Bond dealers show from their trading behaviour that they are no longer expecting interest rates, which had been rising, to rise any further in 2007. The consensus is that the United States federal reserve and the central banks of Europe and Japan have been right to intervene, to offer cash when none others will, in order to avoid a system-wide crisis. The world's finances rely on a basic assumption that markets will continue to exist. If I need to make a cash payment, I will be able to select which of my assets to sell and will actually be able to sell them at some price.
In a system-wide crisis, no one wants to trade. There is no price at which anyone can be convinced to hold a contract, because no one knows what its value is. In this circumstance, a fund manager is a helmsman in a storm: aware of every danger of his position but powerless as wind, then waves, batter him here, then there. But unlike the helmsman, the storm is made worse if another ship in the vicinity goes down. If a bank actually faces bankruptcy, all the contracts and obligations held by that institution will be bad, thus infecting trust in every part of the financial system.
The central banks bail out the funds in order to stop anyone seeing a ship go down, as a way of stemming contagion. That is the defence. This is why we, as citizens and voters the owners of the central banks, lend money in conditions in which no banker would lend. And the argument is strong: contagion and system-wide crisis will have a real impact that will cause hardship: when firms and households find borrowing is hard, demand drops, jobs go ... recession. There is a real case here for us to bail the hedge-funds.
But the metaphor of the storm is misleading. Meteorology is not caused - at least not predictably - by the decisions of the helmsmen it affects. Financial crises are. It is because we can be counted on to be lenders of last resort that traders and managers can discount the risks of system-failure and therefore behave imprudently with increasing ease and frequency. The pattern is familiar from the libertarian critique of welfarism: while a safety-net for the deserving poor is good, the existence of the safety-net will create a class of idle, undeserving scroungers. It is hard to be good without encouraging others to be vicious.
Fund managers have been enjoying a one-way bet for six years or more. A credit-worthy institution could borrow very cheaply and lend on without any concern about becoming systematically over-stretched. In the extreme case, the Japanese central bank has been lending money almost for free. Those with access to free money could lend it on to those without such privilege and pocket not just the difference, but, through gambles, multiples of the difference. This is the magic of the "carry-trade".
More at the link below. Or, click on the title.

http://www.opendemocracy.net/article/globalisation/institutions_government/end_of_capitalism