[Viewpoint] The ‘dark Satanic mills’ run again

President Lee Myung-bak surely doesn’t have luck on his side. He may have hoped to see an uptick in his approval rating by the time much of the controversial four-rivers restoration project is complete this fall. But the corruption scandals of his Blue House aides spoiled that chance. Then the European debt crisis took off, spilling over to the local market and further darkening prospects for the global and local economy.

The incumbent administration has had to battle a global financial crisis sparked by a meltdown on Wall Street and now faces a second shockwave from Europe. The real industrial product index sank into negative territory for the first time in three years, and factory lines have slowed. Consumers are withholding spending to brace for harder times. The conservatives have little chance of holding onto power in the upcoming elections if the stock market remains sluggish.

But election outcomes are hardly the main problem. What is more concerning is that neither liberals nor conservatives have good answers to strengthen the local economy and defeat external risks. World leaders mustered the wisdom to battle the Great Depression eight decades ago. But today’s financial depression is beyond state control. Sometimes there is no other way but to wait it out.

Greece veered away from the brink of default after German lawmakers endorsed an expansion in financial aid to troubled European peers. But few can tell how long the new dose of palliative will last. Wall Street, even after swallowing up $20 trillion in bailout funds and wrecking the economy, remains as greedy and self-indulgent as ever. If any one of the too-big-to-fail banks in the United States or Europe goes bankrupt, the repercussions will likely trigger a tsunami across the globe and bankruptcies of Korean homes if our export-driven economy slows down.

The “dark Satanic mills” - a term William Blake used to decry the horrible ills created by the Industrial Revolution on the human race - have been running all this time. The English poet saw that the smoke from furnaces came from the pulverization of humanity and nature.

In the last two centuries, civilization has deified capital expansion and celebrated the devilish mechanism. It was shocked to discover its true nature in 1998 and 2008. The fire was only extinguished with trillions of dollars of taxpayers’ money. In the aftermath, 30 million people lost their jobs and 50 million became dirt poor.

The world has learned two things at the cost of hard-working ordinary citizens. One, to be prudent with budgetary spending and, second, to contain high-risk financial instruments like credit default swaps. But knowing is one thing and acting out another. If governments cut budget-draining welfare and pensions, lives of the populace will worsen. Greece, Italy and Ireland - with poor industrial bases - are faced with such a conundrum. Portugal and Spain are also treading on thin ice.

Predatory Wall Street smelled money in the European tragedy. Speculative funds upped the stakes and raised premiums on the insurance against sovereign defaults in the bonds of credit-risky countries. More sophisticated and complex derivatives entered the market. If Greece falls, it would set off chain insolvencies across the globe, including Korea.

The critically acclaimed 2010 documentary “Inside Job” delves into the systematic corruption of the U.S. financial services industry that exacted the meltdown in late 2000s. The hands on the “Satanic mills” encouraged and envied as they did their dirty work. They were unabashed after gulping up $20 trillion in government funds and went on giving themselves fat paychecks. Banks knew derivatives were worthless but nevertheless sold $1 trillion worth in 2006. As a result, thousands lost their homes.

Wall Street executives and preachers of derivatives, instead of condemnation, found reputable jobs in the White House. Treasury Secretaries Larry Summers, Henry Paulson, Robert Rubin and Timothy Geithner were all from Wall Street. Having enjoyed both worlds, they are exceptionally rich. Goldman Sachs - a revolving door between Wall Street and Washington - earned billions of dollars by betting on AIG’s downfall.

The same captains are running the industry and making policies. The Obama administration, which promised reform, surrounded itself with insiders. Former Harvard President Summers, accused of running the school as a hedge fund, was picked as Obama’s top economic adviser.

Finance is the blood of the industry. If blood is short or distressed, the entire body organ can collapse. The Occupy Wall Street protests against capitalist greed are spreading quickly across U.S. cities. The ugly forces of capitalism have also contaminated the local industry as the demise of savings banks evinces. Authorities and the industry should seriously examine where our financial sector is headed before it is too late.

*The writer is a professor of sociology at Seoul National University.

By Song Ho-keun