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INTERVIEW Welfare for Investors BY LOUIS DUBOSE Walker F. Todd, of counsel to the Cleveland law firm of Buckingham, Doolittle & Burroughs, previously served as assistant general counsel and research officer for he Federal Reserve Bank of Cleveland. The following telephone was done by Observer editor Louis Dubose on January 18. In a an extensive interview published January 9 in the Mexico City daily Reforma, Todd warned that if Mexico borrowed from the United States the amount of money now being discussed, the result will be years of austerity in which poor and working-class Mexicans pay for a bailout of a small elite in Mexico and the United States. Today Governor Bush said he wanted to make it very clear that what Mexico is experiencing is only a liquidity crisis. That’s the party line in Washington. But they can’t prove that at market value and present value that Mexico has assets that equal or exceed their liability. If they don’t, then they’re insolvent. And the answer is: they don’t. They’ve got $120 billion in foreign debt. They’ve got $58 billion of it falling due this year. And against that, I want you to tell me how much money they can raise. I think they can raise at most around $30 billion, through means other than additional international official assistance. If they were a bank in the United States, they would have a conservator appointed for them now. Because they cannot survive without further official assistance. You talk about the danger of another austerity program and the injustice of one class amortizing the debt made by another class. One class borrows the money’ and another class pays it back. The average Mexican peasant doesn’t know any foreign bankers and has no foreign bank account. So how can he borrow the money in the first place? Yet, when austerity time comes, who actually lives under the austerity regime? Is it the peasantry or the guys who borrowed the money? The guys who borrowed the money typically keep their lifestyle as it was, while the peasants, in this case, get 40 percent lower wages. And then you wonder why the immigration rate northward increases. What sort of austerity program would it take to amortize the $40 billion to $60 billion loan that’s now in the works? It’s not possible. Even if every penny of oil receipts were thrown into that process alone, it would take eight years. And I’d like to know the name of the politician north or south of the border who thinks that there is a viable prospect for eight more years of austerity in Mexico without a revolution. Or, millions of people emigrating. What U.S. funds and banks do you see being bailed out. Isn’t this a bailout for U.S. institutions as well? I’d say it’s primarily aimed at U.S. institutions. One of the silliest things about the current political posturing is the claim that this is doing something for our brown brothers in the south. That’s the way it’s being packaged in some quarters. And that is total nonsense. The people who will receive the preferential-rate dollars in this case are a combination of prominent Mexicans plus United States investment bank securities firms, pension funds and mutual funds. Those who got lured into the Mexico bubble. That’s who’s lobbying the Administration and the Congress? Read it in Barrons and the Wall Street Journal. In recent weeks they’ve been running charts about once a week in both places, showing the list of mutual funds that have significant Mexican exposure and how much the market value of those funds is .now below par. The worst-hit funds are 20, 30 percent below par. Exactly how do these funds get bailed out? If loans are made to Mexico, with loan guarantees attached from the United States government, the proceeds of those loans can be used to redeem some of these institutional investor claims north of the border. And I and my friends would contend that that is the principle if not the only reason why this bailout package is being pushed as hard as it is. Something that was truly appalling is the way this thing was handled in Washington this past week. As this secret bailout bill was drafted, it was my impression that there wasn’t a single informed critic who was consultedlet alone being a part of the drafting process. Who was involved? Well, there was a secret drafting committee headed by [Iowa Republican] Representative Jim Leach [the Banking Committee Chair] in the House and, I think, [Democratic Senator Patrick] Leahy in the Senate. The staffs were sworn to secrecy and they were not allowed to consult with any outside observers who knew anything about the Mexican political economy? Have you any sense of what Henry B. Gonzalez’s position on this is? Well, staffers are sworn to secrecy. But before the secret drafting session began, he let it be known that he was exceedingly unhappy with the whole plan. Throughout his career he has made it known that he has very little beside contempt for the PRI. With a 40-to-60 billion dollar bailout, six years from now, where are we? Assuming that the loan guarantees pass and that the money passes hands. I think that would be a very damaging thing for the future of U.S.-Mexican relations. The money cannot beused well. And if the U.S. government is saddled with a $60 billion debt from Mexico, and then they fail to pay it back, which I think is inevitable, isn’t that going to be a sore spot, an irritant, a lasting irritant in U.S.-Mexican relations for a long time to come? Historically, that’s the way it’s played out. Politicians will exploit this, stupidly. Common people don’t understand anything about international finance anyway and they would not understand why Mexico is not paying back its debts. And they would never understand the point that one class of people borrowed the money while attempting to make a different class pay it back. They’ll never understand it, or it will never be explained to them? That’s a well-taken point. The Establishment will never lift a finger to explain it to them and in the absence of a decent explanation, the people will not understand the point and will just think that Mexico is a bunch of deadbeats. But this is all going to be passed by Congress? What I was hearing in Washington late ment had essentially said as follows; “We will break enough kneecaps to persuade enough people to pass this thing, so that it will pass pretty damn quick, without hearings, next week.” That’s an extraordinary assertion from a constitutional perspective, isn’t it? THE TEXAS OBSERVER 11