As Jim Grant remarked yesterday, we should all observe a moment of silence for the passing of capitalism. This morning’s Journal, on the other hand, would have us believe that capitalism was too much trouble and always needed help from the government anyway.
The paper today contains a sly push for public support of the socialization of banking losses. The message: Paulson HAD to do it. Relax, bailouts are no big deal. We need them from time to time (to correct ‘market failures’), and they work out fine in the long run. Heck, they’re a tradition.
Lets look at the headlines and some snippets:
Article: “Shock Forced Paulson’s Hand”
“When government officials surveyed the flailing American financial system this week, they didn’t see only a collapsed investment bank or the surrender of a giant insurance firm. They saw the circulatory system of the U.S. economy — credit markets — starting to fail.”
“Huddled in his office Wednesday with top advisers, Treasury Secretary Henry Paulson watched his financial-data terminal with alarm as one market after another began go haywire. Investors were fleeing money-market mutual funds, long considered ultra-safe. The market froze for the short-term loans that banks rely on to fund their day-to-day business. Without such mechanisms, the economy would grind to a halt. Companies would be unable to fund their daily operations. Soon, consumers would panic.”
“Mr. Paulson and Federal Reserve Chairman Ben Bernanke sped to Congress to seek approval for the biggest government intervention in financial markets since the 1930s. In a private meeting with lawmakers, according to a person present, one asked what would happen if the bill failed.
“If it doesn’t pass, then heaven help us all,” responded Mr. Paulson, according to several people familiar with the matter.”
My response:
Don’t let Mr. Paulson scare you. That’s how government always gets its subjects to grant it more power.
To let it all come crashing down is exactly what the country needs right now. Let the bad debts bankrupt the bankers and speculators. It is sickening to reward their kind of behavior, and it perpetuates the boom and bust cycles that hurt all of us. Innocent victims would learn a lesson in trusting bankers and regulators, and would not be as easy to swindle in the future.
Article: “In Turmoil, Capitalism Sets New Course”
“This past week marks a decisive turn in the evolution of American capitalism.”
“Gone is the faith, shared by the nation’s leadership with varying degrees of enthusiasm, that the best road to prosperity is to unleash financial markets to allocate capital, take risks, enjoy profits, absorb losses. Erased is the hope that markets correct themselves when they overshoot.”
“The Depression triggered, among other things, sweeping new rules governing the financial system — including the 1933 Glass Steagall law that separated commercial and investment banking until its repeal in 1999. The inevitable result of this crisis, once it ends, will be more government control of the financial system. The only questions now are how much tougher the new oversight will be, what form it will take and how long until the restrictions are loosened or evaded?”
“The shift in strategy reflects the realization by Mr. Paulson and Federal Reserve Chairman Ben Bernanke that the financial crisis was intensifying in recent days, endangering the entire economy. Confidence deteriorated markedly. Distrust spread. Credit markets weren’t functioning and lending dried up. Normal business wasn’t getting done. The two remaining free-standing investment banks were under severe pressure. The panic was spreading to ordinary Americans, who were beginning to pull money out of money-market mutual funds.”
“The government has bailed out financial institutions — and particularly their creditors — and taxpayers will pick up the tab for many of the institutions’ bad decisions. That could encourage bad behavior in the future. So, the government needs to craft a new regulatory regime to reduce those incentives.”
Article: “Government Bailouts: A US Tradition Dating to Hamilton”
My comment:
It’s no surprise to see this founding fascist’s name come up. Banker and president Alexander Hamilton was libertarian Thomas Jefferson’s ideological nemesis, but he has always been a hero to corporatists.
“The bubble pops. Lenders freeze. Depositors lose faith. Panic spreads. And the government steps in because nobody else will.”
“…a short walk through U.S. history demonstrates the point made by Alex J. Pollock of the American Enterprise Institute: “If you would like an empirical law of government behavior, it is that in a panic or threatened financial collapse, governments intervene — every government, every party, every country, every time.””
The Journal on the Panic of 1792:
“Hamilton engineered an innovative response. The Treasury borrowed money from the banks and used it to buy government bonds, lifting the market price. He also told banks to accept bonds as collateral for loans to securities brokers, with the government guaranteeing the collateral.
“What Hamilton did in 1792 is just like what Paulson and Bernanke are doing now,” said Mr. Sylla, who teaches at the Stern School of Business at New York University.
“The financial system stabilized in April, and not a single bank failed until 1809. Mr. Hamilton’s improvisation did the trick, or at least so concludes Mr. Wright, also at NYU. He named his son Alexander Hamilton Was Wright.”
The Journal on the Great Depression
My comment: You can always count the press to laud FDR, another of the top five worst presidents of all time.*
By 1933, four years after the infamous stock-market crash, about 1,000 American homeowners a day were losing their houses to the bank. President Franklin Delano Roosevelt and Congress created the Home Owners’ Loan Corp., an ambitious government agency designed to prevent foreclosures on an enormous scale.”
The current mortgage crisis involves securities backed by subprime home loans. But during the 1930s, there was no secondary market for securitized mortgages. So the agency had to hold the mortgages for the full terms. It finally closed up shop in 1951, with about 80% of borrowers having paid their loans off on time or early.
“The agency earned the government a small profit. “You save 80% of the people from being tossed out of their homes, and it didn’t end up costing the government a dollar,” said Lee Davison, a historian at the Federal Deposit Insurance Corp., another Great Depression creation.”
The Journal on the S&L Crisis:
“In 1989, after eight months of debate, Congress created the Resolution Trust Corp. to make depositors whole, investigate allegations of wrongdoing and deal with the husks of the S&L industry.
At the time, skeptics warned that government was reaching too far into the marketplace, and predicted darkly the RTC would be saddled with bad assets for generations.”
“Mr. Davison, the FDIC historian, wrote in a 2006 journal article: “Perhaps a measure of the RTC’s success is that little more than a decade after it closed, this agency that provoked so much debate is now largely forgotten.”
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*The top five worst presidents of all time:
Hamilton. Authoritarian who opposed the republic of free states and supported a permanent president. Published Federalist Papers, a great propaganda lie. (Thank God for Jefferson and Madison.) Hamilton brought central banking to the US, and favored heavy handed regulations and taxes for the benefit of his banker cronies.
Lincoln. Corporate tool who favored taxes and handouts to the rich. In a needless and unconstitutional war, he destroyed the free alliance of independent states and killed 600,000 men. A totalitarian in war, he ordered total warfare (to that date considered immoral and barbaric) including a scorched earth policy and the killing of civilian men, women and children. Jailed newspaper editors, ran brutal concentration camps, did not free northern slaves, and wanted to ship all blacks to Liberia or Latin America.
Wilson. Megalomaniac ran on a promise to “keep our boys out of the war”. Worked tirelessly to get us in, and provoked the sinking of the Lusitania to such end. Massive wartime profits ensued for connected businesses. Signed Federal Reserve and income tax into law. Raised income tax to over 76% in war. Deficits caused massive inflation. Forcibly silenced war opposition. Pushed League of Nations, an enterprise of the international banking cartel.
Franklin Roosevelt. The father of American socialism taught bankers that it was OK to blow bubbles. Taught citizens that they didn’t have to save for a rainy day, established all manner of price and wage controls and bureaucracies. Packed the Supreme Court, took an extra term in office on the promise to keep the US “out of Europe’s war”, then worked around the clock to get us in. Provoked Germans and Japanese, knew for days that Japanese they were en route to Pearl Harbor and did nothing because the bankers and big corporations wanted war.
George Bush. Unessary war started by falsehoods, creeping totalitarianism, expanded socialism, and now the final death of any pretense of capitalism in the United States. His redeeming feature is that he is a sock puppet and too lazy to take an active interest in the horrors that he signs into law. Chronically incurious, he probably understands very little of what he has done.
Sovereign Speculator 