I’ve been meaning to make some comments about the current banking crisis going on- not just Bear Stearns, the whole shebang. I’ve been waiting to do this until I could write this post without sounding like Andrew Dice Clay on a bad day.
What galls me is not that millions of people are losing their homes, and gaining a credit history that will haunt them for decades, and that no one cares. Well, actually, yes it does gall me, but it’s not the worst aspect of the whole debacle. Nor is it the fact the in comming (present?) recession millions will lose their jobs, and therefor their healthcare.
Nor is that the Federal Government is bailing out the industry. And a bailout it is in practice, if not in name. The $200 billion in loans the Fed will be giving out will be securitized with the absolute worst toxic waste (a telling industry term) of the whole subprime mortable mess, and then defaulted on. At which point the Fed will take ownership of large chunks of securities worth pennies on the dollar. Already the commentators are tossing around that this intervention is not big enough- the Government is not buying enough of these worthless investment vehicles. Which means that, inevitably, yet more money will have to be pumped in. This sort of intervention is necessary to prevent a widespread banking collapse- which is “crossing the streams” bad. The intervention is necessary- unlike the Iraq war (which may turn out to be cheaper).
Nor even the fact that this create a vast moral hazzard for Wall Street- it’s okay, even a really good idea, to invest in all sorts of high risk ventures. If you win, you are lauded as a genius and get paid hundreds of millions of dollars. If you lose, oh well- Uncle Ben on the kindly Fed will bail your ass out.
No, what is most galling about this whole episode is the sure and certain knowledge that this episode will not change one iota the free market gospel shoved down our throats despite the glaring evidence that we do not have a free market.
We used to. Of course, we used to also have banking collapses, and depressions every twenty years or so. And I’m not talkiing wussy-ass recessions, with their 10-12% unemployment and economic activity shrinking a few percentage points, I’m talking about serious capital-D Depressions,with 25% unemployeement and mass bank failures and economic activity shrinking by tens of percents for years. You want to complain about inflation eating into your savings? Try having 100% losses on your savings because your bank went away. This was before FDIC insurance, remember (yet another New Deal liberal intervention in the free markets)- if your bank collapsed, you lost your life savings. So sorry, better luck next time. Next life, that is. That’s what we’re looking at if we don’t bail out the banks.
My point here is that the bail out should come at a cost. And I’m not just talking a monetary cost. I’m saying two things: if the losses are going to be socialized (which is what a bail out amounts to), the profits should be socialized. No more bitching about high taxes and asking what you get for those taxes. You get a banking and financial system that works, and which doesn’t incinerate the economy every twenty years or so. The other thing is that if taxpayer’s money is on line, as it demonstrably is, then the taxpayers get a say in how the system runs. Or, to put it a different way, too big to be allowed to fail means too big to be allowed to risk failure. Government regulation of the credit markets is going to happen.
We’ve forgotten history, because between 1932 and the late 1980′s, we didn’t have a banking crisis. And the one we had in the 1980′s was small and contained- primarily because the Federal Goverment pumped in about $124 billion in a massive bail out. So we don’t think it can happen anymore. Heck, most people don’t know that we had depressions other than the “Great” one. And now we’re in the painfull process of relearning it, the hard way. The reason we didn’t have any bank collapses for over fifty years (when once every twenty years or so was the norm before the 1930′s) was because of the heavy handed and intrusive Federal Goverment interefering with the natural functioning of the free market.
But this opinion is going to be opposed by a number of people- because in addition to preventing bank collapses and economic depressions, this heavy handed intervention also stopped a number of people from making a lot of money. Because the dirty little secret of both the S&L bail out and the current collapse is that some people made a lot of money setting the stage for the collapse. For example, James E. Cayne of Bear Stearns pulled down over $130 million dollars over the last five years- all the while buying up these subprime CDOs and REITs which are now causing his company to be valued at $2/share. Way to go, James!
I’d like to say that bullshit statements about how the Government shouldn’t intervene in the free markets aren’t going to be accepted anymore. But I know better. I’ve been around this block before- with the S&Ls, with Long Term Capital Management. I know how the game is played. Right now, everyone is a socialist- the only debate is how much. But in a while, this will become history. Even more so, it’ll become non-history, filed into the same bin with the bank panic of 1907, where only Historians look. It simply won’t be mentioned, it’ll be edited out- like Leon Trotsky was in Soviet history, allowing the same old tired arguments to come out again- that the government never does anything for the markets but hurt them, etc. And I’ll be stuck here going “but what about the bank crisis of 2008?” only to be greeted with blank stares, or at most a “what about it?”
But if you want to be honest about, rather than waiting, step up and make that argument now. Oh, and please clean out you bank accounts, savings accounts, IRAs, 401Ks, any investments you might have, and send the money to me. This will serve two purposes- first, it’ll properly simulate the effect of a real banking collapse sans all government intervention on you, thus demonstrating that you’re not just palor pink. And second, this will offset the money that I am having to pay as a taxpayer to bail out the banking industry.
The check, I am sure, is in the mail
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