Life imitates farce, dear reader.
Occasionally, we offer a hyperbolic view – on the nature of man, his markets, or his government. Then, what do you know…some fool goes and makes a prophet of us!
Long ago, we wrote that “Americans would gladly give up their liberties to anyone who could guarantee a rising housing market,” or words to that effect.
And here we have the latest news…
Liberation, the French socialist newspaper, has a smug cartoon showing George Bush begging on the street: “Can you spare a trillion?” asks the American president.
Yes, the cost of the bailout is advertised at $700 billion. But it could reach much higher. We see the trillion-dollar figure in several places; it seems to have originated with Harvard economist Ken Rogoff, who figured the cost at about twice as much as the Resolution Trust Company. The RTC cost the nation 3% of GDP as it took over crumbling S&Ls in the ’90s. This debacle is much more serious, he guesses; it will cost at least twice in GDP terms…say, 7%…or about $1 trillion in round numbers.
Where do the feds get that kind of ready cash? Ah…they sell their souls…liquidate their rights…and wrap chains of debt around every American’s neck. The U.S. government deficit is already $490 billion. With the cost of the slump…and the bailout…it is expected to top $1 trillion…or more.
Not since the ’30s has the United States seen such sweeping reorganization of its economic institutions. Not since Roosevelt…and the New Deal.
But wait, the United States was supposed to be a leader in freedom. We were so adamant about it we practically forced it upon the poor Arabs and Afghanis… But now that people are losing their houses and Wall Street bonuses are in jeopardy…freedom is the last thing we need.
Ban short selling! Nationalize the mortgage lenders! Nationalize the insurers! Take on the bad debts and bail out the bad investments of the whole financial industry! Spend a billion. Fifty billion. A thousand billion!
“How fabulous,” writes Brian Reade in the British tabloid The Mirror. “Thanks to the way it props up the USA’s two biggest mortgage firms, more than half of American homes are now effectively owned by the state… Who’d have imagined that when the most right-wing of neo-cons leaves office 50% of the Land of the Free will effectively be [public housing]”?
Yes, almost every imbecilic act we could imagine has become fact. No exaggeration is too extreme. Life imitates farce.
A few years ago, in a moment of lighthearted hyperbole…we suggested that the War on Terror was such an absurdity… “Why not a War on Bear Markets?” we wrote.
And now, we have one!
Yes, the Prime Minister of England, Gordon Brown, compared the U.S.- led, global fight against falling asset prices to the “war against terrorism.”
And yes, it is similar in many respects. It will cost about the same amount – over $1 trillion. And it will produce the same general results: less freedom for everyone.
Already, the dems and reps are warming up for a major battle against free markets.
Both parties seem to think that it would be shameful for prices of debt and equity to fall to what they are really worth – that is, to what willing buyers would pay for them. Over the weekend, the pols joined hands in trying to prevent it. The $700 billion program allows the feds to buy almost any piece of junk that investors don’t want. It says so right here in the Financial Times. The feds can buy “residential and commercial mortgage-backed securities, with discretion for the Treasury Secretary and Fed chairman to add others as needed.”
We’d put that last phrase in italics, if we knew how to do so. Because it leaves the door of the fed’s EZ lending bank open to anything…24- hours a day.
The Treasury has a “blank check…to buy troubled assets,” says the FT.
“This was very necessary,” said Hank Paulson. Then, slipping from farce into Dada or the theatre of the absurd: “We did this to protect the taxpayer,” (showing no confidence that American taxpayers can actually protect themselves.)
While writing a blank check, the politicians also limbered up for their election campaigns…each trying to come up with catchy new slogans and new ways to punish Wall Street publicly, (while actually trying to let them off the hook for billions of dollars worth of bad investments).
“Greed,” said Obama, was the source of the problem. “Greed,” said McCain, was the real problem. Cap Wall Street salaries! Reregulate!
This was “not time for ideological purity,” suggested John Boehner, the Republican House majority leader, calling for unity. No, this was time for pandering…posturing…and promises.
And so, principles were out the window. “I’m a free-market non- interventionist,” Boehner continued, “But we face a crisis, and if we don’t act, and quickly, we’re going to jeopardize our economy.”
Principles are fine, in other words, until they get in the way of house prices!
*** Roosevelt is back. But which Roosevelt? Obama is positioning himself as the Franklin version: ranting against free markets and Wall Street.
McCain prefers Teddy – an interventionist too, but one who preferred meddling in the affairs of foreign nations to meddling in the domestic economy.
Which was worse? Teddy, with his bullying guns? Or Franklin with his greasy butter?
Hard to say which did more damage. The first set the United States on its imperial course… He was so worried that the vacillating Woodrow might not get the United States into WWI before it was over, he threatened to raise his own army and intervene on his own. The U.S. has bumbled into practically every important fight on the planet ever since.
Franklin, meanwhile, set up Fannie and Freddie to help solve the nation’s housing needs. He set up dozens of other agencies, subsidizers and regulators. Taking Bismarck’s example for his model, he turned the United States from a basically free-market economy…to a “mixed economy” – with heavy government influence and control.
And now, we suffer both Roosevelts…both pay for both guns and butter. We bear the burdens of constant inflation and eternal war, in other words; and both will remain with us no matter which Roosevelt wins in November.
*** Niall Ferguson writes in today’s Financial Times. We like Ferguson. He usually comes to see the world the way we do; he is just a little slow:
“On one side can be seen the chain reaction of deleveragings as banks, other companies and households all battle to stabilize balance sheets that became much too highly geared in the days of easy money; as the resulting credit contraction and forced asset sales create a vicious downward spiral; as the slowdown spreads to Main Street and from Main Street to the world.
“On the other side are the Fed and the Treasury, desperately manning the monetary and fiscal pumps while trying to decide who is too big to fail and who is not.”
So, the war is on! The war on bear markets! The war against deflation! The war against good sense…
Keep your head down, dear reader. We’re not sure how this will end…
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