Financial wizards try to clean up own mess
Posted on Wednesday, September 24, 2008
If President Bush seems oddly
unshaken, what with a 19 percent
approval rating and an astonishing zero percent of the public optimistic about the economy, it’s because for him, in the immortal words of Yogi Berra, the Wall Street meltdown basically amounts to déjà vu all over again. Previous to inheriting the White House, financial crises were the story of Bush’s life. He’d talk college friends into backing a Texas wildcat oil venture, drill some dry holes, then get bought out by Daddy’s friends at a profit. Before Daddy’s friends bought the Texas Rangers, his biggest payday came from cashing out of a troubled oil company days ahead of a lousy earnings report. Sure, there was that Securities and Exchange Commission investigation into allegations of insider trading, but Poppy Bush was president, so you know how far that went; the inquiry ended in 1993 without any charges being filed. Joe Conason narrated the sordid tale for Harper’s back in 2000, but nobody wanted to hear it. The make-believe Texas rancher was a “compassionate conservative” everybody wanted to have a beer with. So now we’re all in what Poppy once called “deep doodoo,” and the same brilliant economic team that assured us that all was well two weeks ago warns, in Paul Krugman’s words, that “the sky is falling, and that to save the world we have to do exactly what it says now now now.”
People have often said that if fascism came to America, it would arrive with a smiley face, so maybe it’s fitting that if we’re going to have Marxist-style fiscal nationalization, it should mainly benefit multimillionaires—socialism for the wealthy, market discipline for you and me.
Judging by the plan sketched out by Treasury Secretary Henry Paulson, henceforth to be known as the nation’s “money czar,” he must imagine God as a celestial real estate agent with lots of listings in Greenwich, Conn., where Wall Street tycoons erect competing palaces.
A recent New Yorker article by Nick Paumgarten limned the scene. Uncle Scrooge McDuck’s mansion would be a tear-down opportunity for these jokers. Only one bullion pool to dabble in ? Rather like John and Cindy McCain, they require 35, 000 square feet, 10-car garages, and indoor and outdoor heated pools, along with movie theaters, basketball arenas, wine cellars, skeet shooting ranges and servants quarters modeled upon Versailles. Literally.
They’re not so much houses as theme parks, the theme being fathomless greed and elemental primate status frenzy: basic chimp stuff. Except, oops, foreclosures are mounting in Greenwich, too.
Money czar Paulson definitely knows the territory. In 2005, his last full year as CEO of the (now shaky ) investment bank Goldman Sachs, he was paid a reported $ 38 million as investors were persuaded to buy so-called mortgage-backed securities based upon loans that will never be repaid.
At bottom, Republican economic thinking has been based upon two manifestly false ideas. The first, endlessly flogged by Rush Limbaugh and his cohorts, is that sharply reducing taxes on people like the Bushes, the Paulsons and the McCains results in increased government revenue and greater prosperity for all. In practice, it’s led to staggering budget deficits, decreasing opportunity and rising inequality. More palaces, fewer jobs.
The second is an updated version of the early Christian Pelagian heresy, denying the universality of original sin. Always and everywhere denouncing government oversight and regulation of banks, investment firms, brokerage houses and insurance companies, free-market fundamentalists assured us that the financial system was inherently self-regulating. Gentleman geniuses presided; greed was a cardinal virtue. The result was the creation of a gigantic Ponzi scheme.
The quaint concept of due diligence vanished from the financial system from bottom to top. Fee-churning brokers sold adjustable-rate mortgages on over-valued real estate to suckers incapable of making the payments, then pawned off the bad loans on speculators who repackaged them as (now worthless ) securities. Nobody ever expected to pay. A greater fool would borrow more to buy the property tomorrow.
Persons like Princeton economist and New York Times columnist Paul Krugman, who warned that the speculative bubble was sure to burst with potentially catastrophic consequences, were scorned as backward-thinking pessimists and lampooned for their clumsy prose. Fearing collapse, Paulson demands an estimated $ 700 billion blank check to buy up the bad paper from his Wall Street friends. Here’s his idea of taking responsibility: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” Everybody says that something like what Paulson proposes must be done. Everybody’s probably right. Democrats, moreover, aren’t without blame. Bill Clinton signed legislation greatly reducing regulatory safeguards in 1999. We must now pray that the financial wizards who created this maze can find their way out. Meantime, here’s a phrase that should vanish from the language forever: “Republican fiscal conservative.”
—–––––•–––––—Free-lance columnist Gene Lyons is a Little Rock author and recipient of the National Magazine Award.
FEEDBACK:
Something to say about this topic? Submit a Letter to the Editor online