THOUGHTS ON BEING LED TO THE FINANCIAL AND SOCIETAL GALLOWS

9/28/08

It looks like a deal has been struck on the $700 billion (Again, who wants to bet that number doesn’t go up?) bailout deal. A few thoughts:

--The administration apparently got its Rube Goldberg scheme to take the financial Frankensteins off the books of the Wall Streeters who created them, rewarding irresponsibility at the top of the food chain. The Democrats apparently got “relief for homeowners,” rewarding irresponsibility at the bottom of the food chain. Responsible homeowners, taxpayers, and investors will, or already have been, certainly in the case of the last, get stuck with the bill. And we wonder why the ranks of people acting responsibly seem to shrink by the day.

--Apparently, the insurance scheme pushed by the House Republicans, under which financial institutions would pay premia to have their “investments” insured by the government, will make it into the final bill. However, it appeared that this badly misguided and open ended insurance scheme was a sop to the reflexive activists in both parties, a tactical ruse to convince these busybodies that the House GOP approach, a fundamentally free market, principled approach, would “do something” when “doing something” seems to be the only imperative in Washington. Apparently, in the final bill, the House Republicans got their tactical ruse and have abandoned their purported fundamental principles. We now see which of the two is important to them.

--Thank God for Richard Shelby. Had people like him remained in the Democratic Party, perhaps the lunatics would not be in charge of that particular asylum.

--One of the criticisms of John McCain in the wake, or in the center, of this crisis is that he is fundamentally a deregulator when more regulation would have avoided the problems we are now facing. This is a misguided criticism. There is nothing wrong with deregulation per se. Problems arise when deregulation is decoupled from accountability. For deregulation to work, the deregulated players must be subject to the discipline of the market and, to a lesser extent, a vigorous, yet sane, tort system. John McCain’s problem is not that he is in favor of deregulation but that he is in favor of removal of accountability in the form of a market place that deals harshly with those who do not act responsibly, as demonstrated by his fealty to this abominable bailout plan.

--Both John McCain and Barack Obama support, or will support, this abomination before God and man. Yet some still refuse to vote for a Third Party, fearing they are “wasting their vote.” I will never understand this mindset.

--One of the reasons, probably the major reason, advanced for supporting this plan, is that the credit markets will “freeze up,” that lenders will not lend, that investors will not invest, and our economy will grind to a halt. The same argument was made in the ‘70s in wake of the Penn Central default. We were told that the commercial paper market would evaporate and the markets would “freeze up.” Richard Nixon (mirabile dictu!) stood on principle and the economy did not evaporate. It wouldn’t happen now, either. People aren’t going to stuff their money in the mattress or bury it in the backyard. Yes, there will be pain and recession as the market sorts itself out. But the market will sort itself out and responsible loans and investments will be made. Business will get done. But the financial feces that have been jamming up the system will no longer be created, at least in such malodorous and abundant varieties and quantities. People will act responsibly again. Would that be such a bad thing? Or have we created such a Potemkin economy that the removal of irresponsibility will cause it to implode?

--Today’s (i.e., Sunday, 9/28’s) edition of the Chicago Tribune contains a succinct quote by David Ruder, a former Chairman of the SEC, concerning the CMOs that lie not at the root, as many “experts” repeatedly and incorrectly argue, but at least somewhere down the trunk of our national financial problems: “I’m not surprised these esoteric instruments crashed. I don’t think they were well understood by the people who created them and certainly not by the people who bought them.” The people to whom Mr. Ruder is referring are the people you and I are bailing out. I hope they send a nice thank you card, most likely from a laughably expensive store in which you and I would never dream of shopping not necessarily out of inability but, rather, out of a sense of sanity. But what the hell? It’s nothing to them, and they certainly wouldn’t want to shop someplace their forever subsidized brethren would find tacky.