Can anybody be surprised at the latest development in the saga of U.S.A., Inc.?
Sub-title: How a great nation became one huge corporation.
The government now has advanced GMAC, the financial arm of Government Motors, formerly General Motors, another $3.8 billion in cash, acquiring a majority stake in that lending agency, which is laden with debt itself.
This is only the latest injection of your money, fellow citizen/investor, into this black hole — on top of the $12.5 billion the government already had advanced GMAC to offset its losses in home mortgages. Just how an auto lender wound up making sub-prime housing loans is a whole other, sad story. But the moral is the same: Bad judgment plus loose regulation, both on a massive scale, leads to fiscal collapse.
Now, ever deeper into this hole, Washington just keeps digging. What choice does it have? Now that it owns GM — or does GM own it? — the government is in effect lending itself its own money, or rather money it doesn't have and so will have to borrow from generations to come.
It's happening all over. For the government already has taken control of Fannie Mae and Freddie Mac, those public-private hybrids whose collapse toppled a whole row of financial dominoes. Not to mention Chrysler and AIG and assorted banking giants. By now it would take an army of CPAs to figure out just where government ends and once-private corporations start. Any boundaries between them were blurred some time ago by our ever-expanding New Order.
A glance at the ownership of the country's great corporations and the outfits that finance them would bear a frightening resemblance to the table of organization in an ideal fascist state. Did I.G. Farben and Krupp control the National Socialist German Workers Party, aka Nazis, or was it the other way 'round?
"Fascism should more properly be called corporatism," Benito Mussolini is supposed to have said. Whether he ever used those exact words, he got the spirit of the thing right: Break down the firewalls between state and corporate power till it's not clear which is which.
Just who is now in charge of General Motors — its titular management or its government-appointed directors, Timothy Geithner at Treasury or Ben Bernanke at the Fed, Barney Frank and Chris Dodd in Congress (Lord help us!), or Barack Obama in the White House, none or all of the above? Where does the influence of one stop and the other start?
The essence of this new hydra-headed monster is the dissolution of clear lines of authority and therefore personal responsibility. If all are in control, nobody is. ("[S]ome fog is often useful in getting things done." —T. Geithner.)
Without walls between them, there is no need for a formal government agency, like the New Deal's NRA, to fix prices and wages. Instead, everything can be handled informally as government, business, unions and banking become just one big interlocking directorate. Big government, big business, big labor, big finance, even big health care ... they all merge into one big, foggy bigness.
By now moral hazard — the kind of guarantee that inspires the riskiest of behaviors among our investing classes — has become a nationalized industry. Once upon a time our bankers, investors and financial insurers knew that, if they failed, there might be no one to bail them out. That knowledge made them cautious with their money and other people's.
But now that salutary caution has been largely replaced by the arrogant assumption that they're too big to fail. The result has been all these swollen public-private combinations that are too big to succeed, and so require one bailout after another. Administrations come and go; Goldman Sachs sticks around forever.
A century ago, private agglomerations of money and power threatened to squeeze out competition in one industry after another and dominate the economy, maybe the society in general. These powerhouses were called trusts, but a generation of trustbusters arose to break them up.
Here's a way to start breaking them up again: Restore the old Glass-Steagall Act (1933) and its wall of separation between commercial and investment banking. So that when some high-rolling, risk-taking (with other people's money) hedge fund or just plain incompetent bank or investment house gets into trouble, it doesn't take the whole economy down with it. As in the yearlong financial panic the country has just come through.
Let us return to the past; that would be progress. Louis Brandeis, the great-granddaddy of anti-trust legislation, spoke of the curse of bigness. It is time to revive his spirit — and his policies.
Paul Volcker, the last chairman of the Federal Reserve to have both the courage and wisdom to realize that small is beautiful, and that progress is not just more and more of the same unfettered expansion, has been calling for a restoration of Glass-Steagall for some time now. Till this latest financial meltdown, his was a voice in the wilderness. And the wilderness has continued to engulf us. But now Congress has begun talking about restoring Glass-Steagall. Unfortunately, it may be only talk.
What government has done, it can undo — if We the People assert ourselves as in Mr. Justice Brandeis' olden time. Rebuild the walls. Revive our vigilance against moral hazard. Restore a sense of responsibility. Main Street needs to be saved from Wall Street. Again.
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