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Jewish World Review
April 1, 2009
/ 7 Nissan 5769
U.S.A., INC.
By
Paul Greenberg
http://www.JewishWorldReview.com |
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
—F. A. Hayek
Back in mid-September, when the financial crisis struck, the solution was going to be simple. Yes, it would also be expensive. And painful. Like a heckuva hangover after a wild binge. But time would cure it, the way the liver slowly cleans the bloodstream of toxins. Toxic assets might be cleared out the same way.
Yes, there would be some discomfort, as the doctors say when they mean this is going to hurt like hell. And there would need to be some re-organization and re-regulation, which is a discreet term for letting a lot of hot-shot bankers, hedge-fund operators, incompetent executives, and assorted others who thought they could beat the system find more constructive things to do in life.
And, yes, undeniably, the collateral damage to innocents would be widespread. That's the worst thing about war and finance, which have always borne a certain resemblance.
But a little perspective, please: This was the Panic of '08, not a second Great Depression. It might take a year, even two, but the economy would right itself. We might even find ways to guard against a repeat. The way we eventually get around to putting up a STOP sign at an intersection where there's been a goshawful accident.
This wouldn't be the first time we've gone through something like this and emerged to fix the system. Remember the savings-and-loan debacle back in the 1980s? It, too, was billed as The Greatest Financial Crisis Since the Great Depression.
The federal government had to step in, set up a salvage operation (the Resolution Trust Corporation), and perform triage. Which it did, shutting down those S and Ls that needed shutting down, merging others with healthier ones, saving assets that could be saved, and protecting the innocent — and insured — depositors. And all was well again. Eventually. The contagion was contained.
Isn't that why countries have central banks? To regulate the money supply, to protect the currency, to confine crises? As for investors in those insolvent S and Ls, their shares might have become worthless, but isn't that what buying shares is all about — taking risk? No pain, no gain.
The early '80s were a wild ride, too, as the Carter Stagflation gave way to the Reagan Recession. But back then we had a Paul Volcker in charge of the Federal Reserve and holding the line against inflation. It didn't make him popular, only effective.
Mr. Volcker is supposed to be advising this administration, but nowadays he seems only a decoration to be rolled out whenever investors get nervous about the huge federal debt being amassed, and the inflationary tsunami awaiting down the road. He must have been the most bitterly criticized public figure in the country in the early '80s, next to President Reagan himself, but he sought to reflect economic reality; he was under no illusion that government could create it.
Now we're told by Timothy Geithner, our secretary of the Treasury and CEO of U.S.A., Inc., that "the market will not solve this." But the corporate state will? Even now it takes over one vast enterprise after another (General Motors, AIG), hires and fires executives, sets policy and prices and salaries and bonuses, and generally giveth and taketh away…
The New Order cometh: "The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier and a key partner." So wrote Jeffrey Immelt, CEO of General Electric, in a letter to stockholders. It sounds as if he can hardly wait to be co-owned.
Have we learned nothing since the price-fixing, policy-making, fine-collecting NRA, the New Deal's greatest failure? The Soviets used to call this a command economy, and the fascisti referred to it as The Organic State, but by whatever name, it wasn't exactly a success.
Before there was a Federal Reserve System, the United States had a J.P. Morgan. When the Panic of 1907 struck, he commandeered Wall Street. At one point he summoned 50 presidents of private trust companies to his mansion on East 36th Street in Manhattan and locked them in till they came up with enough capital to stem the Panic. Only then did the fever subside.
Naturally enough, J. Pierpont Morgan soon became the most unpopular, despised and generally badmouthed figure in the country, the center of a thousand conspiracy theories. In this country, no responsible decision goes unpunished.
The current Panic of '08-?? is being handled quite differently. Instead of the quick, decisive, confidential and limited action some of us hoped for last September, a couple of presidents and Treasury secretaries — plus a chairman of the Federal Reserve — have been all over it. Every week they seem to propose a different remedy and new takeover.
Congress has intervened, too, Heaven help us. For this is the same 535-member board of directors that gave us success stories like Fannie Mae and Freddie Mac. Another huge, maybe permanent public-private corporation is now on the drawing board to handle/extend the crisis that those bloated monsters created. Oh, joy!
Ah, Congress. Lest we forget, this is the not-so-deliberative body that, back in the '90s, removed proven safeguards like the Glass-Steagall Act that had restrained bankers' crapshoots since the Great Depression. Five hundred and thirty-five cooks do have a tendency to spoil the broth. Especially if every member of Congress thinks he knows the answer to the Crisis, which, naturally, grows ever more complicated thanks to all their ministrations.
The government just goes on acquiring a huge stake in private companies. One week it's AIG, the next General Motors. What's next?
The most ambitious agenda of social and financial engineering since the (not so) Great Society is being proposed in the name of speeding the economy's recovery. Health, energy, education, you name it and this administration is going to re-do it completely. Well, sure. In the immortal words of Rahm Emanuel, the White House chief of staff: "You never want a serious crisis to go to waste."
Nostrums abound while the first rule of prudent care is ignored: First Do No Harm. And no one except a few eccentric students of history may still read Hayek's "The Road to Serfdom."
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