September 29, 2008 2 Comments
This is disgusting. In fact, as far as I’m concerned if the man who did this had any honor, he would resign:
US Treasury Secretary Henry Paulson was humbled as tempers rose and threatened to scupper a deal to prevent world economic meltdown.
In a dramatic gesture to keep hopes alive, he got down on bended knee to plead with Democratic leader Nancy Pelosi to stay and keep talking.
From the moment I first heard talk of this “bailout”, I had my suspicions. This little episode does nothing to dispel them.
Henry Paulson got to his position as Treasury Secretary by way of Goldman Sachs. Now he “gets on his knees” to “beg” members of Congress – personally beg – them to throw taxpayer money at….well, at Goldman Sachs and other Wall Street firms. Throw money at them in exchange for their junk.
On the face of it this is disreputable, dishonorable, nauseating, sickening, corrupt, and shameless.
Paulson is clearly too close to the issue. Wall Street folks are cloistered in their little world, which they think is the whole world. Indeed, they mostly tend favor a bailout. Why wouldn’t they? It will probably help them. That’s understandable enough. Steelworkers favor steel tariffs and Wall Street workers favor bank bailouts.
My problem is that the people – like Paulson – who are salivating over a bailout are so self-deluded they actually tell themselves their position comes from a genuine concern over the country. To sheltered, privileged Wall Street, Wall Street is the country.
I have seen chicken little article after article over why a bailout is so necessary from Wall Street insiders and followers (and heard the same thing in private conversations), and it always boils down to things like, The commercial paper market will seize up!
There are two fascinating observations to make here.
One is just that when people spend their daily lives highly focused on one aspect of the economy – be it commercial paper, or last-cash-flow senior tranches of subprime HELOC deals that take losses pro rata, or whatever – they often seem to start deluding themselves that whatever they’re focusing on is the entire world. And this is not a knock against Wall Street because it’s not only true of Wall Street, not by any means. Medical doctors think that medical-research funding is the most important thing in the world. Physicists think that funding for particle accelerators is the most important thing in the world. And so on. I’ve seen this pattern recur time and time again, and it always makes me uncomfortable. Get out of your little circle and look around, it makes me want to say.
But the second point is something I hadn’t previously suspected about Wall Street types: they don’t believe a free market works. They really don’t.
They’re all scared that commercial paper, or whatever, will seize up and stop. And then companies who need to roll over debt won’t be able to? at all? ever?, and the economy will…come to a grinding halt? Forever? In other words, the story they’re telling themselves is: supply will not surface to meet demand. What kind of people believe this?
People who don’t believe a free market works.
Don’t get me wrong, I’m not disputing that the credit bubble can and has and will lead to disruptions in the market. But the idea that companies will need to roll over debt and won’t be able to because somehow no one on the earth will be willing to lend to anyone else (at any price??) strikes me as ridiculous, dystopian, and economically illiterate.
In fact, it is John McCain-style economic reasoning.
John McCain, you may recall, rather famously (and idiotically) made the argument, in the context of the immigration issue, that if Mexicans weren’t imported to pick lettuce, lettuce would not get picked.
Do you agree with the economic philosophy of John McCain? Because Wall Street does. McCain was claiming that the whole lettuce industry would undergo a meltdown – lettuce won’t get picked!! – if that particular price for labor weren’t available. Paulson, and Wall Street in general, believes something precisely analgous: that the entire economy will undergo a meltdown – commercial paper won’t sell!! – if they don’t get the particular price they desire for asset-backed securities.
Two of a kind, in my book. Equally economically illiterate. And equally embarrassing. But between McCain and Paulson, one of those guys has no economic training or background, so it’s understandable. The other guy, though, should know better.