Free-market Republicans melt down

I'm not saying this is a bad thing; I don't know enough to say. But I am saying it looks like a pretty damn remarkable thing. So says the economics editor of the Wall Street Journal today:

The past 10 days will be remembered as the time the U.S. government discarded a half-century of rules to save American financial capitalism from collapse.

On the Richter scale of government activism, the government's recent actions don't (yet) register at FDR levels. They are shrouded in technicalities and buried in a pile of new acronyms.

But something big just happened. It happened without an explicit vote by Congress. And, though the Treasury hasn't cut any checks for housing or Wall Street rescues, billions of dollars of taxpayer money were put at risk. A Republican administration, not eager to be viewed as the second coming of the Hoover administration, showed it no longer believes the market can sort out the mess.

"The Government of Last Resort is working with the Lender of Last Resort to shore up the housing and credit markets to avoid Great Depression II," economist Ed Yardeni wrote to clients.

In principle, I'm not at all against government intervention in the market under particular circumstances. What I don't get is how come the Wall Street gang gets to take home multimillion-dollar bonuses based on short-term profits made with reckless, risky investments ... but when those investments go bad, the US taxpayer has to bail them out.

I get that if the taxpayer hadn't bailed them out, the collapse would have ultimately hurt the little guy in a pretty severe way. I'm just saying that there is an inequity here that ought to be sorted out by the political system. If these Wall Streeters are going to be able to count on public money to bail their private butts out when they get themselves in a crack, then their ought to be far stricter regulations put on their behavior. What on earth do we have Democrats for?

I refer you again to Prof. Deneen's commentary on all this, excerpted here:

Secondly - and more importantly, in my view - the fact that [Bear Stearns] was "so big it could not be allowed to fail" starkly reveals the fundamental bias in the current economic and political system toward massiveness and centralization. Note well: such largeness is constantly invoked against those who would commend smaller and more local forms of economy and banking as BETTER because, unlike economies of smaller scale, such large scale (national, international, global) enterprises ensure that no ONE local failure will result in deprivation. That is, in small economies, when a crop fails or a bank folds, the whole community is potentially shattered. A large scale economy theoretically spreads risk so that the consequences of small failures are minimized, much like a punch to a Sumo wrestler is absorbed by his gigantic girth. The fact that the failure of Bear Stearns was not permitted to occur because it would have potentially caused the collapse of the entire American and even international financial system suggests that this argument on behalf of bigness has always been false and beside the point. Further, the entire sordid subprime (and increasingly prime) fiasco has shown how this system has been designed to ensure that everyone is able to avoid responsibility - unlike a more local economy, in which responsibility toward one's community, friends, and neighbors is felt with some force.

NPR yesterday did a report on a prophetic book that came out last year: "The Trillion-Dollar Meltdown," that foresaw with uncanny accuracy events of the past few weeks. The author, Charles Morris, wrote the book last spring, when Bernanke and most everybody else was saying everything looked swell. What did he see that others didn't? Says NPR's Adam Davidson:

He was in the perfect position. He's not just a writer; he ran a company that created the software investment banks and hedge funds use to build these new, exotic credit instruments. And he saw how they used his software, and thought, "This is crazy," he says. "I was sure that people weren't keeping track of the trends so they had proper margins and collateral and so forth."

Morris said by 2007 he had warned every financial professional he knew. Nobody listened then, but we now know that Morris was right.

There's no telling how far we have to go before we hit bottom. I am curious, though, about how this present and future crash will change our politics and our culture. The two are intimately related, you know. Remember Moynihan's observation that culture precedes politics, but politics can change culture. The financial recklessness that engulfed Wall Street and Main Street both didn't come from nowhere, and it wasn't imposed on us from on high. No, the politicians that allowed this to happen came out of a culture that enabled it. A friend of mine who's a Catholic priest says he's fully aware of the weakness and corruption of the priesthood today, but it's a mistake to imagine that priests are minted in a factory in the Vatican's basement; they are human beings who are produced by the culture they serve, and as such reflect the strengths and weaknesses of that culture. Similarly, I'd say, we can say the same about politicians.

As I'm fond of asking: How many politicians of either party could have hoped to have been elected to national office over the past quarter century by preaching thrift, self-discipline and self-sacrifice?

Once more, Deneen:

We have permitted ourselves the self-deception of thoughtlessness, particularly a willed and irresponsible ignorance toward the future. Believing that technology will solve any problems we might create, we accumulate literal and metaphorical debts, borrowing aggressively against the future in the belief that our children and theirs will be able to continue borrowing against their children's future. Is this how a civilization raises its young, is this the legacy we wish to leave?

Already we can see our tendency is to blame other people for this confrontation with limits. It's the Chinese and Indians. It's the oil companies. It's Bush/Cheney. It's the Islamofascists. In the felicitous phrasing of Jason Peters, "it’s like heavy traffic. Heavy traffic is always other people. When you say 'traffic was terrible' you’re never talking about yourself." Well, folks, the traffic is terrible. But the last thing we should be doing is building more roads.

Here's what I don't get about conservatives. We are able to recognize the danger in Big Government; our understanding of the fallenness of human nature makes us rightly suspicious of the concentration of power in the hands of the state. But what makes us so willing to disbelieve that concentrating so much unchecked power in the hands of financiers will lead us to paradise? Is the financier any less human and more angelic than the government bureaucrat? Is he less susceptible to greed, to envy, and to all the ordinary vices that deform human character and cause us to behave in foolish and reckless ways? Law and culture are two gifts of civilization to help us order our liberty, and put constraints on individual action. Too much constraint, and you stifle life, growth and creativity; too little, and you have shipwreck.