Amid the astonishing details of the Fed’s fierce money pumping, the Treasury’s partial nationalization of the banking industry, and the madcap exchange of its legal tender for the banks’ rotten mortgage-backed securities, we may lose sight of the overall character of these actions: they are, in effect, nothing short of a gigantic armed robbery.
Any armed robbery, of course, has two sides: on one side is the party who takes property by threatening violence against its legitimate possessor, and on the other side is the party who loses property by yielding to this threat. Such “redistribution of wealth” is bad enough on its face, but in the present case its related aspects render it even more obnoxious.
What we have before us now is a systematic redistribution from the prudent and the responsible to the imprudent and the irresponsible. Did you make your mortgage payments in full when they were due? Were you careful to avoid investing in incomprehensible derivatives whose failure might lead to your bankruptcy? Very good, sir: you are therefore entitled to relinquish substantial amounts of your wealth, either directly through ordinary taxation or indirectly through the “inflation tax” and the diffuse effects of “crowding out” in the loanable-funds market, where the government must soon borrow hundreds of billions of dollars more than expected a few months ago.
But not to worry, because your injuries are simultaneously the means by which those who failed to act with honesty and due diligence will be rewarded. You see, it all washes out, my dear Keynesians: we owe it to ourselves! (Full disclosure requires admission that the substantial gainers include not only undeserving Americans, but also, among others, Arab sheiks, the Bank of Japan, and the Bank of China, which own huge heaps of “agency debt,” especially the bonds of Fannie Mae and Freddie Mac. You may chalk these foreigners’ financial salvation up to the Bush administration’s own version of the Good Neighbor Policy.
Moralists have much grist for their mill in these events. Economists will worry more about their incentive effects. One thing is certain: the government’s recent actions herald the ascendancy of its commitment to a policy of “too cozy to fail.” Are you from Goldman Sachs? Yes, well, then, here: take these billions. Yes, yes, don’t worry; it’s okay. We’ve got everything covered. Bank of America, here, you take some, too. Citigroup, here’s yours. Wells Fargo, Morgan Stanley, the line forms right here. Come along, my friends, time’s awastin’. And don’t worry about taking something that doesn’t belong to you. The president says “these efforts are designed to directly benefit the American people by stabilizing our overall financial system and helping our economy recover.”
How, exactly, will these dishonest enrichments give rise to those happy outcomes? What, as the pharmacologists say, is the mechanism of action? Well, the authorities haven’t spelled that out yet, but if you are a good American, you’ll happily trust them. After all, Henry Paulson and his friends have always proved themselves to be financial geniuses in the past, haven’t they? (Security, get that man out of here. Yes, that one, the one yelping about the parties responsible for this hideously tangled monkey business of mortgage-related securities, derivatives of derivatives, credit-default swaps, collateralized-debt obligations, and off-balance-sheet assets. And keep him out.)
Don’t let that troublemaker’s questions disturb you, gentlemen. Those complications are all ancient history now, and this is no time for finger-pointing. It’s imperative that we move on, and we’re simply going to cut through the Gordian knot you tied. We must act decisively before the entire world economy melts down or freezes up. (The Minister of Metaphors will determine which hyperbolic term will be officially adopted for use in our G-7 and G-20 communiquÃ©s.) Now, Bank of New York Mellon, JP Morgan Chase, fall in line. You, too, State Street. Step lively, gentlemen, and hold those purses open wide while I pour in the taxpayers’ money.
Although many details remain to be worked out, and the architects of the new financial order are drawing (and redrawing) their blueprint as the construction proceeds, the overall logic of the new structure has already become fairly clear. As best we can determine, the administration’s theory is that the economic well-being of Americans, and indeed of people around the world, cannot be achieved without resort to the grandissimo of all grand larcenies. Barbara Bush probably never dreamed what amazing things her rather dim-witted firstborn son would accomplish. By the time that all of these crimes have run their course, George Walker Bush may well have proved himself to be the greatest economic wrecker and looter in the history of the world.
Of course, he does not lack for willing hands to pitch in as he rips and tears his way through the fabric of economic life. Hank Paulson, Goldman Sachs, Morgan Stanley, and the rest of the big bankers, like the fabled Tammany Hall boss George Washington Plunkitt, have seen their chances and they took ’em. At the Fed, Ben Bernanke is snatching new powers for the central bank (and hence for himself) as if there were no tomorrow, and using them just as rashly. Is there a problem? Enormous effusions of new central-bank credit will cure it. Inflation? Don’t worry about that: it won’t show up in full force until the day after tomorrow. Members of Congress also love the new financial regime. Anything that puts more money and power at the government’s disposal means that the solons will have more promises to sell in their future backroom deals. So, in short, everybody who counts is deliriously pleased with the recent turn of events. If they say they’re not happy, it’s only a pose, and for these professional posers and fakers, nothing comes easier than lying, stealing, and cheating. In truth, they are now reveling in their very heaven, as the power elite always is during a crisis, even a crisis as bogus as the present one.
The great mass of the people, of course, are somewhat less happy. Many are, as usual, simply bewildered by what’s going on, and frightened by the panic they see on display in the news media. Others, however, are actually angry, because this time they have seen through their rulers’ gossamer rationales, and they realize that they, as well as their children and their grandchildren, are being impoverished in order to pass hundreds of billions of dollars along to the incompetent, dishonest, undeserving, yet politically potent, masters of high finance.