With each passing day, the financial crisis that’s wreaking havoc on Wall Street seems to get worse, and this past week the federal government initiated an extraordinary series of steps in an attempt to stave off a wider, global financial meltdown.
After assuming control of Fannie Mae and Freddie Mac, the quasi-private mortgage aggregators that allowed (too) many Americans to buy homes they couldn’t afford, booting their CEOs without ceremony (though they still walked away with millions), the federal government has agreed to bail out AIG, an absolute behemoth of a company that has fingers in many different financial pies.
Although the goal of preventing a worldwide financial meltdown is probably noble and good, the dark side of this coin is that the line between the free market, long hallowed by conservatives as the answer to every ill, and the fettered market, in which government regulation and subsidy conspire to produce artificial market conditions, is now blurred almost beyond distinction.
Even now, the government is contemplating a bailout of Detroit’s automotive companies, which are in a bad way and are in real danger of losing their ability to compete in the global market.
This should come as no surprise, because Michigan is a battleground state in the war for the presidency. Allowing Detroit to falter at this point would create political difficulties for both candidates, hence the fealty to Ford despite the fact they continue to produce gas guzzling trucks and sport utility vehicles more than eco-friendly cars that are in demand and desperately needed.
We have so many problems, like health care, education, the environment and the wars in Iraq and Afghanistan. Congress can’t get anything done on these issues, yet when it looks like some fat-cat Wall Streeters, who have been so blinded by the profit motive they forgot all about things like risk, might be losing their hats, the government comes to the rescue with hundreds of billions of dollars.
I’m not an economist, but the problem seems to be that Wall Street has taken unreasonable chances in its search for profit, and now that it looks like it took some bad risks, it gets to lean on the federal government for support.
Sure, thousands will lose their jobs, but the guys at the top are bound to take some time off to write a book about their experiences (for a sizable advance, no doubt), and sooner or later they’ll surface in executive positions at some other company and be back at the top of the income ladder. It’s the problem of moral hazard. If the costs of an action are shouldered by someone else, you’re more likely to take that action, costs be damned.
The federal government is using your taxes to bail out private companies who should have known better. Those hundreds of billions of dollars, which could have been allocated to fighting a resurgent Taliban, rebuilding a devastated Iraq, providing health care to millions of uninsured Americans or bringing our education system up to par with the rest of the Western (and now Eastern) World, are instead being funneled into the channels of the financial industry.
The financial industry continues to offer consumers credit cards and loans so we can keep buying stuff we don’t need, and so they can keep their year-end bonuses and avoid the responsibility of having made serious errors in judgment.
Meanwhile, China and Russia are buying up Treasury bonds, which also is helping to subsidize Wall Street, and they’re going to want a return on their investments. Being in debt to these newly resurgent nations is a bad place to be for strategic national security reasons.
It’s time for a serious reconsideration of the relationship between the government and the private sector. We’re seeing the effects of what Greenspan called “irrational exuberance” writ large. The endless striving for economic growth, to no particular end, is almost insane. We have, as a nation, the resources to solve all our problems. If we’re in need of capital, it’s of the political variety.
James Sewell