It has been left to Federal Reserve economists and U.S. Treasury officials to destroy the American system through bailouts spun as anti-recessionary initiatives. What is a severe recession anyway but a well-deserved day of reckoning for financial excess? What is so wrong about the nation taking its needed medicine after a speculative binge?
Perhaps the real goal of some financial elites is not to prevent an economic downturn but to de-legitimize the American system so that the electorate will give up on our constitutional heritage. While the current bailouts are not doing much to recover the system, they certainly are making Americans loathe the Robert Rubins of the world who grab a hundred million in compensation while advising financial institutions like Citigroup to up their leverage to exploit the dynamic of global free trade, consumerism, cheap money and underpaid workers.
The country and most of its people have survived depressions and financial panics without financial bailouts and mega-stimulus packages. The panics of 1819, 1837, 1857, 1873, and 1907 all lasted three or more years and resulted in widespread hardships, bankruptcies, and changes of ownership for thousands of businesses. But the country endured as did the idea of America. The idea of America — sensible republican freedom in federally robust states — is now threatened as bailout policies de-legitimize capitalism and create a preferentialist state.
People will lose confidence in the fairness of the system as we slide deeper into the bailout cycle. Winners and losers will be decided by positional factors that discount contribution and merit as historically understood. Without confidence in the justice of the economy or its viability Americans will be ready for a new constitution when the time comes that the good faith and credit of the U.S. government is hanging by a thread. Unfortunately, the politically ignorant masses will not be able to discern a good constitution from one designed to embed plutocratic democracy, so they will ratify terms of financial servitude for themselves and their offspring, if only in the hope of continuing their entertaining pastimes in the near-term.
There is no such thing as a “bailout” in our circumstances, just a shift in liability. When the Treasury bails 50 banks, the water taken on by 50 small ships is transferred to the hold of the ship of state, pulling her decks downward toward waves that will crash over the bow. It is better to let some of the banks go down and be bought cheaply by other banks than to risk the ship of state. The bailouts will continue because the evident goal of many elites is to make the federal ship list so severely that the public will be panicked into a new constitution or equivalent set of measures, just as the U.S. Congress was panicked into giving Paulson his $700 billion bailout fund when he claimed an impending financial meltdown.
There are tens of thousands of enormously wealthy Americans who are going along with the bailouts and the socialization of bad debt because they have vast assets in stocks, bonds, real estate, hedge funds, and private equity holdings. They are afraid they might lose half or more of their wealth if the growth model is not jump-started soon. Plus, many of them are laying out massive bets, hoping to make 500% or more on some of their investments. They’re not interested in a fair system; they want a system that will continue to concentrate wealth for the fortunate few. Some are selling their country for personal interests. Others are merely rich and clueless — and in for a rude surprise when they discover that their wealth is destined to be largely expropriated when the system is reset to “save” the ship of state. Meanwhile, the super-tier of Wall Streeters will have their loot hidden offshore or at least outside the U.S. tax system, anticipating a time when an enraged and fleeced electorate is turned loose on holders of recognizable wealth.
This is a time of great political impotency. Where are the Theodore Roosevelts ready to do battle against ill-doers “whose lives are corrupt” and who “domineer in swollen pride unchecked and unhindered”? Where are the hundreds of thousands who should be organized and marching through the streets of the nation’s capital, acting on their First Amendment rights? Where are the bankers who should be testifying that our nation’s financial markets have been turned into casinos of exploitation? The “great people” are preoccupied with efforts to save or expand their fortunes while the “small people” are trying to save their homes or jobs.
In a 2500 year old biblical book, the Almighty tells Jeremiah to urge the people: “...turn back, each of you from his evil way, and reform your ways and your deeds.” However, Jeremiah hesitates, telling God, “...They will say, ‘It’s hopeless! For we are going to follow our own plans, and each of us will act according to the stubbornness of his evil heart’” (18:11-12, NASV). In a similar passage, Jeremiah complains to God that the leaders and great people are as ignorant as the working class man.
The old stupidity is new again: We’re trying to solve economic problems resulting from excess debt (irresponsibility) by piling on greater debt (more irresponsibility). The new administration will change little in this respect. The real problem is a culture of irresponsibility — something that cannot be bailed by mere money.
The U.S. government is writing the equivalent of credit derivative insurance on everything, willingly ignorant of how unsustainable the strategy was for A.I.G. Americans are going along with this nonsense — not happy but not organized to resist. With both parties sunk in partisanship, the nation needs sensible leadership from the business world. But there is a drought of politically responsible leadership in the business community.
There are few Ross Perots on the horizon. Granted, the Peter G. Peterson Foundation under the guidance of David Walker is working on entitlement problems, but no statesman-economist of prominent standing has taken on Wall Street by creating a national movement to redesign capitalism and recapitalize the system with the money that elites have stolen from it. Somewhere along the way many traditionally rich Americans will wake up and curse themselves for trying to save their own fortunes rather than deliver their country from its ruinous course. They will find they’ve lost their fortunes, public respect and their country.