If you had any doubts that our nation's financial overseers are working for those with wealth, the evidence was on full display when the Federal Reserve rode to the rescue of Wall Street. While American families facing foreclosure are told by Washington (and John McCain) to try to renegotiate terms with their mortgage holder — if they can figure out who that is — those in the private investment world who raked in wild riches by taking irresponsible risks are being bailed out of their liquidity crisis by the taxpayer.
All those billions of dollars in subprime mortgage-backed securities that the investment houses can't borrow against because they are considered toxic are now being accepted by the Fed, an independent government agency, as collateral for upward of hundreds of billions of dollars in emergency loans.
I understand that economic disaster may have ensued had Bear Stearns
simply been allowed to go bankrupt and had the machers in the investment world been left trying to pawn their collateralized securities for what they could get. But what a sweet gig it is to be a member of the master-of-the-universe class. First, you are awash in money created by risk-laden investments that disregard all warning signs; meanwhile, the rest of working America lives with stagnating wages even as the economy expands. Then, when all those investments collapse, you are considered too big to fail and the government swoops in to keep you afloat.
Socialized risk is what this is called. Heads they win, tails we lose.
If this credit crunch and the pain to come teaches us anything, it is that when the market is allowed to operate without supervision and regulation, insuperable greed will overcome rational, prudent behavior. Josef Ackermann, chief executive of Deutsche Bank, said it straight out in a speech this month: "I no longer believe in the market's self-healing power."
He's in good company. Goldman Sachs, Lehman Brothers and numerous other Wall Street titans don't believe in it either, turning instead to the central bank for a handout to cover their bad bets. They should know that by bellying up to the discount window, where they can borrow money previously available only to the regulated commercial banking industry, the "leave us alone" days of the private investment banks are over. No justification for regulators keeping hands off exists any longer.
What I can't get out of my head is the way we've been suckered again into believing the malarkey sold by Milton Friedman, Ronald Reagan, Alan Greenspan and a long list of conservative think tanks, that the market is our savior. It is so convenient to make government the bad guy, the one who interferes with everyone's pot of gold, and make open markets the answer to what ails, as Reagan did so often. But the historical reality is that the free market has a dark side that causes social displacement and instability, and by its nature it is an uncaring thing.
The free market does not raise an eyebrow when investor obsession with short-term profits results in outsourcing for cheap, exploitable labor overseas and the abandonment of health benefits or pensions for whatever American employees remain. Rather it cheers.
The market is not the best part of America. Not even close. Our government is the best part — or at least it used to be before the current gang took over.
Ultimately, it is government that defines who we are and lays out a path for how our society will be. The market wouldn't have built a uniform system of roads and bridges or provided free public education. It wouldn't have guaranteed minimum wages or insisted on safe workplaces. (Economists who claim that the market would have filled these gaps are not students of history.)
And without the government's backstop of depositor money, we would still have bank runs.
But somewhere along the way, we started to buy Reagan's line that "the nine most terrifying words in the English language are: 'I'm from the government, and I'm here to help.' "
Funny, Goldman Sachs and Lehman Brothers didn't think those words were so scary. Reagan and his ideological partners steered us wrong. They convinced the middle class to mistrust the only friend it has that is bigger than the free market bully.
Only government can reset the scales and make this country a fair place again, where you don't have to be a master-of-the-universe class member to know that you can afford college for your kids and a decent retirement for yourself. When the government stopped helping the middle class, the prosperity of this land stopped getting shared.
So after the government's done rescuing Wall Street, the rest of us could use some kind attention too. But we'd need a different government for that — a very different government.