[R-G] [BillTottenWeblog] The Commoners Bailout Wall Street

[Bill Totten]

by David Bollier

http://onthecommons.org (March 12 2008)


Has anyone noticed how the great apostles of the "free market" - the
fierce enemies of "government intervention" in market activity - are
engineering one of the great government bailouts of all time, with nary
a nod of acknowledgement of the cognitive dissonance?  I'm talking about
the Federal Reserve's infusion of $200 billion in credit yesterday to
Wall Street.  In return, the Fed got a passel of mortgage-backed
securities as collateral - securities whose value is so dubious that no
one wants to buy them, even at discounted rates.  Indeed, the collateral
may end up being regarded as worthless.

So where are the hoots of derision at "government paternalism" and
"reckless intervention in the free market"?  Isn't it a mantra among
this crowd - bankers, economists, investors - that markets are
self-correcting and robust?

The truth, of course, is that markets only work well if there are
sufficient oversight to curb their excesses, assure trust and maintain a
functional stability.

Yet there have been so many years of lax oversight and unwise lending in
financial markets - all the better to leverage bigger speculative
returns - that the chickens are now coming home to roost.  We taxpayers
are being asked to clean up the mess, if only because the long-term
repercussions could become much worse for everyone.

Attention has focused on Alan Greenspan, the former Fed Chairman, for
his role in supporting Bush's 2001 tax cuts, encouraging subprime home
lending and encouraging what has become a massive housing bubble.
Greenspan, of course, is a famous disciple of Ayn Rand, author of The
Fountainhead (1943), Atlas Shrugged (1957) and other libertarian fantasy
novels about heroic individuals who triumph over misguided meddlers and
"statists" (read "government" and "democracy") who would thwart their
entrepreneurial genius.  Greenspan has spouted this rhetoric on many
occasions when it served to help the investor class.  Yet as Harvard
economist Benjamin M Friedman notes in a recent issue of The New York
Review of Books, this aversion to government evaporates when this class
of people faced unpleasant risks or downturns:

... Greenspan and his colleagues treated financial markets more as
delicate flowers requiring careful attention and nursing.  Similarly,
although he frequently makes clear in what he writes that he rejects
Keynesian economics, both at the Federal Reserve and during his time in
the Ford White House, he consistently advocated a Keynesian stimulus
(through tax rebates or lower tax rates) whenever he thought the economy
needed a boost.


In short, for Greenspan, free markets are a "heads I win, tails you
lose" scenario.  Profits are privatized while debt and risk are
conveniently socialized.  Individual entrepreneurs get all the kudos for
their risk-taking, but when things turn sour, that dreary, inept adult
standby, government, is quietly enlisted to make things right.

Now that the heroic individuals of Wall Street have overreached once
again - by making reckless and sometimes predatory loans as a means to
higher and higher returns - we taxpayers are now being conscripted into
the fight, at great expense, to stabilize financial markets.

USC professor Jon Taplin in his recent blog post, "The Fed is Freaked"
{1} cites economist Nouriel Roubini's observation that the Fed's lending
amounts to "a covert partial nationalization of the US banking system.
Then the explicit partial nationalization of this financial system may
only become the next step of this financial meltdown."

So why don't I see the great heroes of the free market stepping up to
the plate to take a hit for the "moral hazards" they freely chose?
Milton Friedman celebrated "freedom to choose" as the singular
achievement of the American free market system, but as a taxpayer, no
one has asked me whether I want to underwrite the moral and financial
excesses of Wall Street in its hour of need.  In fact, it's the Fed, a
semi-secret decision-making body that caters to banks, that is
engineering the latest bailout, not Congress, which at least has a
modicum of accountability to all of us.

The truth is, I am a hostage to the financial system that the Fed and
Wall Street sit astride.  I have little choice but to prop up their
free-market fantasies.  A Fed bailout may be the best option available,
however ineffectual at this point.  Just don't insult me by saying I am
"free to choose" even as my pocket gets picked to deal with the mistakes
of "daring entrepeneurs".  It would be refreshing if we could finally
begin to have an intelligent, reality-based discussion about the
interdependence of commons and markets, with appropriate safeguards for
we denizens of the commons.


Link {1}  http://jtaplin.wordpress.com/2008/03/11/the-fed-is-freaked/

http://onthecommons.org/node/1252

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