Tuesday, September 23, 2008

The Visible Hand in Capitalism

It’s not every day that I get to agree with conservative writer Bill Kristol, so I grab the chance when it comes. In his column at the New York Times yesterday, Kristol seconded the proposal of an un-named friend that the bailout proposal before Congress include this provision: “Any institution selling securities under this legislation to the Treasury Department shall not be allowed to compensate any officer or employee with a higher salary next year than that paid the president of the United States.” Bravo.

If you doubted Kristol was repeating a GOP heresy, ask why his interlocutor wished to remain anonymous?

Kristol believes that this provision would prevent companies that did not really need help from applying for it. I suspect that determination will be made by investors in the weeks ahead. Any company that does not dump its bad, bundled “financial instruments” by selling them to the Treasury will be eaten alive in the market.

The bundling of home mortgages into securities on the belief that housing prices would only go up turned Wall Street brokers into corrupt agents of a complicated ponzi scheme: So long as everyone kept buying, all would be well, but once the buying stopped, the whole game would be exposed and the house of cards, in this case a house of credit cards, would come tumbling down. There is no reason, repeat no reason, to respect or reward these barons of high finance who sold their souls and are now reaping the whirlwind. They either knew what they were doing or, as the law states it, they should have known. There was something pathetic about Treasury Secretary Paulson’s concern for these fast-falling oligarchs. If they have to forfeit their multi-million dollar mortgages on their vacation homes in the Hamptons, at least it is only a vacation home. Many average Americans lost their only homes this year, and those homes were not in Amagansett.

Democrats in Congress are pushing for a less punitive restriction than Kristol’s. They are also insisting that mortgage companies be forced to negotiate lower rates for average homeowners who risk losing their homes. And, in this morning’s Washington Post, E.J. Dionne highlights a proposal by Sen. Jack Reed of Rhode Island to give taxpayers stock in the companies that participate in the bailout: if the taxpayer is taking the risk, she should get the reward. If the GOP plan can properly be called “socialism for the rich” the Reed proposal is “capitalism for the taxpayer.” Through the looking glass Alice!

It will be fun to see how fast the free-market rats flee jump from the sinking ship. The Bush administration has signed on. John McCain, who told us in his acceptance speech that he wanted government to get out of the way will certainly endorse this instance of government getting in the way. A few principled conservatives in very safe districts are begging off the bailout, but the fact is something must be done. At his ranch in California, Ronald Reagan, who famously stated that “government is not the solution, it is the problem” is turning over in his grave. Government is now the only solution because the businessmen Reagan celebrated as the very embodiment of Americanism have failed both financially and morally.

Politically, the real winner last week was Franklin Delano Roosevelt. Whenever an economic crisis brings comparisons to the Great Depression, Americans, especially older Americans, turn their thoughts to FDR who pulled America out of that crisis, psychologically, politically and, finally, economically. The "invisible hand" of market forces has created a mess and the visible hand of government must restore balance to the free enterprise system.

Obama is Roosevelt’s heir in this election, so the benefit will accrue to him if he plays his cards right. If I were working on debate preparations with the Illinois senator, I would be having him read Roosevelt’s fireside chats. FDR understood that in times of crisis, Americans want their government to do something. In one of those fireside chats, on May 8, 1933, FDR told the nation “I have no expectation of making a hit every time I come to bat. What I seek is the highest possible batting average, both for myself and for the team.” If Obama can channel the spirit of FDR that resides in those words “for myself and for the team” he will win the election.

Michael Sean Winters

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