Foxholes and Recessons

It is often said there are no atheists in foxholes. We now see there are no libertarians in a recession. It's been enlightening to watch the anything-goes free marketeers come running to Uncle Sam for help now that the consequences of their recklessly unrestricted fast buck strategems have caught up with them.

These once swashbuckling laissez-faire entrepreneurs have been reduced to so many piglets at the teats of a sow they once affected to scorn. Funny how fair-weather conservatives can turn into out and out socialists when it's their own arses in a sling.

First IndyMac. Then Bear Stearns. Next Fannie Mae and Freddie Mac. Now Lehman Brothers, Merrill Lynch and AIG. It all adds up to a lot, and it's all in billions. $29 for Bear Stearns. $150 in no-question loans for investment banks (they're unregulated) at the Fed discount window as long as they have mortgage backed "securities" as collateral. That's right, backed by the crumbling paper that touched the whole mess off. $200 to back Fannie and Freddie. $85 for AIG. Up to $300 from the FHA for troubled borrowers. It comes to nearly $800 billion so far, and there will most likely be more. For instance, another $25 billion in loans for the auto industry, which is getting slammed by the credit repercussions of all this, is in the works.

Just as in the 1920s and again with the S & L crisis of the late 80s, a buccaneer decade of deregulation has ended in overreach and meltdown. The Financial Modernization Act repealed FDR's Glass-Steagall Act. This let commercial banks get into real estate and investment brokering. The Commodity Futures Modernization Act allowed the unregulated trading of the derivatives that have become worthless. No income needed, just make a sale at subprime then re-sell the mortgage off to another financial entity. Whoever gets stuck with the hot potato when the music stops loses. Oops, we're all holding hot potatoes?

Phil Gramm wrote this stuff as Chair of the Senate Banking Committee. Robert Rubin midwifed it. Alan Greenspan enabled it. Bill Clinton triangulated it and he and George Bush signed off on the parts of it. A number of CEOs from these firms are golden parachuting out with tens of millions in their pockets. Meanwhile, eight hundred thousand have lost their jobs this year and two million more are losing their homes. A trillion in stock equity has evaporated. All so the kids could play by their own rules.

Analysis shows the entire financial edifice will implode if this is allowed to play itself out. And that can't be allowed to happen. This transpired because instead of admitting that sensible regulation helps capitalism rather than hurts it, the apostles of Milton Friedman pushed an ideology that argued that any at all was anathema. So now even devotees like Bush and Bernanke are having to nationalize much of the financial sector and socialize its risk, protecting it, if you will, from itself.

We told you so. And no, it doesn't hurt to say it. It feels good, in fact. Your theories don't work. Thank God Congress at least had the good sense not to let them privatize Social Security and throw it to the wolves, too. Where would the American people be if that were also evaporating in the meltdown?

So now, if we are fortunate and wisdom prevails, we may get a return to the sober and common sensical restrictions that permitted fifty years of growth and prosperity without the ruinous boom and bust cycles of the pre-Depression days. We were doing what worked. Then ideologues imposed a theoretical solution to a problem that didn't exist. Now we are all paying the price.

Let's hope we have learned our lesson this time, for the true believers in this snake oil have not. They will be back to try it again because they understand neither history nor human nature. Unswayed by fact or the record, they believe what they believe. Indeed, a major party ticket with precisely these same discredited beliefs is running this very year. And our foxholes may not be deep enough to withstand another four years of shelling.