Angels Dancing On A Pinhead
By Case Wagenvoord
24 September,
2008
Countercurrents.org
Once upon a time, our government, blinded as it was by the fairy dust of free-market ideology, unclipped Wall Street from its leash. Now, the dumb dog has run under the wheels of a speeding car, and our government wants the public to pay for the funeral.
You don’t bury road kill.
The initial problem with Paulson’s $700 billion Wall Street bailout is that we have a slight credibility problem, in that we have an administration that has none. What remains of its credibility is buried in the sands of Iraq.
On Monday, Sept. 15, our Treasury Secretary Hank Paulson reassured that, “We’re working through a difficult period in our financial markets right now as we work of[f] the past excesses, but the American people can remain confident in the soundness and resilience of our financial institutions.”
Five days later, Congress is told it has to cough up a $700 billion bailout package or the world’s entire economic house of cards will collapse.
This from the administration that told us Iraq would only cost $50 billion (the cost to date is $580 billion and could top one trillion dollars once the dust has settled).
To review: on Monday the economy was sound, on Sunday it was collapsing, and Iraq still has WMDs.
Naturally, congressional democrats fell for the scam.
When the administration called congressional leaders together to give them there marching orders, there was, according to one article, “[A] ‘healthy debate’ about whether this action would finally stabilize the market. ‘They [Paulson and Bernanke] couldn’t answer that question.’”
Our problem is that Wall Street is flooded with too many financial wizards who know too little but think they know everything. They convinced themselves and others that they had come up with a series of formulae and algorithms that eliminated risk from the financial markets.
No doubt, these are the same formulae Medieval Scholastics used to determine the number of angels that could dance on the head of a pin.
Thanks to them, the world is groaning beneath a quadrillion dollars in derivatives, which is problematic because the sum total of the world’s gross domestic product is $60 trillion.
Many economists considered derivative trading a form of illegal gambling until Alan “Don’t Blame Me” Greenspan legitimized it as a way to reduce risk. Al loved his irony.
And in a way, he was right. As Daniel Amerman, of FinancialSense.com explains, “ ”[I]t’s the best game in town. Take a huge amount of risk, be paid exceedingly well for it and if you screw up—you have absolute proof that the government will come in and bail you out at the expense of the rest of the population (who did not share in your profits in the first place).”
So, congress is being asked to pony up $700 billion even though Sen. Harry admits, “We are in new territory, this is a different game…No one knows what to do.”
Hell, the public is screwed, anyway. The article that quoted Reid also pointed out that there’s only $53 billion of FDIC insurance to cover $6.84 trillion in bank deposits. That is, deposits the banks show on paper. Against that paper amount, the banks have a mere $273.7 billion on hand.
Paul Craig Roberts, a former assistant treasury secretary in the Regan administration, and no flaming liberal, summed it up nicely when he said, “A country that had intelligent leaders would recognize its dire straits, stop its gratuitous wars, and slash its massive military budget, which exceeds that of the rest of the world combined. But a country whose foreign policy is world hegemony will continue on the path to destruction until the rest of the world ceases to finance its existence.”
This brings us to the loud silence that has accompanied this proposed bailout. Nobody, but nobody, is suggesting that maybe we might want to cut back on our military spending. Our leaders believe it is far better to beggar the public than to do anything that might endanger our empire. How would the old men of the Beltway entertain themselves if we did that?
The Democrats are making noises about throwing a few scraps to the public. They want to amend the bankruptcy laws so a bankruptcy judge can reset the terms of a mortgage; they want to cap executive pay and they want some sort of oversight of the bailout.
Paulson want a “clean bill” without any nitpicking conditions attached to it.
This brings us to the second loud silence that is accompanying the bailout: Nobody, but nobody is demanding that the unregulated shadow banking system that caused this problem be brought into the regulatory tent. It’s that free-market fairy dust at work, again. The invisible hand will take care of everything.
No doubt there were passengers on the deck of the Titanic, as it slipped beneath the waves, who believed God would save them.
Paulson got to the real worry when he said that doing nothing would “make it harder for consumers to get the credit they need for car loans and other purchases.” And there’s the problem: with seventy percent of our GDP addicted to an ongoing consumer orgy, our leaders must force the public deeper into debt if the system is to survive. Paulson seems to think that if a drop of poison makes you sick, the antidote is more poison.
Part of the bailout package calls for increasing our national debt from $10.6 trillion to $11.3 trillion. This would increase our need for foreign capital to keep our Ponzi scheme afloat and would bring us even closer to the junk bond status that would cut off this flow of foreign capital.
It is an iron rule of economics that when the shit hits the fan, only the bottom of the pyramid gets sprayed.
Case Wagenvoord blogs at http://www.belacquajones.blogspot.com.
He welcomes comments at [email protected].
