"Never apologize and never explain it's a sign of weakness." John Wayne as Captain Nathan Brittles in She Wore A Yellow Ribbon.
One of the goals of big government in the midst of a crisis is to calm the masses. That was the thinking of leaders like Churchill and Roosevelt. It probably did not occur to them that inflaming the concerns of people who are worried about their jobs and keeping their homes is not a part of the solution to bringing a crisis to an end. (See pictures of Presidential First Dogs.)
So far this week, Treasury Secretary Geithner and President Obama have both taken some responsibility for the fact that AIG employees got large bonuses which were, if effect, paid from government bailout money. Senator Chris Dodd, who may have had a role in allowing a loophole in a bill which let the AIG compensation slip through, refuses to be cast as the villain who let bankers make more money than they deserved. (See 25 people to blame for the financial collapse.)
The reaction to the bonus issue is that Congress is in the midst of passing a bill to tax the payouts at a 90% rate, punishing people for taking money that they appeared to be entitled to and doing nothing to the management that agreed to the deals in the first place. The tax will not be the end of the blow-up. Indignation makes good theater for politicians and makes some of their more naive constituents think that their elected officials are looking after their best interests.
The best interests of anyone suffering under the weight of the recession is to get some legislation passed that at least gives the economy a chance to recover with government spending and jobs programs. The programs may be the wrong programs, but that is not something that is going to be known ahead of time. There are a number of gambles in the proposed federal budget and many of them will not pay off. Many of the plans that the Treasury has to improve bank balance sheets and lending will simply be a waste of money. There is no entirely convincing argument that helping worthy people who cannot pay their mortgages with their home loans will stabilize the housing market. The Fed's plan to buy as much as $300 billion in Treasuries may bring down interest rates, but that will not automatically cause businesses and consumers to borrow money and restart the spending cycles that, to some extent, caused the current financial crisis.
The assumptions behind the Congressional hounding of AIG must be based on the premise that attacking a problem which happened in the past is better than simply ensuring, as best the government can, that it will not happen in the future. People will make money for things that they did not do from now until the end of time. And, suckers who actually accomplish something will often get nothing. Christopher Columbus died in relative affluence, claiming to have discovered what would become known as America. The first non-natives to actually set foot in the New World were Vikings, and they were probably eaten by black bears.
For some reason, it has not occurred to the Treasury Secretary that at his next public appearance, he should take responsibility for everything that has gone wrong in the financial world since he was sworn in. He can then refuse to resign and say that he has the full support of the President. The most important thing he can do is say that the AIG and Merrill Lynch compensation issues are no longer a matter of interest. If the Justice Department wants to pursue them, it can have the files.
There are now, by most accounts, some $2 trillion taxpayer dollars at stake in the salvage programs in place or being considered, to save the national economy. The results of the failure of those plans are unimaginable. Almost no one living in America now was an adult during the early 1930s. It is impossible to imagine how 13% or 14% unemployment would affect the modern economy, just as there is no way to suss out what a 50% drop in housing prices from the 2006 peaks would do. Some economists believe that these problems will drive the nation into a decade of economic stagnation, while others would like to see the boil lanced no matter how painful it may be. The second group wants to see the unimaginable after effects of years of leverage taken as one mammoth typhoon, hoping that it will only last a few quarters, blow itself out, and allow the resulting low cost of labor and commodities to bring the economy back.
It is unsettling that the arguments which dominate the discourse on the future of the financial system center around issues that are petty and not imperative. They are battles over indignities of the past and not programs for the future.
Douglas A. McIntyre
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