An article of mine – for today’s Crikey! It was written yesterday morning and so doesn’t consider the latest developments. Thanks to Ingolf for some suggestions. (Which reminds me, on a couple of columns recently, I should have mentioned several people who’ve helped out including Tony Harris, James Farrell, Ken Parish and Andrew Leigh. Sorry if I’ve forgotten anyone, but I send out drafts to whomever I think might be interested and able to make worthwhile suggestions. If you want to be on the list of advance receivers of draft columns,let me know.
Does the Paulson package remind you of anything? It reminds me of the invasion of Iraq. And the Northern Territory intervention. And the Tampa. It’s the new black for government. The executive grabs hold of a crisis (or as in the case of the Northern Territory intervention beats up a crisis it has known about for years), comes up with an unprecedented, outrageous plan, and then plays “deal or no deal” against the clock with those in the political system whose traditional role it is to review, to debate, and to try to improve upon such plans (according to their own no doubt less than disinterested lights).
But that role is successfully foreclosed in the manufactured drama and urgency of the moment. They’re accused of lack of patriotism, being dithering do-gooders, not “getting it” — the ‘it’ being that ‘everything has changed’ or whatever. Those on the outside who quibble are alleged to be daiquiri drinkers and, as you can appreciate, that pretty much puts and end to the matter right there. And the stakes are so high, and the issue is so loaded that opposition to the will of the Government is political death. The whole thing goes through and disaster stalks, very often to strike a few months later.
Of course in this case there really is a crisis, and dealing with it really is urgent (though that’s no reason not to have been thinking and working hard on a more comprehensive rescue plan for a good while). But it’s still such a pity, such a goddamn shame that, at least from this distance the package looks like such a bad one. And a surprise given the involvement of a person of the calibre of Ben Bernanke whose brilliant academic life has been a perfect (intellectual) preparation for this moment.
I have no doubt it prepared him for some of the inspired improvisation weve seen so far. Perhaps he knows things I don’t — well things that really matter that is. But all the commentators whom I trust on this have the same kind of reaction — that while it might well have been necessary for something to be done, this something comes from the very worst tradition of Wall Street capitalising its profits and socialising its losses.
The state is being forced into the role of market maker of last resort. That’s all well and good in the situation we find ourselves. Perhaps it’s even welcome. But market makers normally charge for their services in providing liquidity and in bearing risk. Its only fair, and its also efficient. The crafters of this rescue package should have been trying to maximise the upside for the taxpayers who will have these investments foisted upon them. That would be only fair. And it would minimise inefficiency by minimising the moral hazard this intervention builds into future expectations. Instead were getting the opposite with minimal upside for taxpayers.
I’m no expert on American politics, but I presume that with a nip here and a tuck and much cooing and breathless prose from the pundits, the package will be go through, in the same kind of charade of accountability that accompanied the invasion of Iraq and the Tampa escapade and the Northern Territory Intervention.
Then we can repent at leisure.