On the main
site, I try to take a big picture look at the financial crisis
and bailout plan, but just wanted to add a few things.
I don't think that conservatives who are supporting the plan
have fully considered how it means the end of capitalism, and the
beginning of European-style socialism in the U.S. I don't think I'm
exaggerating.
As a result of the Fannie and Freddie bailout, the government
already has fingerprints on most of the nation's mortgage debt; as
a result of the AIG bailout, it now controls 80 percent of what was
once the world's largest insurer. In both cases, the government has
assumed the power to fire and hire top management. In reaction to
the Paulson plan, Democrats in Congress are moving to restrict
executive compensation of companies seeking taxpayer help, as well
as give the government shares in the companies. And within the
logic of the bailout, can you blame them? If Paulson wants to
socialize the risk that financial institutions have taken, than how
could anybody argue that the resulting profits shouldn't be shared
by all? The result, however, would be the government having an
ownership stake in every major financial institution, as well as a
say on who gets paid how much.
And that is just the direct result of the Paulson plan itself,
without taking into account the regulatory battle that will take
place in the next Congress. Paulson's plan will make it more
difficult for conservatives to prevent a regulatory overreaction
along the lines of Sarbanes-Oxley, which drove business overseas.
The Democratic Congress (and quite possibly, president) will simply
not dole out $700 billion to Wall Street in the fall, and come next
spring, show restraint when it comes to imposing a new regulatory
regime on the financial sector. Investors have no loyalty to
America, and will quite happily put their money elsewhere if
American regulation becomes too burdensome.
As for those "illiquid mortage assets" that Hank Paulson says
need to be removed from the system, Roger Lowenstein (who wrote the
definitive account of the collapse of the hedge fund Long Term
Capital Management as well as the best bio of Warren Buffett on the
market) makes this illuminating point:
Paulson, the former Goldman Sachs banker,
whose stock when he cashed out in 2006 was worth half billion
dollars, is sure to argue that the appropriations are necessary
because the market is illiquid. Yet a market for mortgage paper
still exists. "Sellers just don't like the bids," a hedge fund
manager told me. A manager with a big money management company
confirmed that if Citigroup, Goldman, and the rest want to unload
their securities, his firm has money to spend. "We just can't spend
as much as Paulson," he noted.
That is really scandalous. The prospect of Paulson opening a giant
$700 billion checkbook, in other words, is preventing the markets
from working the problems out by themselves.
topics:
Hank Paulson, Business, Socialism
