Thursday, October 13, 2011

Don't Worry My Child, I'll Buy You A New One

"The greed of the banks is the reason for the crisis today. And that the government refunded all of the banks' losses, with no penalties to stockholders or bondholders, from taxpayer money. and the government has given over $400 billion of free money to the banks. I've also said very clearly that the only way that we can pull ourselves out of this mess is to combine fiscal with monetary policy."

Says unlikely Wall Street Occupier Asher Edelman to a reporter Tuesday morning. Mr. Edelman, a well-known ex-corporate raider who, in 1988 taught a course titled Corporate Raiding the Art of War at Columbia University, a very bright chap indeed, clearly has strong feelings about his old stomping grounds.

As I essayed in Brains to Burn, brightness of mind does not necessarily correlate with good judgment. In fact, in my arrogant opinion, uncommon intellect rarely meets with common commonsense (of course, being no possessor of "uncommon intellect", this could be a simple case of brain-envy).

For starters, I don't suppose the stock and bondholders of Lehman Bros. (lost all their money, forever) or Bank of America (would, if they sell today, lose most of their money) agree with Mr. Edelman's charge that they've escaped penalty-free. But that's the lesser issue. The greater being, as always, government.

I do agree that investors (and CEOs!!) absolutely should lose when they make poor choices, be it banks or buyers of Greek debt. The problem, as I (and others) see it, is too much—make that way too much—no, make that WAY WAY TOO MUCH government intervention.

Ask yourself, would the financial industry of the 2000s have been more or less prudent if

Penn Central Railroad (1970)
Lockheed (1971)
Franklin Nat'l Bank (1974)
New York City (1975)
Chrysler (1980)
Continental Illinois Bank (1984)
Savings and Loans (1989)
Long Term Capital Management (1998)
Airline Industry (2001)

hadn't been bailed out?

In October 2008, Alan Greenspan confessed to Congress that he had found a troubling "flaw in his [free market] ideology" (fanning the flames for the Keynesians [govt intervention advocates]). Thus questioning the ability of markets to regulate themselves.

Oh but Alan, you own a glaring contradiction. While you championed free markets, you had not the tolerance, nor nearly the courage, to allow the inevitable cyclicality of economies, and of human nature, to produce the necessary pain/losses that inspire the kind of prudence that may have mitigated the recent Great Recession. I.e., you totally bailed out Wall Street when you orchestrated the bailout of Long Term Capital Management.

And, alas, your successor, per

Bear Stearns (2008)
Freddie Mac (2008)
Fannie Mae (2008)
AIG (2008)
Auto Industry (2008)
TARP (2008)

has, he believes, no choice but to pick up where you left off.

It's like saying to your child "my child, don't worry about driving smartly, cause if you crash the car I'll just buy you a new one. Like I did for your brothers and sisters."

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