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Wall Street Welfare Queens
By Matthew C. Scheck | September 17, 2008
R.I.P. Free Market Economics
To stave off the complete collapse of A.I.G., we, the American taxpayers, have generously loaned the insurance behemoth $85 billion of our national treasure. We refuse to finance universal health coverage for all of us, but we certainly don’t mind bailing out greedy scumbags who willingly gambled their investor’s money in stupidly risky ventures knowing that Uncle Sam would socialize their risk.
And may I remind you that the biggest supporters of free market economics are now the ones on their knees begging to be saved from themselves by the evil and inefficient government they’ve been badmouthing for thirty years. That’s right: these Wall Street Welfare Queens have been the champions of free market economics and deregulation for the last 30 years, but now these government haters are gladly going on the government dole to save their asses.
May I also remind you that three years ago George W. Bush thought it was a brilliant idea to privatize Social Security and let these high-stakes gamblers on Wall Street manage this public trust. Wouldn’t that have been a recklessly stupid venture in light of today’s horrific news about the state of our financial markets?
I hope all of you realize this madness will not end with the bailout of A.I.G. Many major financial institutions are in deep trouble right now: UBS, Wachovia, Goldman Sachs, JP Morgan Chase, Washington Mutual…and so many more. Moreover, without a large infusion of cheap loans from the federal government, the American auto industry will probably collapse too.
No one really wants to discuss just how bad this mess has become and how bad it will get, simply because it is unprecedented and all these idiot economists and public “experts” with their lofty degrees and hoity-toity intellectual arrogance haven’t got a clue what’s going to happen any more than any idiot on the street. All they can do right now is try their best to keep all the unwashed morons out there calm and prevent them from making a mad dash to liquidate all their investments, because the truth is no one has the cash to cover a large-scale liquidation right now. It would be a massive disaster. Well, truth be told, it already is a massive disaster—the world economy is headed for a ruin that could take years to fix. Will it get as bad as the Great Depression? Definitely not, simply because there are enough New Deal safety valves still in place to cushion the crash. But what’s scary is that the world’s financial markets are such a huge and incomprehensibly tangled mess that no one knows for sure what will happen.
Just remember this date: September 14, 2008. It is the day free market economics and deregulation finally died. What is going to save us from this mess? Classic Keynesian economics, social democratism, and much more stringent and strict government regulation of the marketplace. Of course, there are still far too many people who don’t understand this or agree with it, but just wait six months or a year when things have sunk even lower, then let’s see how many people still think the “marketplace” alone can fix or “correct” all this madness without major government intervention.
If you need some good references on what caused this madness, find a copy of John Ralston Saul’s seminal 1992 book, Voltaire’s Bastards, and read his chapter called “The Hijacking of Capitalism,” where he pretty much predicted what has happened and why it was inevitable. I read the book 16 years ago and have been waiting patiently for everything Saul predicted to come true.
Or you can read Saul’s 2004 essay published in Harper’s, The Collapse of Globalism, which at the time it was written was mocked by many free market proponents as whiny and hysterical defeatism. Of course, as I knew all along, Saul was the only public intellectual who even had a grasp on what was so wrong with free market economics and why it was so destructive and anti-democratic. Lo and behold, as Saul so brilliantly discussed, the free market model followed a very predictable pattern to its collapse. History has an annoying habit of repeating itself.
Saul’s essay shines some light on how free market economics (and its partner-in-crime, Globalism) was sold to us and how it was kept alive with almost religious certainty even as it was failing the last ten years:
We have scarcely noticed this collapse, however, because Globalization has been asserted by its believers to be inevitable—an all-powerful god; a holy trinity of burgeoning markets, unsleeping technology, and borderless managers. Opposition or criticism has been treated as little more than romantic paganism. It was powerless before this surprisingly angry god, who would simply strike down with thunderbolts those who faltered and reward his heroes and champions with golden wreaths, If Globalization has seemed so seductive to societies built upon Greek and Judeo-Christian mythologies, perhaps the reason is this bizarre confusing of salvation, fatalism, and punishment. Transferred to economics, in however jumbled a manner, these belief systems are almost irresistible to us.
So true. What’s so sad is that many millions of citizens bought into this snake oil economic religion. Welcome back to reality, folks. Welcome back.
[Update]: From my comments, words of wisdom from my old Army pal, Dave Pechman:
This slow-bleed “strategy” seems even more fantastically feckless, given the fact that it is being managed (as you say) by “these idiot economists and public ‘experts’ with their lofty degrees and hoity-toity intellectual arrogance,” who know little more of “what’s going to happen any more than any idiot on the street.” Indeed! They squandered our public trust (if they ever even had it) and now we are supposed to believe that they can drive us out of this financial ditch?
We haven’t reached the beginning of the end, or the end of the beginning, either; to paraphrase Winston Churchill. This mess hasn’t just begun, it isn’t even just beginning. This “slow bleed” began decades ago, with the insidiously premeditated, systemic erosion of New Deal and post-New Deal programs—policies that rightly socialized risk—by “the smartest guys in the room.” Fortunately, as Mat says, some “safety valves” are still in place (not enough) to “cushion” the fall.
“Government is not the solution to our problem, government IS the problem,” said Ronald Reagan, the patron saint of the good-government skeptics and critics. So now we get to watch these government cynics kneel and beg with hat in hand to the great Satan of free enterprise—the Government, the People—Us! I don’t know what’s more sickening, watching all the corporate groveling and political pandering or anxiously obsessing about what the next revelation will uncover. But for now, it appears that free marketers have found a new religion, and the mantra is “Satan is my motor.” Let’s take a ride!
Topics: Culture |
September 17th, 2008 at 11:05 am
Short, sweet, and to the point — your essay that is. As far and our financial dilemma – long, bitter, and pointless.
This slow-bleed “strategy” seems even more fantastically feckless, given the fact that it is being managed (as you say) by “these idiot economists and public ‘experts’ with their lofty degrees and hoity-toity intellectual arrogance,” who know little more of “what’s going to happen any more than any idiot on the street.” Indeed! They squandered our public trust (if they ever even had it) and now we are supposed to believe that they can drive us out of this financial ditch?
We haven’t reached the beginning of the end, or the end of the beginning, either; to paraphrase Winston Churchill. This mess hasn’t just begun, it isn’t even just beginning. This “slow bleed” began decades ago, with the insidiously premeditated, systemic erosion of New Deal and post-New Deal programs — policies that rightly socialized risk — by “the smartest guys in the room.” Fortunately, as Mat says, some “safety valves” are still in place (not enough) to “cushion” the fall.
“Government is not the solution to our problem, government IS the problem,” said Ronald Reagan, the patron saint of the good-government skeptics and critics. So now we get to watch these government cynics kneel and beg with hat in hand to the great Satan of free enterprise – the Government, the People – Us! I don’t know what’s more sickening, watching all the corporate groveling and political pandering or anxiously obsessing about what the next revelation will uncover. But for now, it appears that free marketers have found a new religion, and the mantra is “Satan is my motor.” Let’s take a ride!
September 18th, 2008 at 1:02 am
[...] Go read the whole thing 0 Wall Street Welfare Queens | The Journal of Doubt. [...]
September 18th, 2008 at 8:10 am
[...] we watch Wall Street collapse under its own stupidity, there is a human element to Jeff’s story that is missing in all the [...]
September 18th, 2008 at 8:15 pm
To stave off the complete collapse of A.I.G., we, the American taxpayers, have generously loaned the insurance behemoth $85 billion of our national treasure. We refuse to finance universal health coverage for all of us, but we certainly don’t mind bailing out greedy scumbags who willingly gambled their investor’s money in stupidly risky ventures knowing that Uncle Sam would socialize their risk.
sorry, I think you fail to fully grasp the situation.
The market lost faith in AIG, and the government was forced to save it. A major reason is that AIG is one of the creators of credit-default swaps. What are those, you ask? They’re pixie-dust securities that supposedly offer insurance against a company defaulting on its obligations. If you buy $10 million of GM bonds, for instance, you might hedge your bet by buying a $10 million CDS from AIG. In return for that premium — which changes day to day — AIG agrees to give you $10 million should GM have an “event of default” on its obligations.
But as a way to make sure that swap meisters can make good on their obligations, they have to post collateral. If their credit is downgraded — as was the case with AIG — they have to post more collateral. What put AIG on the brink was that it had to post $14 billion overnight, which of course it didn’t have lying around. Next week, the looming downgrades might have forced it to come up with $250 billion. (No, that’s not a typographical mistake; it’s a real number.) Hence the action. If AIG croaked, all the players who thought they had their bets hedged would suddenly have “unbalanced books.” That could lead to firms other than AIG failing, which could lead to still more firms failing, which could lead to what economists call “systemic failure.” Or, in plain terms, a financial death spiral in which firms suck one another into the abyss.
So the government should not intervene and just let company-after-company fail and the entire financial industry crash?
September 18th, 2008 at 8:18 pm
and your essay just gets worse:
> What is going to save us from this mess? … more stringent and strict government regulation of the marketplace.
quoting from an Economist article Mar 2008:
Can regulation [stop manias]? The criticism that this crisis is the product of the deregulation of finance misses an important point. The worst excesses in the securitisation mess are encrusted precisely where regulation sought to protect banks and investors from the dangers of untrammelled credit growth. That is because regulations offer not just protection, but also clever ways to make money by getting around them.
(i.e. Existing rules on capital adequacy require banks to put some capital aside for each asset. If the market leads to losses, the chances are they will have enough capital to cope. Yet this rule sets up a perverse incentive to create structures free of the capital burden—such as credits that last 364 days, and hence do not count as “permanent”. )
The financial industry is likely to stagnate or shrink in the next few years. That is partly because the last phase of its growth was founded on unsustainable leverage, and partly because the value of the underlying equities and bonds is unlikely to grow as it did in the 1980s and 1990s. If finance is foolishly reregulated, it will fare even worse.
And what of all the clever and misused wizardry of modern finance? Mr Greenspan was half right. Financial engineering can indeed spread risk and help the system work better. Like junk bonds, reviled at the end of 1980s, securitisation will rebound, tamed and better understood—and smaller. That is financial progress. It is a pity that it comes at such a cost.
September 18th, 2008 at 8:27 pm
>>What’s so sad is that many millions of citizens bought into this snake oil economic religion.
Snake oil? Snake oil is what you call the global economic system that had lifted one billion people out of the worst kind of poverty?
Bill Emmott’s valedictory when leaving the Economist in 2006:
Progress on poverty
Economic statistics bemuse and baffle in equal measure. What matters is the human effect, and in that regard nothing matters more than the reduction of poverty. On that, there has been progress but far from enough. According to the World Bank, the proportion of the world’s population living on $1 a day or less was 22% in 1993, or 1.2 billion people. By 2001, the proportion had fallen to 17.8%, or just over a billion people. Detractors wave even this aside by saying it is “just Asia”. Well, it is true that Africa is the continent that has tragically had regress, not progress, because of war, the ravages of disease, and decisions by too many governing elites to stick to kleptocracy. But given that “just Asia” takes in half the world’s population, we should still be encouraged by what has happened. Martin Ravallion, a poverty expert at the World Bank, estimates that if present trends persist the number living on less than $1 a day will have dropped to a little over 620m by 2015, or about 9% of world population.
September 18th, 2008 at 10:06 pm
Mr. Hodges -
I appreciate your comments and I will answer them out of respect for your visit to my blog.
Let’s begin:
{And then you continue to lecture me ad nauseum on something I already know quite well. I have been studying this mess for years, so thanks for the lecture, pal, but no thanks.}
So sorry that I don’t feel like lamenting that Wall Street and large investment banks/insurance consortiums/stock trading firms et al. lost their ass because of their stupidity and greed. These were people who supported generously the politicians, think tanks, and interest groups who for the last 30 years debased and badmouthed government, deregulated the hell out of their industry, and then ran wild like the boys of Lord of the Flies on the marketplace, and now they need big bad government’s help. Pardon me if I rub their noses in the pile of shit they created.
In the very next essay I said the following about the A.I.G bailout:
So I answered that question. I saw your comments on “onegoodmove” and I thought your tone sounded snotty and condescending, so I ignored you.
But I will answer you anyhow: I am a social democrat and believe in Keynesian economics, so of course I think bailing out A.I.G. is prudent policy despite the fact A.I.G. and Bear Stearns (and whoever else we bail out in the upcoming weeks) have mostly gotten what they deserve; therefore I will grit my teeth and nod my head in agreement with what the Fed has done. But I also think universal health coverage is prudent policy. And many other forms of social welfare spending and goverment-financed infrastructure spending.
quoting from an Economist article Mar 2008:
Blah, blah, blah. I disagree with all the piffle you quote here. Satisfied? The marketplace wants generous trillion-dollar government bailouts? Then the marketplace will play by government’s rules. And this means stringent regulation.
Free market economics in America is choking to death and good old Keynesian policies will probably—maybe—fix our economic mess. All this madness could have been avoided. The rampant greed and rapacious sleaziness that have been so prevalent since Reagan’s presidency are coming to an inglorious end right now as we speak.
Free market “reforms” also decimated the economies of Argentina, Bolivia, Brazil, and Russia, among others, and many countries have rejected Chicago School economics and done quite well, such as New Zealand and Malaysia, to name a few. And lets wait about a year to re-analyze how things in the world fare from this current mess and what it will take to fix things globally. You cite a few quotes from The Economist and I cite John Ralston Saul’s 2004 essay on the decline of Globalism; I think I will stand on what he wrote then and how prescient his prediction was then. I have been studying the effects of free market economics and Globalism for the last 19 years and I find the results have mostly been anti-democratic and highly destructive.
Let me conclude by saying that I find such language as “sorry, I think you fail to fully grasp the situation” extremely insulting, since you don’t know me and what I do and do not grasp any more than you know what are my favorite foods or what music I like, so spare me your sanctimony and arrogant need to tell me what I know and don’t know, Mr. Stranger. Maybe you should create your own blog and write down your brilliant thoughts there (or cite words from others as you’ve done here), but please don’t clog up my valuable bandwidth with your babbling, especially if you are going to insult me before you even truly know me or my positions on things.
I do not wish to engage in protracted arguments in my comments, so please, if you have more to say, write it on your own forum and don’t waste my bandwidth.
September 19th, 2008 at 1:56 am
>Blah, blah, blah. I disagree with all the piffle you quote here. Satisfied?
erm… well, it’s clear you are up for engaging in actual discussion on this topic. “I disagree with all the piffle you quote here. Satisfied?” isn’t exactly my idea of a well-formed argument.
I see that you are a huge Saul fanboy, but the quote you provide is very intellectually dubious: “We have scarcely noticed this collapse, however, because Globalization has been asserted by its believers to be inevitable—an all-powerful god; a holy trinity of burgeoning markets, unsleeping technology, and borderless managers. ”
so basically Saul, and you, argue that despite all the volumes of daily news and economic reports and mountains of evidence about how about our economies are becoming more and more interconnected on a daily basis, Globalization is actually collapsing but it’s ’scarcely noticable’ because of our belief it it? What kind of Tomfoolery is that? You either have evidence or you don’t.
September 19th, 2008 at 2:08 am
erm… well, it’s clear you are up for engaging in actual discussion on this topic. “I disagree with all the piffle you quote here. Satisfied?” isn’t exactly my idea of a well-formed argument.
Neither was your declaring “I think you fail to fully grasp the situation,” so we’re even.
I will reiterate what I said earlier:
I do not wish to engage in protracted arguments in my comments, so please, if you have more to say, write it on your own forum and don’t waste my bandwidth.
September 19th, 2008 at 3:09 am
Oh, and Max: I noticed in your first comment about my essay in onegoodmove (and you did it again here in my comments) you plagiarized a Time magazine piece on the A.I.G. crisis. The next commenter praised your “apt” analysis, which, in my opinion as an ethical writer, would have provided you the opportunity to point out to that person and everyone else that nary a word of what you wrote was your own.
Does that make you a fraud? It certainly makes me think your ethics are a little skewed.
September 19th, 2008 at 4:11 am
dude, yes, I wrote “I think you fail to fully grasp the situation” because I do. You characterize the bail-out as if it’s welfare for a handful of greedy scumbags, but it’s an attempt to save the wealth of a great number of shareholders and investors not just a few fund managers.
My assertion is about how you portray the bail-out as “welware for Wall Street Queens” is only half the story. It’s about saving the jobs and investments of many companies and people and the financial health of the economic as a whole isn’t it?
Matthew C. Scheck drinks piss straight from the cock is extremely insulting. “I think you fail to fully grasp the situation” is only an insult to someone with a very fragile ego and hair-trigger emotions.
Anyway, rather than actually present arguments with evidence you consistently want to keep this personal. I’ve leave your readers to make up their own minds on whether this is the End of Free Market Economics and that Globalism is collapsing (even though the evidence is ’scarcely noticed’) as your doomsayer predictions would have us believe.
September 19th, 2008 at 4:21 am
Your “arguments” as far as I can tell are a series of verbatim text taken from others, some of which you fail to cite the source. I disagree with all of what you cited from The Economist, a magazine that has promoted much more pro free market economics sophistry than balanced analysis, although I do read nearly every issue of it because there are some decent pieces in it every month that give me a perspective from what I consider to be diametrically the other side on most modern economic, social, and political issues.
September 19th, 2008 at 6:35 am
dude, yes, I wrote “I think you fail to fully grasp the situation” because I do.
Wait. Did you actually write this or did you cut and paste it from Ladies Home Journal or People magazine? Because it’s unclear what ideas you’ve presented here that are yours and not something you glommed from someone else.
My assertion is about how you portray the bail-out as “welware [sic] for Wall Street Queens” is only half the story. It’s about saving the jobs and investments of many companies and people and the financial health of the economic as a whole isn’t it?
I don’t believe I ever said the bailout was a bad idea or not necessary (in fact in the next essay I support it heartily); I was merely pointing out the irony (tinged with bitterness for me) that our government is bailing out these bastions of anti-government, “free market” ideology; seriously, isn’t it the least bit infuriating that government had to come rescue people and organizations who don’t give two shits about government, taxation, and civic responsibility, and have spent millions supporting politicians, think tanks, and lobbyists who are trying to dismantle it?
Honestly, maybe I should be asking you why you are so dim-witted that YOU don’t get THAT?
September 19th, 2008 at 7:07 am
Anyway, rather than actually present arguments with evidence you consistently want to keep this personal.
Funny…in my first response I tried my best to respond to your “arguments.”
After all, YOU were the guy who started his whole argument (most of which you stole from someone else without giving due credit to them) at onegoodmove by stating, “This is the kind of ignorant simple-minded kind of thinking that makes people like Palin appeal to dimwitted citizens.” Which firstly made me laugh that you call someone “dim-witted” while using poor grammar: “This is the kind of ignorant simple-minded kind of thinking…”; secondly it made me wonder how the person who wrote with this goofy syntax could then write the brilliant analysis of the A.I.G. crisis in the next two paragraphs (which I now know you didn’t).
Nothing makes me dislike someone more than sneering and sanctimonious hypocrisy. Oh, and plagiarism. Aren’t you some sort of publisher or something? Task, tsk, Max. Let’s hope you use better judgement in your professional life than in your Internet trolling one.
If we count up all the words you’ve wasted on my bandwidth, we find that few were your own (”drinks piss straight from the cock ” being your high point of originality), so it’s rather difficult to understand the true thoughts of one Max Hodges (I also noticed the paucity of original ideas and thoughts on your blog–I googled you and found it; not much of a writer, are you, Max?) other than you seem to be another garden variety blog comments troll.
So I will leave it at that and ignore you from now on. I fucking hate trolls and all the bandwidth wasted on them.
September 19th, 2008 at 5:01 pm
I’m not trying to pass off anyone’s writing as my own at onegoodmove. Do you see my name attached to anything posted there??
I credited the above statement on progress on poverty to former Economist editor Bill Emmott, and I credited something I reposted in the same onegoodmove thread to a different Economist article. The lack of credit to the TIME AIG article was a result of copy-and-paste gross neglience. Oops!
September 20th, 2008 at 9:14 am
Even if you aren’t the Milli Vanilli of comments, you are still just passing out opinions from other sources as if they are absolute truths. The Economist isn’t (always) a bad magazine but they certainly have their little pro-business-at-any-cost agenda to peddle. I have read some pretty outrageous bullshit in The Economist over the years.
Lots of people these days can’t seem to separate op-ed and real news reporting.
September 20th, 2008 at 11:50 am
Yeah, The Economist isn’t pure journalism and doesn’t pretend to me. They cover current world news, but its the insight, analysis and opinion that is the real value.
Not to say they’re batting a perfect game in terms of their opinions and predictions, but as a reader I’ve been impressed by their convincing arguments on countless issues. I often come to an issue holding a particular position, and they’ve turned me around based on the strength of their superb analysis and insight. For example, on the issue of organ transplants: do you think people should be able to sell their organs? I intuitively felt that no way should this be allowed, but after reading their very convincing arguments, I now feel like its a great shame that governments adopt a free market solution to address the life-and-death demand for organs which outstrips the supply of donor organs.
Anyway, interesting magazine, but basically you’re dismissing their positoin about the current financial crisis because they’ve been wrong in the past. (”I’ve read some pretty outrageous bullshit in The Economist over the years.”) Everyone’s been wrong about something in the past, but you evaluate present arguments based on the evidence presented right? I think your kind of quilty of a form of ad hominem attack here. Should redirect your comments to the ideas not the person/source.
September 20th, 2008 at 12:53 pm
oops! typo! should be “I now feel like its a great shame that governments DON’T adopt a free market solution [to the organ supply/demand problem]“