Wall Street, always dependent on Washington for protective regulation and “pro-market” policies that drive capital towards housing and securities, has prostrated itself before the Federal Reserve and the U.S. Treasury in recent days, ushering in a brave new era of a nationalized economy.
Who wins? Who always wins? The politicians, the bureaucrats, and the businesses with the best lobbyists.
As Treasury Secretary Henry Paulson presents it, the administration’s $700 billion bailout plan would allow the federal government to buy up mortgage-backed securities whose value is tough to determine, and whose prices are plummeting. In truth, the plan would empower Paulson, using taxpayers’ money, to buy up any securities he thinks necessary in order to preserve the debt market.
This puts this unelected man in an extraordinary position: allowing him to cut checks from the federal piggy bank—borrowed money itself—to buy up stocks or bonds whose current holders (financial institutions) are eager to unload them. Talk about moral hazard. Washington likely has never seen such an opportunity for waste, cronyism, corporate welfare, and self-dealing.
Acknowledging this problem, congressional Democrats demand more oversight over the administration plan to spend $700 billion of taxpayers’ money. Would that be much better?
If the Democrats get the congressional oversight they want, then we have Chris Dodd—famous for extending bailouts to Bank of America who funded him to the tune of $1,000 per week through the first half of this year and to Countrywide Financial who extended him a VIP mortgage—and Charlie Rangel determining which financial institutions get bailed out, and which ones have to fire their CEO, hire the right new CEO, or, say, agree to union demands in order to get bailed out.
Already the Bush administration has conceded on allowing Congress to regulate executive pay for companies benefitting from the bailout. On one hand, this is something of a token gesture—Democrats gain populist political points for curbing corporate greed, while it does little to affect the decisions and actions of government.
On the other hand, it reeks of third-world cronyism when the bosses of top companies depend on the good will of our committee chairman or cabinet secretaries if they want to get a raise.
Author Tom Wolfe in Bonfire of the Vanities mocked the chieftains of Wall Street as the self-proclaimed “Masters of the Universe”—moving markets, playing with other people’s money, standing hundreds of feet above Manhattan, and lining their pockets with cash. Controlling the flow of debt and investment capital indeed puts a man in control over the fate of millions.
The administration’s plan and the proposed Democratic patches take the Masters of the Universe idea to a new level. There’s more money in fewer hands with the added factor of the federal government’s power behind the money.
And we’re supposed to trust that these lawmakers and administration officials clamoring for more control over more of our money are going to do it all strictly in our best interest—contrary to our experience with earmarks and regulation which seem to have generally served campaign donors and well-connected lobbyists.
Already we’ve gotten a little-noticed hint of how this massive bailout would benefit not only those in government, but those businessmen with the coziest relationship with government.
Warren Buffett this past week invested $5 billion in Goldman Sachs, Hank Paulson’s old firm. Buffett said on CNBC, “If I didn’t think the government was going to act, I would not be doing anything this week.” This sounds like a gamble—as if Buffett is placing his chips on the “government bailout” square of the roulette table. But Warren Buffett doesn’t gamble. When he calls the new Masters of the Universe, they will take his call.
Congress and the White House will take Warren Buffett’s call this fall when he urges passage of the bailout. Then they will take his call in the coming months when he has “advice” over which stocks and bonds to buy at what price with what conditions.
Which other finance players get their calls answers depends on who wins the election (although with Dodd running the Banking Committee, Bank of America is guaranteed to have a good pipeline into Congress).
Nobody should be surprised when powerful people respond to a crisis by declaring they need more power—without delay. Nor will we be surprised when this new power is abused and corrupted.
Examiner columnist Timothy P. Carney is editor of the Evans-Novak Political Report. His Examiner column appears on Fridays.
