By Case Wagenvoord
Some years ago our government, blinded as it was by the fairy dust of free-market ideology, unclipped Wall Street from its leash. Well, the dumb dog has finally run under the wheels of a speeding car, and now our government wants the public to pay for the funeral.
You don’t bury road kill; that’s what buzzards are for.
To begin with, we have a slight credibility problem, in that we have an administration that has none. What remains of its credibility is buried in the sands of Iraq.
On Monday, Sept. 15, our Treasury Secretary Hank Paulson reassured us that, “We’re working through a difficult period in our financial markets right now as we work of[f] the past excesses, but the American people can remain confident in the soundness and resilience of our financial institutions.”
Five days later, Congress is told it has to cough up a $700 billion bailout package or the world’s entire economic house of cards will collapse.
This from the administration that told us Iraq would only cost $50 billion (the cost to date is $580 billion and could top one trillion dollars once the dust has settled).
To review: on a Monday the economy was sound, the following Sunday it was collapsing and Iraq still has WMDs.
Naturally, congressional democrats fell for the scam.
When the administration called congressional leaders together to give them there marching orders, there was, according to one article “[A] ‘healthy debate’ about whether this action would finally stabilize the market. ‘They [Paulson and Bernanke] couldn’t answer that question.’”
Our problem is that Wall Street is flooded with too many financial wizards who know too little but think they know everything. They convinced themselves and others that they had come up with a series of formulae and algorithms that eliminated risk from the financial markets.
No doubt, these are the same formulae Medieval Scholastics used to determine the number of angels that could dance on the head of a pin.
Thanks to them, we the world is groaning beneath a quadrillion dollars in derivatives, which is problematic because the sum total of the world’s gross domestic product is $60 trillion.
Many economists considered derivative trading a form of illegal gambling until Alan “Don’t Blame Me” Greenspan legitimized it as a way to reduce risk. Al loved his irony.
And in a way, he was right. As Daniel Amerman, of FinancialSense.com explains, “ ”[I]t’s the best game in town. Take a huge amount of risk, be paid exceedingly well for it and if you screw up—you have absolute proof that the government will come in and bail you out at the expense of the rest of the population (who did not share in your profits in the first place).”
So, congress is being asked to pony up $700 billion even though Sen. Harry Reid admits, “We are in new territory, this is a different game…No one knows what to do.”