A set of articles in Saturday’s and Sunday’s NYT weave an interesting story, though the paper of national record doesn’t actually connect the dots. Indeed, the first two page one articles from Saturday pretty much contradicted each other. Joe Nocera, in his “Talking Business Column” presents an amusing argument that “Lehman Had to Die So Global Finance Could Live”. According to jolting Joe, then Treasury Secretary Henry “Damn the Cost, Full TARP ahead” Paulson had to let Lehman collapse (and bring the commercial paper markets and, with it, the global economy, a half-heartbeat away from a full on financial heart attack) in order to create enough of a crisis atmosphere so as to make the resulting TARP bailouts politically doable. Rahm Emanuel says never let a good crisis go to waste. Apparently Paulson’s motto was “never let the lack of a good crisis get in the way of making a great crisis.”
Now, I might quibble with Nocera’s leap of faith argument that the decision to euthanize Lehman was a cold, calculation on Paulson’s part. At the time lots of heads smarter than mine were scratched trying to find a rhyme and reason as to just whom the Bush team was saving and whom they were leaving to the wolves. So maybe this is so much seeing faces in clouds on Joe’s part, crediting more calculation to Paulsen’s actions than are due. Who knows, maybe someday a tell-all memoir will come out saying that Paulson didn’t save Lehman’s because their CEO stole a pudding off his cafeteria plate at Dartmouth. On such capriciousness have the wealth of nations hinged on occasions past.
Nor do I disagree that the collapse of Lehman was the direct, The-End-Is-Here, moment that compelled the Democratic Congress to shell out almost a trillion dollars in the peoples’ money essentially to Paulson’s personal checking account so he could dispense it to whom he chose, how he chose, without accountability or liability. Under no other circumstances short of extra-terrestrial invasion by the Piranha People of Proxima Prime could I imagine a Congress so scarred as to capitulate on their fiduciary obligations so totally and readily.
No, my beef is with Nocera’s conclusion that Paulson’s actions in letting Lehman die so as to secure TARP to allow Wall Street to live was a good thing. I think it just as likely that, had a bailout of Lehman under terms more stringent than, say those applied to AIG, been conducted in early September last year the ensuing panic would not have occurred. Instead, a much more gradual unwinding of the toxic mortgage-bundled securities lacing bonds portfolios across Wall Street might have been addressed without the crushing credit crunch that actually occurred. Moreover, with the luxury of time a bailout of Lehman’s might have allowed, Congress would have been less hasty—or panicky–in passing a trillion dollar, no strings give away to the same Lords of the Universe who brought the financial universe crashing down.
But, then, perhaps that was precisely the Paulson point. Perhaps Paulson wanted a crisis so severe, so abrupt, so catastrophically precipitous that he could force a blank check out of Congress to give to his homies on Wall Street (which was—and no doubt will be again in the future—the Paulson family’s true home address) with far less restrictions than any parent puts in place before handing a twenty over to a teenager. Wall Street got the bailout and the right to continue business as usual. Which, according to the front page article above Nocera’s, is exactly what they’ve done.
The article, “A Year Later, Little Change on Wall Street” details just how little impact having crashed the family economy into a tree has had on the boys of finance. As a result, a trillion dollars latter, the American people have bought themselves nothing back bankers ready to do it all over again.
Meanwhile Peter Goodman’s an article in the next day’s Sunday NYT Magazine, (Big Spenders, They Wish) underscored the impact of our last generation of Finance Uber Alles public policy: the hollowing out–and possible collapse–of the American Middle Class. (You remember the Middle Class – the people upon whose shoulders and wallets the economy and this little thing called “democracy” have historically rested? My, but they were SO 20th century.) As Goodman reports, all one really has to know about the inequity and long-term stupidity of the last twenty-five years of unabated supply-side economics is this:
“Many [in the middle class] have lived beyond their incomes simply because incomes have been outstripped hby the costs of middle-class life. By the fall of 2008, most American workers were bringing home roughly the same weekly wages they had earned in 1983, after accounting for inflation.”
But at least Wall Street is alive and kicking. That would be, kicking us in the head.
Perhap’s Nocera’s title should have been “Lehman had to die so Wall Street didn’t have to change a thing.” Or maybe better yet, “Lehman had to die so Wall Street could keep on raking it in from the rest of us.”
Quick, knave, findeth me my editorial pen…