The Plenary Powers of the Federal Reserve or, How to Privatize Profits, Socialize Losses
File under: How the poor pick up the tab for the rich; or is it, How the rich pick the pockets of the poor? You choose.
Hank Paulsen, U.S. Treasury Secretary, spoke to us all this morning. According to today's front page of the Wall Street Journal, Paulsen is "confident" that Congress will bail Fannie and Freddie out because:
... of their size and scope, Fannie and Freddie's stability is critical to financial market stability," he said in a speech at the New York Public Library. "Their continued activity is central to the speed with which we emerge from this housing correction and remove the underlying uncertainty in our financial markets and financial institutions."
That's a clue to a future grab at plenary power over the country's financial markets and matters.
Two other articles in the WSJ caught my eye over the past couple of days... The first, alluded to in the title, is Mark Gongloff's column yesterday, Like S&Ls? Paying the Tab for a Cleanup, about the possibility of the Government resurrecting a Resolution Trust Corporation to resolve the current Banking and Credit Crisis as its predecessor did to resolve the Savings and Loan crisis. The line about robbing the poor to pay the rich -- well, that's straight from NYU economist Nouriel Roubini. Don't believe him? Check out the numbers -- the S&L bailout cost the American taxpayer $76 billion dollars (according to the FDIC); the subprime bail out could cost us an estimated $1 trillion dollars -- 'nuf to make you gag on your godiva chocolate.
Another article is an Op Editorial over the weekend entitled Why No Outrage? by James Grant. Though I don't agree with his blaming the progressives for all the ills of the current crisis, I do find many of his questions on target:
The American people are famously slow to anger, but they are outdoing themselves in long suffering today. In the wake of the "greatest failure of ratings and risk management ever," to quote the considered judgment of the mortgage-research department of UBS, Wall Street wears a political bullseye. Yet the politicians take no pot shots.
After blaming progressives for everything from printing money to dropping the gold backing for the American currency, Grant goes on:
Since the credit crisis burst out into the open in June 2007, inflation has risen and economic growth has faltered. The dollar exchange rate has weakened, the unemployment rate has increased and commodity prices have soared. The gold price, that running straw poll of the world's confidence in paper money, has jumped. House prices have dropped, mortgage foreclosures spiked and share prices of America's biggest financial institutions tumbled.
One might infer from the lack of popular anger that the credit crisis was God's fault rather than the doing of the bankers and the rating agencies and the government's snoozing watchdogs.
Despite his conclusions, I gotta agree with the core lament... where is our outrage? In the gilded age, the moneyed class were called the robber barons for a reason. They belonged in jail.
Now with the heretofore secret Plunge Protection Team -- as I briefly described in an earlier commentary-- now operating in full view, with complete plenary power over our financial markets...these are scarey times indeed.