Thursday, October 09, 2008

Born In The USA

You know, I was born and raised in a free country, not a socialist, totalitarian state:

WASHINGTON — Having tried without success to unlock frozen credit markets, the Treasury Department is considering taking ownership stakes in many United States banks to try to restore confidence in the financial system, according to government officials.

Treasury officials say the just-passed $700 billion bailout bill gives them the authority to inject cash directly into banks that request it. Such a move would quickly strengthen banks' balance sheets and, officials hope, persuade them to resume lending. In return, the law gives the Treasury the right to take ownership positions in banks, including healthy ones.

Effectively, this gives the US Federal government the right to dictate bank policy, decisions, and effectively makes the US Government a shareholder, directly dependent on the quarterly profit of these firms.
This is not freedom, folks. Banks will be obligated to conform not just to the regulations and laws the US Congress has passed, as overseen (however poorly) by the executive branch, but to the caprices and whims of whatever man sits in oversight, presumably Hank Paulson, Treasury Secretary until January 20, 2009.
And who knows who, beyond that?
Now, that person may make good decisions, possibly. And he may influence better oversight and policy from the bank managers and boards themselves. But he also may make terrible decisions, terrible choices, and that alone makes this a really bad idea. After all, underpinning each and every bank in America, each and every investment bank in America, is the hard-earned money of the American worker. Those are your savings accounts that WaMu leveraged out to lend to mortgagors. Those are your checking accounts that Wachovia invested to earn themselves an extra few pennies in income.
And these were people who were supposed to be experts! Now turn this power over to someone with a political agenda.
Do you see where this might go? Imagine a bank in New York state that has lent money to build an abortion clinic, overseen by a McCain Treasury Secretary shoved down his throat like Sarah Palin was. Or a bank in Arkansas that's been forced by court order to lend money to minority clients for affordable housing, something guaranteed not to give the same return as a commercial property in Little Rock.
Suddenly, the government is not only in a position to dictate policy, but enforce it from inside, with little or no dissent. Imagine if in the 1950s, Dr. Martin Luther King Jr. had a credit card from a bank run by the government, the same government that tacitly allowed the states to determine segregation policies? Do you honestly think they would listen to a lone nutcase? Or would they yank that card, freeze hsi assets, and bring him to "justice"?
It gets worse, folks. Just the other day, there was talk that the Treasury Department and Federal Reserve might step in to buy commercial paper issued by companies like General Motors, or IBM, or Campbell's Soup. Now take those banking scenarios and extend them to buying food, clothing, shelter, or transportation.
And the bad news is capped off with the little notice but plaintive wail of individual states now unable to make good on their own bond issues, unable to make interest payments, unable to provide sufficient collateral for the funds they've borrowed, in danger of default.
Not only are they having trouble making good on these bonds, but they can't even refinance them because the credit markets are effectively closed until the bailout funds are made available, which may take months.
Careful readers of this blog will note that more than two years ago, I predicted the worst economic meltdown this nation, this world, has ever faced.
I underestimated the threat. This will make the Great Depression look like a picnic.