The End of Free Candy

P.J.O'Rourke, the conservative writer, once remarked: “The Republicans are a party that says government doesn't work - and then get elected and prove it.”

The American experiment, by which I mean its stumbling, often contrary, lunge towards a functioning representative democracy, has been at once a triumph and a failure. It has triumphed in terms of its wide influence and material possessions but failed in providing steadiness and harmony for its polity. In short it has succeeded to large extent by investing in the current whims of fashion. The country's economy, beginning with Henry Ford and his goal of planned obsolescence, has always depended upon an addiction to consumption-- a need for instant gratification that eviscerates stability and opposes reflection and prudent conservation. The current financial crisis is the result of a culture that both literally and metaphorically "eats without thinking".

As Rachel Maddow, our most brilliant political pundit so humorously described it: Our Wall Street titans are like six-year-olds unable to keep themselves from secretly gorging on the Halloween candy. Meanwhile our representatives in Congress instead of keeping a watchful eye grab their own fistfuls, leaving the public to clean up the six-year-old's vomit.

Victims of Greed

As Anatole Kaletsky asks: How did this disaster come to pass? And how can it be that the U.S. Treasury Secretary is such a financial dunce? One might as well ask how George W. Bush emerged from Harvard with a masters degree in business.

The genesis of the giant multi-national was spawned in the post-World-War-II impulse for unified markets and the American public's demand for ever-increasing quarterly profits. One didn't need to have knowledge to reach the corporate table, just a good enough gimmick to con the bankers long enough for sufficient cash to be raised before the next sure bet.

When Paulson announced his $700 billion “plan” the financial world heaved a sigh of relief. Finally, there would be a white knight to cover all our losses. Sadly, it quickly became clear that while Mssrs Paulson and Bernanke could construct a sophisticated model for the market function of a 12 to 1 leveraged reinsurance derivative, they had no clue how their theoretically-sound, computer-generated product would behave once that six-year-old was finished gobbling up all the candy. So what I first mistook as arrogance was actually sheer bluster. The swaggering demand at the end of Paulson's "mighty" three page paper that: "decisions by the Secretary pursuant to this Act are non-reviewable and may not be reviewed by any court of law or any administrative agency” was merely a bluff trying to fake real confidence.

Not So Sweet Irony

Were it not for the potential tragedy we all face because of their hubris we would be delighting in the deregulators' comeuppance. Remember this from the Republican Party Platform?

"We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself."

What Bush and Hank were saying just last week:


Well chaps you may pout and stamp your free-market feet but the world has had enough of your childishness. As the Financial Times now reports:

"The Bank of England has moved to inject longer term cash into money markets as part of a co-ordinated effort with the US Federal Reserve, the European Central Bank and the Swiss National Bank. The intervention follows the breakdown late on Thursday of talks over a $700bn bailout for the US financial system.

Money market traders said that interbank lending for terms longer than a day had come to a near standstill as counterparties feared that they may be lending to a bank that could suddenly become insolvent.

The Bank of England said it would extend $30bn in cash for a week against eligible collateral, drawing on currency swap lines put in place earlier this month with the Fed."

The US will lose its role as a global financial “superpower” in the wake of the financial crisis, Peer Steinbrück, the German finance minister, said on Thursday, blaming Washington for failing to take the regulatory steps that might have averted the crisis.

“The US will lose its status as the superpower of the world financial system. This world will become multi­polar” with the emergence of stronger, better capitalised centres in Asia and Europe, Mr Steinbrück told the German parliament. “The world will never be the same again.”

So there you have it. The world has moved on Mr. Paulson. You may stay in Washington and play more of your games hoping to spare yourself and Senator McCain your due punishment. Neo-liberalism is dead. The only thing left to see now, is whether or not there are enough grown-ups left in the country to give you and your Republican buddies a long-deserved spanking.