The companies that our tax dollars are going to bail out right now are those institutions said to be too big to fail. But do any of the banks that brought our economy to its knees really need to remain in business?
The arguments for bailing out Wall Street are simply that we have to if we want to have an economy again. No one likes to do it, but the government has to step in, as the guarantor of last resort, to apply the healing salve of the American taxpayer’s money to the wounded bankers and make them whole.
The quandary is that if a bank is so over-leveraged that its assets are negative, then funding it into viability would be the equivalent of subsidizing its ownership, at a grossly inflated value, and using tax dollars to pay for the subsidy. But on the other hand, letting it fail and disappear into nothingness as it rightfully deserves to do involves a calamitous loss of banking functionality (i.e. lending) that we need to keep operating – and vigorously at that – in the economy. These are the banks too big to fail, so called.
Looking to the future, and trying to prevent economic disasters like the current crisis from happening again, an idea that deserves top place but isn’t getting it so far is the one that any company too big to fail is too big to exist. A host of commentators have advocated this point, but putting it into practice may be harder than it seems.
Underneath the economics of banking and bank failure are the politics of the nation and the money of the rich. It was always going to be a case of the less wealthy subsidizing the more wealthy, this is the power that wealth gives to its holders.
Commentators keep talking about what Obama should do or what we should do, as if the power exists simply to do such things: as if the political establishment has the independence to turn against the finance system that channels the investment of wealth-holders. As if the small part of the money supply that constitutes the wage-earning voters has any comparable influence.
Whatever we see Obama do will be the very most that any president could have done, in reaction to this dramatic lapse of the finance industry. If we had another Great Depression, where the banks faced even more popular hatred, we might find the President able to do more. Short of that, which this is, he can only do less.
We’ve watched for months while banks have declined to show us their books, and while they stopped lending as they used the passage of time to take in more deposits to restore their reserves. And as Secretary Geithner has unveiled his plans to audit the bank books for risk, and to infuse government-insured private capital, we hear that the banks are largely in approval of this emergency treatment of their wounds.
So if Wall Street is somewhat happier now, this is the result of negotiations between the helpers and the helpless. It was only ever going to be a solution that made Wall Street happier. Be glad the wealthy are not ecstatic.
