Financial wizards try to clean up own mess
Gene Lyons

Posted on Wednesday, September 24, 2008

If President Bush seems oddly unshaken, what with a 19 percent approval
rating and an astonishing zero percent of the public optimistic about
the economy, it’s because for him, in the immortal words of Yogi Berra,
the Wall Street meltdown basically amounts to déjà vu all over again.
Previous to inheriting the White House, financial crises were the story
of Bush’s life. He’d talk college friends into backing a Texas wildcat
oil venture, drill some dry holes, then get bought out by Daddy’s
friends at a profit. Before Daddy’s friends bought the Texas Rangers,
his biggest payday came from cashing out of a troubled oil company days
ahead of a lousy earnings report. Sure, there was that Securities and
Exchange Commission investigation into allegations of insider trading,
but Poppy Bush was president, so you know how far that went; the inquiry
ended in 1993 without any charges being filed. Joe Conason narrated the
sordid tale for Harper’s back in 2000, but nobody wanted to hear it. The
make-believe Texas rancher was a “compassionate conservative” everybody
wanted to have a beer with. So now we’re all in what Poppy once called
“deep doodoo,” and the same brilliant economic team that assured us that
all was well two weeks ago warns, in Paul Krugman’s words, that “the sky
is falling, and that to save the world we have to do exactly what it
says now now now.”

People have often said that if fascism came to America, it would arrive
with a smiley face, so maybe it’s fitting that if we’re going to have
Marxist-style fiscal nationalization, it should mainly benefit
multimillionaires—socialism for the wealthy, market discipline for you
and me.

Judging by the plan sketched out by Treasury Secretary Henry Paulson,
henceforth to be known as the nation’s “money czar,” he must imagine God
as a celestial real estate agent with lots of listings in Greenwich,
Conn., where Wall Street tycoons erect competing palaces.

A recent New Yorker article by Nick Paumgarten limned the scene. Uncle
Scrooge McDuck’s mansion would be a tear-down opportunity for these
jokers. Only one bullion pool to dabble in? Rather like John and Cindy
McCain, they require 35,000 square feet, 10-car garages, and indoor and
outdoor heated pools, along with movie theaters, basketball arenas, wine
cellars, skeet shooting ranges and servants quarters modeled upon
Versailles. Literally.

They’re not so much houses as theme parks, the theme being fathomless
greed and elemental primate status frenzy: basic chimp stuff. Except,
oops, foreclosures are mounting in Greenwich, too.

Money czar Paulson definitely knows the territory. In 2005, his last
full year as CEO of the (now shaky) investment bank Goldman Sachs, he
was paid a reported $38 million as investors were persuaded to buy
so-called mortgage-backed securities based upon loans that will never be
repaid.

At bottom, Republican economic thinking has been based upon two
manifestly false ideas. The first, endlessly flogged by Rush Limbaugh
and his cohorts, is that sharply reducing taxes on people like the
Bushes, the Paulsons and the McCains results in increased government
revenue and greater prosperity for all. In practice, it’s led to
staggering budget deficits, decreasing opportunity and rising
inequality. More palaces, fewer jobs.

The second is an updated version of the early Christian Pelagian heresy,
denying the universality of original sin. Always and everywhere
denouncing government oversight and regulation of banks, investment
firms, brokerage houses and insurance companies, free-market
fundamentalists assured us that the financial system was inherently
self-regulating. Gentleman geniuses presided; greed was a cardinal
virtue. The result was the creation of a gigantic Ponzi scheme.

The quaint concept of due diligence vanished from the financial system
from bottom to top. Fee-churning brokers sold adjustable-rate mortgages
on over-valued real estate to suckers incapable of making the payments,
then pawned off the bad loans on speculators who repackaged them as (now
worthless) securities. Nobody ever expected to pay. A greater fool would
borrow more to buy the property tomorrow.

Persons like Princeton economist and New York Times columnist Paul
Krugman, who warned that the speculative bubble was sure to burst with
potentially catastrophic consequences, were scorned as backward-thinking
pessimists and lampooned for their clumsy prose. Fearing collapse,
Paulson demands an estimated $700 billion blank check to buy up the bad
paper from his Wall Street friends. Here’s his idea of taking
responsibility: “Decisions by the Secretary pursuant to the authority of
this Act are non-reviewable and committed to agency discretion, and may
not be reviewed by any court of law or any administrative agency.”
Everybody says that something like what Paulson proposes must be done.
Everybody’s probably right. Democrats, moreover, aren’t without blame.
Bill Clinton signed legislation greatly reducing regulatory safeguards
in 1999. We must now pray that the financial wizards who created this
maze can find their way out. Meantime, here’s a phrase that should
vanish from the language forever: “Republican fiscal conservative.”

—–––––•–––––—Free-lance columnist Gene Lyons is a Little Rock author and
recipient of the National Magazine Award.