Power Grab

The Paulson Plan is a dud. No, wait, I take it back. It’s not a dud; it’s a naked, heinous reach for power; it’s a very public, very pricey Gentlemen’s Club asking for government financing; it’s not just unnecessary, it’s a swindle.

Lessons from Fiction

To a degree, this is an example of life imitating art. Here’s an instructive little scene from It’s A Wonderful Life:

                                     GEORGE
                         I have some news for you, folks.
                         I've just talked to old man Potter,
                         and he's guaranteed cash payments at
                         the bank. The bank's going to reopen
                         next week.

               ...There is a commotion at the outer doors. A man (Randall)
               comes in and makes his way up to Tom.

                                     RANDALL
                         Tom... Tom, did you get your money?

                                     TOM
                         No.

                                     RANDALL
                         Well, I did. Old man Potter'll pay
                         fifty cents on the dollar for every
                         share you got.
                              (shows bills)

                                     CROWD
                              (ad lib)
                         Fifty cents on the dollar!

                                     RANDALL
                         Yes, cash!

                                     TOM
                              (to George)
                         Well, what do you say?

                                     GEORGE
                         Now, Tom, you have to stick to your
                         original agreement. Now give us sixty
                         days on this.

                                     TOM
                              (turning to Randall)
                         Okay, Randall.

               He starts out.

                                     MRS. THOMPSON
                         Are you going to go to Potter's?

                                     TOM
                         Better to get half than nothing.

               A few other people start for the door.  CAMERA PANS WITH
               George as he vaults over the counter quickly, speaking to
               the people.

                                     GEORGE
                         Tom! Tom! Randall! Now wait... now
                         listen... now listen to me. I beg of
                         you not to do this thing. If Potter
                         gets hold of this Building and Loan
                         there'll never be another decent
                         house built in this town. He's already
                         got charge of the bank.  He's got
                         the bus line. He's got the department
                         stores. And now he's after us.  Why?
                         Well, it's very simple. Because we're
                         cutting in on his business, that's
                         why.  And because he wants to keep
                         you living in his slums and paying
                         the kind of rent he decides.

               The people are still trying to get out, but some of them
               have stood still, listening to him. George has begun to make
               an impression on them.

                                     GEORGE
                         Joe, you lived in one of his houses,
                         didn't you? Well, have you forgotten?
                         Have you forgotten what he charged
                         you for that broken-down shack?
                              (to Ed)
                         Here, Ed. You know, you remember
                         last year when things weren't going
                         so well, and you couldn't make your
                         payments. You didn't lose your house,
                         did you? Do you think Potter would
                         have let you keep it?
                              (turns to address the
                              room again)
                         Can't you understand what's happening
                         here? Don't you see what's happening?
                         Potter isn't selling. Potter's buying!
                         And why? Because we're panicky and
                         he's not.  That's why. He's picking
                         up some bargains....

               During this scene Mary has come up behind the counter.
               Suddenly, as the people once more start moving toward the
               door, she holds up a roll of bills and calls out

                                     MARY
                         How much do you need?

               George jumps over the counter and takes the money from Mary.

                                     GEORGE
                         Hey! I got two thousand dollars!
                         Here's two thousand dollars. This'll
                         tide us over until the bank reopens.

We’ve been here before, friends. Or at least, Jimmy Stewart has. Except that there are some notable differences. At the present moment, the panic is being stirred up willfully by Wall Street, the Fed, and the Treasury. Why? Because they want to scare the rest of us into doing something that will benefit them: Wall Street folks want their share price propped up, they want their severance pay; the Treasury wants power, the big head that goes along with having nearly a trillion dollars to spend; the Fed of course does want to ensure economic stability, but this move also seems to parallel their recent expansion of their own powers into things far removed from setting interest rates (which Treasury obligingly played along with, too—Treasury scratches your back, you scratch Treasury’s?).

Keeping Our Heads

So, are we going to panic? Or are we going to keep our heads? Are we going to look for Mr. Potter to bail us out? Or should we perhaps look around for some private capital that could tide us over until things settle down? You see, if we stop to breathe then we’ll realize that there are vastly more options than the ridiculous “Paulson Plan”. One idea is to remember that there are trillions of dollars sitting in not-so-little piles all around the world; the more the government stays out of the way, the more likely it is that these vast pools of liquidity will be dipped into to invest in or outright buy the firms that are failing. For example, Bank of America just bought Merrill Lynch for some 50 billion dollars (in stock), Warren Buffet is throwing $5 billion at Goldman Sachs, and Mitsubishi UFJ is sinking 900 billion yen (OK, that’s “only” $8 billion) into Morgan Stanley. That’s already close to ten percent of the value of the proposed $700 billion bailout. Oh, except that the taxpayers haven’t paid a dime for it.

If the government takes a non-bailout approach, such as facilitating bankruptcy proceedings, then companies will stop waiting around for a better offer from the Treasury, and will try to get themselves sold for something close to what they’re actually worth these days. Instead of letting the banks feast on a $700 billion gourmet meal, we need to unleash a feeding frenzy in which they get gobbled up by the sharks in the economy. There’s already blood in the water, so get out of the way and let nature take its course!

Exhortations

Beware the Japanese model that sows stagnation. Think about the Swedish, but remember that our economy is far larger than theirs. Remember that these guys know what they’re talking about. And never, never forget that the Paulson Plan is coming from the same guys who gave you the pre-Petraeus Iraq War, Hurricane Katrina, and The Economy.

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