With the annointed riding to the rescue of the Affluent Society’s ailing institutions, we’re all engaged in trying to figure out what the new rules of Wall Street will mean. But we should at least be a bit cautious about how much we invest in understanding these rules. There’s no guarantee today’s rules will be tomorrow’s rules or that tomorrow’s rules will apply beyond the day after.
Actually, you’d do far better to bet on the inconstancy of the rules. Flux is our new God. Special interests, lobbyists, politicians and regulators will all have an interest in chaging the rules to garner further benefits. In politics, great power does not come with great responsibility; it comes with great servility.
Just take a look at the breath-taking changes we’ve seen in our financial bailout in the last few weeks. A program to buy troubled assets from failing banks became comprehensive program to buy equity stakes, make direct capital injections, guarantee senior bank debt, limit executive pay, buy commercial paper and limit dividends. In, like, a week. Sure there are all sorts of time limits promised but those are likely to get adjusted outward as banks become dependent on lower borrowing costs, for instance.
All of the programs announced today will perpetually remain open to tinkering by the political machinery. Rent-seeking, regulatory capture and agency costs will guarantee that even the best laid (albeit hastily laid) plans are transformed. Let’s just all be honest and admit that we have no idea what this will become.
Here’s what we know for certain: we’ve adopted a policy of obliging ourselves to the circumstances on the bet that the circumstances can be forced to oblige themselves to the goals of bureaucrats. We lack any discriminatory apparatus that could cause us to take any other course. Is the commercial paper market in trouble? Have the government buy commercial paper. Does the banking system lack liquidity? Lower interest rates. Are banks hesitant to lend to each other? Guarantee their debt. Are balance sheets burdened by assets of uncertain value? Replace those assets with cash. Does insolvency threaten important banking institutions? Recapitalize them. We’re all toolkits and no principle these days.
Not much public discourse has been dedicated to the broader question of what shape the world should take given modern realities. We’ve answered the question without really asking it: we’re going to cede power to the government, and particular to the unelected bureacracies and their corporate clients. Our program is by any means necessary. More specifically, we’ve dedicated ourselves to the proposition that the solution to the problem of debt is credit, and that we’ll create more credit by accumulating more debt.
Only the worst kind of curmodgeon could hope for anything but wild success for our new program. Only the worst miser would resent the usurpation of his power and savings in this way. Only the most cynical would read the words “taxpayer protection” and understand them to mean only the increase of government revenues and attendant spending. Only the most nostalgic would look back at the days of open democratic discourse, when our government didn’t plot the fate of our economy overnight, in secret meetings with bankers.
We’re all doing the Hanke-Panke dance now. Let’s hope that we don’t drop when the dancing stops.