Friday, January 2, 2009
The sad song of J. Alfred Paulson
US secretary of the Treasury Henry Paulson pleads unusual circumstances. The US Treasury and the Fed hadn't the instruments to contain the subprime meltdown. Is that so? Until the bubble burst totally in September 2008 with the deliberate bankrupting of Lehman Brothers, the largest purveyor of commerical paper, and his buddy Fed Chairman Ben Bernanke applied standard Economic 101 bromides. The former big cheese of Wall Street and the bright economic professor from Princeton had saw the crisis which was eviscerating the national and world economies, from a hazy standpoint. They fed the bubble. If they looked backed to Volker's remedy for stagflation or Greenspan's 'irrational exuberence' to make froth of a growing bubble, they didn't show it. Yet, they had instruments and powers at hand to do something before it was too late. They didn't. The US current accounts was and is a pyramid built on debt, fuelled by monies from abroad. Easy money encouraged false hopes and the achievement of financial nirvana which the Fed and Treasury sustained the market. At no time till the damage was done, did these two men confront these fallacies. At no time till now, did they use the big stick of monetary policy, nor did they raise lending margins nor want to cool the economy by raising interest rates, lest inflation take wings. And they acted on the assumption that bubbles could only be identified ex post facto. On top of wiggling out of any responsibility, the two held on to the misguided economic apologia pro sua vita of the economic theory they believed: the market regulates itself. And when the dykes broke they went hat in hand to the US Congress for money, which came with strings attached, and with the much dreaded once denouced 'socialist' notion of the right of Congress to regulate the taxpayers' money. Did J. Alfred Paulson's plaint sound plausible. Not. And now, the big broom is left to the incoming Obama administration to sweep away the small Himalaya of greed, inefficiency, self deception, and devil may care mentalies.