John Maynard Keynes, the famed British economist, once likened Wall Street to a game of Old Maid or musical chairs. The victor, Keynes opined, is the fellow “who passes the Old Maid to his neighbor before the game is over or who secures a chair for himself when the music stops.”
Viewed in those terms, the Treasury and the Federal Reserve have sought to deal fresh cards to the players and put extra chairs into rotation.
Warned of the threat of a market meltdown, President Bush acceded to effectively nationalizing AIG, the nation’s largest insurance company. Troubled automakers may be next in line to be bailed out. At the end of his second term, Bush has abandoned his conservative roots to pursue the kind of pragmatic industrial policies that have fueled many European and Asian lands.
Not surprisingly, this about-face has not gone down well on Capitol Hill. Democrats, trumpeting their majority status, have mainly complained about being left out of the loop as events unfold.
Republican anger, ideologically driven, runs deeper. “To say I am outraged about this [bailout] would be an understatement,” Sen. Jim Bunning (R-Ky.) told Politico last week. “The greed on Wall Street is only exceeded by the stupidity of the Treasury secretary and the chairman of the Federal Reserve.”
It’s easier for Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke to deflect Democratic complaints than to grapple with the small-government credo voiced by Bunning, among others, and the 100-member Republican Study Committee, a caucus of House conservatives.
The administration’s bailout architects argue that when a financial cave-in is imminent — after market-oriented attempts to shore up capital walls have failed — there’s no time left to hold hearings or share a polite cup of coffee with lawmakers.
But the small-government GOP crusaders who see Wall Street as a cesspool of greed will have none of it. Let the bad guys rot in a stew of their own making, they maintain. Protect taxpayers at all costs.
Maybe they have a point. But the Harvard-educated Bernanke — who grew up in Dillon, S.C., as a pharmacist’s son — doesn’t think so.
Bernanke made his bones as an economics professor at Princeton by becoming an avid student of the causes of the Great Depression. When celebrating Milton Friedman’s 90th birthday in 2002, he told the conservative economic guru, “Let me end my talk by abusing slightly my status as an official representative of the [Fed]. I would like to say to Milton and [his wife,] Anna, regarding the Great Depression: You’re right; we did it. We’re very sorry. But thanks to you, we won’t do it again.”
There’s an avoidable risk, Bernanke believes, that would keep Bush from going down in history as a latter-day Herbert Hoover — who had brought a fine reputation to the White House when he took office in 1929, before becoming an object of political scorn until his death in 1964.
In 1929, the richest 10 percent of U.S. families controlled nearly 40 percent of personal disposable income, while the bottom 10 percent got only 2 percent. When the stock market bubble burst in October, Hoover lacked a clue on how to meet the crisis.
The federal government began loaning money to farmers to form cooperatives — actually, a socialist measure — at a time when agriculture was a bigger deal than it is today. But the millions of farmers, scattered across thousands of miles, had difficulty cooperating. Farm income fell from $8 billion in 1929 to $3 billion in 1933, a decline of 62.5 percent.
Then the Republican-led Congress, with Hoover’s acquiescence, sharply raised tariffs. That made things even worse. Exports fell 50 percent. Unemployment rose to 25 percent.
“[The] long run is a misleading guide to current affairs,” Keynes once said. “In the long run, we are all dead.” Before that happens, Bernanke and Paulson are striving to cope with the financial mess, with or without congressional assent.
Andrew Glass is a Politico contributing editor.
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Wall Street still a game of Old Maid
By ANDREW GLASS | 9/24/08 4:48 AM EDT
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