Tuesday, November 11, 2008

Pigs at the trough

"You can't hold a board accountable if it's not transparent about what it's doing."
So said former Federal Reserve governor Larry Meyer at a conference in Washington, DC, that I attended this past March. Now consider that remark as you read this:
Nov. 10 (Bloomberg) -- The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.
Writing in his blog for the American Prospect, economist Dean Baker asks the obvious question: "Are Ben Bernanke and Henry Paulson Crony Capitalists?"
"After all, they are trying to hide which banks are in trouble and refusing to give out information about who is borrowing from the Fed. This is exactly the behavior that the IMF and widely cited economists denounced when it was done by the East Asian countries during their financial crisis in the late 90s. Are these practices now good economics because our government is doing them?"
Meanwhile, more and more corporate executives are lining up to beg for federal tax dollars -- or in the case of American Express, openly positioning themselves to do so in the near future:
Nov. 11 (Bloomberg) -- American Express Co. won U.S. Federal Reserve approval to become a commercial bank, gaining access to government funds as credit-card defaults climb with economies slowing around the world.
"Given the continued volatility in the financial markets, we want to be best positioned to take advantage of the various programs the federal government has introduced,'' American Express Chief Executive Officer Kenneth I. Chenault said in a statement yesterday.
When Congress debated the Wall Street bailout, those who objected to using tax dollars to line the pockets of the executives who bankrupted their companies -- and who argued that taking money from the lower and middle class to prop up unsustainable, behemoth corporations might not be the best way to fix a fundamentally flawed U.S. economy -- were dismissed as cranks by all respectable pundits and politicians. Two months later, however, critics of the bailout look more and more prescient as the bailout devolves into an open grab for money by the incompetent corporate elite, while the economy shows no signs of a recovery in the near future.

It kind of makes one think that, instead of disgraced financial pundits and CEOs who just a year ago were predicting perpetual economic bliss, politicians and the mainstream press should start looking for guidance from those who haven't been wrong about everything over the last decade.

The chances of that happening? Not so good. People who rightly predict negative outcomes based on evidence that was readily available before the fateful decision was made tend to annoy those in power, as well as the large segment of the media that grovels before those in charge. 

People who were wrong, but for all the "right" reasons, according to the establishment consensus? Nothing less than sainthood -- as witnessed by Colin Powell's name being favorably (and inexplicably, based on actual performance) mentioned as a possible Obama cabinet official. Hell, I won't be the least bit surprised if, after leaving office, Dick Cheney gets a column for the New York Times. 

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