US Taxpayers are Being
Enrolled in an Economic Chain Gang
By Jeff Randall
preserve their [the people's] independence, we
must not let our rulers load us with perpetual
debt. We must make our selection between economy
and liberty, or profusion and servitude" -
Telegraph" -- - There was a time,
early in America's history, when its leaders believed in
financial discipline. No more. Perpetual debt, which Jefferson
feared would enslave future generations, is clamped on Uncle
Sam's undercarriage like a ball and chain. US public borrowing
is $9.8 trillion - and rising.
America's third president (1801-09), is widely regarded as the
White House's most intellectually gifted occupant. He believed
that "banking institutions are more dangerous to our liberties
than standing armies", and that "the principle of spending money
to be paid by posterity … is but swindling futurity on a large
approves the Treasury Secretary's $700 billion bail-out of
dysfunctional banks, it would be hard to invent a better example
of what Jefferson foresaw: authorised "swindling". Tomorrow's
Americans and those who come after them will pay and pay for the
grotesque excesses and self-indulgence of today's flim-flam
As Jefferson put
it: "If we run into such debt, as we must be taxed in our meat
and in our drink, in our necessaries and our comforts … [we will
have] no means of calling our mis-managers to account but be
glad to obtain subsistence by hiring ourselves to rivet their
chains on the necks of our fellow sufferers."
Having failed to
deliver victory in the War on Terror, President Bush is hoping
for better luck in the War on Error. His goal is to limit damage
from the egregious mistakes of sub-prime mortgages; his tactics
are to carpet-bomb the banking system with federal funds. The
upshot, in Jeffersonian terms, is that US taxpayers are about to
be enrolled in an economic chain gang.
The prospect is
unappealing, but, we are told, there's no alternative. Hank
Paulson's plan offers fewer details than his weekly milk bill,
but now, it seems, is no time for nit-picking. Having collected
sacks of gold at Goldman Sachs, this former champion of free
markets wants to nationalise assets at a pace not seen since Che
Guevara was lighting cigars with Batista's legacy.
No wonder so many
Congressmen look queasy. They must persuade constituents, many
of whom are losing jobs and homes in the credit crunch, that it
is a bright idea to rescue those who profited hugely from the
creation of dark instruments. Not for the first time, Wall
Street is bilking Main Street.
For those who
work in the fast lane of finance, the speed of decline has been
ear-popping. Less than a year ago, America's investment banks
were wallowing in record bonuses, totalling almost $38 billion.
Their pool of
monopoly money was greater than the GDP of Bulgaria. Split among
186,000 workers at Goldman Sachs, Morgan Stanley, Merrill Lynch,
Lehman Brothers and Bear Stearns, it equated to an average of
more than $200,000 per person, about four times the median US
chairman, Lloyd Blankfein set a new standard in executive
gluttony, collecting $68 million (about one third in cash), but
at least his bank is still standing. Richard Fuld, Lehman's
chief executive, trousered $41 million. Nice work, except that
he took the lot in the bank's shares. Nine months later, when
Lehman went bust, Fuld's bonus joined his reputation, in the
bacchanalia has morphed into a therapy group for manic
depressives. Those still in work look around the room and wonder
how many will be flipping burgers by Christmas. In an interview
with Fortune magazine, Mr Paulson admits: "Raw capitalism is a
dead end. I've seen it."
Now I have heard
it all. What next?
In place of
rip-roaring markets, according to a Wall Street trader, America
has embraced "trickle-down communism". This system involves the
state paying "cash for trash" to benefit a few miscreants, and
then hoping that some of the taxpayers' largesse will trickle
down to the masses.
will not be made to disappear by Mr Paulson's proposals. All
that will be different is ownership. It will be like removing
nuclear waste from a failing business and parking it in a
government building. The risk moves from private to public.
It is this form
of regressive redistribution that Messrs Bush and Paulson are
peddling as the road to redemption for Western finance. Excuse
my cynicism, but would you buy a used derivative from either of
Katrina and the flooding of New Orleans, Mr Bush's record on
rescue missions does not inspire confidence. As for Mr Paulson,
if he's so insightful, why, when he was earning an $18 million
bonus at Goldman in 2006, did he not spot the radio-active dump
piling up in his industry's back-yard?
sales pitch is essentially: "American capitalism, I love you!
But we only have 14 hours to save the Earth!" In return for a
promise to head off financial obliteration, he is demanding a
cheque of disturbing blankness. It is to be a bail-out with
precious few strings, plus immunity from review "by any court of
law or administrative agency". His legal team must have chuckled
when they slipped in that one.
The scheme is
under attack from right and left. George Soros, the investor who
helped break the pound in 1992, is in favour of action to stem
insolvencies, but insists that Paulson's plan falls short. Paul
Krugman, professor of economics at Princeton, has little faith
in Paulson as a fixer: "He's making it up as he goes along, just
like the rest of us."
Washington, in the real world, there is a growing clamour for
something to be done. Ordinary voters are in pain. They want
government to make it go away. But there is no magic powder.
borrowed to buy assets at the wrong prices will have to suffer,
as financial gravity re-asserts its downward pull. There is no
policy yet invented that can make fifty cents worth two bucks
solution will have to recognise that contraction cannot be
deferred in perpetuity. Having restored stability, it should
punish those who created the mess. Where's the retribution in
Paulson's package? It looks too much like a parachute for his
chums at the back of a burning plane.
needs to be an overhaul of banking governance. The rules of the
game were, in effect, made redundant by the ingenuity of
financial engineers. We do not need more regulation, but more
Which brings us
back to Jefferson. Two hundred years ago, he demanded: "The
issuing power should be taken from the banks and restored to the
people to whom it properly belongs." Twas ever thus.
"comments" below to read or post comments
Be succinct, constructive and
relevant to the story.
We encourage engaging, diverse and meaningful commentary.
Do not include personal information such as names, addresses,
phone numbers and emails. Comments falling outside our
guidelines – those including personal attacks and profanity –
are not permitted.
See our complete
Policy and use this link
to notify us if you have concerns about a
comment. We’ll promptly
review and remove any inappropriate postings.
Send Page To a Friend
accordance with Title 17 U.S.C. Section 107, this
material is distributed without profit to those
who have expressed a prior interest in receiving
the included information for research and
educational purposes. Information Clearing House
has no affiliation whatsoever with the originator
of this article nor is Information ClearingHouse
endorsed or sponsored by the originator.)