Saturday, August 11, 2007

Aid For Me, But Not For Thee

The Two-Faced Mayor
from Tim Burton's The Nightmare Before Christmas.

It would seem that America's billionaires don't wear bootstraps. Or something:

Should the Federal Reserve help bail out billionaire hedge fund managers and millionaire traders — the very people who bought the risky mortgages that led to the current market panic?

That, in essence, is the question swirling around Ben S. Bernanke as he confronts the first crisis of his 18 months as Fed chairman.

There are no shortages of opinions, and some are being shouted. Jim Cramer, known for his histrionics on the CNBC financial news channel, angrily called for Mr. Bernanke to lower interest rates, something the Fed has resisted doing.

A week ago, Mr. Cramer charged that the Fed was “asleep” and that the chairman “has no idea how bad it is out there” in the markets. A video clip of his remarks has been viewed more than one million times on YouTube.

Lower interest rates would help operators of hedge funds and other money managers because the housing market presumably would strengthen as mortgage rates fell. A revived mortgage market would give the hedge fund operators and other holders of the risky securities a chance to sell them, which they are having trouble doing now in the current nervous market.

But others see a bigger danger for the economy in acting on the pleas of Mr. Cramer and others on Wall Street. Cutting interest rates to help the hedge funds would tend to encourage a resurgence of the very risky mortgage lending that has caused the current turmoil, rekindling the crisis.

The issue is often referred to as “moral hazard,” meaning that the risk-takers who brought on this panic would feel bailed out and would be more likely do it again — just as a young adult whose parents paid off a large credit card bill might feel free to run up a debt again.

“The argument is people did risky things,” said Jan Hatzius, the chief domestic economist at Goldman Sachs. “They are getting punished now, and if you ease interest rates, you reduce the punishment.”

Would that I could muster a mild amount of shock, or even surprise, that our "conservative" friends continue to serve up such laughably obvious hypocrisy, but no. I can't summarize it any better than does my friend Lisa in Baltimore, who writes:

Oh, I love this. The same people who are always yammering about "the market" and so-called "free-market capitalism" and the nasty "welfare state," and "pull yourself up by your bootstraps" and "no hand-outs" and "get the government out of my life" and "government is evil" blah blah blah--the very ones who brought us this disaster in the White House--now they want the federal government to bail them out. What a bunch of f***ing hypocrites. But of course the evil government WILL bail them out, just like we bailed out Chrysler, just like we bailed out the airlines, just like we bailed out Halliburton, just like we bail out billion-dollar corporations all the time, in so many ways. But conservatives don't like that pointed out to them.

Tsk tsk. An inconvenient truth indeed.

UPDATE: Economics and finance professor Dark Wraith analyzes the present situation; his disdain for the Bushian scourge of fiscal irresponsibility never disappoints:

Forget for a moment that what the Fed is doing is trying to inflate away a market crash. For the time being, we should hope only that the central bank and its friends around the world are ready to blow $40 billion every trading day to keep the welfare train on track for the Wall Street boys. It's a win-win situation: the fatcats keep their money, the suckers take the losses, the Bush Administration keeps its hero status for the rich, and the Fed maintains its reputation as both the enabler and the drug dealer for all the liquidity addicts and their conjoined Republican incompetents.

Also at Ezra's place.

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