G-Men Shake Down the Banks

Picture a gangster movie set in the 1920s, where businessmen from a big city are called to a meeting by the mayor. The room is dark and smoky, and the businessmen are prepared to start arguing with the mayor to get him to clean up the corrupt police department and its protection racket. Before they can start, two cops with Tommy guns walk in and flank the mayor, and he says, "Not only will your payments to the boys in blue increase, gentlemen, but I'm proud to announce that you have just become generous contributors to my reelection campaign. Do we understand each other?"

Now fast forward to earlier this week. From the New York Times [HT: HBL]:



But by 6:30, all nine chief executives had signed — setting in motion the largest government intervention in the American banking system since the Depression and retreating from the rescue plan Mr. Paulson had fought so hard to get through Congress only two weeks earlier.


According to the article, many of the bankers, even some who had experienced troubles, balked at such blatant government intrusion, saying that they had already raised private capital and did not need help. But in the end, they all signed on the dotted line. They were obviously pressured to do so, "voluntarily" signing something which they were compelled to sign.


Many bloggers have written about the financial crisis and bailout (see the Financial Crisis Roundup, Ed Cline at Rule of Reason, and Gus Van Horn), presenting both moral and economic reasons why the bailout should be abolished, and that the only real solution is to get the government out of the economy completely. But two things about this recent shakedown of the biggest US banks stick out to me. One is the blatant and outlandish thuggery of the Treasury and the Fed, which is scary both because of the specifics of the extortion, and that they felt justified in doing it.

The other is the fact that the government is clearly panicking, taking any and all actions that would possibly, maybe, somehow fix things through some mechanism they are unsure of. They are casting about, and when asked what the results of a particular action will be, they say "It's hard to guess," or "It will be a long time before we see what the results will be." One thing is consistent in all of this, however; only measures that increase government power are being considered.

And do you remember the shocking figure of the $700 billion bailout, and how we thought it would easily creep up to $1 trillion?


This is just the beginning. As the markets continue their instability, and the people continue to blame greedy Wall St. and Bush Deregulation as the culprits, government will keep doing what it does best: thuggery, intimidation, and forcible redistribution of wealth. Barack Obama is now a virtual shoe-in for the presidency, because people unfathomably think he will be good for the economy.

Well, Hoover started many progressive policies that lead up to the Crash, and FDR did a great job of extending them with the New Deal, thus extending the Depression. I think Bush has done an admirable job emulating Hoover, and Obama is just the man to follow in FDR's footsteps.

Brother, can you spare a dime?


SN said...

I was watching CNBC the day the NYTimes gave the details of Paulson's thuggery. All three reporters -- ostensibly cheerleaders of free-markets -- were gloating.

One of them asked something like this (from memory): "Wouldn't you have liked to be a fly on the wall to watch those CEO's squirm".

Anonymous said...

Your comparison is apt. Obama seems to be in possession of FDR's playbook.

C. August said...

SN, that's awful. It just shows how far conservative thought has fallen. There is a local sports talk show host here in Boston who is notoriously conservative. Today he was ranting about the $250K limit in Obama's tax plan (it was mentioned he is over that limit), and how unfair it is to raise taxes like that, but in the same breath said that the people who make $100M wouldn't notice a huge tax hike. So, soaking the rich is fine as long as he isn't one of them.

Bill, that's a scary article you linked to, in this context. I can't believe that I'm saying this, but I can actually envision a time when we'll be lining up for tofu made from Ma Chalmers' soybeans, and then trudging off to work for the reconstituted Works Progress Administration.

It's easy to get into histrionics over this stuff, but even a calm, level-headed analysis of the near future is sobering, to say the least. It's goddamned depressing, actually.