Can’t We At Least Get a Toaster?
In the wake of the Massachusetts Miracle last week (“The other Boston Massacre”), President Obama adopted a populist mantle, claiming he was going to “fight” Wall Street. It was either that or win another Nobel Peace Prize.
Now the only question is which Goldman Sachs crony he’ll put in charge of this task.
If Obama plans to hold Wall Street accountable for its own bad decisions, it will be a first for the Democrats.
For the past two decades, Democrats have specialized in insulating financial giants from the consequences of their own high-risk bets. Citigroup and Goldman Sachs alone have been rescued from their risky bets by unwitting taxpayers four times in the last 15 years.
Bankers get all the profits, glory and bonuses when their flimflam bets pay off, but the taxpayers foot the bill when Wall Street firms’ bets go bad on — to name just three examples — Mexican bonds (1995), Thai, Indonesian and South Korean bonds (1997), and Russian bonds (1998).
As Peter Schweizer writes in his magnificent book Architects of Ruin: “Wall Street is a very far cry from the arena of freewheeling capitalism most people recall from their history books.” With their reverse-Midas touch, the execrable baby boom generation turned Wall Street into what Schweizer dubs “risk-free Clintonian state capitalism.”
Apropos of the Clintonian No-Responsibility Era, Goldman Sachs and Citibank became heavily invested in Mexican bonds after a two-day bender in Tijuana in the early ’90s. Any half-wit could see that “investing” in the dog track would be safer than investing in a corrupt Third World government controlled by drug lords.
But precisely because the bonds were so risky, bankers made money hand-over-fist on the scheme — at least until Mexico defaulted.
With Mexico unable to pay the $25 billion it owed the big financial houses, Clinton’s White House decided the banks shouldn’t be on the hook for their own bad bets.
Clinton’s Treasury Secretary, Robert Rubin, former chairman of Goldman, demanded that the U.S. bail out Mexico to save his friends at Goldman. He said a failure to bail out Mexico would affect “everyone,” by which I take it he meant “everyone in my building.”
Larry Summers, currently Obama’s National Economic Council director, warned that a failure to rescue Mexico would lead to another Great Depression. (Ironically, Summers’ current position in the Obama administration is “Great Depression czar.”)
Republicans in Congress said “no” to Clinton’s Welfare-for-Wall-Street plan.
It’s not as if this hadn’t happened before: In 1981, Reagan allowed Mexico to default on tens of billions of dollars in debt — Mexico claimed the money was “in my other pair of pants” — leaving Wall Street to deal with its own bad bets.
As Larry Summers expected, this led like night into day to the Great Depression we experienced during the Reagan years … Wait, that never happened.
At congressional hearings on Clinton’s proposed Mexico bailout a decade later, Republicans Larry Kudlow, Bill Seidman and Steve Forbes all denounced the plan to save Goldman Sachs via a Mexican bailout.
So the Clinton administration did an end run around the Republicans in Congress and rescued improvident Wall Street bankers by giving Mexico a $20 billion line of credit directly from the Treasury’s Exchange Stabilization Fund.
Relieved of any responsibility for their losing bets, Wall Street firms leapt into buying other shaky foreign bonds. Soon the U.S. taxpayer, through the International Monetary Fund, was propping up bonds out of South Korea, Thailand, Indonesia, then Russia — all to save Goldman Sachs.
The IMF could have saved itself a lot of paperwork by just sending taxpayer money directly to Goldman, but I think they’re saving that for Obama’s second term.
Throughout every bailout, congressional Republicans were screaming from the rooftops that this wasn’t capitalism. It was “Government Sachs.” As Rep. Spencer Bachus (R-Ala.) put it, the same rules that apply to welfare mothers “ought to apply to rich Greenwich, Conn., investors who are multimillionaires.”
But Wall Street raised a lot of money for the Democrats, so Clinton bailed them out, over and over again.
Before you knew it, once-respectable Wall Street institutions were buying investment products even more ludicrous than Mexican bonds: They were buying the mortgages of Mexican strawberry-pickers.
Why shouldn’t Wall Street trust in suicidal loans no sane person would ever imagine could be paid back? Time after time, when their bets paid off, they pocketed huge fees; when their bets failed, they sent the bill to the taxpayers.
With nothing to fear, the big financial houses bought, repackaged and resold investment products that included loans like the one issued by Washington Mutual to non-English-speaking strawberry pickers earning a combined $14,000 a year to purchase a $720,000 house.
But the financial wizards on Wall Street were trading these preposterous loans as if they were bars of gold. They may as well have bet the entire U.S. economy on a dice game in an alley off 44th Street.
Every mortgage-backed security bundle was infected with suicidal, politically correct loans that had been demanded by community organizers such as Barack Obama — as is thoroughly documented in Schweizer’s book.
On the off chance that mammoth mortgages to people who could barely afford food somehow went bad, Wall Street firms could be confident that their Democrat friends would bail them out.
Even the Republicans would have to bail them out this time: They had strapped the dynamite of toxic loans onto the entire economy and were threatening to pull the clip. Wall Street had infected every financial institution in the country, including completely innocent banks.
But now Obama says he’s going to “fight” Wall Street, which is as plausible as claiming he’ll “fight” the trial lawyers.
As Schweizer demonstrates, whenever the Democrats “regulate” Wall Street, the innocent pay through the nose, while Wall Street swine lower than drug dealers and pornographers end up with multimillion-dollar bonuses so they can run for governor of New Jersey and fund lavish Democratic fundraisers in the Hamptons.
Republicans should respond the way they always have: Support the free market, not looters and welfare recipients on Wall Street, especially the Democrats’ friends at Goldman.