It's All About the Benjamins

Jump to Comments So, how does it feel, representative Mike Pence, to know that, after you blatantly and brazenly misrepresented a plan to unfreeze the American credit market as a “$700 billion dollar bank bailout”, and spearheaded the opposition to said plan, that the United States’ equities markets lost one trillion, two hundred billion dollars in a single day?

You are an ignorant, short-sighted, incompetent fool who cares more about being re-elected than about having a functional state to be re-elected to lead. One trillion, two hundred billion United States dollars, when adjusted for purchasing power parity is equal to the Gross Domestic Product of South Korea. In one day, because of your actions, sir, the United States economy has suffered the loss of a dollar amount equivalent to the entire yearly output of the 13th largest economy on the planet.

One point two trillion United States Dollars – this is not a loss to some “Wall Street fat cats.” The financial sector and the equities markets are the cardiovascular system of corpus of the economy. They are in every way just as crucial to our commerce as are our public highways and navigable rivers. No commerce may be done without them. No houses may be bought without them. No consumer goods may be bought on credit without them.

For a free market to even function, there are are three necessities: free movement of capital, labor, and goods. There is serious illiquidity of capital in the global financial market right now. For several months, the Federal Reserve, the European Central Bank, and have been offering special borrowing rights to financial institutions as a stopgap measure, hoping that the issue of these complex collateralized debt obligations on bad mortgages would, well, sort themselves out through market forces. But, like a combined city sewer during a heavy downpour, the financial system is overburdened to the failure point and the shit is spilling out into open water. Now is the time to clean it up, and then, afterwards, repair the system so that it cannot happen again.

There is no time to hesitate; as investors move assets into the one instrument they feel is still secure – government bonds – they make it ever more difficult for liquidity-strapped financial institutions to long-term investments that are still functional – those same government bonds. It’s a horrible, fetid feedback loop of broken market forces. The hidden hand can only help if there is something left for it to grab hold. When The Economist calls the positioning of bond rates “The Jaws of Death”, they are not doing it merely to sell newspapers.

See, it was men like you, representative Mike Pence, that came to Washington with this notion that freeing up markets from burdensome regulation was a good idea. It is. But just because regulation exists does not mean said regulation is burdensome or otherwise useless. You may not have been a part of the Congress that repealed provisions of the 1933 Glass-Steagall Act, but you embody the attitudes of the representatives who did.

The repealed provisions of that act once separated financial institutions that lent money from financial institutions that invested money. This is to say, that act prevented the institutions who profited from meting out credit from also using that credit, after it was lent, to make further profits. Financial institutions subsequently had a interest in lending above and beyond whatever money they could make in interest from the payee – they could profit from ancillary derivative reinvestments of loans as well. Thus, even if it was risky to lend money to a debtor, there was an incentive to create another loan regardless, as that loan could be converted into a piece of paper sold on the derivatives market. Fascinatingly enough, this abuse of credit was what caused the last of the great 20-year American financial panics – the 1929 crash. However, in that case the credit abuse was simpler to understand, as so much happened in the primary equity markets – buying stocks on margin – and not in the complex, less-public world of the derivatives markets. Proper understanding of effective monetary policies by the Federal Reserve along with the New Deal-era financial regulation did to the deleterious 20-year-boom-bust cycle what your hero Ronald Reagan joked about doing to the Soviet Union: outlawed it forever.

Until this past year, sir. This situation has been unravelling since at least last August and you and your colleagues have done nothing but grandstand and broadcast your ignorance of basic economic policy during your occasional “hearings” with the Chairman of the Federal Reserve. Of all the strange, bizarre, terrible, detrimental and nonsensical choices President Bush has made for his appointees, he somehow managed to put a man, an excellent man, in charge of the one institution that needed him the most at the very moment it needed him the most.

Ben Bernanke is an economist at the highest escheleon of his field, someone whose academic interests and focus has been the interaction of economic and political factors that caused the Great Depression, and its effects. When someone like this, and a Treasury Secretary who formerly ran one of the only investment banks that seems to be weathering this storm, comes to you as a congressman and says that there is a crisis, offers you a concise piece of legislation as a solution, and instructs that if you do not implement it, a “significant contraction” will occur, you rubber stamp that document, Congressman Pence. You thank those men for taking time out of their busy lives where they actually think for a living about what it is that they’re proposing, and you shut the hell up and approve it even if it is flawed. Our good Senator Birch Evans Bayh III knows this and did so at the senate committee he’s a part of, when they met with Bernanke and Paulson last week. Evan Bayh obviously can appreciate the gravity of certain situations, and that the basis of civilization is a division of labor. It is Bernanke and Paulson’s jobs as the two highest economic officials of the largest singular economy on this planet to understand the economy, to be appraised in the most explicit detail necessary with the access to whatever thinkers necessary of the situation at hand and what is the most effective way to remedy it. It is your job, representative Pence, to realize that these two men know far more than you will ever know, and to accept their conclusions in light of the fact that Bernanke said the two scariest words – not behind closed doors, but on international television – that can ever come out of a central banker’s mouth.

But you sir, didn’t do your job, because you wanted to be re-elected to it! You wanted to be able to go home and tell your constituency in Richmond that you kept “their” money out of “the hands of those mean old bankers” eventhough you authorized an act that has cost American citizens just as much as Paulson has asked for. For what benefit? Where has that six hundred billion gone? Sure, oil’s price is finally dropping but that’s only because investors are so scared they’re getting out of commodities, which are things that people need and have to buy, not some sort of esoteric fraction of a future of the repayment of some nebulous credit instrument.

Oh, and that $1.2 trillion, too. You did not do your job because you wanted to be re-elected to it! It’s like I’m in some horrible doublethink mirror universe except not everyone has a goatee.