21 January 2010


Having lost popular support for their socialist agenda watch the administration and Democratic congress try to gain traction by focusing on a new target- Wall Street. This new “populism” will be an attempt to tap into public anger about the economy and divert attention from the fact that they have done nothing to improve it. “Wall Street” is a euphemism for the bankers and financial industry.

There are a few problems with this tactic. First of all Wall Street like most big corporations has no political principles. It simply goes with the flow. If there is money to be made by dealing with the government that’s where they’ll go. Many on Wall Street were quite comfortable with Obama. In fact Wall Street gave more money to the Democrats in the last election cycle than Republicans. Are they going to bite the hands that feed them? So just how real is this populist attack on Wall Street likely to be? It will amount to little more than divisive rhetoric.

Second, any action will involve punishing the banks for doing what the government wanted them to do. It was the government that forced the banks to make loans to unqualified borrowers in order to expand home ownership through the Community Reinvestment Act and other instruments. I don’t like derivatives and other exotic financial instruments, but insofar as they deal with mortgages they are government-inspired, particularly with low interest rates maintained by the Federal Reserve. Easy money and credit forced by the government had the effect of inflating real estate prices to unsustainable levels.

Third is the myth of the bailout, which assumes that Wall Street somehow obtained billions of dollars of taxpayer funds and then walked off with them or paid themselves bonuses. The truth is that Wall Street received no grants, no gifts of taxpayer funds. They received loans to shore up the financial system, even if they didn’t want or need them in many cases. Most of these loans have been paid back with interest. The only money not coming back is what the government gave to the auto industry, which has nothing to do with Wall Street. So Wall Street has not gotten any benefit from the government, and in fact is having to eat huge losses on government-inspired loans.

What the Democrats seek to do is divert populist “tea party” away from them and the government and towards Wall Street. True enough there is some anger at Wall Street as well, but I would wager that has more to do with a drop in the value of 401(k)s than any fundamental antipathy. These accounts are on the mend and will recover in the long run and require a healthy Wall Street to prosper.

Meanwhile the government is moving forward with “reform” legislation, before the commission it appointed to investigate this matter has reported, not that this commission is objective given the grilling the left-wing Chairman Phil Angelides gave to top bankers last week. It is blaming Wall Street before the investigation has even been completed. Any objective accounting must acknowledge the seminal role of government in creating the crisis.

But government is not going to blame itself. Yet given a jobless “stimulus” waste of money, increased debt, and a 10% unemployment rate this phony “populism” not likely to gain much traction. The notion that “We screwed up so let’s blame Wall Street” is too transparent to be taken seriously. It will not create a single job, which will only happen when there is a stable system and incentive for private capital to invest in future growth.

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