A Waste of a Good Crises

Like the Bourbons, the Main Strem Media -- and many bloggers -- both remember nothing and forget nothing. The New Yorker's John Cassidy demonstrates this in his haigography on Obama's Geithner:

And yet—whisper it softly—there is good news about the financial system and the roundly loathed bank bailout, the seven-hundred-billion-dollar relief package that Congress approved in October, 2008. During the past ten months, U.S. banks have raised more than a hundred and forty billion dollars from investors and increased the reserves they hold to cover unforeseen losses. While many small banks are still in peril, their larger brethren, such as Bank of America, Wells Fargo, and Goldman Sachs, are more strongly capitalized than many of their international competitors, and they have repaid virtually all the money they received from taxpayers.

Huh? Anything given billions of dollars will be billions of dollars richer, but that does not count as "success" or "health". A healthy financial system is one that does not pay itself billions while destroying trillions, a healthy financial system is one which pays itself millions while creating billions. And "success" is achieving such a system. In every way, the financial system of 2010 is worse than the one we had in 2007. It has more moral hazard, more concentration, more political entanglements, more unwritten gaurantees, and even more incentive to loot than before. While Cassidy stands in awe of the geniuses at Goldman Sachs, I will humbly submit that I could make that much money too if the Treasury gave me billions and then promised to underwrite any losses I might incur. So could my cat.

If you want to look at what's put a floor under employment, look at a Government sector that now hires about 25%-30% of all workers, plus a slew of automatic stabalizers, and a fiat (non-gold standard) currency, none of which existed in the 1930s. You will note that Obama's Geithner had nothing to do with any of these. Just as the failure of the financial system seems to be an orphan ("economists are still trying to understand what caused the financial meltdown") the "recovery" has a proud father ("Shhh. The Geithner plan is working").

Simon Johnson points out some of the fallacies in this line of thinking quite well.

Other parts of the econ-blog sphere though grow tired of the wreck that is the financial system and now want to make the money they missed by not buying into the S&P last march. Or, depending on their political leanings, they come up with corkers like this:

...we cannot fix the financial sector without addressing the problems and contradictions [of inequality] which we depend upon financiers to paper over. This never was just a financial crisis. It was, and is, an economic and political crisis, and we are only a very short way down the path towards resolving it.

SRW's a nice guy, but we do not need to build a New Jerusalem before we can focus the financial system on its public purpose: making loans that get paid back. It's a shame to see Steve degrade from a smart thinker about finance to just another cog in the all-consuming kto, kogo industry.