Friday, March 28, 2008

The money is there

I'll outsource the observance of the fifth anniversary of the conservatives' stupid war to Robert Weissman:
One lesson that can be drawn from the fifth anniversary of the shameful Iraq war, as well as from the recent Federal Reserve actions to uphold the financial system, is that the United States can find the money to do things it believes important. There are real fiscal limits, but the spectacular wealth of the United States gives it the power to find astounding resources for top priorities.

The federal government has spent $700 billion to kill hundreds of thousands of people in Iraq, on a mission leading to the deaths of 4,000 U.S. soldiers and the maiming of thousands more. The Federal Reserve has conjured $200 billion to keep Wall Street functioning.

Can there be any doubt that the United States could, tomorrow, begin spending $100 billion a year -- or much more -- to address global warming?
Question for commenters: have you observed any conservatives or libertarians publicly worrying about the moral hazard involved in the government's giving out Wall Street welfare?


Whetstone said...

I think Megan McCardle at the Atlantic (who is maybe less libertarian than someone who just liked The Fountainhead--a staunch libertarian might not be so passionate about locking up immunization refusers) did say that the guys at Bear Stearns should get as much as they have coming to them within the limits of the Too Big Too Fail principle.

TBTF I think is weirdly at the heart of this--even comparative liberals like Paul Krugman, Josh Marshall, etc., are still down with TBTF.

I guess that's the takeaway lesson: make so much money that the government has to bail you out.

JB Powers said...

The Wall Street Journal and Financial Times agonize over this intrevention pretty much every day. The Ludwig Von Mises Institute has been hammering on Fed intreventions for years, including the most recent one.

Have you looked outside Harold to personally observe "global warming" ;-)? I think the time is ripe-the day after a late March blizzard-for spending $100 Billion to address this issue.


Harold said...

Whet -- In theory, couldn't TBTF be applied to the rest of us as a group? Surely that amount of money, differently distributed, would have forestalled a lot of foreclosures. Of course some would disappear as transaction costs; it's simpler to write a big check to BS.

John -- Thanks for the information.
Agonizing is usually a sign that some degree of thought is occurring, as in the current case of environmentalists agonizing over "clean" coal.

As for the March "blizzard," maybe this would be a good time to review seventh-grade science and learn the difference between "weather" and "climate."

Paul Botts said...

I know a couple of serious Libertarians personally and they growl a lot about corporate welfare, usually in the same sentence with sugar and corn subsidies.

Regarding Bear Stearns, the public-interest argument in their particular case isn't actually too _big_ to be allowed to fail (they were only the 5th-largest investment bank), but rather too _interconnected_. The Economist summarized the argument: "Bear is a counterparty to some $10 trillion of over-the-counter swaps. With the broker's collapse, the fear that these and other contracts would no longer be honoured would have infected the world's derivatives markets. Imagine those doubts raging in all the securities Bear traded and from there spreading across the financial system; then imagine what would happen to the economy in the financial nuclear winter that would follow. Bear Stearns may not have been too big to fail, but it was too entangled...."

I'm not personally persuaded by that argument in this case: were I a Fed commissioner I'd have voted against stepping in. But I am persuaded that the idiots atop Bear are getting at least a decent share of what's coming to them. Again quoting the Economist:

"WALL STREET is often criticised for heaping gold on bankers in fat years, but failing to penalise them in lean ones....But the fate of Bear Stearns shows that, when things go really wrong, punishment can be severe.

Bear's executives have lost billions. At $2 a share, the 5% stake held by Jimmy Cayne, the chairman and former chief executive, worth $1.2 billion at the shares' peak last year, is now valued at $11m....

Bear encouraged [all staff members] to buy shares after it went public in 1985. Their purchases have pushed employees' combined stakes to one-third. Some have lost their main nest eggs, others the money to put children through college. Worse, half or more of the 14,000 staff are expected to lose their jobs....

The shock is fast turning to anger: that bosses left it so late to seek capital; that employees were prevented from selling shares because an earnings announcement was coming; and, above all, that JPMorgan Chase has probably got a bargain.

Allied with big shareholders such as Joe Lewis, a Bahamas-based billionaire who spent $1 billion on Bear stock last year, some employees like to think they can muster a majority against the deal when the vote is held in six weeks. On March 18th Bear's shares closed at $6.51, reflecting the chance of a higher offer....It is small solace to Bear's bankers that they will serve as a salutary example to others...."

[Since that was written, Chase has increased its bid price from $2/share to $10/share, which moderates the pain for Bear folks a bit.]