Sunday, March 16, 2008

The Treasury Department seems to want to sacrifice the U.S. economy for the health of the capital markets

Or at least that's what This account of an interview between Secretary of the Treasury Henry Paulson and Fox News implies.

"On being asked if the government will step in to bail out any additional firms, Paulson refuses to "speculate" on what "might happen," but insists: "Our focus, our priority... No. 1 priority, is the stability of our financial systems."

"What we're working to do," he continues, "is to minimize the impact of what's going on in housing, what's going on in the capital markets, on the real economy."

"He concludes: "Anything we can do to enhance confidence in our marketplace; in our capital markets; in our economy; are--the policies that increase confidence in our economy over time.""

But the reason that the markets are in trouble is because of lack of regulation, which in turn points to deeper structural problems in the U.S. political system. There seems to be a lot of support for a bail out but little support for new regulations and laws that might prevent something like the housing bubble and the risky mortgages from happening again. Laws that would prohibit risky financial schemes would naturally get in the way of firms attempts to make as much money as they possibly could. Therefore, it would be seen as leading to a lack of confidence "in our marketplace; in our capital markets; in our economy".

But if quick fixes are not enough and the crisis grows to a point where no amount of government loans can help on their own the markets will be totally destroyed. Having confidence of investors in markets that are unregulated but have totally imploded isn't going to do the U.S. economy much good. However, in the short term the money will continue to come rolling in.

In the interest of ensuring friendly market environment we're selling the interest of the U.S. down the river, squeezing the last drop of cash out of it when we should be doing something to stop the large crisis that's looming.

1 comment:

Anonymous said...

Private profits, but socialize risk--that's our "free market" capitalism in action, at least for the most economically entitled.