Monday, December 12, 2011

The Other Crony Capitalism

The most powerful man in the world has never been so popular.  Not too long ago, he was just another student at Harvard trying to figure out the best way to grow facial hair.  Now he can't walk outside to pick up his paper without some youngster jumping out the woodwork asking him how does it feel to single-handedly destroy America. 

I feel badly for Ben Bernanke because central banks are like the offensive line in (American) football.  People only know your name if you mess up.  Who the hell still remembers Paul Volker?  Where is his Nobel Prize?  But anyways Bernanke had to deal with an impossible question: if the Titanic is sinking, do we keep the orchestra playing?  In some ways he is too powerful to ring the alarm.  If we do go off the deep end, people will blame him.  (Remember Greenspan's irrational exuberance speech.) If we miraculously recover, he would look to be lost in the sauce.  The only possible play was to pretend this whole thing will blow over, with some help via zero interest rates.  When that stopped working, he had no choice but to pretend Fed's balance sheet was a Hungry Hungry Hippo.

But this got me thinking about the raw unadulterated power of our central bank, at least in the short term and nobody loves short term more than politicians.  I don't know who figured it out first, but both the Fed and politicians realized the most important thing to getting elected is not where you stand on gay marriage or who can read better from a teleprompter.  It's all about how crappy the economy is.  If it's not that crappy, the incumbent will probably get reelected.  If it's crappy to very crappy, the challenger got a way better chance.  Herbert Hoover knows what I'm talking about.  So does Bush I, proving Americans hate a recession way more than Saddam Hussein.

Starting with Greenspan, there seemed to be a lot of backscratching of the crony variety.  The Fed, which represented the banks, implied broad immunity against wrongdoing and prosecution, and limitless bailouts.  The banks, seeing as how there is no more risk in the risk/reward ratio, ratcheted up their leverage.  In the meantime, established politicians were buttered up with promises of continued wealth and prosperity for as far as the eyes can see.  Recessions?  They are like acne and should be treated with generous globs of low interest rates.

Finally, the American people can have our cake and eat it too.  We want government support, but we won't pay for it.  We want a balanced budget, but you better not cut my damn Medicaid.  We want GDP growth, but we don't want inflation.  Somehow Greenspan and Bernanke made it all possible.  The politicians didn't mind.  The economy was doing so great, even Slick Willy got reelected.  Hell even Bush did and he isn't even allowed in certain countries for fear of being arrested for crimes against humanity.

Everyone got what he wanted.  The banks got their risk free money and bonuses out the wazoo.  Politicians were effortlessly reelected.  And we Americans lived like kings.  So Occupy Wall Streeters, don't occupy Wall St this holiday season, where it's cold and you risk a beating by the noble NYPD.  Occupy your parents' house because you see it was their fault for allowing this to happen, to be sheepishly corralled into a consumption daze while the powers that be robbed our future blind.

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