Could it be possible that for all these months reasonable minds have had nothing at all to say? Could it be that a surfeit of turkey and mince pies and champagne dulled our keyboards? Alas, David Stockman’s piece in today’s New York Times prompted me into action.
All I can say to his article is “Amen!”
I think the Obama administration has driven into a ditch largely because it has forced a dysfunctional Congress to attend to a long term structural economic problem, health care costs, while whistling past the graveyard on the immediate concern of voters, the unrestrained, opaque and irrational structure of our financial system.
Those of us who work in the casinos (indeed, one could argue that I have the role of a pit boss) have understood since last fall that Bernanke, Geitner and Paulson rigged the game to keep it going. While in the short term this rigging was necessary to avoid The Great Depression II, it is unsustainable, both politically and substantively (to the extent those are different), without thoughtful and serious reform in the way the financial system operates. The new bonus season has finally woken the general public up to the fact that for the last 15 months Fed intervention and the bailout of AIG (nothing more than a conduit, at a 100 cents on the dollar, to AIG’s creditors, most conspicuously the Masters of the Universe at Goldman) have allowed large US banks to gamble with free money, with immaterial impairment of their capital. Now that traders and bankers are set to privatize the inevitable (how could anyone not make money when investment capital is essentially free?) profits from the rigged game, taxpayers are justly asking “Where’s mine?”
The truly scary part of all this is that the game is being ultimately financed by the low cost of funds the US Treasury enjoys in the world money markets (those of us who work for non-US casinos look on enviously as the bonus pools for our US colleagues hit the papers). If and when the Chinese decide that this game is no longer to their net advantage the whole house of cards will come crashing down, with (and I use this word deliberately) unprecedented consequences.
In my view, the asset tax on banks proposed by the Obama adminsitration should finally bring into high relief a choice which the President himself will no doubt view as extremely painful. That is because the activity which the tax discourages, namely, as Stockman points out, increasing the size of bank balance sheets through increased lending activity (what in an earlier and saner age might have been referred to a prudent credit allocation) directly conflicts with the administration’s goal of stimulating the economy generally and job growth in particular. Interestingly, the demographic that attends Tea Party rallies will soon find itself facing the same dilemma regarding this tax as the President they despise. While Joe Sixpack will no doubt applaud “sticking it to the fat cats on Wall Street,” he likely will not be cheering for the reasons the Reagan Budget Director suggests, namely tighter credit and a stronger dollar. Wealthy people want their assets protected (always the main concern and constituency of the Reagan Revolution), Tea Partiers want a job.
So…while I sympathize with the goals of the asset tax, I feel that it has not been thought through in a serious way. It may have the unintended effect of penalizing the very taxpayers that it is designed to help, or at least mollify. Far more promising, and the fact that we haven’t heard this at all shows just how far in the pockets of the financial industry Congress is, would be a return to some form of Glass-Steagall. Believe me, there is no way we should allow people who have made their bones as traders anywhere near the board rooms of deposit taking institutions. It is the classic example of putting the mouse in charge of the cheese.
Both the Obama Administration and the American people need to make a choice and the options involve both cost and pain, do we continue to stimulate the economy, as morally distasteful as that seems at times, especially given the windfalls that will inevitably fall on those who least deserve them or do we reform our version of capitalism? This is the moment for the president to both lead and level with the nation and to advance coherent policies depending upon which direction he wants to go. History will judge him based on that, I think.
As an aside, while many may cheer the fact that health care reform, as proposed, is now in the ICU, the fact is that the moral dilemmas posed by our health care system (such as it is) remain glaringly unresolved. Yesterday I had to renew my son’s diabetic supplies. My copay for a three month supply of digital testing strips went from $60 to $90 and all other supplies, including the insulin he needs to live, went from $25 to$30. I have a so-called “Cadillac” health plan and, thank God, can absorb these increases without too much pain. I sincerely feel for other fathers who are in line at their own pharmacies who are not so lucky. I say to our Congress, Democrat and Republican alike, in the words of Sam Rayburn, “Any jackass can kick in the barn door but it takes a carpenter to build one.”