Capital Markets

Bush: Why My "Unprecedented and Aggressive" Nationalization Is Necessary


The worst president since fill-in-the-blank (I vote Richard Nixon) has made another blood-curdling speech about the economy this morning, this time in support of the forced partial nationalization of nine major banks.

Here are some of the president's un-bon (or just unbelievable) mots:

[T]he government's role will be limited and temporary…. [T]hese measures are not intended to take over the free market, but to preserve it. […]

We have a strategy that is broad, that is flexible, and that is aimed at the root cause of our problem.

Interrogative: Isn't one universally acknowledged "root cause of our problem" the credit and liquidity bath Americans have been swimming in for a decade, thanks in part to federal government easing of monetary policy, combined with the heavily politicized mortgage-holding-of-first-and-last-resort over at Fannie Mae and Freddie Mac? There is no doubt that we are indeed in a temporary liquidity crunch (for more on which, I highly recommend this Vernon Smith piece in the Wall Street Journal). But a "root cause" reaction to a crisis fueled by easy money would do something besides easing up the money supply, right?

Bush also claimed that "the program is carefully designed" (insert PATRIOT Act analogy here), and that it's aimed to "ensure fairness" in the markets, whatever that can even mean at this point. And the Treasury secretary also cried crocodile tears for the free markets:

"We regret having to take these actions," said Paulson. "Today's actions are not what we ever wanted to do -- but today's actions are what we must do to restore confidence to our financial system."

And an ellipses-enabled couplet from the Wall Street Journal's story:

Some of the big banks were unhappy about the government taking equity stakes, but acquiesced under pressure from Treasury Secretary Henry Paulson in a meeting Monday. […]

Senior executives and advisers to some of the nation's leading banks pitched such a plan at various points earlier this summer but were rebuffed by officials at Treasury and the Fed, according to people familiar with the matter. Instead, Treasury initially marched ahead with a plan to buy distressed assets directly from banks.

These may seem in contradiction, but they're not: In any industry, and particularly one that faces as many regulations as the financial sector does, there are usually two camps: Those who want to rig government rules in their favor, and those who don't. One thing I've never understood about the Great Man theory of modern economic Cabinetry is the fetishization of Wall Street titans like Robert Rubin and Henry Paulson as Treasury secretaries. Yes, they "understand" Wall Street, but isn't that at some point part of the problem? That is to say, don't you think the perspective of a former Goldman Sachs CEO would be a little more investment bank-centric than that of, for example, an economist? Lee Iaccoca "understands" the auto industry, I suppose, but should he be the one crafting Detroit-oriented industrial policy and CAFE standards? Should Patricia Woertz write the farm bill, assuming that she doesn't already?

There are a whole host of conflict of interest concerns at play here, whether we're talking about Goldman or just the bizarre fact that the federal government–with all the political, not economic, needs–is now a major shareholder in nine competing financial institutions. But even if you toss that all aside we have the specter of a bunch of Wall Street bankers making emergency policy on behalf of (and sometimes over the objections of) a bunch of Wall Street bankers. Ya think they might be exaggerating a little the threat to the country as a whole if they aren't able to exercise whatever new power they invent tomorrow?

More lowlights from previous Bush speeches here and here. Recent reasonailia on bailouts here.