Paulson's Bailout Beast
You have to give Henry Paulson credit for his indifference to appearances.
After being bludgeoned by the crashing economy, the example of the European ministers of finance, the prime minister of the UK, the screams of pain from all sides and loud clucks from academic economists, he announces he is going to invest a quarter of a trillion dollars in the nation's banks.
Paulson and his confrères work out a scheme. He meets with Kenneth D. Lewis of Bank of America, Jamie Dimon of JP Morgan Chase, Lloyd C. Blankfein of Goldman Sachs, John J. Mack of Morgan Stanley, Vikram S. Pandit of Citigroup, Robert Kelly of Bank of New York Mellon and John A. Thain of Merrill Lynch. He tells them what the deal is, a couple of the men are heard to murmur, but they quickly and happily sign for the money.
The terms of the deal are generous to the banks and good for Wall Street. How good they are for everybody else is debatable, but at this point the government has now committed to in actual expenditures or guarantees $2.25 trillion to save these men, their firms and by extension, it is to be hoped, the rest of the nation.
If there was another way of dealing with the breakdown of the banking system, a way that envisions something more than or other than the perpetuation of these men's interests and those of their organizations, it was not considered. Every bit of that money is being devoted to taking us back to the status quo ante--to where we were on the day before the fecal matter hit the fan, when Wall Street and Greenwich were waxing fat as never before in history.
The same old club, the same old members--and to ensure the game is played by the same old rules, the law firm of Simpson,Thacher & Bartlett LLP has been retained by Paulson and his alter ego Neel Kashkari. "White shoe" does not begin to describe the place of Simpson Thacher in Wall Street's small world.
The New York Times recently noted, "Under the leadership of Chairman Richard Beattie, Simpson Thacher has drawn notice in recent years for its work with private-equity firms Kohlberg Kravis Roberts & Co. and Blackstone Group LP. The firm recently has advised a number of corporate clients caught up in the financial crisis, including Lehman Brothers Holdings Inc. and Washington Mutual Inc."
The paper explained, "One big challenge for Simpson Thacher will be to navigate potential conflicts between its work for the government and its corporate clients. Firms typically create a 'Chinese Wall' in such cases to stem the flow of sensitive information between departments." The Great Wall did not keep Manchus out of the Middle Kingdom, but with Simpson Thacher no need of a Chinese Wall exists, because this cast of characters all have the same interests. Lacking the presence in their meetings of any wider or different set of interests or ideas or points of view, no conflict is possible.
For viewers who turn on the TV business channels, however, there is much hand-wringing about "government intervention," even as American financial institutions clamor for more government money to repair the damage the quondam masters of the universe inflicted on themselves and everybody else.
The other day the Washington Post ran an article asking whether we have reached "The End of Capitalism" No. We have, instead, reached another milestone in the elaboration of American state capitalism with the Paulson decision to buy stock in the banks.
This is not the end of capitalism but another form of it--one we are stuck with, like it or not, because nothing else exists to replace it. There is no non-capitalist political party or non-capitalist alternative.
As Paulson has sought to establish control over credit and capital flows for the past several months by use of state power, some people have been shouting "Socialism!" The chaotic stumblings of the Treasury Department, Congress and the Federal Reserve Board, however, are a far cry from Karl Marx's famous dictum "from each according to his ability, to each according to his needs," a slogan that sums up the socialist spirit, if not the socialist reality.
Our brand of state capitalism has no unifying slogan. It cannot explain itself to itself or to the public. At a cost of $2.25 trillion, it is a gigantic blind animal rolling around in a cave.