Legacy of Lies: The Great Economic Cover-Up
Remember back in February, when Bill Clinton urged Obama to be more “upbeat” about the economy? Clinton actually implied that the new president could be making the financial crisis worse by being honest about how bad it was, thereby rattling public confidence—and with it, the market. You’d have thought the primary campaign would be enough to convince Obama that nothing good could come from Clinton homme. But the president has clearly taken a page from Clinton’s playbook. He now largely avoids statements that might frighten the horses in favor of cheerful declarations that we are at “a turning point in our pursuit of global economic recovery,” while at the same time promoting the latest bank bailout plan, which he says will get us there.
There are plenty of reasons why its wrong to try to buoy up a sinking economy on a raft of positive rhetoric—among them, the fact that it obscures what actually happened in the past, and clouds our judgment about what should be done to “fix” it. In the current issue of Newsweek, Daniel Gross comments on the Orwellian linguistic feat by which the government seeks to rebrand the piles of worthless crap created by our financial system.
Remember those toxic assets? The poorly performing mortgages and collateralized debt obligations festering on the books of banks that made truly execrable lending decisions? In the latest federal bank-rescue plan, they’ve been transformed into “legacy loans” and “legacy securities”--safe for professional investors to purchase, provided, of course, they get lots of cheap government credit. It’s as if some thoughtful person had amassed, through decades of careful husbandry, a valuable collection that’s now being left as a blessing for posterity.
According to this morning’s New York Times, the administration is now taking things a step further by promoting a plan that would let us ordinary folks buy what are being called “bailout bonds”—shares in mutual fund-type bundles of lousy mortgage securities. These are supposed to eventually become profitable, thereby allowing us to share in the wealth. But of course, they could also go the other way. As the Times notes: “If, as some analysts suspect, the banks’ assets are worth even less than believed, the funds’ investors could suffer significant losses.” In other words, having been screwed once by Wall Street, we’re now being asked to bend over for a twofer—which some people just might do, if they believe the rhetoric that happy days are about to be here again.
Another point of view came from William K. Black, who was the chief federal regulator during the S&L crisis, in a long interview with Bill Moyers on Friday. Black calls Bernie Madoff a “piker” in comparison with the Wall Street giants that committed mass fraud, and are now nonetheless raking in government funds. When Moyers asks Black “why the bankers who created this mess are still calling the shots” instead of being fired like the auto executives, Black mentions the close relationships between Washington and Wall Street, which applies to Tim Geithner and Larry Summers as much as to Henry Paulson. Then he talks about what he doesn’t hesitate to call a “cover-up”: