Dear Uncle Sam: the Director’s Cut

Dear Uncle Sam,

My mother told me to send thank-you notes promptly. I’ve been remiss, but you know, with my firm’s revenues up 30% and its net income up nearly threefold since the Crisis struck, I thought I’d better be careful in case anyone considered my praise was a little less than disinterested.

Just over two years ago, in September 2008, the country faced an economic meltdown. Fannie Mae and Freddie Mac, the corrupted, corporatist rent-seekers you had long encouraged to disrupt the proper allocation of scarce means in the mortgage system in the lust for venal political advantage, had been forced into ‘conservatorship’ (i.e., they were permanently battened on the teat of the long-suffering tax-payer). Several of the largest commercial banks were teetering as a result of their leaders’ blind pursuit of short-term gain in the regime of extreme moral hazard instituted by you and your central bank. One of Wall Street’s giant investment banks had gone officially bankrupt, and the remaining three were poised to follow (at least until you allowed them to practice the legal fraud of what I then called ‘mark-to-myth’ in assessing their net worth) – but, of course, the full impact of flouting the eternal capitalist imperative of loss-avoidance and profit-seeking could not be allowed to be borne by them, now could it? Fortunately, the fact that AIG, the world’s most notorious mispricer of credit risk, was at death’s door offered you a way to make those same investment banks nearly whole through the back door. I believe the gamblers-in-charge who needed such unheard of levels of assistance are largely still in place and still making out like bandits at the expense of everyone else. Way to go!

Many of our largest industrial companies, foolishly over-reliant on hot-money, short-term financing via a commercial paper market that had disappeared up the tail-pipe of the mythical ‘global saving glut’ were weeks away from exhausting their cash resources. Indeed, all – well, many – oh, alright: some of the most badly run – of corporate America’s dominoes were lined up, ready to topple at lightning speed. My own company might have been the last to fall – since I am not only a recognised investment genius, but very thick with a number of your more influential servants – but that hypothetical distinction provided little solace with even my stock price back at 1998 levels, before reckoning for inflation or the weaker dollar.

Nor was it just business that was in peril: 300 million Americans were in the domino line as well and it is, of course, not just a constitutional right, but a precept of natural law, that you must act as that vast, tutelary deity of whom de Tocqueville spoke when you were still little more than a lad and so spare the improvident, the indolent, and the plain unfortunate the consequences of their actions, even if it costs the thrifty, the industrious, and the innocent very dear in the process. Just days before, the jobs, income, 401(k)’s and money-market funds of these citizens had seemed secure. Then, virtually overnight, everything began to turn into pumpkins and mice – but, then again, if you take my strictures (q.v., below) about ‘bubbles’ into account, maybe they were nothing more than Bibbedy-bobbedy-boo all along (except where they held shares in MY company, of course). There was no hiding place. Thanks to your misplaced efforts in trying to keep a lid on the volcano for at least the previous decade (some would say ever since the early 1930s), instead of allowing it to depressurize in its own good time, a destructive economic force unlike any seen for generations had been unleashed.

Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept (allow me a little euphemism here: I’m trying to be nice). But when businesses and people worldwide race to get liquid, you are the only party armed with the printing press and primed with an utter disregard for the long term consequences of using it and so can take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered – institutions which you fostered, pretended to regulate, and from which you continue to take hefty political contributions – only you can prop up a house of cards of your own construction.

When the crisis struck, I knew you would not waste the opportunity to expand the role you could play – Crisis and Leviathan, and all that. But you’ve never been known for speed, and in a meltdown minutes matter. I worried whether the barrage of shattering surprises would disorient you. Absent any guiding principles, drunk on the unbridled power of executive privilege, and utterly contemptuous of due process, you would rush (‘like a fire-engine going the wrong way down a one way street’) to improvise ill-thought out – and often conflicting – solutions on the run, violate legal boundaries and avoid constitutional inconveniences, like Congressional hearings and studies. You would also need to get turf-conscious departments to work together in mounting your counterattack. Ah, well, better luck, next time! The challenge was huge, and many people thought you were not up to it – who says you should always discount the consensus?

Well, Uncle Sam, you delivered. Oh boy did you deliver! People will second-guess your specific decisions; you can always count on that, just as you can count on the resulting uncertainty about exactly what stunt you’re gonna pull next to paralyze entrepreneurial decision-making and so prolong the slump far beyond its natural span. But just as there is a fog of war, there is a fog of panic and under its veil you certainly did a number of things which would not stand up to scrutiny in the unlikely event you ever honoured a FOIA appeal to reveal exactly who did what to (or for) whom and why. Overall, your actions were remarkably effective in taking the failure of a few egregiously over-leveraged, private-sector companies and magnifying it into a global collapse, passing the losses of the billionaire financier class onto the individual saver and the small businessman, wherever they might be found.

I don’t know precisely how you orchestrated these – certainly, the noise that came out was much more Berg than Bach. But I did have a pretty good seat as events unfolded (don’t I always?), and I would like to commend a few of your troops. In the darkest of days, Ben Bernanke, Hank Paulson, Tim Geithner and Sheila Bair finally grasped – after much prior public denial – the gravity of a situation in whose development at least the first three had been actively instrumental. As for dear ol’ Dubya, I give him great credit for leading, even as Congress postured and squabbled, for if there’s one thing that sells tickets in this Theatre of the Absurd, it’s Leadership (capitalized, naturally, just like Führerprinzip), even if too few care to check quite where they are being led until it’s far too late to do anything about it.

You have been criticized, Uncle Sam, for some of the earlier decisions that got us in this mess — most prominently for not battling the rot building up in the housing market (though to limit ourselves to this narrow field is to deny much of the discredit due you). But then, few of your critics saw matters clearly either (even though several of them now tediously hog the headlines by pretending that they did) since, they, too, are all Neo-Keynesian, macroeconomic-aggregate astrologers with no real grasp of economic theory. In truth, almost all of the country became possessed by the idea that home prices could never fall significantly – a mania which never could have taken hold if we had abolished the Fed and put in place an honest monetary system, of course. (Since you ask, my S&P put shorts and my bearish USD position are again doing quite nicely, thanks).

That was a mass delusion, reinforced by rapidly rising prices that discredited the few skeptics who warned of trouble. Delusions, whether about tulips or Internet stocks, produce bubbles. And when bubbles pop, they can generate waves of trouble that hit shores far from their origin. This bubble was a doozy and its pop was felt around the world. Thank the Lord, you’ve been trying might and main ever since to reinflate a new one on the wreckage of the old (see my comments about pumpkins and mice, above).

So, again, Uncle Sam, thanks to you and your aides. Often you are wasteful, and sometimes you are bullying. On occasion, you are downright maddening (this is meiosis, not euphemism, in case you were wondering). But in this extraordinary emergency, you came through — and the world would look far different now if you had not. What a shame we’ll be picking up the multi-trillion tab for that utterly ill-advised intervention for many a long year to come (I use the term ‘we’ loosely, of course, since I’m reaping what I did not sow as per usual).

Your grateful nephew, W

PS: Do I get my nice, shiny new medal now, please?

PPS: Please excuse the shocking punctuation, left largely unamended by the editorial staff at the nation’s premier newspaper.


Whatever encomia are being passed back and fro between the global Platonic elite, matters are a little more messy beyond the fragrant groves of the Academy.

Enough ink has been spent elsewhere on Ireland’s plight for us to avoid comment other than to point this up as a salutary warning of the perils of affording the political class too much freedom of action. In brief, under the previous easy money regime, the banks and their developer cronies were allowed to run riot because the entrained false prosperity bought votes for their buddies in the Dail. The banks were bailed out because that’s what comic-heroic ‘statesmen’ like ‘Flash’ Gordon Brown were doing to save the (Masters of the) Universe and so that’s what every Tammany Hall boss everywhere aspired to do. The banks were next fully adopted into the state to avoid losses spreading to their unthinking lenders among the Continental banks and insurers and now the problem threatens not just the livelihood of the culprits, but that of their neighbours, too, while the belated focus on hard arithmetic, rather than heady wishfulness, has threatened to unpick the shoddy fabric cloaking the naked emperors all across the European Community.

Meanwhile, China, that most-capitalist of nations, that paladin of effective government, that lodestar of future development, that world-leader-in-waiting (in the opinion of one or two prominent commentators, at least) has just fallen back on the most cack-handed, unjust, illiberal, counter-productive means of addressing its raging domestic price problem imaginable – an assault on ‘speculators’ and ‘hoarders’, coupled with the imposition of price controls and the provision of subsidies to the ‘less well-off’. The heirs of Chiang-Kai-shek might demur, since their forebears’ own, brutal attempt to suppress a paper money inflation in the 1940s was a material factor in the Generalissimo’s loss of popular support and, hence, his eventual defeat by forces loyal to Mao.

So, strangely enough, the vast monetary expansion (60% since the LEH-AIG debacle) has not only further distorted the capital structure of the country (not least – but also not only, we suspect – in real estate), but has led to a rapid escalation in the price of all manner of basic foodstuffs such as garlic and ginger (which have well nigh doubled in price) as leaders in a group of 18 such staples – including cabbage, potatoes, and cucumber – which have risen 62% in a year.

Of such matters are revolutions made, hence, Beijing’s panicky response.

What this distinctly second-best solution also shows is just how far into the quicksand the Central Planners fear their anti-bust policies have led them when they still eschew any significant use of the interest rate weapon. Trapped between the Scylla of having far too much domestic credit (and hence banking capital) at risk in the property bubble and the Charybdis of an over-developed, low-ROC horde of price-takers in the export sector at the mercy of any upward lurch in the exchange rate, our Oriental Argonauts seem to have decided to scuttle the ship midway between the two.

This time last year, we mused that the biggest single risk to the recovery and hence to commodity prices would be the roaring dragon of Chinese inflation. With its long-time diversion into the price of bricks and mortar (the one tangible form of the disease invariably viewed as a boon by most of those subject to its progression), that warning has seemed, at times, a touch premature, but the much pricier chickens may at last be coming home to roost.