Streetwise Professor

April 23, 2009

The Bizarro World of Crypto Nationalization

Filed under: Economics,Financial crisis,Politics — The Professor @ 12:43 pm

Reading about the bizarre circumstances involving the government’s role in negotiations between the bailed-out auto company and bailed-out banks puts me in mind of a story from the pre-Civil War army about a particularly cussed officer, Braxton Bragg*:

As commander of the company he made a requisition upon the quartermaster–himself–for something he wanted. As quartermaster he declined to fill the requisition, and endorsed on the back of it his reasons for so doing. As company commander he responded to this, urging that his requisition called for nothing but what he was entitled to, and that it was the duty of the quartermaster to fill it. As quartermaster he still persisted that he was right. Unable to resolve the dilemma, Bragg referred the whole matter to the post commander, who exclaimed: “My God, Mr. Bragg, you have quarreled with every officer in the army, and now you are quarreling with yourself.”

With the government on both sides of the bailout–I mean bargaining–table in the Chrysler negotiations, similar absurdities are inevitable.

Every dollar extracted from the banks to help Chrysler is a dollar of bank capital gone.   Given that (a) the banks are arguably insolvent, or teetering on the precipice of insolvency, and (b) the government has effectively guaranteed to recapitalize the banks, this is just robbing Peter to pay Paul.   And you, dear taxpayers, are Peter.

The government’s metastasizing presence throughout the “commanding heights” of the American economy is a recipe for policy incoherence, and intense distributive feuds over rents.   People have been throwing around scare words–socialism, fascism–to describe what’s going on.   For the most part, those terms are unnecessarily provocative and inaccurate.   It is fairer, and far more accurate, to forecast that we are devolving into corporatism.   And corporatism, in my view, would sentence the American (and world) economies to decades of Olsonian sclerosis.

One other quick economic comment.   I wonder if anyone has rerun the Obama deficit projections based on either OECD or IMF growth forecasts, which are considerably gloomier than the Obama assumptions, and even the more pessimistic CBO assumptions.   (This goes for spades in the UK, BTW.)   I would imagine that the already shocking deficit projections would be stupefying.

I read in a Bloomberg piece today that the mortgage backed securities market is 10 percent larger than the US Treasury securities market.   Not for long, folks.   Especially if IMF is right.

* Bragg later became a Confederate general who commanded the Army of Mississippi and the Army of Tennessee.   He was notoriously unsuccessful, except in the area of inspiring hatred among his subordinates.   Grady McWhiney, who wrote the quoted passage, was planning a multi-volume biography of Bragg.   He found Bragg so odious a character that he gave up after a single volume, and let one of his graduate students finish the biography.   Isn’t that what graduate students are for?   To do the jobs their advisors won’t?   [That was sarcastic/ironic, BTW.   Not reflective of my personal views, but a sardonic comment that cuts painfully close to the truth far too often.]

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1 Comment »

  1. Larry Kudlow used the term “corporatism” today too:

    Think about this: TARP, which is now linked to substantial criminal activity, has ballooned to the size of a second federal budget and represents the biggest government-directed intrusion into the economy in history — vastly bigger than the New Deal. And not only is there TARP for banks, insurance companies, and non-bank financial institutions, but also for GM, Chrysler, and various auto suppliers, and perhaps soon enough for credit cards, newspapers, and other sectors of the economy.

    This is why I believe the era of democratic free-market capitalism is coming to an end. It is being replaced by state-directed corporatism on a grand scale. This is central planning that goes way beyond the American tradition.

    Comment by penny — April 23, 2009 @ 6:21 pm

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