Most everything the government’s done to intervene in the economy since September has been wrongheaded and likely to make matters worse. While I do not doubt the basic intelligence of our economic apparatchiks, I do think they’ve learned all the wrong lessons from history. And after all the stimulus and machinations with private business, what do we have to show for it? You be the judge.
Clearly, all is not well in the Emerald City. And leave it to the UK papers to report news that the worshipful US press won’t touch. From today’s UK Telegraph:
The US Treasury’s effort to stabilise the banking system through the TARP programme is a hopelessly ill-conceived policy that enriches speculators at public expense, according to the buy-out firm supposed to be pioneering the joint public-private bank rescues.
“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of MatlinPatterson Advisers.
The comments are likely to infuriate Tim Geithner, the US Treasury Secretary, because MatlinPatterson took advantage of the TARP’s matching funds to buy Flagstar Bancorp in Michigan. His confession appears to validate concerns that the bail-out strategy is geared towards Wall Street.
Under the convoluted deal agreed earlier this year, MatlinPatterson has come to own 80pc of the shares while the US government has ended up with under 10pc.
Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.
“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.
While I do not agree with Patterson that US banks should be nationalized, I do take his essential point that the entire TARP program has been both tragedy and farce from the beginning. A tragedy because it short-circuited the normal workings of the marketplace and a farce because of the comedic incompetence with which it’s been administered.
And as our own Fed Chairman spouts happy talk about a recovery later in the year, the Bank of England takes a different tone. Again, from today’s UK Telegraph:
Mervyn King, governor of the Bank of England, cut his growth forecast and declared that there is as much chance that the economy will still be shrinking this time next year, as there is of it growing.
In its closely-watched Inflation Report, the Bank also appeared to rule out raising interest rates from their current near-zero level for the foreseeable future, indicating that economists expecting it to yank up the cost of borrowing before the end of the year had got ahead of themselves. . . . .
This downbeat view is in stark contrast to the Treasury’s own forecasts, which imply that the economy will bounce back to above-trend growth of 3.5pc within two years.
Instead, Mr King said: “The economy will eventually heal but the process may be slow. This is not like the typical business cycle in the post-war period… Even if there is some recovery in output over the next six to nine months, we don’t know how sustainable that will prove to be.”
He added that there is as much chance that the economy is shrinking midway through next year as there is of it growing.
Shadow Chancellor George Osborne said: “It is a further blow to the credibility of the Chancellor and the honesty of the Budget. The model of economic growth is fundamentally broken and we cannot have a sustainable recovery until we have a Government that understands that.”
Precisely. There is also a lack of honesty about our own government’s model for recovery. While Hope ‘n Change and Congressional Democrats think that command-and-control economies really work, history repeatedly shows they don’t. And what’s worse, there’s a growing suspicion that none of them really have a clue: neither Geithner nor Bernanke, not Harry, Barney, Henry or Nancy and certainly not Hope ‘n Change.
In the end, the best thing that government could have done is to do nothing. But it’s too late for that, isn’t it? I just hope we don’t end up as we did in 1939, when then-Treasury Secretary Morganthau testified to the House Ways and Means Committee:
We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong . . . somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. . . . I say after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot.
UPDATE: H/T to Ed Morrissey, Martin Feldstein provides blunt talk in today’s Wall Street Journal about Hope ‘n Change’s tax hike plans. Is everyone in the Emerald City drinking Dumbass?
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