Slippery Slopes make Slippery Monsters Or Who’s Got the Money, Honey

In his op-ed piece today, Krugman aptly sums up the financial mess that is now brewing, that refuses to go away.

And free-market orthodoxy dies hard. Just a few weeks ago Henry Paulson, the Treasury secretary, admitted to Fortune magazine that financial innovation got ahead of regulation — but added, “I don’t think we’d want it the other way around.” Is that your final answer, Mr. Secretary?

As our manufacturing sector continues to decline, America’s die-hard version of free-market capitalism and financial wizardry can claim success in exporting its toxic waste now buried cleverly in tranches and commercial paper, in, as Krugman says, a marvelous alphabet soup: CDO, SIV, RMBS, ABCP.

The fear is: Have the greedy wizards this time undone themselves?

This writer has heard one scary story of a gentleman who tried to extract a medium size withdrawal from his sizable bank account. The cash was not readily available. What should have been a once easy wire transfer turned into a wrestling match. The main bank branch did not have the money; only a subsidiary branch at Walmart had enough cash on-hand.

Think of it: Walmart had the cash, but even Walmart would not cough it up without a fight. And, after it did, what did the wise Walmart manager tell our gentleman?

“Frankly, I would not have an account anywhere of more than $100,000.” Yup. FDIC may have to trot to the rescue if this game worsens.

The Fed keeps pumping billions into the system, hoping to loosen up the logjam. No matter how clever the wizards are in packaging their goods, no matter how complicated and wonderful their calculus is, economics is finally quite simple: Money does not grow on trees. Hard work, real productive work, (manufacturing?) pays the dividends. Produce something; make something other than a piece of paper.

The wizards are nothing more than flim-flam artists, re-packaged versions of the old scam artists who sold the latest elixir to the local yokels.

Face it: I am pissed. Really pissed. Free, unregulated, markets are a scam.

Deregulation is just the slippery slope down which slippery monsters glide as they fleece us all. “I got a offer that is bound to make you rich,” they whisper. “In fact, you can actually buy insurance if you are worried!”

Re-read the Krugman quotation. Think carefully of Paulson’s answer. Paulson, now flush with billions in his own account, loves the system. Regulation should not anticipate or in anyway prohibit scams. Keep the dark corners available for innovation.

Think deeply about that. If a scam is made cleverly enough, complicated enough, opaque enough, then it is called “innovation.”

Krugman reports that poor Barnake had to be recently schooled in hedge funds. And if he had to be schooled, what about you and me?

Does caveat emptor really apply when one of the brightest among us, a PhD in economics, the chairman of the Fed, did not have a clue of what was happening? No caveat emptor arguments, please…unless you think you can explain the calculus in layman’s terms. And do not simply slur Barnake, unless you really think you know more than he does. Put the blame where it finally belongs.

In the olden days, such people, when discovered, were tarred and feathered, run out of town, or put in jail. A scam is a scam is a scam.

Ah, but the free marketers who hate regulations will say, “Hey! Caveat emptor!” Or, “Risk taking is the hallmark of American-style capitalism!”

Or, when the bubble crashes and the government has problems cleaning up the mess, they will surely scream, “See, the government failed you again!”

Yes, you will hear all these arguments, especially the last one: “The government failed you.” That’s the one argument they want you to believe; they need you to believe if they are to be able to continue their clever shell games.

Think back to the fiasco of the toxic toys from China. Was Mattel really at fault? They were doing what they do best: Fleecing toddlers. As long as profits were high, Mattel did not give a hoot about the quality of its toys. Profits are the name of the game.

Who’s to blame? Well, we all blamed those wily Chinese. Mattel blamed them; then apologized! Mattel knew who was really buttering its toast: China–low taxes, cheap labor, and no regulations. And the WTO gave its blessing. (Don’t you think it is about time that we really looked at the WTO? I have been singing that song for three years now. No one listens.)

Yes, finally, journalists discovered that our government did not have enough inspectors. Ah, they wisely concluded: it was OUR government’s fault!

But why were there few inspectors? The answer is simple; we have heard it preached endlessly since Reagan: Get the government out of business. Deregulate. Deregulate! Let those amazing entrepreneurs weave their wondrous webs. Sarbanes-Oxley? Ugh. Think about trade agreements? Ugh. Think about transparency in finance? Ugh.

And who really was the flim-flam artist in the toy game? Mattel, of course! They found the cheap labor and the country with no regulatory controls. Did this concern Mattel? Of course it didn’t. Precisely the opposite: It pleased them. Got them the money, honey.

But free marketers will cleverly rejoin: “Well, the market caught up with them.”

Well, I don’t buy that answer, not when my kids are at risk. And I certainly do not buy it when my bank account is at stake!

Now we have offshore hedge funs with which the banks have played footsy–not only banks, but pension funds and small and large municipalities…. And where was the Fed, where was our government? In the hands of the free marketers: Paulson, Greenspan, and company. They gave the newly minted loan sharks carte blanche.

Innovation, they called it. I call it greed, greed, greed…unregulated greed.

Slippery slopes make slippery monsters. If we do not get our government out of the hands of the corporate lobbyists, out of the hands of the free marketers, we will all be asking: “Who’s got the money, honey?” Better check your bank account.