Does Anyone Else Feel LIke We're Being Blackmailed?

posted by Curt, on September 30, 2008 06:02 am

Even though I suppose some might say it shows a lack of sophistication, I'm a big fan of the old T.V. series legal drama Perry Mason. I've seen just about every episode. In those shows there were always three things you could count on: (1) someone would die within the first 15 minutes; (2) Perry Mason's client was always innocent; and (3) the murder would inevitably be caused by an attempt to blackmail. Watching Wall Street and our illustrious political representatives (a good number of whom, for principled reasons or not, actually stood up and voted Wall Street down yesterday) I feel like I'm on the receiving end of a Mason-type blackmail attempt.

The American people, through the House of Representatives basically thumbed their noses at Wall Street yesterday. The Street's first response was disbelief. Their second response seems to say, "well, if you're not going to give us the money we want, we're going to show you just how bad things can get." I get this unsettling feeling that the banks supposedly at the heart of this crisis are trying to play chicken with the government and the people.

Don't you think that the banks have a vested interest in preventing the collapse of the financial system? If the system is in danger of collapsing because credit has dried up and banks refuse to lend to each other, then why won't they do some lending to prevent a collapse? As I ponder this question, the only conclusion I can reach is that they don't want to. They want the bad assets gone, and they want them gone at much, much more than the current market value. And they are going to bluster and threaten and refuse to lend until the government comes through with the money. I think they are convinced they have us over a barrel and they aren't going to budge until we do what they want. And I have a bad feeling that the government will come through later this week--although I was admittedly very surprised about what happened yesterday, so I'll speak in less certain terms than I have heretofore.

I'm not a conspiracy theorist, but I must admit this whole bailout has me very suspicious of motivations. Let me explain it to you as I now see it, two weeks down the line.

• Paulsen and Wall Street have known they had a really big problem on their hands for a while, probably at least since the government was forced to take over Fannie and Freddie.
• They devised the solution that basically died in the House yesterday, but were faced with the problem of how to drum up support for an ugly, expensive bailout. (And this is where the conspiracy part kicks in).
• So they let Lehman Brothers fail in order to create fear and urgency in policymakers and get support for the bailout.
• AIG was then not allowed to fail (although allowed to come close) because it would have too severely harmed the banks the plan was trying to save (but it was handled in a way that also created panic).
• When this was not quite enough, the powers that be decided that WaMu would have to fail (after hanging on for weeks), suddenly, overnight (and on a Thursday after all other banks had "failed," meaning been seized by the FDIC on a Friday evening or over the weekend) in order to create some more panic and more support for the bailout (I don't know if Wachovia was part of the same pattern or not).
• Now they are simply refusing to lend to each other, thus driving down markets throughout the world in an attempt to create sufficient fear to get the votes they need to seal the deal.

Maybe I'm completely off base, but until someone can give me a good reason why these banks can't lend right now, despite the apparent fact that their own fate and the fate of the world financial system depends on it, then I don't know what else to think.

And if we are in a giant game of "chicken" with Wall Street, it seems to me that we'd better make our stand now.

All this reminds me of a scene in Frank Capra's It's a Wonderful Life:

GEORGE BAILEY: Just remember this, Mr. Potter, that this rabble you're talking about . . . they do most of the working and paying and living and dying in this community.

Well, it is too much to have them work and pay and live and die in a couple of decent rooms and a bath?

Anyway, my father didn't think so. People were human beings to him, but to you, a warped, frustrated old man, they're cattle.

Well, in my book, he died a much richer man than you'll ever be.

. . .

I know very well what you're talking about. You're talking about something you can't get your fingers on, and it's galling you. That's what you're talking about, I know.

Well, I, I, I've said too much. I... You're, you're the Board here. You do what you want with this thing.

There's j-just one thing more though.

This town needs this measly one-horse institution if only to have some place where people can come without crawling to Potter.

Come on, Uncle Billy.

UNCLE BILLY: Oh boy, that was telling him, George, old boy. You shut his big mouth. You should have heard him.

BAILEY BUILDING & LOAN EMPLOYEE: What happened? We heard a lot of yelling.

UNCLE BILLY: Well, we're being voted out of business after twenty-five years.

Easy come, easy go.

Kind of fits in with McCain and Obama's populist rhetoric these days, though the part about providing loans for housing to indigent people is kind of ironic, given the current crisis. But I feel a little bit like Wall Street is playing the part of a modern-day Mr. Potter and trying to force this rescue right down our throats by threatening us with utter collapse if we don't go along with them.

America had a "George Bailey" moment yesterday. For George, the consequence of standing up to Potter was that he gave up his schooling to stay home and run the Bailey Building & Loan after his father's death. There will be consequences for not passing the bailout too. We'll see if we're willing to face them (though as I've always maintained the bailout will be worse than the cure).

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