True, we may not comprehend all the details, but Americans understand extortion, and all week there's been a gun to our heads. When President George W. Bush and Treasury Secretary Henry Paulson tell us to write a colossal check, immediately, no questions asked, all I hear is, "Just give us our obscene profits back and nobody gets hurt."
& lt;span class= & quot;dropcap & quot; & W & lt;/span & hat the hell just happened to our country? To understand, you have to go back to the Great Depression, when greed's last big bang led to massive societal changes and strict regulations under the New Deal. Then, slowly at first, those protections were stripped away, with the last vestiges of oversight removed over the past decade. Meanwhile, as the tech bubble was quickly replaced by the housing bubble, those financial wizards, unbound by rules, delved into even darker arts -- hedge funds, subprime mortgages, short selling and credit default swaps. (If you have no idea what a credit default swap is, you're not alone; just know that Warren Buffett calls them financial weapons of mass destruction.) President Bush not only didn't enforce many of the regulations on the books, he took no action to create new regulations to keep up with all these complex new derivatives. So America's financial system was left to police itself -- a happy thought quickly overwhelmed by the promise of a third home in Aspen. Greed took over, and now, with the certainty of gravity, the laws of economics are reasserting themselves.
And here we are.
If that's all a bit convoluted, maybe one of America's great social critics, Tom Wolfe, can help. His description of the peculiar Wall Street mindset in his 1987 novel The Bonfire of the Vanities remains spot-on. When Sherman McCoy can't find the words to explain his job as a bond trader to his young daughter, his long-suffering wife says: "Just imagine that bond is a slice of cake, and you didn't bake the cake, but every time you hand somebody a slice of the cake, a tiny little bit comes off, like a little crumb, and you can keep that... millions of marvelous... golden crumbs."
The Sherman McCoys of Wall Street finally figured out how to pulverize the cake -- America's economy -- into trillions of crumbs so they could keep more and more of it for themselves.
Which leads us back to George W. Bush. What a fitting final act for a calamitous presidency. The indelible image of his two troubled terms may become when he emerged from the White House last week for a two-minute speech in which he asked for at least $700 billion with no explanation of how his scheme would work and exactly zero oversight in how it would be spent. And the really crazy part is he just might get his way again.
This dabbling in socialism only underlines that Bush has left Republican orthodoxy in tatters. All his talk of smaller government, personal responsibility, lower taxes, fewer foreign entanglements and the wisdom of the free market is a bunch of empty, blatant hypocrisy.
I actually do believe in the wisdom of the market. Bad debts are tagged because the market can sniff out a fraud. And over the past week, I've heard lots of options besides having the taxpayers take on all the banks' bad debt -- for example, staying with the case-by-case approach until the next president takes over, or pumping money into the liquidity side of the equation to keep the gears greased, instead of buying worthless loans. After all, if that bad debt was going to sink the banks, what will it do to our country? And where are we getting that $700 billion? If it's like the war in Iraq, we'll just keep borrowing from the Chinese and Saudis and hope for the best.
And no crisis is so bad that we have to throw away longstanding American principles to solve it. That's what happened when Congress thought it was voting to protect America after 9/11 and wound up enabling the torturing of prisoners and secret spying on citizens. The bigger the crisis, the more we need to read the fine print.
Still, I have hope. There are many good people inside Wall Street, and American capitalism is the world's most innovative and productive system -- if we operate it properly. Like profit, failure should be a part of our financial system -- as should rules of fair play. Inflating artificial bubbles and cranking down the interest rates year after year both continued to put off the kinds of corrections that would have kept our economy in the realm of reality.
& lt;span class= & quot;dropcap & quot; & F & lt;/span & orests are restored by fire, and so are markets. In a real market, I'd be inclined to say we should let it burn. What grows up to replace the old forest is always healthier. But thanks to greed and mismanagement, ours has clearly become a fake, faith-based market. So we're left to attempt to bring our economy in for a soft landing, hopefully enabling the kind of fresh start we need without endangering people's money. It's a tricky tightrope, and President Bush has shown no evidence he can walk it.
Throwing more money at the problem to prop up the fallen snags and diseased stands of Wall Street is only delaying reality yet again. If we're really itching to commit $700 billion, it would be better spent on planting seeds for what will grow up after the fire.