This land is your land
This land is my(?) land
From California to the New York island
From the red wood forest to the Gulf Stream waters
This land was made for you (and me?).
–Lyrics, “This Land is Your Land”; Woody Guthrie (tweaked by Ross Kaplan)
The first time I read “Pretty Good for Government Work,” Warren Buffett’s defense of the bank bailouts in The New York Times this week, it all seemed perfectly reasonable and logical: the system truly was on the verge of a melt-down in September, 2008, and doing nothing surely would have brought on — if not a financial apocalypse — something very, very nasty.
But re-reading it, I couldn’t help coming back to a single, offending word: ‘our.’
Here’s the context:
Just over two years ago, in September 2008, our country faced an economic meltdown. Fannie Mae and Freddie Mac, the pillars that supported our mortgage system, had been forced into conservatorship. Several of our largest commercial banks were teetering. One of Wall Street’s giant investment banks had gone bankrupt, and the remaining three were poised to follow. A.I.G., the world’s most famous insurer, was at death’s door.
–Warren Buffett, “Pretty Good for Government Work”; The New York Times (11/16/2010)
I suppose if I owned tens of millions of shares in Wells Fargo, Wachovia, and Moody’s (the credit rating agency); $10 billion in Goldman Sachs bonds that I very much wanted repaid; billions in credit default swap positions, etc. etc. — I would start to think of the financial system as “our” financial system, too.
But in reality, it’s “their” financial system.
They own it, they derive the lion’s share of benefits from it, and they — quite logically — defend it.
Bailout Red Herring
The second canard buried in Buffett’s apologia is the inference that critics of the bailout advocated doing nothing.
Away from the Op-Ed pages of The Wall Street Journal and The New York Times, there has been a deafening chorus — nay, consensus — on what government properly should have done — in fact, should still do now — in response to the Wall Street-engineered financial melt-down.
Of course, that’s after acknowledging that the very best course of action would have been actually trying to prevent it in the first place (vs. enabling it).
In a mythical letter addressed to “Uncle Sucker,” Blogger Barry Ritholtz puts it best:
When the crisis struck, you did not seem to understand the role you should play. Instead of stepping up to halt the financialization, to unwind it, you gave away the shop. You failed to extract concessions from firms on the verge of bankruptcy. Your negotiating skills were embarrassing. In the face of meltdown, you panicked.
You could have undone the decades of radical deregulation at that moment. You could have fired the incompetent management, wiped out the shareholders who invested in insolvent companies, gave the creditors and bond holders a major haircut for their foolish lending. Instead, you rewarded them for their gross incompetence.
The solutions you ran with were ad hoc, poorly thought out, improvised. You crossed legal boundaries, putting the Fed in the position of violating its charter and exceeding its mandates. You created a Moral Hazard, the impact of which may not be felt until decades in the future.
–Barry Ritholtz, “Dear Uncle Sucker . . .”; The Big Picture (11/17/2010)
There are no Pulitzers — yet — for blog posts, but if there were, I’d nominate “Dear Uncle Sucker.”
Read Buffett’s piece, then Ritholtz’s in its entirety, and decide for yourself.
P.S.: Dear RE/MAX and Coldwell Banker Burnet: looking for an experienced — albeit opinionated — Twin Cities Realtor (and blogger)?
If my boss, Mr. Buffett, reads this, I may be available (Buffett is chairman of Berkshire Hathaway, the ultimate parent company of Edina Realty).