Does Wall Street Have a Death Wish?
By Robert Higgs on Sep 19, 2008 in Economics, Fascism, Money and Banking, Politics, Presidential Power, Property Rights, Regulation, The State
After several days of violent fluctuations, the world’s stock markets registered a massive increase in share prices on Thursday afternoon and on Friday, September 18 and 19, 2008. Why? As the Associated Press put it, “investors stormed back into the market, relieved that the government plans to restore calm to the financial system by rescuing banks from billions of dollars in bad debt. The Dow Jones industrials rose about 365 points, giving them a massive gain of about 775 over two days.”
Other stock markets also rose tremendously: on Friday the S&P 500 closed up more than 49 points, or about 4 percent; the Nasdaq closed up almost 75 points, or 3.4 percent.
Exactly what the government will do remains to be determined. Officials from the Treasury and the Fed and members of Congress intend to spend the weekend hammering out the details. Be afraid, be very afraid.
The impending measures come close on the heels of a series of wrong-headed actions undertaken by the government, including the bailout/takeover of Fannie, Freddie, and AIG; massive injections of new credit by the Fed and other major central banks; and the SEC’s prohibition of short-selling for almost 800 financial-company stocks. If, as anticipated, the Treasury moves next to assume the rotten paper currently being held by banks and other lenders (presumably mortgages and related securities, for the most part), then it is fair to conclude that the government has given up entirely on the free market and has decided to occupy the wasteland where outright socialism and economic fascism meet.
Of course, everyone engaged in this hysterical flailing will assert that the objective is only to save capitalism in a crisis. Such government saviors always make that claim, oblivious to its absurdity. Franklin D. Roosevelt and his gang claimed to be saving capitalism, too, but look at what was left of it when they had finished their work.
As economic historians witness the current machinations, they cannot help but recall the eerily similar events of August 13-15, 1971, another ill-fated weekend. At Camp David, President Richard M. Nixon huddled with his top economic advisers in an atmosphere of crisis and hastily crafted an extraordinarily inauspicious package of policy actions. As described in the 1972 Council of Economic Advisers Report, “The United States suspended the convertibility of the dollar into gold or other reserve assets, for the first time since 1934. It imposed a temporary surcharge, generally at the rate of 10 percent, on dutiable imports. Prices, wages, and rents were frozen for 90 days, to be followed by a more flexible and durable—but still temporary—system of mandatory controls.”
Herbert Stein, Nixon’s chairman of the Council of Economic Advisers, later recalled: “Even after 25 years I am amazed by how little we looked ahead during that exciting weekend at Camp David, when we (the president, really) made those big decisions.” Everybody seems to have assumed without discussion that after a 90-day wage-and-price freeze, the government would somehow ease back to a regime of free, flexible prices. However, “[a]s it turned out, we were in the price and wage control business not for 90 days but for nearly 1,000. [Moreover,] [w]e were in the business of controlling energy prices for much longer.”
Likewise, the emergency policies the government is currently concocting will certainly have extensive ramifications, many of them unanticipated, for years to come. The encouragement to moral hazard now being given to financial institutions promises to make them more reckless than the biggest plunger in Las Vegas. After all, any profit will go into their pockets, but any big losses, they will reasonably expect, will be sloughed off onto the taxpayers. Yes, indeed, that image shimmering on the horizon is Casino Capitalism. Henry Paulson, Ben Bernanke, and the rest of these statist saviors are making a mighty contribution to this country’s economic ruin.
Notice, however, that the investors love every bit of it, just as they did after Nixon audaciously displaced the broadcast of Bonanza to announce his New Economic Policy to the nation on Sunday evening, August 15, 1971. The people loved it, even those with money at stake. As Stein observed, “[t]he Dow-Jones Average rose 32.9 points on Monday after the President’s announcement—the biggest one-day increase up to that point.” Here then are two dates matched in history: August 16, 1971, and September 19, 2008. On those days, investors demonstrated that they were willing to sell the soul of capitalism for a shabby promise of temporary government salvation. What Stein wrote about the 1971 episode in his book Presidential Economics might with equal validity be written about today’s events: “This reaction is important to the history of economic policy in America. It shows how shallow was the general support in principle for the basic characteristics of a free market economy.”
How shallow it was; how shallow it remains. The question is, How many times can the government race its emergency bailout vehicle toward the cliff without dragging the entire economy irretrievably into the abyss of outright socialism or full-fledged, Mussolini-style economic fascism?
We need more articles like this in the editorial pages of every newspaper across this entire country. What on earth are we doing? Is the moral of the story that if you are going to screw up, you better screw up so big that the government will have to bail you out? What Hath God Wrought.
Harry Rose | Sep 19, 2008 | Reply
Was not yesterday and today, just a SEC-induced short covering rally?
Jule Herbert | Sep 19, 2008 | Reply
I don’t think you people realize how close we were (and possibly still are) to a complete finanical meltdown. We may still go there, but what the government did today might keep us out of the next great depression. But then again, it could just put off the inevitable. If the government would have done this move before Bear Sterns collapsed then we would have saved 900 Billion of taxpayer money. Naked shorting has destroyed companies that could have raised capital if given enough time (ie Lehman, Fannie / Freddie), if it wasn’t for Naked shorting we would not be as in dire shape as we are now, I’m all for shorting if you have found the stock to borrow, but not before that. We are now heading towards Communism with the outright ban in all shorting.
Z man | Sep 19, 2008 | Reply
Government is not your friend, never was. Competent people who are not properly educated will blame the free market. What free market? We haven’t had one in this country since at least the New Deal. What we have is a mercantilist system beyond Hamilton’s wildest dreams. Our great-great grandchildren will be bending over unless we change our country.
bill | Sep 21, 2008 | Reply
An Alternative to Capitalism?
The following link, takes you to a “utopian” article, entitled “Home of the Brave?” which I wrote and appeared in the American Daily which is published in Phoenix, Arizona on March 14, 2006.
http://www.americandaily.com/article/12389
John Steinsvold
John Steinsvold | Sep 22, 2008 | Reply
First of all to sort of put an umbrella over what I will say, first this quote: “The principle of spending money to be paid by posterity, in the name of funding, is but swindling futurity”. By Thomas Jefferson. Secondly, I wish to indicate that just a a few weeks ago Townhall send out what amounts to an SOS which went like this: Please contact your Congressman and Representative and urge them to get on the ball and stop taking America further into complete and absolute financial bankruptcy which at that moment it was stated, amounted to 53+ trillion dollars due to all many Socialistic/Communistic programs this very Federal Government has imposed dictators style upon the American people, without ever submitting a one for a vote by American taxpayers. In truth that in istself was nothing but in tribute to Sovietism a pure lie to begin with and now this same Federal Government is going to continue to use the same tactic, that is continuing to swindle the American people with this so called bailout. This bailout for those who know the difference, is nothing but criminals because the have the power they can simply continue to play highway robbers. Oh yes! George W., Paulson plus others with a straight face telling the American poeple how so “gooder” this bailout other than face their own criminal acttions and that of the bunch of liar sitting in Washington for several decades. Yes, the greatest and “bestest” swindling since the dawn of history by the Nation, mind you under God and says it trusts in God. Yes, trust in lying to its subordinates!
H. D. Schmidt | Sep 23, 2008 | Reply
One more comment and here it is and again first a quote: “Of all enemies to public liberty, war is, perhaps, the most to be dreaded, because it comprises and develops the gernm of every other. War is the parent of armies;from these proceed debts and taxes; and armies, and debts, and taxes are the known instrument for bringing the many under the domination of the few”. By James Madison. However this nation now is as much addicted fighting wars like the worst dope addicts to their poison and killing drugs. Making Mr. Hitler look like a need guy in comparison. Yes, and before someone jumps on for saying such, let me just remind that a one that America is also already the mass grave of 50+ million of unborn babies, murdered in the wombs of American mothers; no question including the wombs of so called Christian mothers, in mumbers, making all the combined mass graves that of Hitler only a fraction. Oh yes, this murdering of the complete innocent ones for the sake of making money and seeking power, as the present hoopla goes with the Goddess Palin from Alaska. Yes, as more and more young ladies become fiery politicians plus even bloody loving warriors in faraway fornlorn places with which George W. is so in love with. You see he is building a mansion there in the sands where oil is abundant, so to keep in love with wars to the very end like all previous Empires, including the British, who also thought that is mighty power would prevail forever more! My previos quote by Thomas Jefferson I failed to print the following words as the quote ended: Yes, “swindling futurity on a large scale”.
H. D. Schmidt | Sep 23, 2008 | Reply
This may be off the point of this article, but I’m interested in reaching Dr. Higgs with the comment. I saw his recent televised three-hour interview and was quite impressed. In searching for more information on Dr. Higgs I came across a reference to a book he wrote describing the economic warfare we practiced upon the Japanese leading up to Pearl Harbor. I have read of that elsewhere and have generally concluded that FDR was very cynical in his foreign policy; never coming clean with the public as to what he was doing, which was almost anything to get America into the war. But Dr. Higgs almost off handedly alludes to a story that has been around for years that we had broken the Japanese codes both commercial and military and so FDR knew of the Pearl Harbor attack in advance. Dr. Higgs quotes only a single source, a book by a man named Stinnett I believe. I’ve read the book and Dr. Higgs quotes it accurately but I have read in many places, including completely non-political books devoted to code breaking, that we had only broken the commercial code by Dec 7th 1941 and that Mr Stinnett is misinformed. I have no new research information and do not know who is right. Does Dr. Higgs have any other source for that accusation?
james rumbaugh | Jun 24, 2009 | Reply