In a move that's unprecedented since the Savings and Loan crisis of the 1980's, the Federal Reserve moved yesterday to prevent a meltdown in the financial markets with a $30 billion risk free credit line to support JP Morgan's take over of Bear Stearns. This move comes less than a week after a $200 billion loan program the Fed initiated to support mortgage-backed securities. Meanwhile, with the housing market in the worst shape in a century (this according to Richard Syron, chief executive of Freddie Mac), there continues to be little help for the real victims of this crisis -- homeowners.
Why is it that government's are so quick to provide corporate welfare but loathe to help the very people they are meant to serve? After all, it was investment banks like Bear Stearns that are largely responsible for creating the very instruments that are causing the widespread panic in global financial markets. Given Bear Stearn's Machiavellian winner-take-all corporate culture, and former chairman Alan Greenberg's penchant for regaling "its partners over lengthy lunches about gambling with the firm’s money in its wood-paneled dining room", can there be a company less worthy of government handouts? It is telling though that Greenberg describes Stearn's business as gambling. In many ways much of investment bankers core business isn't too different than Party Poker.
There may also be a larger message in how quickly Bear Stearn's stock price plummeted. The firm has gone from trading at over $90 a share early this year to just $2 a share at the end of last week. They produce nothing of real value.
This begs the question, why do we (through our governments) give private companies so much power over the creation and supply of money (most of the U.S. money supply is based on interest bearing loans)? Milton Friedman observed that "[a]ny system which gives so much power and so much discretion to a few men, (so) that mistakes -- excusable or not -- can have such far reaching effects, is a bad system." This concentration of economic power in the hands of a few private companies with inadequate regulation is at the least contrary to the social and economic objectives of the countries in which they operate, and in the worst case (such as the current crisis) dangerous to our well being.
If you think these views are extreme, I'll leave you with Thomas Jefferson's view of private banks:
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations which grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power of money should be taken from the banks and restored to Congress and the people to whom it belongs. I sincerely believe that banking institutions having the power of Money are more dangerous to liberty than standing armies."
I'm sure that the millions of Americans facing foreclosure would agree with this sentiment. Interestingly Abraham Lincoln held the same view. Perhaps it's time the "power of money" came back to the people so that it can serve their interests.