So my new article in Rolling Stone, “Wall Street’s Bailout Hustle,” is up and online.
The piece was a lot of fun to write mainly because I got to learn a lot about con men I never knew before. But it was also challenging for a lot of other reasons. For instance, there was a whole section on Quantitative Easing I had to cut — I say this with apologies to Tyler Durden, who walked me through a lot of that stuff — for space reasons and because delving into the incipient U.S. debt problem would likely have made the piece too complicated. Thus though the piece appears to focus exclusively on the banks and how they skimmed their own bailout — which is totally true — there is actually a more subtle story out there about the mutual dependency of our increasingly broke-ass, politically desperate government in Washington and their virtually insolvent partner-banks on Wall Street. I would like to get into that more in the future.
Already I’m getting some criticism in the mail. As I’m still pretty sick right now I can’t really respond to it at length. But one theme that comes back over and over again from some writers is this idea that I ignored what would have happened if the banks had not been bailed out. That would have been an even worse disaster, the theory goes, ergo all this whining about the banks robbing the bailout money is off base.
My feeling on that is similar to what Barry Ritholtz (check out his site if you haven’t), the author of Bailout Nation and one of the guys I spoke with at length for this story, proposed. He said that “we should have gone Swedish on their asses.” The Swedes after a similar bubble burst in 1992 temporarily seized control of insolvent institutions, forced banks to write down losses before they got aid, and gave taxpayers a huge share in the upside of recovery. It was a tough-love approach that really worked and forcefully addressed the moral hazard issue in a way we never touched.
That’s one way we could have proceeded. But whatever we didn’t do, we can be sure that what we did do was exactly wrong. Barry pointed out the classic pronunciation of Victorian economist/journalist Walter Bagehot, who said that in a crisis, a Central Bank should lend freely to solvent institutions against good collateral, at penalty rates. We did exactly the opposite: we lent to insolvent institutions, against shit collateral, at zero percent interest. We told these guys to drink themselves sober. Total crap thinking and totally typical.
Anyway, I’ll get into this more after I return to the living; right now I’m going to go hang a plasma bag from my bedroom lamp and eat the contents of the first prescription bottle I can find in my bathroom.
Thanks to those who sent get well wishes.