Treasury Secretary Henry Paulson is going to put capital in
the banks. In this concept, he shares a rich tradition
with Santa Claus and the Easter Bunny. (He leaves free
presents, theoretically only to the relatively good, but
realistically rather more arbitrarily with a bias toward
the privileged, and lastly and most importantly-- it's all
a fantasy.)
It's true that Secretary Paulson may be able to improve
bank capital, in the sense of benefiting the entries on the
bank's balance sheet, but not in the sense of giving a
productive capability that didn't exist elsewhere and now
has come into being out of nothing. What Paulson can give
is only a representation of real capital.
The Department of the Treasury can "inject capital"
(Paulson's words from his statement of October 8, 2008), in
the same way that the Federal Reserve can increase the
money supply, but can't increase (or even maintain) the
purchasing power of the new money at the same time.
There are some who'd argue that the balance sheets that
Secretary Paulson can manipulate do matter-- that
"injecting" "capital" (it's hard to choose which of the
prior sets of quotation marks to invest with the most
sneering invective; please feel free to curl your lip at
both), into banks will buy time until the economy
rebalances.
This can only have the appearance of truth when the economy
isn't overextended (i.e., it only works when it doesn't
matter). The markets are "frightened" and there's a
"liquidity freeze" because of the recognition that real
capital has been overextended and wasted.
The markets recognize that the only thing to do is sort
through the rubble looking for salvage-- that when you're
overextended you have to find a way to prioritize-- while
Paulson and the government are convinced that they can spin
the rubble in really fast circles and make it look like
something shiny.
We mistake paper money for real purchasing power and real
savings, when in fact it can only potentially represent
these things, and that dependent entirely on government
trustworthiness. We mistake the bank balance sheet capital
(now demonstrating how real it really wasn't with the
astounding speed with which it can disappear) for actual
resources and capacity to produce-- again it's only a
representation (and again an unstable one, since it's
considered capable of whimsical "expansion" to "stimulate
the economy").
Treasury Secretary Henry Paulson has asked for patience.
He wants us to trust government, and share his confidence
(his favorite word as things fall apart) that strength will
be restored to the American economy.
Secretary Paulson doesn't deserve our trust and belief; the
government doesn't deserve our trust and belief, and it's
not because they've asked for this all along and failed all
along-- it's because they're lost now, and can't possibly
find their way in the future since their compasses are
backwards.
It's not good for Americans to have confidence in something
that's doomed to fail-- it's better to question folly than
to have confidence in it. If for example, confidence in
mortgage finance and real estate value was yet ongoing
today in a continuation of yesterday's real estate bubble,
then the confidence would be moving us from stunningly
stupid waste of capital and opportunity, to supersaturated
thermonuclear stunningly stupid waste of capital and
opportunity. Economic confidence is very far from
deserving the knighthood that government perpetually offers
it.
While it's true that economic and political systems require
trust, that only works when they also require
trustworthiness. It's not a duty for Americans to
unquestioningly accept government foolishness and waste, no
matter how insistently the government tells us that
questions are destabilizing. The reason our system can
fall apart from too much questioning is not because it's
built on trust (which we might have a duty to maintain);
it's because it's built on leverage (which we do not).
-----
'Now I'll give you something to believe.' [the Queen
remarked] 'I'm just one hundred and one, five months and a
day.' 'I can't believe that!' said Alice. 'Can't you?'
the Queen said in a pitying tone. 'Try again: draw a long
breath, and shut your eyes.' Alice laughed. 'There's no
use trying,' she said 'one can't believe impossible
things.' 'I daresay you haven't had much practice,' said
the Queen. 'When I was your age, I always did it for
half-an-hour a day. Why, sometimes I've believed as many as
six impossible things before breakfast.' (Lewis Carroll)
----------------------------------------------------
Les Lafave
http://www.themaestrosrep.org
The true story of how the term "free market" became
history's greatest oxymoron (and some of the morons who
oxed it).
EasyPublish this article: http://submityourarticle.com/articles/easypublish.php?art_id=42821
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