Grant On Money

James Grant weighs in on the dollar, and hits a trope I think is not mentioned enoough, and that is “moral hazard.” When you pass risk from the moneychangers to the taxpayers, you will get more risk. Another theme we do not develop, is if we have pretend markets, we have pretend business people. We educate a generation to pretend as well. When it comes times to produce, we have no real business people to do so. A downward spiral.

Grant:

In 1970, Wall Street partnerships began to convert to limited liability corporations—Donaldson, Lufkin & Jenrette was the first to make the leap, Goldman Sachs, among the last, in 1999. In a partnership, the owners are on the line for everything they have in case of the firm's bankruptcy. No such sword of Damocles hangs over the top executives of a corporation. The bankers and brokers incorporated because they felt they needed more capital, more scale, more technology—and, of course, more leverage.

In no phase of American monetary history was every banker so courageous and farsighted as Isaias W. Hellman, a progenitor of an institution called Farmers & Merchants Bank and of another called Wells Fargo. Operating in southern California in the late 1880s, Hellman arrived at the conclusion that the Los Angeles real-estate market was a bubble. So deciding—the prices of L.A. business lots had climbed to $5,000 from $500 in one short year—he stopped lending. The bubble burst, and his bank prospered. Safety and soundness was Hellman's motto. He and his depositors risked their money side-by-side. The taxpayers didn't subsidize that transaction, not being a party to it.
In this crisis, of course, with latter-day Hellmans all too scarce in the banking population, the taxpayers have born an unconscionable part of the risk. Wells Fargo itself passed the hat for $25 billion. Hellmans are scarce because the federal government has taken away their franchise. There's no business value in financial safety when the government bails out the unsafe. And by bailing out a scandalously large number of unsafe institutions, the government necessarily puts the dollar at risk.

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The Bush/Obama Presidency

Bailouts of Big Biz, Torture, Gitmo, Spying on Citizens, suspension of Habeas Corpus, and now expanding the war... everything Obama said he was against he has embraced and extended. A Chicago hustler is given the job of taking the blame for Bush's policies and he gladly accepts it... his failure will gratify racists everywhere. The powers that be in Media will place him below Jimmy Carter in regard. The right wing will come roaring back in the next elections.

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