On helicopters and central banking

Such are my acquaintances that I have received some amount of grief over my gentle chiding of Ben Bernanke, Chairman of the Federal Reserve Board, after his decision to airlift a generous aid package to our faltering credit markets last week. It seems my friends like Ben and feel my take on the non-bailout bailout too harsh. So, in the spirit of amity, I would like to commend our fine central bankers for the wonderful job they’re doing propping up both the credit markets and (their ultimate goal) the equity markets at the same time. Truly a Herculean task, but somebody’s got to do it.

Instead of 200 points lost on the Industrial Average, imagine if it were 2,000 points—something more akin to a true crash. It wouldn’t be the end of the world, of course. Wealth is created, wealth is destroyed. After all, we can’t go propping up stock markets forever (and they shouldn’t need propping up anyhow). I suppose it’s the timing of such things that matter. If you believe as I do that the equity markets are overpriced, why shouldn’t there be a correction…not a 2% or 3% blip, but a major readjustment? The problem is that there are a lot of whiz kids out there managing pension funds who think they have diversified their assets by snapping up some of this shat paper that’s floating around, and, as my acquaintances would have it, we simply can’t have ongoing trouble in the credit markets and a major stock market correction at the same time. Such an unhappy convergence of events would move this little drama of financial indiscipline from Wall Street to Main Street, where middle-class America has been told its money is safe with the whiz kids. Couple all of that with a real-estate and housing market stuck in neutral, and suddenly millions of Americans come back from summer vacation with half their net worth having evaporated in the August heat. Then middle America's credit would tank; then we wouldn’t spend as much; then the wheels of the global economy come loose, and then all of us take a long, hot ride in the same handbasket.

I’m not insensitive to this potential scenario. And if there is any likelihood of this scenario occurring, if I have vastly underestimated the danger all of this poses to the economy, or more precisely, to the net worth of millions of hard-working people, then Bernanke & Co. deserve a gold star for moving with haste and competence to head off this train of events, at least, as much as they can while juggling the task of controlling inflation. But I am unconvinced by this line of argument that the circumstances we currently face in the credit markets are as dire as all that. What I see is the Fed leaping to rescue very wealthy bankers in a secondary market, but no one, for instance, is helping out the unfortunate folks who can’t pay their mortgages, folks who probably shouldn’t have had mortgages in the first place, folks who were in many instances preyed upon by a shadowy class of dealmakers who knew the risk of lending and chose a quick buck over common sense. What I see is a system that rewards greed, a system that by turns has made all of us complicit in that greed through the market itself.

But what is done is done. I’m not a big fan—actually, not a fan at all—of the Congressional Democrats now throwing their weight around Capitol Hill, but if anything can be done to remedy the excesses in the mortgage industry—and punish the most egregious malefactors of this past cycle—so much the better. And the Dems seem poised to score some points in this regard.

Next time around, I’d rather not be made an accomplice to Greedy in his efforts to rob Stupid.