We have tried bailouts, drawing applause from Buffett, whose company owns a 6.67 percent stake in Wells Fargo & Co. We have tried federal stimulus spending, which yielded little more than a sugar high. We have tried propping up the stock market and home prices with record-low interest rates from the Federal Reserve, hurting savers as well as retirees and anyone else living on a fixed income.
We have tried covering up banks’ losses, through loose accounting and get-out-of-jail-free cards for bankers who lie about their companies’ finances. The costs have been immense, both to long-term investor confidence and the rule of law. And none of it has worked, except in the transitory sense.
Bank stocks are crashing again, partly because investors don’t trust the balance sheets of Bank of America Corp. and Citigroup Inc., to name a couple. While we have managed to keep the financial system limping along, the government refuses to accept that for the economy to get appreciably better it probably will have to get worse first.
Fed Chairman Ben Bernanke will ride to the markets’ rescue with a third round of quantitative easing — printing more money to boost asset prices. At some point, we all must recognize there’s only so much government can and should do to ease our loss of wealth, or to entice investors into risky assets whose returns may well depend on further interventions.
There used to be this quaint notion of a business cycle, where it was widely accepted that good times and bad times came and went, and that the role of government was to ensure that neither got out of hand. For too long we have operated on the premise that bad times are something to be prevented or postponed no matter the cost — to the point where the choice now becomes framed as one between economic calamity and buying time.
The American people can handle a bad economy, even an awful one. Most don’t have a lot of money to start with. What is unbearable is the current policy of running to aid the world’s biggest, most disaster-prone financial institutions every time they get into trouble, with only afterthoughts paid to what this means for ordinary citizens.
You want shared sacrifice? Let’s start with market regulators forcing the largest banks to fess up to their pent-up losses and come clean with their books, so we can get their red ink behind us as quickly as possible and create a new baseline for sustainable growth. While reckonings are expensive, the cost of forestalling them through legerdemain is always far greater.
