In testimony before the House Committee on Financial Services, Robert Kuttner of the American Prospect, this week delivered a searing Philippic on the topic of the current excesses.
Like many from his part of the political spectrum, however, he missed the essential cause of the disease and so recommended the wrong treatment, as the following open letter to him tries to explain:
Leftists often analyse history and highlight institutional conflicts better than purblind Rightists (after all, the whole doctrine of the former is about the clash of class interests competing for economic control), but they always fail at the juncture of true cause and effective remedy.
Though nearly all of what you have to say regarding the marrow-deep corruption of the present era is true, what you give no hint of understanding is that government itself brought this about, not a market which is therefore decidedly not a ‘free’ one.
Government allowed deposit banks to function as "fraudulent warehouses" in the first place. Government extended them and other corporate bodies the privileged protection of limited liability for doing wrong. Government forced its subjects to accept its IOUs as money. Government founded the Fed. Government went off gold. Government favoured debt over equity (both via preferential tax treatment and perpetual inflation). Government set up agencies to over-promote home ownership. Government instituted the next great office of "moral hazard" with the FDIC of which you so approve. Government routinely bails out and reinflates all failures which repeatedly shake the gimcrack system which has been its result.
So, no, Mr Kuttner, we will not remove all conflicts and enhance stability by a return to the Depression-extending, soft tyranny of your beloved, Mussolini-inspired New Deal, but only by a return to sound money and the strict and consistent rule of law.
Banking and money are themselves the intrinsic problem. The question of whether or not the rules and regulations of the day are doing a good enough job of covering up the flaws inherent in banking’s anomalous legal and economic framework is merely a post hoc diversion from a much more fundamental issue.
Taking but a few of the present evils to which you allude, if banks were forced to obey the rules applied to all other custodians of property — and if, additionally, money were hard and therefore potentially subject to the same consequences of scarcity as any other good — highly-leveraged, destabilising speculation would be well nigh impossible (or, at worst, it would be confined to a kind of specialized, self-contained, private gambling club); inflationary booms would be precluded, and capital would be both unblinkingly supervised — lessening "agency problems at source" — and scrupulously invested in genuine enterprise, not in the kind of destructive and debauched financial trickery you so correctly denounce.
Oh, and as hugely beneficial side effect, overweaning government — the true bane of our existence, as well as the "bankster’s" sword and shield — would perforce become rigorously constitutional, minutely accountable, a great deal smaller, and far less intrusive and arrogant into the bargain!
The cause of both liberty and prosperity would be enormously advanced as a consequence and artificial layers of cloying, stable-door bolting "regulation" could be safely relaxed, with only the effective oversight of a watchful and self-reliant citizenry needed to restrict malfeasance and to see that malefactors receive their just desserts.
You never know, Mr. Kuttner, but if enough of your fellow Americans come both to endorse your indictment and to yet to reject your prescriptions, we might be afforded the chance to put the above assertions to the test. I say this, for the inescapable conclusion is that, in all good conscience, your compatriots could only then vote for the one true alternative to the yelping pack of statist, unimaginative, self-serving political jackals vying to secure their own four years as Ozymandias in your upcoming Presidential elections — namely the estimable Ron Paul.
~ Sean Corrigan
Sean Corrigan [send him mail] writes from Switzerland.