Every Crisis Becomes a Carnival of Opportunismby
Robert Higgs As the financial crisis deepens and widens, a horde of supplicants is converging on the Treasury. Each of them has a story to tell, and although the details differ from one upscale beggar to the next, each one's tale of woe shares a common theme: help me or systemic risk will bring down the whole economy, with painful losses and injuries to one and all. Until recently, most people had never heard of systemic risk. It was a term of art for economists and financial theorists. Now every lobbyist in Washington knows how to link his special pleading to the claim that unless he extracts his own pound of flesh from the taxpayer, the entire world will have hell to pay. This not-so-thinly-veiled threat verges on extortion. Commercial bankers have long practiced this rock-bottom-low form of politics, relying on the undeniable fragility of fractional-reserve banking to justify their appeals for public succor during a financial crisis. Lately, however, various newcomers have joined the bankers in playing this con game. In March, the Fed opened its credit window for the first time to investment banks. In September, it ponied up $85 billion to rescue AIG in a de facto government takeover of the insurance giant and took control of Fannie Mae and Freddie Mac, committing up to $100 billion to each company to augment its capital. A little later it announced that it would buy massive amounts of commercial paper – thousands of firms in all sorts of industries potentially stand to benefit from that intervention. Most recently, it has undertaken to prop up money market mutual funds. The Emergency Economic Stabilization ("Bailout") Act of 2008 makes eligible for its $700 billion of largess, not only banks, but also savings associations, credit unions, security brokers and dealers, and insurance companies. As if this scope of engagement were not sufficiently outrageous, the act stipulates that the eligible "financial institutions" include, but are "not limited to" the ones named. Will pawn shops be the next ones permitted to join the queue? Exactly why security brokers and dealers have been invited into the government's charmed circle might seem problematic, if systemic risk must be invoked as the rationale, but their inclusion makes perfect sense in the light of public-choice analysis once you have become aware of who the primary dealers are. These institutions, a handful of companies authorized to trade directly with the Federal Reserve System, include:
If you don't see any likely suspects in the recent string of taxpayer robberies on this list, then it's time you had your eyes checked. As the recession worsens, we can expect more and more firms and industries to plead for a rescue operation at taxpayer expense. The auto companies have already received a promise of $25 billion from a compassionate Congress, whose members are ever ready to injure the general public interest in the service of a well-healed campaign contributor, especially if the beneficiary can demonstrate that he has dreadfully mismanaged a big business. Now that corn and soybean prices have retreated from their recent extraordinary heights, the farmers are sure to demand that a national farm emergency be declared so that the 17-room additions and new tennis courts they have planned for their rural palaces can proceed on schedule. Other interest groups will troop toward Washington in tight formations, each with a claim that unless its demands are met, the Good Life and the American Way will go up in flames.
Notwithstanding this frightening prospect, we can be certain that still more interest groups will be pressing the Treasury for their "fair share" of the plunder, even as the economic ship continues to sink. Members of Congress are already touting the desirability of another "stimulus" program like the one that sent checks for as much as $1,200 to most American families a few months ago. Somewhere in hell, John Maynard Keynes is laughing maniacally and dancing a jig. October 28, 2008
Robert Higgs [send him mail] is senior fellow in political economy at the Independent Institute and editor of The Independent Review. He is also a columnist for LewRockwell.com. His most recent book is Neither Liberty Nor Safety: Fear, Ideology, and the Growth of Government. He is also the author of Depression, War, and Cold War: Studies in Political Economy, Resurgence of the Warfare State: The Crisis Since 9/11 and Against Leviathan: Government Power and a Free Society. Copyright © 2008 Robert Higgs
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Hundreds
of billions here, hundreds of billions there – pretty soon you're
talking about real money. It will be highly depreciated money, however,
because the government's bailout commitments to date, along with
its already huge budget deficit, ensure that the Fed will be flooding
the world with newly created dollars, and, other things being equal,
each one's creation reduces the purchasing power of every existing
one. So far we must contend with $700 billion authorized by the
big bailout law enacted on October 3; $85 billion for the AIG loan;
$100 billion each for Fannie and Freddie; an undetermined amount,
but potentially as much as 
