Bulls, Bears and Bailouts


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Here’s The Washington Post’s first sentence: “A revolt among big donors on Wall Street is hurting fundraising for the Democrats’ two congressional campaign committees, with contributions from the world’s financial capital down 65 percent from two years ago.”

Wall Street, double-crossed! No more business as usual! The jig is up! Down with greed, up with financial responsibility! There’s a new sheriff in town — and his name is Barack Obama!

The article acknowledges that many things explain the drop in contributions: “But the overwhelming factor is the rising anger among financial executives who think they have not been treated well based on their support of Democrats over the past four years.” And “‘Democrats worked hard to pass reform with tough oversight, accountability and regulation, and it’s no secret the big banks were against it,’ said Deirdre Murphy, spokeswoman for the Democratic Senatorial Campaign Committee. ‘But we believe preventing another financial collapse is the responsible thing to do.’”

There you have it.

The finance guys are literally foaming at the mouth over the “tough” new financial regulations. Though Wall Street gave more money to Democrats than to Republicans — and therefore expected a slap on the wrist — the new rules put them in a straightjacket. Those !&!$ Democrats! They rammed down unpalatable regs — at the cost of The Street’s profits — simply to prevent another financial collapse. But wait. Why not turn to the greed-friendly Republicans poised to swoop down, grab contributions and, unlike the principled Democrats, do The Street’s bidding?

Nice try, WaPo. Now, here’s what’s really going on.

Banks’ stocks shot up, not down, the day the proposed new financial regs came out. Why? If it wasn’t quite a green light for business as usual, it was close enough. The Associated Press wrote: “After months of angst over the government’s plans to regulate the financial industry, investors are able to relax. And they’ve showed their relief by sending bank stocks soaring. Financial companies have outdistanced the rest of the stock market (June 25) after lawmakers agreed on a banking overhaul bill that is less strict than investors feared.”

CEOs tend not to “revolt” when the company stock goes up.

If Wall Street is so ticked off by the Democrats, shouldn’t the supposedly resurgent Republicans prosper because of the supposed disillusionment over the Democrats? Fifteen or so paragraphs down, WaPo tells us: “Republicans … have tried to reap the benefits, to mixed results… The two Republican committees that are focused on congressional races have received $2.7 million from the New York area, slightly more than at this point in 2008 but less than the $4 million they raised at this point in the 2004 cycle when the party still controlled Congress.” Oh.

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  • JasonPappas

    Sad but true.

    One tends to see the CEOs and upper management supporting Democrats because they like the fact that regulations help prevent competition and subsidize risk taking. The middle level employees live with the rules but would rather be free to rise or fall on their merit. These are the guys on the trading floor that yelled: give us a 2nd Tea Party!.

    There's Wall Street and there's Wall Street. Goldman Sachs is called Government Sachs because of its reliance on Washington to bail it out. And its CEOs often get Washington jobs in both Republican and Democratic administrations: Robert Rubin (Clinton), Hank Paulson (Bush), etc. It was basically Democratic Congressmen who rushed to bailout the banks based on Paulson's faulty intel. Republicans stopped it on the first vote it before caving.

    The banks didn't adequately price risk before the bailout. They certainly won't now. What these institutions do is a simple calculation using historical price movements. Since the government protected counter-parties, the calculations won't price such risks–the events didn't happen. Counter-party risk won't reflect true dangers. The CEOs will continue business as usual. An even bigger blow-up will occur in the future.

    • Jim C.

      Big government costs big money. And in a way, that big money requires big government.

      When times are good, who cares? I got mine. But when times are bad the electorate will favor liberals who promise to beat up on the fat cats. This is of course a distortion of what needs to happen, but it plays well in Peoria.

      I could see conservatives getting a leg up, however, if they could articulate a positive libertarian vision. To do so effectively, however, they would need the right candidate, first of all, and second of all, need to be able to explain how their alternative would work.

      Because the way it works now, the "small government"-types who take office enjoy that seat of power, go along with regulations that help their buddies, and get rid of regulations that hamper their buddies–all the while advocating "tort reform" (disadvantaging individuals) and speaking out against trial lawyers–the very group that would stand in lieu of government nannyism.

      The message is too mixed.

      • http://intensedebate.com/people/JasonPappas JasonPappas

        I care. I care how I make a living.

        That's the point. Until and unless people are concerned about earning one's keep in an honorable manner, fighting over the spoils will destroy our republic. The key isn't a better understanding of economics; it's a better understanding of virtue.

        The moral hazards of bailouts encourage recklessness, failure, and greater bailouts. We must face the consequences of our actions and live responsibly.

        The lesson must be stated in ethical terms. I was aware I didn't do that in the original post. Thus, I thank you for provoking me to make a better point. That's what you were trying to do, wasn't it? ;)

  • USMCSniper

    Andrew Breitbart understands this well. "What is really wrong with the banking industry and what is it going to take to fix it? What is the real cause of the so called “meltdown”? Ponder these questions deeply and then seek out honest answers. Prepare yourselves for the facts you will be faced with and what those facts mean. Political correctness need not apply for this job because actual correctness, absent that qualifier, is required. As Tim Geitner tries to offer every explanation besides the real one concerning AIG, maybe there exists at least one courageous elected official who will ask him directly to explain Grameen banking, microfinancing and how the progressives drove the American Economy into the ground by bowing the American’s economy to Islamic law via the guise of political correctness known in the form of “environmentalism” and “social justice.” Are those Fightin’ words? Yep, that is one thing that happens when a nation is engaged in war and Patriots actually fight back with the most powerful weapon that ever existed. Truth.

  • Len Powder

    There is a class never mentioned by Marx or sociologists. It is the class of the corrupt. It consists of high-ranking government officials and wealthy Wall Street executives (amongst others). It is this CLASS, not the bourgeousie that Lenin and Castro demonized, which is the enemy of the proletariat and the middle class. The Class of the Corrupt is not written about or analyzed only because no Sociology Professor has yet recognized them but it exists like the ground you walk on and it is destroying America very quickly.

  • dan o'hanlan

    This current administration's "solutions" to real problems are based on a misunderstanding of the causes of the problem, and a fix that doesn't challenge their ideology or their friends.