Sep. 19, 2008 at 4:05 PM ET
When a college student who has just run out of money and maxed out her credit card gets that bailout from dad, what's the first thing she does? Throw a party, of course.
And so it is on Wall Street. The federal government just slapped its plastic on the table and said, "Put it on my credit card."
Banks, you see, recently cried "Uncle," and our money has been volunteered to save them. To no one's surprise, that means you and I are now going to pay hundreds of billions of dollars in small increments over several decades to backstop the excesses of the banking industry. My questions are: Will we at least get frequent flier miles and will they be worth anything?
Remember, this is the same industry that would show no mercy to a depositor who dipped 78 cents into the red when buying a hamburger with a debit card. The same banks that routinely charge $35 in fees to lend the shopper that 78 cents. I assure you, we will not get the same kind of return on our largesse.
And I don't want it. What I want is something much more valuable: In exchange for our money, I want the banking industry to behave. I want a sense of fairness and honor to return to the marketplace, and I want the industry to freely accept new rules, regulations and to learn a little restraint. A little humility would help, too.
Here’s what will happen as part of the Treasury Department bailout plan. No one is going to knock on your door and say, "OK, drop $5,000 in this hat please." We're just swiping that national credit card now and we'll pay later. As with credit card purchases, we won't really feel this immediately. We're not going to trade in a national park or a few fighter jets. Instead, we'll just print more money. That's because the federal government can quite literally print all the money it wants. The consequences of that are not immediate, but they are real. Higher debt means a higher "minimum balance payment," so there's less to spend maintaining that park, dilution of the value of the dollar, perhaps ultimately inflation and less value to your savings and bonds.
But that's probably a fair price to pay to stop the crazed unwinding of Wall Street and its entangling alliances—a trend that has been accelerating over the past 10 days. It's time to take all the bad mortgages and all the bad bankers and give them all one big national enema so we can start over.
What about all those bonuses?
There are some issues where silence is disturbing, however. Recall that many, many charlatans made sickening amounts of money by pushing the financial crack of bad loans around America over the past decade. For brokers, the commission checks were huge. On Wall Street, the annual bonuses were big enough to pay for new homes in the Hamptons. But no one, so far, has asked for the return of that money. These folks knew how to game the system, and they knew as long as they grabbed the money and ran, they'd get away with it. They have.
As many have suggested, we've nationalized risk but privatized profit. We've taken the two worst elements of socialism and capitalism and blended them. We encourage outrageous business practices -- the equivalent of playing the lottery repeatedly -- that encourage boom and bust cycles of soaring profits followed by ruinous results. As CNBC’s Jim Cramer says "We're all communists now." This must be the last time.
It is not hard to pick through the ruins and find irony. Investigators are still sniffing around trading patterns, but it appears a feeding frenzy of short sellers played at least some role in the takedown of Wall Street's biggest names. In other words, Wall Street almost ate itself, or rather was nearly eaten alive by shorts -- speculators who borrow someone else's shares in a company and sell them, betting that a company's stock will go down so they can buy them back at a cheaper price. When enough short sellers pile on, there's a feeding frenzy that can ultimately lead to a self-fulfilling prophesy, with all those outstanding shares of stock being sold by profiteers.
Fearing the virus-like band of speculators might continue to target other banks, Wall Street took the extraordinary step of banning short sales on Friday. That's odd, because those who talked about placing limitations on oil market speculators were often laughed at by investors as unsophisticated. Stock in double standards has exploded in recent days.
End the 'Great Divorce'
Still, we are better off making a deal and moving forward, as long as that deal bails out both homeowners and banks together. But a simple bailout is not enough. Now, things must change. The cult-like worship of unregulated markets must end. Never again do I want to hear someone preach to me about the market's infinite powers to heal itself. Stop arguing that all government intervention and regulation is bad, or that people who lose their home should just suck it up and deal with the Darwin effect. The high priests of unbridled laissez faire need to go take a long vacation now while reasonable people find a sensible middle course. Because you, Wall Street, and you, absolute capitalists, you could dish it out but you couldn't take it.
Today, I believe, we are offered a fresh start. We have an opportunity to set our economic system on a wise course for decades. And we have a chance to end what I call "the Great Divorce" between American companies and consumers. Remember when a Comcast technician renamed a customer's account "Bitch Dog." Ever read 1,000 comments in a blog about bank overdraft fees? Consumers and companies hate each other right now, and for decades have been engaged in a war that benefits neither.
It's time for a new social compact between government, industry and consumers that recognizes we're all in this together. Because now, we are all stockholders in many of these companies. It's time for an end to the mean side of America, the side that cheered while companies cheated people out of nickels dimes, quarters -- and eventually their homes. An end to get rich quick schemes and late-night infomercial hawkers who are enabled by mortgage backed securities. It's time for a "free market" that is not a free-for-all market. It's time for a transparent market where consumers have exactly as much information as the companies they're dealing with, so they can make solid decisions and the engine of the free market can do its work honestly.
In short, it's time for a return to honor, to a world where no company would ever base its business model on duping consumers, and a world where shoppers don't lie about defective products or emotional suffering. Tying new standards of fairness and transparency -- along with regulations and regulators with real teeth -- to any bank bailout is a way to get the whole country behind the plan. And, I believe, it's the only way forward. Because what happened to America this time is simple: We let the cheaters win for too long, and now we all have to pay.