Chumps of the Year
I know three months remain in 2008 and a lot more market turmoil is ahead of us, but at the risk of jumping the gun I'd like to offer my nominees for Chumps of the Year.
Yes, there's an embarrassment of riches to choose from just this week — the executives at AIG for needing a federal bailout, the executives at Lehman for needing a federal bailout and not getting one, and anybody who lost faith in gold before its record run-up yesterday.
But I wish to offer up two sure-fire winners: Senator Richard Shelby (R-Alabama) and Senator Jim Bunning (R-Kentucky).
Shelby is the top Republican on the Senate Banking Committee, so reporters naturally sought him out yesterday for reaction to the AIG bailout. According to the stuffy prose of the Financial Times, he "expressed unease about the lurch toward interventionism."
“I don’t believe that anything is too big to fail," Shelby said.
A noble free-market sentiment, to be sure. Much like that of Sen. Bunning, the 70-something former major-league baseball pitcher who's also on the Banking Committee. Some in Washington wonder whether all his faculties are still with him, but he sounded plenty lucid back in July when Hank Paulson came calling on Capitol Hill to ask for the authority that he ended up using a few days ago to nationalize Fannie Mae and Freddie Mac.
"When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turned out it was socialism here in the United States,'' Bunning said.
Both Bunning and Shelby voted in 1999 to repeal the Glass-Steagall Act, the New Deal-era legislation that put a wall between commercial banking and investment banking. Breaking down that wall was — in principle — a good idea that struck a blow for free markets.
But as should have been apparent at the time to anyone paying attention, this legislation did much to foster the culture of privatized profit and socialized risk (to borrow Jim Grant's brilliant turn of phrase) that's put us in our present pickle. Honestly, did Shelby and Bunning really believe that, given their new-found freedom, the mavens of finance in this country would proceed with caution? Or would they instead proceed on the assumption they could get a federal bailout if their mathematical formulations went awry and once-every-500-year events started happening every few weeks?
Sure, hindsight is 20/20. But Congress voted on this bill just a few months after the Fed manipulated levers and pulleys to keep Long Term Capital Management from crashing the system. Ron Paul knew the score on this ostensibly "free-market" bill; he voted against it in the House.
Sorry, the denunciations of socialism and the let-'em-fail rhetoric ring hollow from Shelby and Bunning. If they didn't realize what they were voting for nine years ago, if they didn't realize they were acting as the enablers of a Wall Street-Washington nexus of corporate socialism, they have no business being in Washington.
Actually, very few people have any business being in Washington. But we'll leave that for another day.