Tip Of The Heistberg

Let the Geithner resignation watch begin. Against the backdrop of rising unemployment, populist rage against Wall Street, and a boss's approval rating that's starting to set off alarms, these continuing revelations make his position untenable. As for Bernanke, his upcoming reconfirmation hearing just got even more contentious. Remember, what gets in the newspapers is just what we know. The Fed's increasingly desperate attempts to avoid the sunshine of an audit get more understandable all the time.

And I've asked this before: When will Congress restrict the ability of Geithner and other bailout principals to cash in on Wall Street after they leave Washington? Going on two years since Bear Stearns, it's shameful this hasn't been done yet.

Stolen

As the financial crisis fades and yet another Fed-induced bubble inflates, we're starting to see some of the enduring social effects of the past year. One of these is what I call "the heist meme." This is the belief -- correct, in my view -- that the various bailouts of the financial sector essentially constitute the largest theft in history. This idea is everywhere; do a Google search for combined terms like "Wall Street" and "robbery." It seems to get traction as the public gets perspective on past events via news reports like this. Bloomberg's Susan Antilla on the upshot:

“I want these swine prosecuted,” wrote Robert Carlini of Richmond, Michigan, an auto-industry executive who says he is a “staunch conservative.” In the 14 years I’ve written columns for Bloomberg News, I’ve had plenty of feedback from investors who said they lost money at the hands of corrupt brokers, plus a steady stream of vitriol from financial executives who say I’m clueless, stupid, and deserve to lose my job. I have never, though, been bombarded with anything like the fury and frustration expressed this time by people far removed from Wall Street, ranging from computer programmers to administrative assistants to the caretaker of an estate. ... Off Wall Street, the rage is palpable. Several readers said they were so enraged that acts of violence were called for against figures in finance.

The heist meme has associated psychological effects. One of these is a developing disconnect between the stock market and the public. During the Reagan years the public became invested in the stock market, both financially and psychologically; what was good for the market and Wall Street was good for Main Street. That connection got exponentially stronger in the mid and late 1990s. The bailouts severed it. Now the public -- again, correctly in my view -- seems to resent every stock market advance as benefiting the same individuals and institutions that got bailed out. Has there ever been a 60% gain in the Dow that's been more hated? This is a sea change in the public's perception of the financial markets, one that I think will last for years and possibly decades. (Side note: One might think Obama and the Democrats, by failing to resolve the ongoing outrage of "too big to fail," ignore the anger at their peril. As the "staunch conservative" shows in the Bloomberg article above, this issue would be an opportunity for Republicans if they weren't in the financial industry's pocket. But they are, and they would rather rant about ACORN anyway.)

One of Wall Street's greatest self-serving achievements since the mid 1990s, with the help of policymakers especially at the Fed, was to make the stock market an institution in American life. When people have basic institutions yanked from them or discredited, whether it's through the destruction of their retirement savings or government-facilitated mass theft, they don't forget it easily. That doesn't mean they get in the streets, as the strangely serene sidewalks in front of the Fed and Wall Street firms demonstrate. But this is the sort of thing that festers. A couple of months ago I saw a clip of a show that Oprah Winfrey did on the economy. One of her guests was a minister from the Midwest who was either retired or close to it. He was despondent. What struck me was his loss of faith in institutions and ideas he had believed in his entire life: the stock market, banks, government, policymakers, regulators, prudence, playing by the rules, the system. One got the sense that even his faith in religion, the main institution in his life, had weakened. He seemed completely adrift.

Losing fundamental institutions can mean different things for different people. Individuals can turn to religion, family, hobbies, or alcohol and drugs. As a nation it can be harder, especially when the institutions represented something as basic as economic security and there's a widespread perception that unpunished -- indeed, rewarded -- impropriety played a role in their loss. As the heist meme spreads, I keep remembering something Thomas Mann said about the lasting impact of early-1920s economic events in his country: "Having been robbed, the Germans became a nation of robbers."

Who's Nutty Now?

As conspiracy theory and paranoia become an integral part of an entire political party's ideology -- from Glenn Beck, to the Birthers, to anti-healthcare reform protesters screaming about Dachau -- it's worth remembering how anything that could possibly be depicted as conspiracism was treated for eight years.

You Can See Where All This Is Going

We'll find out if the allegations are true, but for now I think the main value of this story is seeing 1) how easily "it" happens here, and how unsurprising it is when it does, and 2) the perfunctory and pro forma expressions of disapproval (has the term "regrettable excess" been used yet?) from those who traffic in rage and are institutionally dependent on it, especially the culture-based type. I'd love to find out which cable/radio outlets he's been tuned to during the past week.

A Regular Nostradamus

Bernanke on the unemployment rate earlier this year:

Currently, we don’t think it will get to 10 percent. Our current number is somewhere in the 9s.

Last week it came in over 10%, a new multi-decade high, with most credible observers saying it will head at least a bit higher before topping out. Add it to the long list of bad predictions by Bernanke, just some of which I pointed out near the end of this article.

Look, these screw-ups might be more comical than scary, except 1) the Fed is currently engaged in the largest monetary experiment in history, 2) monetary policy by nature depends on forecasts, making predictive ability an essential part of the job description for any Fed chairman, and 3) businesses and individuals rely on the Fed's economic outlook when making strategic and investment decisions, as do federal/state/local governments planning fiscal and other policies. At this point there are only two possible explanations. Either Bernanke's economic models are flawed to the point of uselessness or he simply says whatever is expedient, politically or for the financial markets, on any given day. Based on his history, I think it's both. And Obama wants to saddle the country with this guy for another four years.

"Pugilistic"

Outside of financial reform and monetary policy, I haven't followed anything that Alan Grayson has been working on. But on those issues I've been extremely impressed. This is someone who's taking positions and asking questions long understood to be taboo, at least if one wanted to avoid getting on the wrong side of some powerful interests. He's in a tough home district, and I hope his constituents realize how much good he's done in the short time he's been in Washington.

Too Big To Ail?

Priorities.

"Everyone Is Extremely Unhappy"

I keep remembering that line from Midnight Express as the inmates walk the wheel: "The bad machine doesn't know that he's a bad machine."