Banks and Boneheads

As some of our readers know, I work just off Wall Street late each week. This past week that means I've walked past ‘occupiers' every morning – an enthusiastic group of protesters, aiming now to reclaim the American financial system for ‘the people.' It's a carnival out there – drumbeats, vuvuzelas, lots of chanting, all beneath the watchful gazes of a hundred or so patient New York City cops. When first I read about the then-planned ‘occupation,' I anticipated probably what most would have expected. Lots of blue hair, dreadlocks, nose rings, sweaty tie dyed shirts and obscure home-made signage. Signs that might read ‘9/11: Inside Job!,' or ‘No More Crony Capitalism!' Surprisingly, however, this week's signs were more intelligible, and apt, than that. One read ‘Credit Union Power!' Another one said ‘Long Live Community Banks.' Wow, I thought, before long these folk might decry ‘disintermediation,' maybe even ‘the originate to distribute model.' Clearly they have done their homework. (At least I was right about the hair and shirts and nose-rings, though.) Now contrast these ‘occupiers'' message with what's come from several of the suit- and tie-clad white men occupying Washington this week. Richard Shelby, a member of that putatively ‘greatest deliberative body in the world' – the US Senate – introduced new legislation designed to obstruct implementation of the 2010 Dodd-Frank Wall Street Reform Act. Why? Because, he says, rulemaking under the Act is apt to mire ‘job-creators' in red tape. Huh? Those who brought you credit bubble after credit bubble, all of which have burst and left us now with job-destroying debt-deflation on a scale not seen since 1930, these are ‘job-creators' in the drawling brain of Mr. Shelby. Apparently he hadn't read, by way of one example, of Bank of America's laying off some 30,000 workers earlier this month – or about the role its buying subprime lender Countrywide played in its present troubles. When you think about it, though, you realize we shouldn't really be surprised. For this, you might remember, is the fellow who has blocked appointment to our Federal Reserve Board of the Nobel-winner Peter Diamond, an expert on both labor markets and social insurance. Those of course are subjects of considerable interest now that unemployment's still above 9% and Social Security's in need of some repair. Yet not that interesting to Mr. Shelby, it would seem. But wait, there's more. While Mr. Shelby twangs away there in the Senate against financial regulation in the wake of a financial crisis, others like him occupy the House and hold it hostage, keeping it from acting in the name of stimulating real job-creation at this time when businesses, sitting on their piles of retained earnings, can't. As anyone with even so little as half a year of economics education knows, debt deflations, which are times when individual consumers must retrench and hold off spending, are precisely those times that our governments must take up slack and spend themselves. If they don't do it, no one will, hence business revenues will drop, employment rolls will shrink yet further, and we're on the merry way of ‘downward spiral.' So what do Shelby's confreres in the House do, while we're mired in our worst deflation since the 1930s? Well, first they bring the nation to the brink of bankruptcy – for the first time in its 230 year history – all in the name of forcing it too to retrench while citizens aren't spending. That's right – they nearly force the nation into deadbeat status so as to ensure the debt-deflation gets as bad as it can be. You remember that from last month. But then, this week, they do even more… You see, the Chairman of that Board which oversees our nation's central bank, himself a Republican, seems to understand some things that others in his Party don't. He knows debt deflation very well, having made a scholarly career of studying the worst one we had had till now. Hence he knows that fiscal policy should be expansionary now, while its counterpart – that monetary policy which constitutes the other blade that with the fiscal makes for ‘scissors' – has to be accommodative. So the Chairman improvises masterfully with innovative policies that keep the cost of money low, so's to make investment as attractive as can be from the supply side, all while recommending that the Congress too now do its bit and add its spending power to the demand side. You might have thought, in light of these impressive moves, that the Chairman would be listened to and lauded by those members of his party who control the House. After all, the last guy they put in, the one named ‘Greenspan,' made a hash of things. So you'd have thought that they'd be eager to associate themselves with this far better fellow. But you'd be wrong. Instead they violate the cardinal rule of modern monetary economies with central banks, which is that the central bankers must be insulated from political considerations. They write the Chairman urging him not to do … what every central banker is on earth to do – to ease the money during busts and tighten it in booms. That's right, ever-angry Representatives Boehner and Cantor – with an assist from ever-startled Senator McConnell – write a letter to the Chairman, demanding he pretend that, instead of the expert head of our central bank that he is, he is just another economically illiterate hack in the bonehead faction of our Congress. And in so doing they now add their names to that still growing list of loons from whom we've heard all year about the evils of a modern money-modulator like the Fed. People like Ron Paul just off his UFO, Rick Perry leading his lynch mob, and Michelle Bachman with those foam-flecks all over her lips – people of the sort of whom you say, on seeing them in subways, ‘don't catch his eye.' It's almost enough to lead you to prefer technocracy to democracy, is it not? But only almost. For it's not democracy that landed creatures like the aforementioned in our Congress. Were ours a democracy and not a plutocracy, surely it would be the Wall Street occupiers who'd be in the Capitol before it'd be these strumpets of the Chamber of Commerce.