Sunday, September 13, 2009

The Legacy of TARP: Crony Capitalism

When Treasury Secretary Hank Paul proposed the bailout of Wall Street banks last September, I objected in part because the TARP meant that government connections, not economic merit, would come to determine how capital gets allocated in the econony. That prediction now looks dead on:

As financial firms navigate a life more closely connected to government aid and oversight than ever before, they increasingly turn to Washington, closing a chasm that was previously far greater than the 228 miles separating the nation's political and financial capitals.

In the year since the investment bank Lehman Brothers collapsed, paralyzing global markets and triggering one of the biggest government forays into the economy in U.S. history, Wall Street has looked south to forge new business strategies, hew to new federal policies and find new talent.

"In the old days, Washington was refereeing from the sideline," said Mohamed A. el-Erian, chief executive officer of Pimco. "In the new world we're going toward, not only is Washington refereeing from the field, but it is also in some respects a player as well. . . . And that changes the dynamics significantly."


Read the rest of the article; it is truly frightening. We have taken a huge leap toward crony capitalism, to our peril.

6 comments:

Mike Huben said...

We heard that sort of silly alarmism 80 years ago, when government saved the banking system. The long term result? About 80 years of banking stability.

Crony capitalism is not a big threat when the supports are open and public, as in the TARP rescue. It is a big threat when it is secret, as in the Bush no-bid contracts for the Iraq war.

Gordon Hutton said...

So why wouldn't open and public (meaning viewable, not government-financed) campaign financing work? Isn't it similar logic at work here?

Eric Napier said...

"When buying and selling are controlled by legislation, the first things to be bought and sold are legislators." - P.J. O'Rourke

Mike said...

And 80 years later the dollar has lost 90% of it's value and we are stuck with debt we can never pay back. The cycle continues.

jerry said...

This process is very negative and insidious.Capitalism and markets have to be mostly fair and trusted. As the public comes to understand the inherent conflicts they will adjust their behavior accordingly in a negative fashion and display a further disregard for rules and ethics.This undermines our system further.The result will be a collapse of capitalism.

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