West Wing America, Where It Pays to Fail

In the current financial crisis, the model of US capitalism has imploded with a big bang. But the Bush administration is trying to douse the flames with yet more fuel instead of water, and it wants to see Wall Street's gamblers rewarded for failure.

By Gabor Steingart in Washington

A contemplative trader on the floor of the New York Stock Exchange.

A contemplative trader on the floor of the New York Stock Exchange.

More than 100 years ago, German sociologist Georg Simmel criticized the banks for being even bigger and more powerful than the churches. His chief complaint -- that money is the new god of our times -- is still heard today. If Simmel was right, and there are some indications that he was, his statement would have to be modified to suit today's circumstances: Not all people pray to the same god.

Among the money worshippers, there are at least three faiths. First there are the Puritans, who patiently carry their money to the new churches, hoping that it will multiply. The average Chinese, for example, deposits 40 percent of his income in banks. What laudable discipline! Then there are the Pragmatists. They save and lend, but only in that order; their savings limit their boldness. This persuasion is especially prevalent in the Germanic countries, where the savings bank is the shrine.

Finally, we have the religious community of the Uninhibited, which is especially popular in the United States. Its adherents readily admit to intentional recklessness, wanton waste and omnipresent greed.

They call it "the American way of life." Its members live in the here and now, without asking questions about tomorrow. One lends money to another, even though it's not his money. Instead, he has borrowed it from a third person, who has promised to procure it from a fourth person -- and so on.

Southampton : The Evidence Trail Begins

This religious community is the most devout of them all. Some time ago, it adopted the practice of treating anticipated money like real money and equating desire with reality. Whatever shred of inhibition they had was now shed.

Since everybody knew that desires outnumbered dollars, the inevitable result was a certain funding gap, or deficit. Capitalism without capital -- the audacious heart of the innovation -- could not function. There is no worldly salvation -- at least that was a conclusion that the old God, the one bearing the cross, and the new god, the one with the dollar signs in his eyes, could agree on.

And so the inevitable happened: the big bang. Three of the five US investment banks lost their independence, while the other two are still floundering. Two mortgage banks and one insurance company are now under government administration.

The global financial system has been shaken, horrifying the members of the other two faiths. There may be three religions, but there is only one sky. If it falls down, everyone dies.

A search for evidence to pinpoint those responsible should most likely begin in Southampton, a seaside getaway for the moneyed elite. The town, on the eastern end of Long Island outside New York City, offers a glimpse of how attractive greed can be.

It is a place where stock options have been transformed by the hundreds into fairy-tale castles at water's edge. By taking advantage of tax loopholes, Wall Street's financial gurus managed to spirit their bonuses out of the city more or less intact. Under US tax law, compensation in the form of stocks and warrants is taxed at less than half of the highest tax rate. As a result, the incomes of many bankers are taxed at a lower rate than those of their secretaries.

How Minus Turned to Plus

The owners of these mansions by the sea are not there right now, so further investigation requires a train ride into New York. In the Midtown high-rise housing the offices of Lehman Brothers, which is in the process of bringing its own history to a close, there is more to be discovered about the sequence of events. Billions of dollars were lent to people who were not creditworthy for condominiums and houses that were not valuable. In the cheerfully cynical jargon of bankers, these types of loans were dubbed "NINA," short for "No Income, No Asset."

And yet things were going well in the world of the moneylenders. The miraculous increase in the money supply helped housing prices rise by more than 70 percent between 2000 and 2006. The industry had managed to turn a profit by increasing risk. On the balance sheets, at least, minus had turned to plus.

In better times, one would have called the bankers enterprising; today, they are being called irresponsible. Even before the term investment banking was coined, Karl Marx knew how the two things were related: "Capital is as terrified of the absence of profit or a very small profit as nature is of a vacuum. With suitable profits, capital is awakened; with 10 percent, it can be used anywhere; with 20 percent, it becomes lively; with 50 percent, positively daring; with 100 percent, it will crush all human laws under its feet; and with 300 percent, there is no crime it is not willing to dare, even at the risk of the gallows."

Paulson's Faith

Now the trail leads from New York to Washington, where US Treasury Secretary Henry Paulson has his office on Pennsylvania Avenue. His department is so important that a garden gate connects the grounds of the Treasury Department with those of the White House. Paulson took a hands-off approach to the banks, and he now plans to take on their losses. He has become something similar to reinsurance for high finance. His goal is to eliminate the gallows -- but not the greed.

Paulson was once a Wall Street banker himself. He is a man with good manners and firm principles. In normal times, he has faith in the market, God and George W. Bush. In times like these, he prefers to put his trust in the government, taxpayers and Bush.

Contrary to what has been widely reported, Paulson does not intend to use tax revenues to finance the bailout. Instead, he plans to take up billions in new loans on behalf of the US Treasury. "I hate the fact that we have to do it, but it’s better than the alternative," he said last week. The president has already nodded his approval.

That's what happens to religious communities when they come under pressure: They become even more devout. The same short-term way of thinking that triggered the disaster in the first place is now supposed to bring it to an end. The government is attempting to put out the fire with fuel, not water. In fact, it is precisely the same fuel that sparked the flames on Wall Street in the first place: borrowed money.

The only difference is that the new loans would not be coming from the sixth, seventh or eighth member of the religious community. Instead, they would be collected from all taxpayers put together. It would represent an elimination of the separation between church and state, with Wall Street becoming the national religion.

The common ground with the other two religious communities is already in the process of disappearing. Things that were considered inseparable in the days of the time-honored market economy -- such as value and consideration, wage and performance, risk and responsibility -- are now being torn asunder in the name of the government. The capitalism on display in America today is a beaten and degraded version of its former self.

The actions of politicians are amplifying rather than mitigating the effects of economic failure. American-style capitalism hasn't died yet, but it is merely preparing its own demise. The history of these days is the history of a death that has already been announced. Which brings us to Miss Marple.


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