Markets are down in early trading this morning, and you get the feeling that this might not be a terrific week. I’ve been doing some reporting in the financial crisis area–away from foreign policy for a change–and I’ve gotten the clear sense that the bankers still haven’t quite realized (a) how much and why the country is so infuriated with them and (b) how much of a haircut they’re going to have take on their toxic assets. Several experts I’ve spoken with think the market for “toxic assets” will develop more slowly than the President is hoping, if at all.
On late Friday afternoon, a senior Obama Administration official met with a group of Time-Warner journalists in New York and shocked the group of us by saying, “I don’t understand bankers,” even though he’d spent his adult life working with them. And then added that “they don’t understand the scale of damage that they’ve done.”
I suspect the next stage of this is going to be either a tug-of-war, or a flame war, between the Administration and the bankers, who don’t seem to realize yet that the economy they thrived and robbed in–the economy built on making paper profits at the rest of the country’s expense–is over. That was the house built on sand Obama was speaking about in his excellent Georgetown University speech last week. A new economy, built on rock–that is, real products not paper profits–is where the Administration is trying to point us. This will be the historic work of the Obama Administration. The bankers, and their snake-oil selling allies at CNBC and elsewhere, will claim unwarranted government intrusion, the onset of socialiam, the end of the world and prosperity and private jets.
When presented fairly, with nuance, the bankers have an argument that needs to be taken seriously: when it comes to actual goods and services–which hybrid automobile engine is best–the market is inevitably a better judge of quality than the government. But untrammeled markets, in which Ponzi products are traded back and forth, need to be policed and eliminated–and the government has an important, and necessarily intrusive, role in channeling us back toward a rock-solid foundation and away from the flim-flam that is choking us. That is where we stand now. That is what the bankers refuse to acknowledge, but it is what the public voted for last November.