At Moment of Truth, Where Was Dagny Taggart?
The front page of today's Wall Street Journal carries a story titled "At Moment of Truth, U.S. Forced Big Bankers to Blink." In the quarter-century I've been reading the Journal, I've never read a news story that was more disturbing.
The article describes the Monday, October 13 meeting between government regulators and top executives from nine of the nation's largest banks. "On one side of the table sat Treasury Secretary Henry Paulson, flanked by Federal Reserve Chairman Ben Benanke and Federal Deposit Insurance Corp. Chairman Sheila Bair.
"On the other side sat the nation's top bank executives, who had flown in from around the country, lined up in alphabetical order by bank, with Bank of America Corp. at one end of the table and Wells Fargo & Co. at another."
The government officials most responsible for causing the financial crisis ordered the bankers to appear at this meeting, with no explanation of the purpose of the meeting. ("Come on down, we'll tell everyone at the same time," Paulson reportedly told Morgan Stanley CEO John Mack.) Isn't that an astounding thing for a country that thinks of itself as a democratic capitalist society? What if Mr. Mack had said "no thanks"? Would he have been arrested? But as you'll see in a moment, there was little chance of that happening.
"As the meeting neared a close, each banker was handed a term sheet detailing how the government would take stakes valued at a combined $125 billion in their banks, and impose new restrictions on executive pay and dividend policies." The bankers were told "they weren't allowed to negotiate. Mr. Paulson requested that each of them sign. It was for their own good, and the good of the country, he said, according to a person in the room."
My mind reels. A command appearance before government regulators was followed by a command (not a "request") surrender of autonomy by the nine biggest banks in the U.S. A forced "sale" of preferred shares to the government was ordered in return for billions of newly minted dollars from the Fed with instructions that it immediately be loaned out to "thaw" the frozen credit markets.
Surely this wasn't happening in America. The very notion of bureaucrats telling business leaders what they must do "for their own good, and the good of the country" makes me want to throw up. Preposterous. By what authority? How would they know? What conceit!
How did America's leading bankers react? Did they laugh in the regulators' faces, tear up the "term sheets," and storm out of the room? Did they hold press conferences condemning this high-handed and obviously unconstitutional attempt to intimidate and steal private assets? Not exactly.
"Morgan Stanley Chief Executive John Mack, whose company was among the most vulnerable in the group to the swirling financial crisis, quickly signed." Thank you, Mr. Mack, for being first in line to sell out your customers, your business, your country, and maybe a 250-year history of economic and political freedom.
There was apparently a brief moment during the meeting when freedom's hope raised its hand in protest. "During the discussion, the most animated response came from Wells Fargo Chairman Richard Kovacevich, say people present. Why was this necessary? He asked. Why did the government need to buy stakes in these banks?"
Thank you, Mr. Kovacevich, for at least asking the right questions. But by the end of the meeting, he too had signed the "term sheet." Too little, too late.
Missing from this meeting was someone willing to play the role of Dagny Taggart, Ayn Rand's heroine in Atlas Shrugged, who saw government incompetence, corruption, and moral bankruptcy all around her and vowed not to join other businesses in capitulating to it. Like Mr. Kovacevich, she would have challenged the need for another government bailout. More than that, she would have challenged the bureaucrats' right to call such a meeting, to make such demands, and most especially to claim the moral high ground by claiming to speak on behalf of the "good of the country."
"My 'term sheet' is the Declaration of Independence and the U.S. Constitution," Dagny Taggart might have said by way of a conclusion. "If you really want to solve this financial crisis, and not just expand your budgets and power, you have to do just one thing: Get the hell out of my way."
It's a sad day for global capitalism that none of the bankers at Monday's meeting had the nerve to say what Dagny Taggart might have said. If there is a glimmer of hope, it is that capitalism has never relied for its survival on the courage or convictions of the few--not political leaders, and especially not a few bankers, however big their financial empires might be.
The left is trumpeting the current government-made financial crisis as "the end of capitalism." Neocons fire back that the crisis was the result of government failure, not market failure. Notice the failure to engage, though. Both sides can be right.
A long train of government policy mistakes led to the financial crisis, but the capitulation by business leaders to the demands and claims of government officials has turned what could have been a contained and short-term economic problem into a genuine threat to the very survival of capitalism, and with it, of democracy.
Joseph L. Bast (firstname.lastname@example.org) is president of The Heartland Institute.