Events almost overwhelm. As I write, President Obama is in Europe winding up the G-20 meeting and the rest of his tour, the Financial Accounting Standards Board (FASB) is revisiting “mark to market” accounting rules as they apply to financial institution asset write-downs, the stock market is showing signs of a bear market rally, the Obama administration is taking complete control of what is left of the U. S. auto industry, and the loyal opposition is finally offering a somewhat coherent response to the majority-proposed federal budget. Meanwhile, it seems to serve the transformative agenda of the left to put all of this in the context of the latest and most egregious “failure of capitalism”.
Where to start? First, the G-20 is unlikely to produce anything of any real import in terms of a resolution of the financial crisis. As with all government activity, the best to be hoped for is that no harm will be done. However, I am worried about what I am hearing of a proposed international “financial stability board” that would almost certainly attempt to challenge national sovereignty in financial institution regulation, a horrible idea. But, given the facts on the ground, the world economic ball game right now is in the hands of the U. S. and the Chinese–no one else has the capacity to make a significant difference. This may be an oversimplification, but it’s my take. Maybe one of these days a “new Bretton Woods” would be a good idea, but not under present management.
The FASB is doing the work that should be handled by the bank regulators. Mark to market accounting is sound accounting theory, but should be adjusted by regulators in times of severe market aberrations and disruption so that forbearance can be granted in regulatory capital computations so as not to force insolvency on institutions whose cash flow is otherwise sufficient to maintain viability. Hopefully, this forbearance can be achieved so that the banking industry can regain stability.
I will defer judgment on the stock market, except to say that there will not be stability in the markets until government develops a much more consistent approach to the resolution of the banking crisis and the auto industry and tones down its constant anti-Wall Street rhetoric and its policy attacks on capital and wealth.
As for the auto industry, George Bush should have forced both GM and Chrysler into bankruptcy before he left office. Having said that, every day that passes before that happens adds to the uncertainty of the timing of this almost certainly inevitable event and the ultimate cost to the country. The bankruptcy courts were created in the late 19th century for just such circumstances. The fact that we can’t bring ourselves to do the necessary thing is a tribute to the unseriousness of this administration, which is interested only in pursuing its notion of a highly politicized “green” industrial policy and “surgical bankruptcy” for the protection of the United Auto Workers, both of which will be counter-productive to the measures that must be taken to restore the industry to any semblance of viability. But remember, Obama’s ultimate objective is to completely rewrite the American social contract and the relationship between the citizen and government–the crisis of the automobile industry just happens to be one great opportunity to advance this objective.
Finally, at last, we are seeing some response to the irresponsibility of the administration’s reckless fiscal policies. The Republican alternative budget laid out this week is coherent and representative of the best principles for which we should stand. Chief among these that have been articulated by Congressman Paul Ryan of Wisconsin is the notion that, for all our mistakes, America is an exceptional nation and we want to keep it so. This means, among other things, that we have no interest in what Ryan appropriately calls the “third and final great wave of progressivism” that will mark the moment that America turned European.
The differences in the two plans and the difference they make are dramatic, not simply in financial terms, which are striking enough, but in terms of basic morality. A fundamental philosophical tenet is that societal rights and obligations must be in balance–for each “right” that is claimed, someone must be obligated to provide it and defend it. And, as for the future of capitalism, what we need is more of it, not less, because not only is it the only way out of all this, but it is the most moral of systems known to man, and the only one that offers any hope of properly balancing rights and obligations within a moral order.