It seems the Paulson-Bernanke-Geithner scheme to save the national bacon is finally bearing fruit. Yes, it has taken trillions of dollars funneled into the banking system by the Fed, the Treasury, and sundry other government agencies, but banks are again starting to be profitable. Just today JPMorgan Chase reported better than expected results. Wells Fargo and Goldman Sachs also came in with happy face quarterlies in recent days.
The only problem here is that making banks profitable again wasn’t supposed to be the end purpose of this strategy. The end purpose was supposedly to bail out the entire economy. That hasn’t happened. Healthier banks haven’t checked foreclosures, generated more employment, or bettered the situation of badly abused small businesses, the bedrock of the American economy.
Realities like this don’t seem to faze our present economic masters, the Washington-based types now playing with our futures. In fact, they now see “glimmers of hope.” Look at how the banks are bouncing back, they say. Look at the stock market, nicely bolstered by stronger bank earnings, they say. Unemployment is increasing more slowly, they say, We appear to have reached a bottom, they say—as if a slightly slower spread of pain, rather than a reduction of pain, is a symptom of cure.
The operative disease here among Washington and Wall Street’s best and brightest is one of the mind. It comes down to a view of the economic world that’s encapsulated in a single phrase now repeated so often by so many people who seem to know what they are talking about that it has gained a reality that has replaced real world reality. Here is that phrase: To save the economy we must first stabilize and make healthy the banking system.
There’s an awful lot of intellectual capital invested in this belief, and the investors here are loathe to admit their investment has gone horribly wrong
Looking back in history, one sees this is not a unique kind of intellectual failure. In the 16th century the Ptolemaic view of the solar system, a geocentric view that held the earth was the center of this system and the sun and all the planets revolved around our own little world, was challenged. A lot of intellectual capital was invested in that view, too. And the establishment types, secular astrologers as well as religious fundamentalists, who owned this capital, didn’t take kindly to upstarts like Copernicus and Galileo trashing their ideas. The Ptolemaic crowd was forced to depend on intellectual fixes like epicycles, impossible retrograde movements of certain planets, to maintain their false beliefs.
Maybe today it’s time to trash the view that getting lenders healthy is job one for our policy makers. That pursuing this end is the really, really important thing to make the overall economy better again. Maybe this notion is a kind of Ptolemaic economics. Maybe learned old-time astrologers have morphed into today’s best and brightest Washington and Wall Street crowds. Maybe the “glimmers of hope” these people see are just another self-justifying epicycle.
Sensible folks like Paul Krugman know what really has to be done. We have to get more money into the hands of real consumers and real businesses via bigger stimulus spending rather than doling endless amounts of government fiscal slops into the troughs of bankers.
Bankers, like animal trough feeders, don’t share. They don’t pass along what they can’t consume themselves. When folks in Washington finally wake up to that fact we might actually start seeing improvement in the financial health of most Americans, not the balance sheets of lenders.