announcement. In it he explained to American citizens that for the next fifteen days they would be free to buy financial company stocks, but not to sell them.
The short-selling ban was the product of naked Wall Street aggression, and in the case of Morgan Stanley there could be no doubt as to the true purpose. The Morgan Stanley stock had dropped from $80 per share to $40 on the eve of the crisis, had fallen to $20 upon the Lehman filing, and by the end of September was at $7 and sinking fast.
Thus, in the final weeks of September leading to the fateful October 3 approval of TARP, Washingtonâs action was being driven by an overriding Wall Street imperative; namely, saving the stock price of Morgan Stanleyâand those of Goldman, JPMorgan, Bank of America, and Citigroup, tooâfrom the fate of Lehman Brothers, and assuring that the personal wealth of John Mack and the remaining Wall Street titans would remain intact.
Within a fortnight, of course, the danger had already passed. Armed with gifts that only the sovereign state can bestowâa ban on short selling of its stock and $100 billion of cash based on junk collateralâMorgan Stanley evaded Mr. Marketâs wrathful attack and not only remained open for business, but saw its stock price recover smartly. By the end of the year it had tripled, and within twelve months had risen fivefold from the time of its bailouts.
Nor was Morgan Stanley given special rank in the hierarchy of Washingtonâs bailout dispensations. From the same liquidity fire hoses which powered cash into Morgan Stanley, nearly the identical amount went to Citigroup at $100 billion, Bank of America at $91 billion, Goldman Sachs at $80 billion, and nearly equal amounts to the leading banks of Europe. All told, the Fed dispensed nearly $700 billion in emergency loans during the last months of 2008, doubling down on the appropriated money provided by TARP.
At the end of the day, this trillion-dollar infusion of capital and liquidity from the public till had a single overarching effect: it nullified in its entirety the impact of Mr. Marketâs withdrawal of a similar magnitude of funding from the wholesale money market. So the very monetary distortionâthe availability of cheap overnight funding in massive quantitiesâupon which the Wall Street financial bubble had been built had now been recreated at the lending windows of the Fed, FDIC, and the US Treasury.
The opposite path of liquidating the Wall Street bubble was eschewed, of course, not only because it would have meant massive losses to speculators in the stock and bonds of Goldman Sachs, Morgan Stanley, JPMorgan, and the remaining phalanx of the walking wounded. Crony capitalismalso triumphed because in muscling the system during the white heat of crisis, Wall Street had plenty of intellectual cover. The fact is, mainstream economists of both parties were trapped in a Keynesian dead end, proclaiming that the solution to the crushing national debt load which had actually triggered the financial crisis was to pile on more of the same.
Accordingly, banks which were âtoo big to failâ couldnât be busted up, since they were allegedly needed to shovel more credit onto already debt-saturated household and business balance sheets. Likewise, speculators who should have suffered epochal losses during the meltdown were resuscitated by Fed-engineered zero interest rates in the money market, thereby quickly reviving the same massively leveraged âcarry tradesâ in commodities, currencies, equities, derivatives, and other risk assets which had brought on the crisis in the first place.
THE BONFIRE OF IDEOLOGIES
In a narrow sense, the GOP was responsible for this calamity. Republican administrations had turned the nationâs central bank over to money printers and Wall Street coddlers not only by appointing Greenspan and Bernanke, but also by celebrating the phony prosperity they fostered as evidence of
The short-selling ban was the product of naked Wall Street aggression, and in the case of Morgan Stanley there could be no doubt as to the true purpose. The Morgan Stanley stock had dropped from $80 per share to $40 on the eve of the crisis, had fallen to $20 upon the Lehman filing, and by the end of September was at $7 and sinking fast.
Thus, in the final weeks of September leading to the fateful October 3 approval of TARP, Washingtonâs action was being driven by an overriding Wall Street imperative; namely, saving the stock price of Morgan Stanleyâand those of Goldman, JPMorgan, Bank of America, and Citigroup, tooâfrom the fate of Lehman Brothers, and assuring that the personal wealth of John Mack and the remaining Wall Street titans would remain intact.
Within a fortnight, of course, the danger had already passed. Armed with gifts that only the sovereign state can bestowâa ban on short selling of its stock and $100 billion of cash based on junk collateralâMorgan Stanley evaded Mr. Marketâs wrathful attack and not only remained open for business, but saw its stock price recover smartly. By the end of the year it had tripled, and within twelve months had risen fivefold from the time of its bailouts.
Nor was Morgan Stanley given special rank in the hierarchy of Washingtonâs bailout dispensations. From the same liquidity fire hoses which powered cash into Morgan Stanley, nearly the identical amount went to Citigroup at $100 billion, Bank of America at $91 billion, Goldman Sachs at $80 billion, and nearly equal amounts to the leading banks of Europe. All told, the Fed dispensed nearly $700 billion in emergency loans during the last months of 2008, doubling down on the appropriated money provided by TARP.
At the end of the day, this trillion-dollar infusion of capital and liquidity from the public till had a single overarching effect: it nullified in its entirety the impact of Mr. Marketâs withdrawal of a similar magnitude of funding from the wholesale money market. So the very monetary distortionâthe availability of cheap overnight funding in massive quantitiesâupon which the Wall Street financial bubble had been built had now been recreated at the lending windows of the Fed, FDIC, and the US Treasury.
The opposite path of liquidating the Wall Street bubble was eschewed, of course, not only because it would have meant massive losses to speculators in the stock and bonds of Goldman Sachs, Morgan Stanley, JPMorgan, and the remaining phalanx of the walking wounded. Crony capitalismalso triumphed because in muscling the system during the white heat of crisis, Wall Street had plenty of intellectual cover. The fact is, mainstream economists of both parties were trapped in a Keynesian dead end, proclaiming that the solution to the crushing national debt load which had actually triggered the financial crisis was to pile on more of the same.
Accordingly, banks which were âtoo big to failâ couldnât be busted up, since they were allegedly needed to shovel more credit onto already debt-saturated household and business balance sheets. Likewise, speculators who should have suffered epochal losses during the meltdown were resuscitated by Fed-engineered zero interest rates in the money market, thereby quickly reviving the same massively leveraged âcarry tradesâ in commodities, currencies, equities, derivatives, and other risk assets which had brought on the crisis in the first place.
THE BONFIRE OF IDEOLOGIES
In a narrow sense, the GOP was responsible for this calamity. Republican administrations had turned the nationâs central bank over to money printers and Wall Street coddlers not only by appointing Greenspan and Bernanke, but also by celebrating the phony prosperity they fostered as evidence of
Similar Books
