Inside the mind of a financial dictator — VOICES for REASON

The scene: an ostensibly civilized White House gathering between President Barack Obama and executives from the nation’s largest financial institutions. The subject? According to President Obama:

My main message in today’s meeting was very simple: that America’s banks received extraordinary assistance from American taxpayers to rebuild their industry, and now that they’re back on their feet we expect an extraordinary commitment from them to help rebuild our economy . . .[this] starts with finding ways to help creditworthy small and medium-sized businesses get the loans that they need to open their doors, grow their operations and create new jobs . . . we expect them to explore every responsible way to help get our economy moving again.

A hallmark of dictatorship is the view that individuals, including market institutions, are incapable of making rational decisions for themselves, and thus must be compelled to act rationally by some higher authority. Obama’s latest meeting illustrates that he holds this view of banks, and that he is more than happy to be the higher authority that tells them when to lend and whom to lend to.

Do I exaggerate? Let’s study Obama’s terminology carefully. First of all, recognize the euphemisms. When Barack Obama says he “expects” banks to do something, he is ordering them to do something. Everyone in the room knows that he has fired the CEO of GM, everyone remembers how Bank of America was railroaded into a deal with Merrill Lynch, everyone remembers how healthy banks were forced to join TARP—everyone knows that today, any President, and certainly President Obama, can pretty much destroy them if they are recalcitrant.

By itself, this is abominable. But what he is ordering them to do reveals the true depth of his contempt for economic freedom. Here, he is ordering the banks to make an “extraordinary commitment . . . to help rebuild our economy”—and to “help creditworthy small and medium-sized businesses get the loans that they need to open their doors, grow their operations and create new jobs.” Newsflash, Mr. President: this is exactly the type of activity that the profit motive leads businessmen to do. The purpose of a bank is to make money by lending or investing money at a profit, which means: putting it in the hands of those who will use it to create wealth. When banking is not infected by government handouts or bailouts, it is an extraordinarily virtuous, productive activity in which capitalists make money by putting wealth to its most productive use. What banker, if he judges a borrower to be “creditworthy”—that is, worthy of credit on the grounds a loan to him will be profitable—will not lend him money? What banker, in helping to fuel businesses with capital, is not vital in the process of building an economy?

By ordering banks to, in effect, be productive, President Obama is asserting his authority to determine what constitutes productive behavior, “creditworthy” loans, and “responsible” risks for bankers to take. He is saying that, without his compulsion, banks will act destructively, as parasitical “fat cats”—a term he brazenly used to describe all of Wall Street on Sunday.

As evidence, Obama would surely cite the financial crisis. But the whole genesis of our financial crisis was that the government manipulated the market to promote loans that bankers would not normally make—through artificially low interest rates, through government-guaranteed mortgages, and through the government-induced housing boom that resulted from these and other policies. Proper, free banking requires that bankers be free to use their best, uncoerced judgment about when it is a good idea to put capital at risk and when it isn’t—who is “creditworthy” and who isn’t, what is a “responsible way” to invest and what isn’t.

To defend his meeting with banks, Obama might also point to a decline in lending to what would under normal circumstances be creditworthy candidates. In the dictatorial mindset, this must be a problem caused by individual freedom. In reality, the government is the villain: the uncertainty it is creating, through an even larger government presence in health care, through capping our most practical sources of energy, through annual trillion-dollar deficits that have to be paid off somehow, and of course its increased manipulation of financial markets, all make it more risky to make loans to new candidates. In other words, Obamanomics has turned many otherwise good credit risks into bad credit risks.

But in the financial dictator’s mind, free institutions can do no right and he can do no wrong. So he is ordering them to make loans to “small and medium-sized businesses” that they don’t believe are good loan candidates—which is exactly the sort of policy that led to an orgy of subprime lending. Except this time, instead of the orders being subtly implemented covertly through the Federal Reserve, Fannie Mae, and Freddie Mac, the President of the United States feels comfortable enough to deliver them from his own home, and glowingly recount to the media how he is dictating to the banks what they’re going to do. For the banks, it’s an offer they can’t refuse. For Americans, the burgeoning financial dictatorship is an institution against which we must rebel.

flickr: Darwin Bell