In my column today I argue that the Barclays scandal isn’t an indictment of capitalism, it’s confirmation that humans are prone to corruption. Today we get the news that the city of San Bernadino is going bankrupt. Moreover:
City Atty. James Penman said city budget officials had falsified documents presented to the mayor and council for 13 of the last 16 years, masking the city’s deficit spending.
“For the last 16 years the budget prepared for the council showed the city was in the black,” Penman said, not naming those allegedly responsible. “The mayor and the council were not given accurate documents.”
Notice how nobody is saying that this (or countless other such tales) amount to an indictment of government. Which brings me to a point I really didn’t have room to explore in the column. From a reader:
You are right, of course, in that the banking culture seems to be about doing whatever they can get away with. It may be worse: they do what they do simply because they can.
The most manipulated market price in the world today are US Treasuries. At every auction, the primary dealers (the same players implicated in Libor), submit their indications for price. If the yield is not low enough, the Fed simply steps in and buys creating false demand. Talk about manipulation!
And unlike Libor, which was an indicator for how to price credit, the risk-free US Treasury Bill is the benchmark from which just about every financial asset in the world is priced–corporate bonds, stocks, real estate, etc. This is why the markets are in such disarray today. How do you price something when the traditional benchmark is essentially zero? Any four-year-old with a calculator can tell you that zero times anything, is, well, zero. This is why the JP Morgan “hedge” blew up in their faces. The old models don’t work–everything today is just a guess. And the Fed manipulation of the US Treasury rates is happening in broad daylight, because, well, because they can.
The whole Libor “scandal” is a joke–the sanctimonious are fishing for minnows while standing on a whale.
I think this a good point. What is a scandal or crime in the private sector is par for the course with government. The classic response to this is, of course, yes but government does things in the public good. Well, yes, it is supposed to do things in the common good. That’s why government has a monopoly on force. But that doesn’t mean government officials always do things in the public good.
Moreover, government’s unique responsibilities should make outrage over public corruption so much greater than outrage over private corruption (particularly if government would let corrupt private institutions fail). And while there’s still healthy anger at criminal wrongdoing by politicians, it seems to me there’s insufficient outrage over legal corruption. I’m not really thinking of the classic examples of lobbying and all that. I’m thinking of the sort of stuff Steyn and Williamson get worked up about. For instance, the accounting methods of government are outrageously corrupt. Indeed, if a business used Congress’s standard techniques, its owners would be in jail.
But even that is an argument about accounting compared the basic policy choices of the government, which are serving to bury future generations in debt and threaten to do mortal damage to the country. That’s not an indictment of government qua government. We need government (though less and better government). It’s an indictment of the people who’ve been running it.