Sunday, October 19, 2008

"Government Sachs" & the Corruption of Power in the Financial Bailout

In Darwinian Conservatism, I have a chapter on limited government. I suggest that the realist conception of human nature as imperfect supports the need for limited government with a balance of powers under the rule of law. Some of my readers have told me that they don't see the need to make such an argument because, after all, this hardly seems very controversial.

But notice what is happening in the American financial bailout. The U.S. Congress was persuaded that in a time of economic crisis, they should trust Henry Paulson and others from Wall Street firms to exercise virtually unlimited discretion in managing the $700 billion bailout. Now, in an article by Julie Creswell and Ben White in The New York Times, there's a report on what Paulson has done so far--he has given most of the major positions of power over the bailout to his friends from Goldman Sachs. The title of the article--"The Guys from 'Government Sachs'"--comes from the fact that people have coined the nickname "Government Sachs" to describe what has happened. One of the main people appointed by Paulson to direct the bailout is Neel T. Kashkari, who is a 35-year-old protege of Paulson who has no special experience for such a job.

Needless to say, the decisions made by these Goldman Sachs people will directly influence the economic fortunes of Goldman Sachs.

Of course, this is exactly what one should expect to happen when ambitious people are given unlimited power. One observer is quoted in the article as saying:

"Paulson put Goldman people into these positions at Treasury because these are the people he knows and there are no constraints on him not to do so. The appearance of conflict of interest is everywhere, and that used to be enough. However, we've decided to dispense with the basic principles of checks and balances and our ethical standards in times of crisis."

In recent weeks, many people have been saying that the financial crisis shows the need for more intense government regulation of the economy. But isn't it strange to use this argument to support a bailout program that gives unregulated power over the spending of taxpayer money to Wall Street financial managers who created the very crisis that they now say they should be trusted to resolve?


3rdWorldThinker said...

I also felt strongly that they were inherent conflicts of interest that if gone unchecked would have dire consequences. I still remain convince that the Government's decision to toss Lehman aside and implode in a heap of financial dust was a simply foolish and mind-boggling. In my less complicated writing/blog [ ] I hinted at the fact that it was probably something more sinister, more devious, more “Wall St like”, that led Paulson & Co to K.O. Lehman, and prop up his G-Men.
In Darwinian societies there is always the existence of those who have the sceptre have the power, and access to such power allows weaker competitors to survive. I am quite sure AIG is a perfect example of this.
I can't wait to read the untold stories on what really happen that faithful weekend in mid-September.

Anonymous said...

Is there a way of finding out how Goldman will spend their bailout dollars? A strategy paper or plan?