Why Americans Hate E.J Dionne

E.J. Dionne's first book, Why Americans Hate Politics, was a success in its time because it argued that there was a disconnect between what politicians argued and what the people actually wanted their political system to accomplish. One could argue that Dionne has spent the rest of his career proving that his caution about politicians could also be applied to Washington pundits.

Bear Stearns a year ago had a net worth of $11.7 billion, when it was sold to JP Morgan, with a $30 billion line of credit backing the deal, it was sold for the equivalent of $236 million. Put another way, what sold for $160 a year ago sold for $2 (per share price) over the weekend. By either calculation that's a pretty hefty drop. Most financial analysts suggest that JP got a montster deal. But in a column which was reprinted in this morning's Bee one of the Washington Post's lead defenders of more government sees the transaction as a verification that Wall Street is made up of welfare queens. He makes that comparison because most on Wall Street want a differential rate for capital gains and many oppose inheritance taxes. The way he sees it all government policies are subsidies and capital gains are welfare payments for the rich. Even for Dionne, who can be a hyperbolic at times in his rants, this column was a bit over the top.

He quotes former Maine Senator Bill Cohen as saying that free markets are great until you need the government. It is an odd justification for his brand of interventionism on at least two counts. Dionne seems inordinately ready to charicature supporters of markets in the starkest terms. One wonders how he would have described the savings and loan debacles of a couple of decades ago, which were brought on not by unbridled capitalism but by changes in government policy (noticeably the increase in the limits of deposit insurance limits and the broadening of investment guidelines for S&Ls). At the same time he seems to believe that ALL government interventions are neutral in terms of market effects.

Ultimately, the fall of Bear (like the fall of Goodbody, Bache, L.F. Rothschild, Barings, etc.) is a sign of change in the market. Markets are not predictable. Nor should they be. And, despite Dionne's protestations, government interventions do not reduce the uncertainties of markets.

Would Dionne have us go back before mortgage obligations were not bundled and collateralized? Would he go back to an era when mortgages were only for five year periods? Would he argue that only Fannie Mae and Freddie Mac (certainly not paragons of financial strength) should be the only arbiters of liquidity in the housing market? Of course not. Welfare queens indeed.

Adam Smith warned that capitalists tend to collude when given the chance. But remember, Smith's book was about Mercantilism, the ultimate governmental policy for markets.