TPMCafé (Talking Points Memo), September 23, 2008
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With all the urgency and frenzied debate around the Wall Street bailout, it is important that we not forget to still have some fun. With that thought in mind, let's take a moment to mark the sudden transformation of the Wall Street free trade crowd, led by several of the top figures in the Clinton administration, into the Wall Street protectionist crowd.
As Wall Street free traders, these folks argued that we should get the government out of the economy. They wanted to remove the trade barriers that obstructed the free flow of goods and services (especially goods). If this meant that workers had to lose their jobs, so be it. Because they were nice guys, they promised benefits like job training and wage insurance.
But now the Wall Street crew no longer wants to leave things to the market.
Virtually all financial firms are now counting on the Securities and Exchange Commission (SEC) to prop up their stock prices by prohibiting short sales. It seems that there are many investors who think that Goldman Sachs, Morgan Stanley and the rest are not worth their current market price and are willing to bet that their price will fall.
However, at the urging of the Wall Street former free traders, the SEC has made it illegal for these investors to trade based on their assessment of market values. Of course such government intervention distorts market prices and leads to inefficiency. If the shorters are wrong and the banks are really worth more than they believe, their shorting efforts would allow other investors (including the former free traders) to swoop in and buy up shares at bargain basement prices. They actually should be delighted that the shorters are giving them such great buying opportunities.
But, the Wall Street crew is not very sophisticated when it comes to economics. So, rather than let the market run its course, they go running to the government for protection. And, being somewhat more powerful than autoworkers and textile workers, the Wall Street crew has been able to get their protection.
So, there you have it. The Wall Street free traders are now protectionists. It's a new day. (btw, someone should check the listings to see if any of the big shareholders took advantage of the moratorium on shorts to dump large amounts of their holdings.)
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (www.conservativenannystate.org). He also has a blog, "Beat the Press," where he discusses the media's coverage of economic issues.