The Wall Street Journal had an editorial yesterday morning about President Obama and the banks that makes some excellent points about how banks are caught in between demands to lend more and demands to lend less. A couple of other aspects of the editorial are worth comment. Says the Journal, "if Mr. Obama wants the banks to lend more, he should tell the Fed to start to rein in its excessively easy credit now that the financial crisis is over and the economic recovery gains steam." Interesting that the Journal thinks we're in an economic recovery. Does that mean the stimulus worked?
The editorial suggests the Fed has mismanaged monetary policy, but it doesn't make the leap from that view to questioning whether we should have a Fed at all. Perhaps that is because it was written before Monday night's dinner between Journal editorial page editor Paul Gigot and "End the Fed" author Rep. Ron Paul.
The editorial makes the point "you don't encourage capitalism by beating up capitalists." But it's not really clear that the government-backed bankers Mr. Obama is beating up really are capitalists in a desirable, free-market sense, as the Journal itself has pointed out in earlier editorials.
One key factor is whether the TARP money was essentially forced upon the banks by the government or whether the banks made a more or less free choice to accept it. If the government forced the banks to take the money, it's hard to blame the bankers; if the bankers chose to take it, it's not surprising that it comes with strings attached, as government money nearly always does.
The Journal now seems to be criticizing Mr. Obama for making essentially the same argument that the Journal itself made back in its July 16 editorial:
for the moment, Goldman Sachs -- or should we say Goldie Mac? -- enjoys the best of both worlds: outsize profits for its traders and shareholders and a taxpayer backstop should anything go wrong. We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business.
As for "beating up capitalists," how about the Journal's disparagement of "high-rolling hedge funds"? We had our own comments on the Obama "fat cats" remark Monday (the part of the interview in which he likened the bankers to suicide bombers seems for some reason to be attracting less attention.) All of this a long way of saying it's sometimes a little hard to disaggregate the underlying principles in the Journal editorials from the desire to take shots at Mr. Obama.