Dear Dr. Bernanke,
My nephew is a bad kid. He’s into drugs, engages in high-risk sex, and has a steady stream of brushes with the law. But he always manages to avoid prosecution- probably because he is smart and good looking… and he has a rich uncle.
Recently he got into trouble. He was involved in some illegal gambling and had resorted to the Martingale strategy – right up until he ran out of money. Just as he lost that last hand, the hall was raided and he was arrested. I had, in the past, told him that if he ever needed help, he should call. But this time was tough for me. I knew that I could throw money at the situation and the problem would disappear; the gamblers would go away, the police would go away, and there would be no court case. I would basically restore public confidence in this boy by buying his way out of scrutiny. He would then go on to screw up another day – probably in a much bigger way.
The alternative was for me to let him collect his lumps, and watch as he got a taste of where he would end up if uncle was not around to bail him out – or if uncle chose not to bail him out because he was the cause of all his trouble.
I had to decide what the moral thing was for me to do: Shower the situation with money and make it go away; or let him learn a hard lesson – replete with bruises and a likely criminal record.
From the public’s point of view, the answer was obvious; society would be better off if I let him take his lumps. He might be scared straight. And a criminal record would constitute a public record – a warning to anyone who took the time to find out about his proclivities.
But personal morality is a different beast. I have a certain loyalty to my brother to think about. And I did promise my nephew that if he ever got into trouble, I would be there for him. At the time, I did not include any contingencies in that promise. And it would break my mother’s heart if my nephew went to jail – or if he was beaten up for not paying his debt.
I had to side with my posse, Dr. Bernanke. I bailed out my nephew. I paid off his gambling debt. And I found a lawyer who knows the DA – and the whole problem disappeared. It cost me a few dollars – but my brother is forever grateful. And my mother remains happy and ignorant. The cost to society, on the other hand, is going to be higher; this kid now thinks he’s untouchable. Watch out, world.
On the face of it, your and my decision-making processes seem similar. Faced with a moral question of how best to restore confidence following a crisis, you too decided not to let your nephew-equivalents take their lumps; you shoveled money, just like I did, to protect those bad apples… to restore confidence in them… to restore confidence in the system.
There are a few differences in terms of the decision you made and the decision I made. For example, who, for you, is the equivalent of my brother? And who, for you, is the equivalent of my mother? And I was using my own money – thus the money was used in a way that would benefit me and my interests. Whose money were you using?
I am playing with you, Dr. Bernanke. I know where your allegiances lie, and whose money you used; you used my money. And your brothers and nephew are bankers – bad bankers. You took my money, and you funded your posse so that they would not have to face the repercussions of their dangerous ways. That is not moral, Dr. Bernanke. And it is a lot more dangerous than me letting my no-good nephew continue down his self-destructive path. I protected an insignificant fool with my own money, while you took my money and protected a behemoth – a massive, corrupt, and systemically dangerous juggernaut – in a way that ultimately imperils me, my family, and my community.
I may have done something unseemly from a public perspective, but it was my prerogative and I did what I had to do to protect my family. You did something obscene from a public perspective; you used the public’s money to protect a corrupt core of powerful criminals who had imperiled our entire economy – and who, thanks to your largess, will eventually do so again. That is not central banking, Dr. Bernanke; that is centralized criminality.
You had a choice when it came to how you were going to restore confidence in our economy. You could have done it in a way that eliminated many of the industry people and practices that led to the crisis – in which case our confidence would arguably be based on having a more sound financial sector; or you could have sought to restore confidence by reinforcing the status quo – systemically dangerous institutions and people who pose a threat to our well-being – by flooding the financial sector with no-strings-attached money. You, somehow, chose the latter approach. You chose to protect the wrongdoers at the expense of the victims, you did it with the victims’ money, and you did it in such a way so as to guarantee a future threat to those same victims. That is downright diabolical.
Is there something wrong with you, Dr. Bernanke?