Winning at all costs

Observing an entire city in a Bacchic spending madness, dancing about the recessionary dragon swinging swords and freshly printed money, Cadmus might tell us how the thing ends. If his experience in Greek mythology or simple rationality is a reliable indicator, the answer is not well, but Washington in its blind zeal to silence pain by hacking limbs is undaunted.

The latest call to spending orgy is sounded by a familiar voice, that of Treasury Secretary Timothy Geithner who four weeks into the job retains the white-sheet look of a man who has just discovered a newly sharpened blade tucked beneath his jealous lover’s pillow. Having last year plunged $700 billion into a plan to purchase so-called toxic assets, the government at Geithner’s behest wants now to use $100 billion of that money in a plan to buy up loans and unfreeze credit.

It calls for private investors to tag along, working as 50-50 partners with the federal government, which, given the circumstances, will be like marrying Henry VIII on a bad day – the money looks good on paper, but the relationship is bound to sour. The effect of previous efforts to unclog credit markets by way of massive spending has been a thickening sludge with gutted securities assets finding few takers.

Geithner hopes to circumvent this with the allure of free government money accompanied by strings. But a new problem surfaces if the plan works better than expected. Will government restrain its hands from investors’ share of the money if they buy low and find the deals paying off more handsomely than anticipated? If that question frightens off investors, will the government continue pouring bad money after bad?

Beyond this, Geithner wants to increase Treasury’s authority over financial markets, giving government leave to take over wobbling firms and kill or rewrite contracts and sell off assets. American International Group Inc. is an example of the need, Federal Reserve Chairman Benjamin Bernanke told lawmakers Tuesday. “Its failure could have resulted in a 1930s-style global and financial economic meltdown,” he said.

But legend and history tell us that some victories come at prices exceedingly steep. Let us suppose for a moment – and such a supposition is a stretch – that Geithner, Bernanke and President Barack Obama get what they seek: the resumption of credit’s flow and a recovery. What will remain of the free market, which has produced the unrivaled wealth so many are concerned about losing? How will free markets’ usurper – a form of socialism with its inherent restraints on ingenuity – sustain a recovery and open the way to new prosperity?

What is lost on politicians we hope is not lost on the rest of America. Worse than a 1930s-style meltdown is the systemic change that is unfolding in this country’s economic system.

The Obama Administration has done a thorough job of alienating the group it now courts, having assailed Wall Street for the economy’s ills, a responsibility that Wall Street surely carries but hand in hand with government rather than in spite of it. Leftists in Washington pushed bad loans through the Community Reinvestment Act. Executives at government-sponsored Fannie Mae and Freddie Mac, who also received fat bonuses, slink in corners while Rep. Barney Frank, D-Mass., wags a stubby finger at AIG. All hands are stained.

While we’re pulling for Geithner’s latest scheme to succeed, we wonder that the best for which we might hope is a Cadmean victory, one definable as hurting conquerors as much as the conquered. Will mitigating the present suffering stemming from toxic assets ease the effect of the stiffer interventionist toxin? We know the answer and fear it.