Last Updated Jul 16, 2009 2:41 PM EDT
Op-edniks at the WSJ interpret the company's turmoil as proof of government favoritism, with the feds backing the big and systemically relevant such as Goldman Sachs over smaller, immaterial financial firms like CIT. Some see it as a sign that capitalism is returning to normal -- even if CIT dies, others will swoop in to absorb any assets worth keeping, and the bankruptcy courts will deal with the rest. More troubled patients see visions of FDIC chief Sheila Bair waging a political pogrom against the banking industry. Others only know that inkblot must mean something, but prefer not to venture a guess as to what.It's understandable. We're unhinged, divorced from the former economic realities we all took for granted -- such as the notion that risk, properly computed, hedged and allocated, is really quite tame and that government regulation is for sissies. Is big better? Not if you're AIG. But sometimes it is, especially when, as with Goldman, you're also smart. Yet small, which these days means having a measly $80 billion in assets, must still count for something, right? Certainly life is sweet these days for the growing number of boutique banks scurrying for scraps between the few remaining behemoths lumbering around Wall Street. And in another sign of mental disorder, the economy's id -- the stock market -- is spiking, seemingly disconnected from corporate fundamentals.
Yes, it's hard discerning the truth when it keeps morphing like a lava lamp. As usual, we're looking at a composite picture, which is why our multiple views of that curiously shifting pattern all contain an element of truth. Big companies do get preferential treatment, as Tim Geithner tries to insulate the economy from further shocks. CIT's passing would harm a significant number of smaller businesses, but it's unlikely to spark any major fires. The FDIC, if not targeting bankers for punishment, is wielding a stronger hand, as regulatory agencies always do when there's a chance to expand their power.
The truth -- and here's one you can cling to -- is that government policy is perpetually fraught with multiple, often schizoid, motives. Those drivers are themselves amalgams of high-minded ideals and base political calculation, ideology and rank opportunism. Saving some companies, and not others, does create moral hazards and otherwise weaken market "discipline." It can also keep you just this side of crazy. Just ask your shrink.