WASHINGTON -- Charles Dickens, who visited in 1842, described Washington as a "city of magnificent intentions" because of the incongruity between the city's grand aspirations and muddy, swampy actuality. Today Washington's discrepancy is not architectural but political. It is between the extraordinary powers and competences the administration claims it has, and the administration's inability to be clear or plausible about what it is doing.
Improvisation is understandable when confronting the unprecedented, but protracted improvisation precludes a prerequisite for recovery -- investors' certainty about the relationship between the government and the economy. One year ago this weekend, that relationship began changing when the Bush administration decided that Bear Stearns, the nation's fifth largest investment bank, was too big, or too connected -- too something -- to be allowed to fail. Seven months later, with the financial system frozen, Congress passed the Troubled Asset Relief Program, fresh proof that the titles of legislation, like the titles of Marx Brothers movies ("Duck Soup"; "Horse Feathers"), are uninformative about the contents.
Quicker than you can say "toxic assets," which TARP was supposedly designed to quarantine, TARP was subsidizing the manufacture of automobiles partially designed by Washington. Which recent government adventure in enterprise justifies such government confidence? Fannie Mae? Freddie Mac? Amtrak? Ethanol? The government has subsidized ethanol, protected it with tariffs, mandated levels of production and authorized 10 percent ethanol in gasoline blends, and now the shrinking ethanol industry wants government to authorize 15 percent.
Five months after enactment of TARP, a plan for unfreezing the credit system remains, like Atlantis, rumored but unseen. Twelve months after the government brokered the marriage of Bear Stearns and JPMorgan Chase, the government is recapitalizing financial institutions that the market has said should be shuttered. Lawrence H. White, economics professor at the University of Missouri, St. Louis, denies that financial institutions ever were "unregulated." Hitherto, such institutions were "regulated by profit and loss":