Peek Packs a Powerful Theoretical Punch, Until

Liz Peek is not a happy camper. Her husband, CIT Group president Jeffrey Peek, is one of those who will see his pay slashed by the new pay czar. In a post at Wowowow, she makes some pretty damn good points about the problems with the cuts. Although, New York Magazine is playing it up as a "hell hath no fury like a woman who is witnessing her husband's pay cut" rage.

Among Peek's reasonable points:

Every major financial crisis – every single one – has stemmed from an investor borrowing excessively to bet on some asset that unexpectedly drops in value. The subprime crisis emanated from the profound belief that housing prices would forever move in only one direction – up. Investors of all kinds bet on that proposition, and they lost. Because they bet with borrowed money, the consequences were far-flung, and ultimately brought down the entire economy. It had nothing to do with the paycheck received by Ken Lewis. The Obama administration knows this full well. In the end, it is politically more attractive to slam bankers than to tackle leverage limits that most voters will not understand and that Wall Street will fight tooth and nail.

Actually, it is not leverage per se, but the Federal Reserve's past money printing that has caused the problem, but she is close enough. And leverage limits won't solve the problem, only an end to Fed money manipulations will. But Peek's analysis is still one of the better analyses coming out of a non-Austrian business cycle camp--especially her emphasis on every major finance crisis stemming from "excessive borrowing," rather than the belief that there is something unique about this crisis. But even here, she slightly misses the point. The excessive borrowing is the result of Fed money printing, stop the money printing and the excessive borrowing is gone. But she clearly understands the problem much better than most television talking head economists.

You also have to give Peek points for not being afraid to lay blame on this operation right where it belongs:

Pay Czar Ken Feinberg’s draconian cuts in compensation for workers at the seven largest TARP recipients make for good headlines, but are of questionable value. Does anyone really think that preventing Bank of America from paying its top people competitively will strengthen the firm’s prospects? Instead of weathering the outcry that would have greeted paying Andrew Hall an agreed-upon bonus of $100 million, the administration pressed Citicorp to sell the extremely profitable trading operation that Hall worked for. Does lopping off a stellar unit benefit taxpayers, who now own 34% of Citigroup? Feinberg knows better; word on the Street is that Rahm Emanuel is directing this play, and it’s all about politics.

Of course, where she is a bit weak in her analysis is when it comes to the facts surrounding the bailout of hubby's firm to the tune of billions, when it should have just gone bankrupt. Like it would have in other past financial crises, which she so astutely notices weren't that much different than this one.

But suddely, she is in love with:

The Paulson-Geithner-Bernanke tag team [that]did an admirable job fending off the collapse of the capital markets that loomed a year ago.

Ah yes, the lady is intoxicated by green, afterall. If she has a strong argument for green, she will make it. If all she has is a weak argument for green, she will go with that. But, it is all about green today and all about green tomorrow.