During the Enron era, I read the Wall Street Journal for the crime news — accounts of high-flying CEOs and companies brought low by scandal. Now I read it for drama.
As you would expect, the Bible of Wall Street is covering America’s biggest financial crisis since the Depression with an all-hands-on-deck sense of urgency and thoroughness. In retirement, I have time to devour it all every morning.
During the September week that Morgan Stanley and AIG both disappeared, the Journal’s page ran two-line banner headlines — what I call “end of the world” headlines — on four of the five weekdays.
Another end-of-the world headline appeared Monday:
“Bailout Plan Rejected, Markets Plunge,
Forcing New Scramble to Solve Crisis”
Historic stuff. And some superb and provocative commentary has shown up on the Journal’s oped pages. A worthy example is economist Judy Shelton’s Monday oped headlined, “Loose Money and the Roots of the Crisis.”
The root of the current crisis, Shelton declares, is funny money.
The financial markets are flooded with dizzyingly complex financial instruments like credit-default swaps and structured investment vehicles that worked swell — as long nobody was really concerned with what they were actually worth.
But the sub-prime mortgage fiasco has exposed an ugly truth: No one is sure exactly how to value all those evanescent debt instruments. Those securities are supposed to be a form of money, but they’re problematic because there is no accurate way to value them.
Money is the medium of exchange — the measure, the standard, the store of value — which defines the very substance of the economic contract between buyer and seller. It is the basic, element, the atom of financial matter.
It’s the money that’s broken.
Her solution: Return to the equivalent of an international gold standard by setting a “universal reserve asset” independent of the dollar.
In this new world . . .
… the validity of the monetary unit of account is not determined by hollow men roaming the marble halls of government central banks.
This is where the new world of sound money begins. This is where the unknown ideal of capitalism takes form.
Wow. Now that’s drama. But it’s real. Our leaders next year will in fact be re-inventing modern capitalism. And even on its staunchly free-market editorial pages, the Wall Street Journal acknowledges that it must be so.