In these perilous economic times, even the landed gentry and the mighty corporations have trouble keeping themselves in Krugerrands. Consider the brothers Hunt, who inherited several billion, devoted their lives to losing it, and last spring nearly succeeded. Consider the cruel tricks fate has played on Chrysler and on General Public Utilities, owner of Three Mile Island.
It somehow seems unjust that those who acquire great wealth can also lose it. Or at least it seems unjust to the wealthy, who come to the government demanding bailouts.
The Hunts, for example, got into trouble by engaging in silver speculation. Speculation is the business of risking all to gain a dramatic profit. The Hunts’ risk failed, as risks are wont to do. If the brothers had any self-respect, they would have sold off their assets to cover their debts and gotten jobs sweeping up the local Dairy Queen. (Honest work builds character.) But instead, the Hunts called on Paul Volcker, chairman of the Federal Reserve. Volcker, it appears, coerced several banks into bailing out the Hunts via a billion-dollar loan, without so much as Alfred duPont to co-sign. As usual, this bail-out was at the average person’s expense, since it increased inflation and absorbed Reserve-supplied funds that otherwise might have gone into productive uses.
What about Chrysler, which floundered by sticking with products like the Nimitz Brougham while every other manufacturer shifted to smaller cars? Chrysler demanded that the taxpayers bankroll its blissful ignorance. And remember that when General Public Utilities entrusted its billion-dollar reactor to engineers who thought they were running a Crock Pot, it wanted consumers to cover the loss. If consumers don’t bail us out, GPU said, our stockholders will take a bath. GPU neatly overlooked the fact that by definition stockholders are those who share the profits in return for risking their capital. Of course the sight of a fallen investment baron, forced to sublease his Mercedes to make ends meet, may tug at the public heartstrings. But there are limits to what taxpayers can do to help. How long, after all, can average working folk afford to subsidize wealthy freeloaders? How much longer can the poor bail out the rich?
The rich should bail each other out. After all, they’ve got more money than the rest of us. That’s why The Washington Monthly proposes a Bail Out the Rich Endowment (BORE) to be funded entirely by the well-to-do. By establishing BORE, the government could insure that only those in the 50-percent brackets would be sapped to support their incompetent compatriots in the manner to which they so quickly become accustomed.
Under this plan, only the BORE fund, and never the consumer or taxpayer, would be required to replenish wealthy persons or corporations that fumbled away huge sums on foolish ventures, overseas bribes, or felony fines. (Under no circumstances would BORE be used to compensate those who waste money through high living. After all, the tax codes already exist for that purpose.)
How would BORE funds be raised? By taxing those goods and services patronized solely by the wealthy. For example, a surcharge equal to 25 percent of the purchase price would be imposed on: all property that adjoins water; any car that costs more than a house; any object worth more than $10,000 yet small enough to swallow; all products advertised in The New Yorker; and any liquids 12 years or older (excluding cafeteria coffee). This 25- percent surcharge would also be imposed on the salaries of those professionals who serve only the rich: tax attorneys, cosmetic surgeons, off-duty Las Vegas dancers, and the Delaware legislature.
This system will not, as you might fear, cause a hardship for those who provide the affected goods and services. By driving up prices, it will make their products more exclusive and hence make the rich more eager to buy. In this way the government can actually stimulate the economy and increase tax revenues by skillful overregulation. (I call this the Last Laffer Curve.)
According to a complex econometric model constructed by The Washington Monthly with the aid of a recently-pardoned Swiss bank official, such a system of surcharges would pump at least $5 billion a year into BORE. This would be enough to bail out the Hunts, Chrysler, and GPU and still have enough left over for a meeting of the Business Roundtable.
BORE would build a tastefully appointed headquarters in Piramidina, Italy, birthplace of Carlo Ponzi. There pleas for bail-outs would be heard by a panel of the supplicant’s peers—prep school admissions directors, former SEC officials, and retired oil company executives. To preserve the recipient’s dignity, money would be provided through a new category of financial instrument, the ROL, or “repayment-optional loan.” Each ROL certificate would be embossed with BORE’s emblem, the golden bucket, and emblazoned with the legend, “From each, according to his portfolio, to each, according to whom he knows.”
Poor people probably will complain about being denied BORE help. This is understandable. So the poor would have to be made to sympathize with the handicaps to which the rich alone are subject. Those who acquire shameless hordes of money— often after years of intense and even legal efforts—suffer debilitating side effects. They find themselves unable to drive their own cars, place their own calls, or drink wines bottled during their lifetimes. The poor are not plagued by such disabilities. Clearly, society is to blame. The rich deserve special consideration.
Still, some greedy lettuce picker might try to apply for a BORE grant. So how would individuals be screened for BORE eligibility? Obviously, annual income would not be a reliable indicator. After all, an inventor, artist, or hard-working salesman might make $75,000 one year, then never get above the poverty line again. He would need money, and thus be ineligible. Only those used to money would qualify.
Screening corporations for eligibility would be more complex. Perfectly well-managed companies lose money every day, through no fault of their own. These would be immediately eliminated from consideration. Under BORE, corporations would be bailed out only if they achieved bankruptcy through incompetence, greed, or sloth. For example:
• If they were slow in responding to market conditions—e.g., were still manufacturing a product outlawed in the 19th century;
• If they lacked business acumen—for example, a senior executive had recently tried to bribe a uniformed police officer in full view of television cameramen;
• If they exhibited total disregard for the environment—for example, had spent millions building a disposal pipeline direct from a pesticide plant to a city reservoir.
There would be a final, catch-all category for BORE bail-outs. It would extend largesse to any wealthy person who had improved his financial standing by brazenly insulting the American public. This is not as easy to accomplish as one might immediately suppose. However, it can be done.
The standard would be that set by the Hunts. Last spring, the Hunts were called before Congress to testify about their zany, madcap adventures in silver. They were asked to justify their demand for a bail-out loan. Nelson Bunker Hunt was asked approximately how much money he had left. That is, did he have enough collateral to make good the loan he was demanding? “I don’t know,” he replied. “Anybody who knows how much he’s worth can’t be worth very much.” Thus he clarified a peculiarity of wealth that is difficult for the common man to appreciate. During round-theclock negotiations for a high-risk billiondollar loan, no banker had asked him, even in passing, how much he was worth.
Then W. Herbert Hunt informed the hearing that he never knew his family was buying silver. “I look after my own investments,” he said. “I do not stay apprised of what my brothers own.” This brought to light one of life’s delightful bits of kismet. Working in the same building, the Hunts had pursued identical strategies in a small field for seven years entirely by coincidence.
For this soul-baring confession, the Hunts were rewarded with their bail-out loan, and permission to resume silver speculating. Surely this qualifies them for indefinite BORE subsidies. In keeping with the protocol of the rich, however, formal BORE regulations would not require those seeking bail-outs to tell colossal lies to Congress in person. They could hire lawyers to do it for them.