In focusing on the day to day drama of our “on-again, off-again” economic recovery I have neglected the main result of the economic upheaval, the US Government acquiring the single largest stake in the US private sector. As I said at the beginning of this series, Uncle Sam was already the central banker, rules maker, and largest consumer, now he has become the largest owner of the private sector. Banks, auto makers, mortgage companies, insurance companies - quite a portfolio.

My Republican friends cry “solicialism” and to a certain extent they are right. However, as I wrote in my article, “It Just Grew,” the Feds have reached this position by chance, not by design. In some respects this parallels the “Soverign Funds” of other countries which are used to acquire stakes in private business. The difference is that Uncle Sam has acquired his stake with borrowed funds, rather than surplus export earnings.

I applaud this development since I can see a future where Uncle Sam will earn enough from his private sector stake to eliminate any need to raise taxes.

The main question, however, is what will Uncle Sam do with his massive new stake in private business? Most assume that he will shed the assets as soon as the economy gets back to full speed. I am not so sure about that. I foresee the Feds holding on to the mortgage business for a long time. I also don’t see any buyers coming forward anytime soon to buy his insurance holdings or auto shares.

No, the main discussion now is how will Uncle Sam use his new clout to tame the financial markets? There is an angry chorus of voices calling for ending banker bonuses and other financial incentives and thus prevent them from taking too much risk. But I do not hear sufficient calls for new rules to govern the financial markets that are still not transparent. In our vendetta to punish the “Wall Street Fat Cats” we are overlooking the real need, to gain better understanding and control over the markets for securitized debt, collateralized debt, credit swaps, and other derivatives. We run the danger of missing our chance to reign in the markets by expending our efforts on revenge.

When I was growing up in Washington DC there was a donut maker whose ad slogan was, “As you wind your way through life brother, no matter what your goal, keep your eye upon the donut, and not upon the hole.” Good advice for our policy makers and legislators now.